<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NO.)
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
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 NORTHFIELD, ILLINOIS 60093 125 HIGH STREET
60661 (312) 902-5200 (847) 441-7676 BOSTON, 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: [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. 4,025,000 $14.00 $56,350,000 $19,431.04
- ----------------------------------------------------------------------------------------
</TABLE>
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(1) Includes 525,000 shares which the Underwriters have the option to purchase
from certain of the Company's stockholders to cover over-allotments, if
any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<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 June 3, 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,
interactive kiosks and multimedia laptop 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, Inc. ("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.
3
<PAGE>
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. 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, laptop PC
presentations and interactive kiosks. 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 13,100,000 shares(1)
the Offering............................
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) 2,304,000 shares of Common Stock issuable upon exercise of
options outstanding as of May 31, 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) 2,640,000 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)..................
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(5)................ 15 27 38 29 56
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 1996
-----------------------
ACTUAL AS ADJUSTED(6)
------- --------------
(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>
- --------
(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) Represents 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."
(5) All of Leap's employees share the same title--"Creative Partner." See
"Business--Leap's Core Strengths--Talent and Creative Distinction."
(6) 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."
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; STOCKHOLDERS' 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 often enters into written agreements with its clients,
such contracts are typically terminable by either party on 90 days' notice.
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."
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
6
<PAGE>
opening or closing of offices, and other factors that are 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 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."
MANAGEMENT OF 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."
7
<PAGE>
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-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--Acquisitions and Alliances; Geographic Expansion."
MARKET ACCEPTANCE OF THE COMPANY'S APPROACH
Using an unusual organization 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 services 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.
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, laptop PC
presentations and interactive kiosks. 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, build, 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."
COMPETITION; 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
8
<PAGE>
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 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. There can be no assurance that the Internet will become
a viable commercial marketplace or that targeted demographic groups will be
able to be reached 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.
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
9
<PAGE>
straining relationships with existing clients each time the Company agrees to
provide services to even indirect competitors of existing Company clients.
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.
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; ANTI-TAKEOVER CONSIDERATIONS
Upon completion of the offering, and assuming no exercise of outstanding
options, the Company's officers and directors and their respective affiliates
will beneficially own approximately 72.1 percent (approximately 68.1 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
10
<PAGE>
(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, 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 May 31, 1996, there are
stock options for 2,304,000 shares outstanding, of which 1,581,333 are
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."
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 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 May 30, 1996), and
the loan from Mr. Lutterbach bears interest at the rate of prime plus 1 1/2%
per annum (9.75% at May 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 businesses.
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 May 31, 1996, an aggregate of 2,304,000 shares of
Common Stock were subject to outstanding options under the Company's stock
option plans at exercise prices ranging from $3.00 to $7.25 per share, with a
weighted average exercise price of $6.32 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 and the application of the estimated net proceeds therefrom.
This table should be read in conjunction with "Use of Proceeds," "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) 2,304,000 shares of Common Stock issuable upon exercise of
options outstanding as of May 31, 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) 2,640,000 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)......................
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>
<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>
- --------
(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) Represents 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 the Company's agreements with its clients generally is a minimum
of one year. However, such agreements typically are cancelable on short notice
by either the client or the Company, with customary notice provisions given to
either party within ninety days. 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 when billed, which closely approximates the period in
which services are rendered. Revenues from production services are also
recognized when billed, which is typically 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. 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). The Company 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 $1.8 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 R.J. Reynolds and U.S. Robotics. 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, an increase of
$1.9 million.
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%. A portion
of the direct costs in fiscal 1995 were incurred in connection with business
development activities. Consequently, direct costs remained relatively constant
for both fiscal years despite the significant increase in revenues during
fiscal 1996.
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
1996 to 12.0% in fiscal 1995.
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 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.
18
<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 1,045 537 154 1,178
Salaries and related
expenses............. 331 476 530 466 477 561 743 755
General and
administrative....... 180 177 236 234 229 248 273 255
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 967 1,729 2,639 2,586 1,751 1,347 1,170 2,188
Operating
income/(loss).......... (384) (518) (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 59.8 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............ 166.0 142.7 114.8 82.1 72.2 94.9 96.4 107.4
Operating
income/(loss).......... (66.0) (42.7) (14.8) 17.9 27.8 5.1 3.6 (7.4)
Interest expense........ 3.8 2.4 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."
19
<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's cash and cash equivalents decreased $33,000 and $1,000 during
the three months ended April 30, 1996 and 1995, respectively. The decreases in
cash flow for the three months ended April 30, 1996 and the three months ended
April 30, 1995 primarily resulted from negative cash flows from operating
activities of $456,000 and $413,000, respectively, and from cash used in
investing activities for capital expenditures of $124,000 and $27,000,
respectively, offset in part by cash flows from financing activities of
$548,000 and $439,000, respectively.
The Company's cash and cash equivalents increased $41,000 and decreased
$111,000 for fiscal 1996 and 1995, respectively. The increase in cash flow for
fiscal 1996 is primarily the result of positive cash flows from operating
activities of $400,000, offset by investment activities for capital
expenditures of $242,000 and a reduction in financing activities of $117,000.
The decrease in cash flows for fiscal 1995 was primarily the result of
negative cash flows from operating activities of $564,000 and cash used in
investing activities for capital expenditures of $762,000, offset in part by
cash flows from financing activities of $1.2 million.
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,
convertible into a term note on July 5, 1996, available to purchase computer
and office equipment. The credit facilities are collateralized by all Company
chattel paper, billed and unbilled accounts, equipment and general
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 July 5, 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.
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 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 capital requirements are dependent on management's business
plans regarding the levels and timing of investments in existing and newly-
acquired businesses and technologies. These plans and the related capital
requirements may change, based upon various factors such as the Company's
strategic opportunities, developments in the Company's market, the timing of
any acquisitions by the Company and the condition of financial markets.
20
<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.
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, 22.6% 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
kiosks at various points of sale.
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 so as to take advantage of a favorable response,
or continuously to freshen and modify the message to improve its
effectiveness.
21
<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, lap-top PC presentations and
interactive kiosks. 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 Internet/Nielsen Internet Demographic 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
22
<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 and relationships 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
23
<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-ROM, interactive kiosks and multimedia laptop 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
24
<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.
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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.
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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.
R.J. Reynolds, Inc......... 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.
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>
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<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 Pizza..................... Positioning, television, and menu
design on a project basis.
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.
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Chicago Tribune Company -- Online Arts & 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 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
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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 May 31, 1996, Leap employed a total of 74 Creative Partners, 65 of
whom were full-time and 9 part-time. Of these, 64 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.
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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 and others 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 plaintiffs are seeking
substantial damages which are in excess of any available insurance coverage.
The suit has been referred to the Company's insurance carrier and legal
counsel. The Company intends to vigorously defend its position as management
believes it has a meritorious defense. 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. See Note 6 of Notes to
Consolidated Financial Statements.
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<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............ 46 Chairman and Chief Executive Officer
Frederick Smith................. 42 Vice Chairman, Chief Operating Officer and
Director
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)...................... 65 Director
John Keane(1)................... 66 Director
Thomas McElligott(1)............ 52 Director
</TABLE>
- --------
(1) 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.
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
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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. 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.
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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 1988 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.
34
<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 May 31, 1996, options for 2,304,000 shares had been
granted under the 1996 Stock Option Plan and no additional shares of Common
Stock remain 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
35
<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 January 2, 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. No options have been granted to date
under the Incentive 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 and its direct
and indirect subsidiaries 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.
36
<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 calendar year.
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 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).
37
<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.
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 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 PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
------------------ ---------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
R. Steven Lutterbach(2).............. 2,400,000 25.0% 2,400,000 18.3%
Frederick Smith(3)................... 2,400,000 25.0 2,400,000 18.3
Joseph A. Sciarrotta(4).............. 2,340,000 24.4 2,340,000 17.9
George Gier(5)....................... 2,300,000 24.0 2,300,000 17.6
Thomas R. Sharbaugh(6)............... 1,400,000 12.7 1,400,000 9.7
All executive officers and directors
as a group (7 persons prior to the
offering, 10 persons after
offering)(6)(7)..................... 10,858,333 98.5% 10,918,333(8) 74.9%
</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. If the over-allotment option is exercised in full,
Mr. Lutterbach will sell 131,250 shares of Common Stock and will thereupon
be the beneficial owner of 2,268,750 shares or 17.3% of the Company's
Common Stock after the offering.
(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. If the over-allotment option is exercised in full, Mr. Smith will
sell 131,250 shares of Common Stock and will thereupon be the beneficial
owner of 2,268,750 shares or 17.3% of the Company's Common Stock after the
offering.
(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. If the over-allotment option is exercised in
full, Mr. Sciarrotta will sell 131,250 shares of Common Stock and will
thereupon be the beneficial owner of 2,208,750 shares or 16.9% of the
Company's Common Stock after the offering.
(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. If the over-allotment option is exercised in full, Mr. Gier will
sell 131,250 shares of Common Stock and will thereupon be the beneficial
owner of 2,168,750 shares or 16.6% of the Company's Common Stock after the
offering.
(6) The shares shown are issuable to Mr. Sharbaugh pursuant to currently
exercisable options.
(7) The shares shown include 18,333 shares issuable to an officer 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.
39
<PAGE>
COMMON STOCK
As of May 31, 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 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.
40
<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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is .
41
<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.
42
<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.
The Company intends to furnish its shareholders with annual reports contain-
ing consolidated financial statements audited by independent public accoun-
tants.
43
<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,
May 30, 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.... 10,310,308 10,310,308 10,310,308 10,310,308 10,310,308
========== =========== ========== ========== ==========
</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 (loss)/income....... $(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
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)
Deferred income tax
asset............... (50,493) (427,300) 477,793 217,300 0
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)
-------- ----------- ---------- ---------- ---------
Net cash used in
investing activities... (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 and
term notes............. 180,220 760,653 (481,495) (114) 556,144
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 when work is billed, which closely approximates the
period in which services are rendered. Revenues from production services are
also recognized when billed which is typically 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. 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. While the Company often enters into written agreements with its
clients, such contracts are typically terminable by either party on 90 days'
notice. 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 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.
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 extended through
July 5, 1996. At that time, any outstanding balance on the line will be
converted into a term note which is payable through July 5, 1999, including
interest at 1% above the bank's prime lending rate.
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 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 and others 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 plaintiffs are seeking
substantial damages which are in excess of any available insurance coverage.
The suit has been referred to the Company's insurance carrier and legal
counsel. The Company intends to vigorously defend its position as management
believes it has a meritorious defense. 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
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
-------- --------- --------
$ (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 -- 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 additional options to an officer of
the Company 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 become
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. No options have been granted
to date under the Incentive Plan. Directors, officers, employees and
consultants of the Company and its direct and indirect subsidiaries are
eligible to receive grants.
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. 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................................................................. 21
Management............................................................... 32
Certain Transactions..................................................... 38
Principal and Selling Stockholders....................................... 39
Description of Capital Stock............................................. 39
Shares Eligible For Future Sale.......................................... 41
Underwriting............................................................. 42
Legal Matters............................................................ 43
Experts.................................................................. 43
Additional Information................................................... 43
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 October 4, 1995, 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 The Leap Group, Inc. Employee Incentive Compensation Plan.
*10.6 The Leap Group, Inc. Non-employee Directors' Stock Option
Plan.
*10.7 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 (included on the signature page of this
registration statement).
27. Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
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 REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON THE 29TH DAY OF MAY, 1996.
The Leap Group, Inc.
/s/ R. Steven Lutterbach
By: _________________________________
R. STEVEN LUTTERBACH Chairman and
Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints R. Steven Lutterbach and Peter Vezmar, and each
of them singly, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (including his capacity as a director and
officer of The Leap Group, Inc.), to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each said attorney-
in-fact and agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agent, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY 29, 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
/s/ Frederick Smith Chief Operating Officer and Director
- -------------------------------------
FREDERICK SMITH
/s/ Thomas R. Sharbaugh President and Director
- -------------------------------------
THOMAS R. SHARBAUGH
/s/ George Gier Executive Vice President, Chief
- ------------------------------------- Marketing and Information Officer
GEORGE GIER and Director
/s/ Joseph Sciarrotta Executive Vice President, Chief
- ------------------------------------- Creative Officer and Director
JOSEPH SCIARROTTA
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON THE 29TH DAY OF MAY, 1996.
The Leap Group, Inc.
By: _________________________________
R. STEVEN LUTTERBACH Chairman and
Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints R. Steven Lutterbach and Peter Vezmar, and each
of them singly, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (including his capacity as a director and
officer of The Leap Group, Inc.), to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each said attorney-
in-fact and agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agent, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY 29, 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
GEORGE GIER and Director
Executive Vice President, Chief
- ------------------------------------- Creative Officer and Director
JOSEPH SCIARROTTA
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 October 4, 1995 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 The Leap Group, Inc. Employee Incentive Compensation Plan.
*10.6 The Leap Group, Inc. Non-employee Directors' Stock Option
Plan.
*10.7 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 (included on the signature page of this
registration statement).
27. Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(b)Financial Statement Schedule
Independent Auditors' Report
II-6
<PAGE>
Description of Artwork
Contained in the Registration Statement
Inside Front Cover
- ------------------
An oval shaped "lilypad" extends upward from the base of the page covering
3/4 of the entire 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. The lilypad appears as the
background on each page of the artwork in the Prospectus.
Two pictures appear on the top of this page. The picture on the left is an
ad used in the "Elmer Bruker" campaign, depicting Bruker and Coach Jimmy Johnson
sitting at a bar. The text "ADVERTISING" appears above the ad. The picture on
the left is a Nike ad depicting a runner framed by Nike shoes. The text "DIGITAL
MEDIA" appears above the ad. Inside the lilypad is a round picture depicting
certain of Leap's technological facilities, which is not accompanied by text.
In the center of the lilypad the words "GRAPHIC DESIGN" appear below a photo of
an example of packaging for Miller Brewing Co. & Plank Road Brewery. Along the
bottom of this page the stabilization legend appears.
Left-Side Fold-Out Page
- -----------------------
This page contains examples of television commercials created by Leap. On
the top half of this page, three different photos depict television commercials
created for Anheuser-Busch, Inc. for the "Lee Family Reunion" Bud Light
Campaign. The first print shows an Asian man with the caption "You're Chung's
oldest son?"; the second print depicts a man with the caption "Yes, I am."; and
the third print depicts both characters with a "Lee Family Reunion" sign behind
them. On the bottom half of the page, three pictures are organized on a diagonal
from the upper left to the lower right corner. The first picture depicts Bruker
and a coach on the sidelines of a game; the second picture depicts Bruker in a
coin toss; and the third depicts Bruker with Jimmy Johnson in a bar. The
repeated small print pattern reappears on this page and all subsequent pages of
artwork; creating a path as if left behind by a frog jumping.
Right-Side Fold-Out Page
- ------------------------
On this page, the lilypad projects from the top toward the bottom of the
page in contrast to the lilypad directly to its left. This page contains
examples of Leap's new media projects. On the top 3/4 of this page, four
examples of the "Niketown Interactive Presentation" appear, including two
pictures of a runner and two pictures of the virtual Niketown shown in Leap's
multimedia laptop presentation. On the bottom portion of this page, two pictures
appear as examples of Leap's development of the "History of Notre Dame Football
CD-ROM". One of the pictures depicts a coach's office at The University of Notre
Dame, including football paraphernalia, and the other picture contains a Notre
Dame calendar and other items.
Inside Back Cover Page
- ----------------------
On this page, the lilypad extends downward from the top of the page. Inside
the lilypad, three print ads are depicted. The "Miller Lite Ice Print Ad"
depicts a fish in a fish bowl with the following text superimposed: "This fish
is always in. If he goes out, he'll die. You however, have no excuse." The
"Niketown Print Ad" depicts a male hurdler with the words "Body, Will, Spirit,
You" superimposed. The "US Robotics Print Advertisement" is an example of an ad
created for one of this client's products. A dark green semicircle extends
across the bottom 1/4 of the page. The Leap Group, Inc. logo is centered in this
shaded area. The repeated small print pattern continues on this page.
Left-Side Fold-Out Page
- -----------------------
This page contains more examples of Leap's marketing campaigns utilizing
new media services. Appearing in the top left corner is a picture of the World
Wide Web page created for Tommy Armour. The text above the print reads "Tommy
Armour WWW Site". Diagonally to the right, is a picture of an introductory
CD-ROM screen developed for the One Show. The text above the picture reads "the
One Show CD-ROM". The picture appearing on the left lower corner of this page
depicts a dorm room at the University of Notre Dame which is part of a CD-ROM
developed for this client. The caption below the picture reads "Notre Dame
Interactive Recruitment Tool." Diagonally to the right, is a picture of the
"Tribune Publishing Arts and Entertainment World Wide Web Page" developed for
the Chicago Tribune.
Right-Side Fold-Out Page
- ------------------------
As a contrast to the lilypad to its left, the lilypad on this page extends
downward from the top of the page. One large "Nike Print Ad" appears on this
page which depicts a hockey player gliding down the ice. Superimposed on this ad
is the text "A loose puck doesn't know who's bigger, stronger or drafted higher.
But it knows who gets there first."
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE LEAP GROUP, INC.
(Original Certificate of Incorporation
filed March 11, 1996)
The Leap Group, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Law"), does hereby certify:
A. That the Board of Directors of the Corporation adopted a resolution
setting forth the Amended and Restated Certificate of Incorporation set forth
below, declaring it advisable and submitting it to the stockholders entitled to
vote in respect thereof for their consideration of such Amended and Restated
Certificate of Incorporation.
B. That by written consent executed in accordance with Section 228 of the
Law, the holders of a majority of the outstanding stock has voted in favor of
the adoption of the Amended and Restated Certificate of Incorporation set forth
below.
C. That the Amended and Restated Certificate of Incorporation set forth
below has been duly adopted in accordance with Sections 242 and 245 of the Law:
ARTICLE I
The name of the corporation is The Leap Group, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805. The name
of its registered agent at such address is The Prentice Hall Corporation System,
Inc.
ARTICLE III
The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the Law.
<PAGE>
ARTICLE IV
A. The Corporation shall have authority to issue the following classes of
stock, in the number of shares and at the par value as indicated opposite the
name of the class:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
---------------- ----------- ---------
<S> <C> <C>
Common Stock 100,000,000 $.01
Preferred Stock 20,000,000 $.01
</TABLE>
B. The designations and the powers, preferences and relative,
participating, or other rights of the capital stock and optional the
qualifications, limitations or restrictions thereof are as follows:
1. Common Stock.
a. Voting Rights: Except as otherwise required by law or
expressly provided herein, the holders of shares of Common Stock shall
be entitled to one vote per share on each matter submitted to a vote
of the stockholders of the Corporation.
b. Dividends: Subject to the rights of the holders, if any, of
preferred stock, the holders of Common Stock shall be entitled to
receive dividends at such times and in such amounts as may be
determined by the Board of Directors of the Corporation.
c. Liquidation Rights: In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and
other liabilities of the Corporation and the preferential amounts to
which the holders of any outstanding shares of Preferred Stock shall
be entitled upon dissolution, liquidation or winding up, the assets of
the Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the shares of Common Stock.
2. Preferred Stock.
Preferred Stock may be issued from time to time in one or more
series. Subject to the other provisions of this Amended and Restated
Certificate of Incorporation, the Board of Directors is authorized, subject
to any limitations prescribed by law, to provide for the issuance of and to
issue shares of the Preferred Stock in series, and by filing a certificate
pursuant to the laws of the State of Delaware, to establish from time to
time the number of shares to be included in each such series, and to fix
the
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<PAGE>
designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of any Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing such series of Preferred Stock.
ARTICLE V
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors. The number of directors shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the directors in office at the time of adoption of such resolution.
Initially, the number of directors shall be five.
Such directors shall be divided into three classes, Class I, Class II and
Class III; with Class I and Class II each having two members and Class III
having one member. At the election of directors immediately following the
adoption of this Amended and Restated Certificate of Incorporation, Class I
directors will be elected for a one-year term, Class II directors will be
elected for a two-year term and Class III directors will be elected for a three-
year term. At each annual meeting of stockholders after such election,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes by the Board of
Directors so as to maintain the number of directors in each class as nearly
equal as reasonably possible, and any additional director of any class elected
to fill a vacancy resulting from an increase in such class shall hold office for
a term that shall coincide with the remaining term of that class. In no case
will a decrease in the number of directors shorten the term of any incumbent
director even though such decrease may result in an inequality of the classes
until the expiration of such term. A director shall hold office until the
annual meeting of the year in which his or her term expires and until his or her
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement or removal from office. No director elected by the
stockholders of the Corporation may be removed except for cause. Except as
required by law or the provisions of this Amended and Restated Certificate of
Incorporation, all vacancies on the board of directors and newly-created
directorships shall be filled by the board of directors. Any director elected
to fill a vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorship shall be governed by the terms
of this Amended and Restated Certificate of Incorporation and any resolutions of
the Board of
-3-
<PAGE>
Directors applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article V. Notwithstanding anything to the
contrary contained in this Amended and Restated Certificate of Incorporation,
the affirmative vote of at least 80% of the votes entitled to be cast by the
shares entitled to vote generally in the election of directors shall be required
to amend, alter or repeal, or to adopt any provision inconsistent with, this
Article V.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the By-
laws of the Corporation.
ARTICLE VI
Election of Directors need not be by written ballot unless the By-laws of
the Corporation so provide.
ARTICLE VII
The Corporation reserves the right to amend, alter or repeal any provision
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
ARTICLE VIII
The Corporation shall, in accordance with and to the full extent now or
hereafter permitted by law, indemnify and upon request advance expenses to any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, an
action by or in the right of the Corporation), by reason of his acting as a
director or officer of the Corporation (and the Corporation, in the discretion
of the Board of Directors, may so indemnify a person by reason of the fact that
he is or was an employee of the Corporation or is or was serving at the request
of the Corporation in any other capacity for or on behalf of the Corporation)
against any liability or expense (including attorneys' fees and expenses)
actually and reasonably incurred by such person in respect thereof; provided,
however, that the Corporation shall not be obligated to indemnify or advance
expenses to any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by such person and not by way of defense, or
(ii) for any amounts paid in settlement of an action effected without the prior
written consent of the Corporation to such settlement. Such indemnification is
not exclusive of any other right to indemnification provided by law, agreement
or otherwise.
-4-
<PAGE>
ARTICLE IX
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that this provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
ARTICLE X
No amendment to or repeal of Articles VIII or IX of this Amended and
Restated Certificate of Incorporation shall apply to or have any effect on the
rights of any individual referred to in Articles VIII or IX for or with respect
to acts or omissions of such individual occurring prior to such amendment or
repeal.
ARTICLE XI
A. Written Consent. At any time after the closing of a public
offering of the Corporation's Common Stock, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing by such stockholders.
B. Special Meetings. Special meetings of stockholders of the
Corporation may be called upon not less than ten nor more than 60 days' written
notice only by the Board of Directors pursuant to a resolution approved by a
majority of the Board of Directors.
C. Amendment. Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote of
at least 80% of the votes entitled to be cast by the shares entitled to vote
generally in the election of directors shall be required to amend, alter or
repeal, or to adopt any provision inconsistent with, this Article XI.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors of the Corporation
or in the By-laws of the Corporation. Election of directors need not be by
written ballot unless the By-laws of the Corporation so provide.
-5-
<PAGE>
ARTICLE XIII
The By-laws of the Corporation may be altered, amended, or repealed or
new By-laws may be adopted by the Board of Directors or by the vote of 66-2/3%
of the votes entitled to be cast by the shares entitled to vote generally for
the election of directors if notice of such alteration, amendment, repeal or
adoption of new By-laws is contained in the notice of such special meeting.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer on May 29, 1996.
THE LEAP GROUP, INC.
By: /s/ R. Steven Lutterbach
------------------------------
R. Steven Lutterbach
Chief Executive Officer
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
THE LEAP GROUP, INC.
ARTICLE I
---------
Offices
-------
Section 1.1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 1.2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
----------
Meetings of Stockholders
------------------------
Section 2.1. All meetings of the stockholders for the election of
directors shall be held at such place within or without the State of Delaware as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may
be held at such time and place, within or without the State of Delaware, as
shall be stated by the Board of Directors in its notice of the meeting.
Section 2.2. Annual meetings of stockholders, at which stockholders shall
elect directors as provided in the Corporation's Certificate of Incorporation
and Section 2.4 of Article II of the by-laws and transact such other business as
may properly be brought before the meeting in accordance with Section 2.5 of
Article II of the by-laws, shall be held on such business day within the 180-day
period following the end of the Corporation's fiscal year as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting.
Section 2.3. Except as otherwise required by law, written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote at such meeting not fewer than 10 nor more
than 60 days before the date of the meeting.
Section 2.4. Only persons who are nominated in accordance with the
following procedures shall be eligible to serve as directors. Nominations of
persons for election to the Board of Directors of the Corporation at a meeting
of stockholders may be made (i) by or at the direction of the Board of
Directors, or (ii) by any stockholder of the Corporation entitled to vote for
the election of directors at the meeting who complies with the notice procedures
set forth in
<PAGE>
this Article II, Section 2.4. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received by, the Secretary of the
Corporation at the principal executive offices of the Corporation not less than
60 nor more than 90 days prior to the meeting; provided, however, that if the
Corporation has not "publicly disclosed" (in the manner provided in the last
sentence of this Article II, Section 2.4) the date of the meeting at least 70
days prior to the meeting date, notice may be timely made by a stockholder under
this Section if received by the Secretary of the Corporation not later than the
close of business on the tenth day following the day on which the Corporation
publicly disclosed the meeting date. Such stockholder's notice shall set forth
(i) as to each person whom the stockholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as
director if elected); and (ii) as to the stockholder giving notice (A) the name
and address, as they appear on the Corporation's books, of such stockholder and
(B) the class and number of shares of the Corporation which are beneficially
owned by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible to serve as a director of the Corporation unless nominated in
accordance with the procedures set forth herein. The presiding officer shall,
if the facts so warrant, determine and declare to the meeting that a nomination
was not made in accordance with the procedures prescribed by the by-laws, and if
such officer should so determine, such officer shall so declare to the meeting
and the defective nomination shall be disregarded. For purposes of these by-
laws, "publicly disclosed" or "public disclosure" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission.
Section 2.5. At an annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i) by or at
the direction of the Board of Directors, or (ii) by any stockholder of the
Corporation who complies with the notice procedures set forth in this Article
II, Section 2.5, in the time herein provided. For business to be properly
brought before an annual meeting by a stockholder, the stockholders must deliver
written notice to, or mail such written notice so that it is received by, the
Secretary of the Corporation, at the principal executive offices of the
Corporation, not less than 60 nor more than 90 days prior to the first
anniversary of the date of the Corporation's consent solicitation or proxy
statement released to stockholders in connection with the previous year's
election of directors or meeting of stockholders, except that if no annual
meeting of stockholders or election by consent was held in the previous year or
if the date of the annual meeting has been changed by more than 30 days from the
previous year's meeting, a proposal shall be received by the Corporation within
10 days after the Corporation has "publicly disclosed" the date of the meeting
in the manner provided in Article II, Section 2.4 above. The stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (A) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (B) the name and address,
-2-
<PAGE>
as they appear on the Corporation's books, of the stockholder proposing such
business, (C) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (D) any material interest of the
stockholder in such business. At an annual meeting, the presiding officer
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this Article, Section 2.5, and if he should so determine, he shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Whether or not the foregoing procedures are
followed, no matter which is not a proper matter for stockholder consideration
shall be brought before the meeting.
Section 2.6. Special meetings of the stockholders may be called only by
the Board of Directors. The business transacted at any special meeting of the
stockholders shall be limited to the purposes stated in the notice for the
meeting transmitted to stockholders.
Section 2.7. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than 10 nor more than 60 days before the date
of the meeting, to each stockholder entitled to vote at such meeting.
Section 2.8. In order that the Corporation may determine the stockholders
entitled to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted, and which shall be
(i) not more than 60 nor less than 10 days before the date of a meeting, and
(ii) not more than 60 days prior to the other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for any adjourned meeting.
Section 2.9. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.10. The holders of a majority of the voting power of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the
-3-
<PAGE>
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented; provided that if the
adjournment is for more than 30 days, or if a new record date is fixed by the
directors, a new notice shall be transmitted to the shareholders. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted at the meeting as originally notified.
Section 2.11. When a quorum is present at any meeting, the affirmative
vote of the holders of a majority of the voting power of the stock, and cast
affirmatively or negatively at the meeting, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Certificate of Incorporation, a different vote is required
in which case such express provision shall govern and control the decision of
such question; provided, however, all elections shall be determined by a
plurality of the votes cast.
Section 2.12. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
At any meeting of the stockholders, every stockholder entitled to vote may vote
in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used; provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or by his or her proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting. The
Corporation may, and to the extent required by law shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Every vote taken by ballots shall be
counted by an inspector or inspectors appointed by the chairman of the meeting.
Section 2.13. The Chairman of the Board of Directors shall preside at all
meetings of the stockholders. In the absence or inability to act of the
chairman, the Vice Chairman, the President or an Executive Vice President (in
that order) shall preside, and in their absence or inability to act another
person designated by one of them shall preside. The Secretary of the
Corporation shall act as Secretary of each meeting of the stockholders. In the
event of his absence or inability to act, the chairman of the meeting shall
appoint a person who need not be a stockholder to act as Secretary of the
meeting.
-4-
<PAGE>
Section 2.14. Meetings of the stockholders shall be conducted in a fair
manner but need not be governed by any prescribed rules of order. The presiding
officer's rulings on procedural matters shall be final. The presiding officer
is authorized to impose reasonable time limits on the remarks of individual
stockholders and may take such steps as such officer may deem necessary or
appropriate to assure that the business of the meeting is conducted in a fair
and orderly manner.
ARTICLE III
-----------
Directors
---------
Section 3.1. The business and affairs of the Corporation shall be under
the direction of or managed by a board comprised of directors who need not be
residents of the State of Delaware or stockholders of the Corporation. The
number of directors shall be determined in the manner provided in the
Certificate of Incorporation of the Corporation.
Section 3.2. Directors shall be elected by class for three year or other
terms as specified in the Certificate of Incorporation, and each director
elected shall hold office during the term for which he or she is elected and
until his or her successor is elected and qualified, subject, however, to his or
her prior death, resignation, retirement or removal from office.
Section 3.3. Any vacancies occurring in the Board of Directors and newly
created directorships shall be filled as provided in the Certificate of
Incorporation of the Corporation.
Meetings of the Board of Directors
----------------------------------
Section 3.4. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Members of the Board of Directors may participate in any such meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
by such means shall constitute presence in person at such meeting.
Section 3.5. The first meeting of each newly elected Board of Directors
shall be held immediately following the adjournment of the annual meeting of the
stockholders at the same place as such annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at such time and place, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 3.7. Special meetings of the Board of Directors may be called by
the chairman or President on at least one days' notice to each director, either
personally, or by courier,
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<PAGE>
telephone, telefax, mail or telegram. Special meetings shall be called by the
chairman or President in like manner and on like notice at the written request
of one-half or more of the directors comprising the board stating the purpose or
purposes for which such meeting is requested. Notice of any meeting of the
Board of Directors for which a notice is required may be waived in writing
signed by the person or persons entitled to such notice, whether before or after
the time of such meeting, and such waiver shall be equivalent to the giving of
such notice. Attendance of a director at any such meeting shall constitute a
waiver of notice thereof, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because such
meeting is not lawfully convened. Neither the business to be transacted at nor
the purpose of any meeting of the Board of Directors for which a notice is
required need be specified in the notice, or waiver of notice, of such meeting.
The chairman shall preside at all meetings of the Board of Directors. In the
absence or inability to act of the chairman, the vice chairman, the President or
an Executive Vice President (in that order) shall preside, and in their absence
or inability to act another director designated by one of them shall preside.
Section 3.8. At all meetings of the Board of Directors, a majority of the
then duly elected directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.9. Any action required or permitted to be taken at any meeting
of the Board of Directors may be taken without a meeting, if all members of the
board consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Committees of Directors
-----------------------
Section 3.10. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he, she or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors as provided in subsection (a) of Section 151 of the Delaware
General Corporation Law, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the
-6-
<PAGE>
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the number of shares of any
series), and if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide, such committee shall have
the power and authority to adopt a certificate of ownership and merger pursuant
to Section 253 of the Delaware General Corporation Law or to declare a dividend
or to authorize the issuance of stock. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors.
Section 3.11. Each committee shall keep regular minutes of its meetings
and shall file such minutes and all written consents executed by its members
with the Secretary of the Corporation. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third of the members shall constitute a quorum unless the committee shall
consist of one or two members, in which event one member shall constitute a
quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee. Members of any committee of
the Board of Directors may participate in any such meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
Compensation of Directors
-------------------------
Section 3.12. In the discretion of the Board of Directors, the directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
----------
Notices
-------
Section 4.1. Whenever, under applicable law or the Certificate of
Incorporation or these by-laws, notice is required to be given to any director
or stockholder, unless otherwise provided in the Certificate of Incorporation or
these by-laws, such notice may be given in writing, by courier or mail,
addressed to such director or stockholder, at his or her address as it appears
on the records of the Corporation, with freight or postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall have
been deposited with such courier or in the United States mail.
-7-
<PAGE>
Section 4.2. Whenever any notice is required to be given under applicable
law or the provisions of the Certificate of Incorporation or these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
---------
Officers
--------
Section 5.1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Vice Chairman of the Board, a President, a Chief
Executive Officer, a Chief Operating Officer, one or more Executive Vice
Presidents, a Chief Financial Officer, a Treasurer, and a Secretary, all of whom
shall be elected by the Board of Directors. Any two or more offices, except
those of the President and Secretary or President and Chief Financial Officer,
may be held by the same person. Nothing herein contained shall be construed to
require that a vacancy in an office or offices of the Corporation must be
filled, and in the event any office or offices of the Corporation are not
filled, by annual election or otherwise, the Corporation shall not be considered
dissolved therefor.
The Board of Directors may elect one or more Vice Presidents, Assistant
Officers or other Officers who shall perform such duties from time to time as
may be assigned to them by the Executive Officer, the Chief Operating Officer or
the Board of Directors.
Subject to Section 5.13 of this Article, each officer or assistant officer
elected by the Board of Directors shall hold office until the first meeting of
the Board of Directors after the annual meeting of stockholders next following
his or her election and until his or her successor shall be chosen and qualified
or until his or her death or until he or she shall resign or shall have been
removed in the manner hereinafter provided.
Section 5.2. The Chairman of the Board. The Chairman of the Board shall
be a director. He or she shall, when present, preside as Chairman at all
meetings of the stockholders and of the Board of Directors. He or she may call
meetings of the Board of Directors whenever he or she deems it advisable. In
the absence or incapacity of the President to act, the Chairman of the Board
shall perform all duties and functions and exercise all the powers of the
President. Unless otherwise provided by the Board of Directors, he or she may
execute and deliver bonds, notes, contract agreements or other obligations or
instruments in the name of the Corporation. The Chairman of the Board shall
have such powers and perform such other duties as from time to time may be
assigned to him or her by the Board of Directors.
Section 5.3. Vice Chairman of the Board. In the absence or incapacity of
the Chief Executive Officer, if the Chairman of the Board has been designated
Chief Executive Officer, the Vice Chairman of the Board shall perform the duties
of the Chief Executive Officer, and when so acting shall have all the powers of
and be subject to all the restrictions upon the Chief Executive Officer. At all
other times, the Vice Chairman of the Board shall perform such duties and have
such powers as the Chief Executive Officer or Board of Directors may from time
to time prescribe.
-8-
<PAGE>
Section 5.4. The President. The President shall keep the Chairman of the
Board fully informed concerning the business of the Corporation under his
supervision. In the absence or incapacity of the Chairman of the Board and the
Vice Chairman of the Board, if the Chairman of the Board has been designated
Chief Executive Officer, the President shall perform the duties of the Chief
Executive Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer. The President
shall have concurrent power with the Chief Executive Officer to execute and
deliver bonds, notes, contracts, agreements or other obligations or instruments
in the name of the Corporation. The President shall have such other powers and
duties from time to time assigned to him or her by the Board of Directors.
Section 5.5. The Chief Executive Officer. The Chief Executive Officer
shall have general direction over the affairs of the Corporation and establish
all major policies, subject to the control and direction for the Board of
Directors. Upon consultation with the Chief Operating Officer, he or she shall
authorize all capital and other major expenditures, and major contracts of the
Corporation, and shall keep the Chief Operating Officer fully informed
respecting the same. He or she shall consult with, advise and instruct the
Chief Operating Officer in the latter's management, administration and operation
of the Corporation. In the absence or incapacity of the Chief Operating Officer
(or if no Chief Operating officer is elected, such functions shall be the Chief
Executive Officer's responsibility), he or she shall exercise all of the powers
of and perform all of the duties of the Chief Operating Officer. He or she
shall have such further and other powers and duties as shall be prescribed by
the Board of Directors.
Section 5.6. The Chief Operating Officer. The Chief Operating Officer
shall have general charge, control and supervision over the administration and
operations of the Corporation, and shall consult with and keep the Chief
Executive Officer fully informed respecting the same. In the absence or
incapacity of the Chief Executive Officer, the Chief Operating Officer shall
exercise all the powers of and perform all the duties of the Chief Executive
Officer. He or she shall see that all resolutions of the Board of Directors and
all orders of the Chief Executive Officer are carried into effect. With the
consent and approval of the Chief Executive Officer, he or she shall appoint and
is in charge of all executives (other than the officers and assistant officers
required by these by-laws to be elected or appointed by the Board of Directors)
of the Corporation. He or she may sign, singly or with the Secretary or any
other proper officer of the Corporation thereunto authorized by the Board of
Directors, any deeds, mortgages, bonds, contracts or other instruments which the
Board of Directors or the Chief Executive Officer has authorized to be executed,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these by-laws to some other officer or
agent of the Corporation as shall be required by law to be otherwise signed or
executed. He or she shall have such further and other powers and duties as
shall be prescribed by the Board of Directors.
Section 5.7. The Executive Vice Presidents. In the absence or incapacity
of the Chairman of the Board, Vice Chairman of the Board and of the President,
then an Executive Vice President designated by the Chairman of the Board or by
the Board of Directors shall perform all the duties and functions and exercise
all powers of the Chairman of the Board, the Vice Chairman of the Board and of
the President.
-9-
<PAGE>
In the absence or incapacity of the Chief Executive Officer and the Chief
Operating Officer, then an Executive Vice President designated by the Chief
Executive Officer or by the Board of Directors shall perform all duties and
functions and exercise all power of the Chief Executive Officer and of the Chief
Operating Officer. Each Executive Vice President shall have such other powers
as in these by-laws are prescribed for other Vice Presidents of the Corporation
and shall exercise such other powers and perform such other duties as from time
to time may be assigned to him or her by the Board of Directors or may be
delegated to him by the Chairman of the Board or the President.
Section 5.8. Vice Presidents. In the absence or incapacity of the
Chairman of the Board, the Vice Chairman of the Board, the President, and the
Executive Vice Presidents, a Vice President designated by the Chairman of the
Board or by the Board of Directors shall perform all duties of the Chairman of
the Board and of the President. In the absence or incapacity of the Chairman of
the Board, the Vice Chairman of the Board, the President, and the Executive Vice
Presidents, a Vice President designated by the Chief Executive Officer or by the
Board of Directors shall perform all duties and functions and exercise all
powers of the Chief Executive Officer and of the Chief Operating Officer. Each
Vice President shall have such other powers and shall perform such other duties
as from time to time may be assigned to him or her by the Chief Executive
Officer, the Chief Operating Officer or by the Board of Directors.
Section 5.9. Chief Financial Officer. The Chief Financial Officer shall
be the principal financial officer of the Corporation. The Chief Financial
Officer shall: (a) keep a register of the post office address of each
stockholder, (b) have a general charge of the stock transfer books of the
Corporation, and (c) perform such other duties as may be assigned to him or her
from time to time by the Board of Directors, Chairman of the Board, Vice
Chairman of the Board, President, Chief Executive Officer, or Chief Operating
Officer.
Section 5.10. The Treasurer. Under the direction of the Chief Financial
Officer, the Treasurer shall in general perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him or her by the Chief Executive Officer, the Chief Operating Officer, the
Chief Financial Officer, or by the Board of Directors. In the absence or
incapacity of the Chief Financial Officer, the Treasurer shall perform the
powers and duties of the Chief Financial Officer. If required by the Board of
Directors, the Treasurer shall give bond for the faithful discharge of his or
her duties in such sum and with such surety or sureties as the Board of
Directors shall determine.
Section 5.11. The Secretary. The Secretary shall: (a) if he or she is
present, act as Secretary of all meetings for the stockholders and of the
directors, and, if he or she is not present, the officer presiding at any such
meeting shall appoint a Secretary for the meeting; (b) keep the minutes of all
meetings of stockholders and of the Board of Directors in one or more books
provided for that purpose; (c) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by Delaware law; (d) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these by-laws; and (e) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be
-10-
<PAGE>
assigned to him or her by the Chief Executive Officer, the Chief Operating
Officer or by the Board of Directors.
Section 5.12. Salaries. The salaries or other compensation of the
officers shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he or she is also a director of the Corporation.
Section 5.13. Removal of Officers. Any officer may be removed, either
with or without cause, by the vote of a majority of the directors then in office
at any meeting of the Board of Directors.
Section 5.14. Filling of Vacancies. If a vacancy shall exist in the
office of any officer or assistant officer of the Corporation, the Board of
Directors may elect any person to fill such vacancy, such person to hold office
as provided in Section 5.1 of this Article.
ARTICLE VI
----------
Certificates of Stock
---------------------
Section 6.1. Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by, or in the name of the Corporation by (a) the
President or Chief Executive Officer, and (b) the Chief Financial Officer,
Treasurer, the Secretary or an Assistant Secretary of the Corporation;
certifying the number of shares owned in the Corporation. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock; provided that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Section 6.2. Where a certificate is countersigned (1) by a transfer agent
other than the Corporation or its employee, or (2) by a registrar other than the
Corporation or its employee, any other signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
-11-
<PAGE>
Section 6.3. Subject to the foregoing, certificates for stock of the
Corporation shall be in form as the Board of Directors may from time to time
prescribe.
Lost Certificates
-----------------
Section 6.4. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his or
her legal representative, to advertise the same in such manner as it shall
require and/or give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation or its
transfer agent or registrar with respect to the certificate alleged to have been
lost, stolen or destroyed.
Transfers of Stock
------------------
Section 6.5. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Registered Stockholders
-----------------------
Section 6.6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner and to hold liable for calls and assessments
a person registered on its books as the owner of shares, and shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
-----------
Conflict of Interests
---------------------
Section 7.1. No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
Corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board of committee thereof which authorizes the contract or transaction, or
solely because his, her or their votes are counted for such purpose, if:
-12-
<PAGE>
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his or her relationship or interest and as to
the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Section 7.2. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE VIII
------------
General Provisions
------------------
Dividends
---------
Section 8.1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock or
rights to acquire same, subject to the provisions of the Certificate of
Incorporation.
Section 8.2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Checks
------
Section 8.3. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
-13-
<PAGE>
Fiscal Year
-----------
Section 8.4. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
Seal
----
Section 8.5. The corporate seal shall have inscribed thereon the name
of the Corporation and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE IX
----------
Amendments
----------
These by-laws may be altered, amended, or repealed or new by-laws may
be adopted only in the manner provided in the Corporation's Certificate of
Incorporation.
-14-
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 10-04-1995 07-05-96 09/80
- --------------------------------------------------------------------------------------------------------------
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: $1,500,000.00 Initial Rate: 9.750% Date of Note: October 4, 1995
</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 One Million Five Hundred Thousand 00/100
Dollars ($1,500,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on July 5, 1996. In addition, Borrower will pay
regular monthly payments of accrued unpaid interest beginning November 4, 1995,
and all subsequent interest payments are 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 8.750% 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 9.750% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
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 /*days; or
(b) if the cure requires more than /*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.
*thirty (30)
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.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. All
oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone or
<PAGE>
10-04-1995 PROMISSORY NOTE Page 2
(Continued)
================================================================================
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Fred Smith, Partner/President;
George Gler, Creative Partner/Secy.; Joseph A. Sciarrotta, Creative
Partner/V.P.; R. Steven Lutterbach, Creative Partner; and Peter Vezmar, Director
of Finance. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
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/ Fred Smith
--------------------------------------
Fred Smith, Partner/President
================================================================================
Variable Rate. Line of Credit LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.20 (c) 1995 CFI ProServices, Inc. All
rights reserved. [IL-D20 LEAPPART.LN
C16.OVL]
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,500,000.00 10-04-1995 07-05-1996 09/80
- -----------------------------------------------------------------------------------------------------
</TABLE>
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
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT is entered into between The Leap Partnership,
Inc. (referred to below as "Grantor"); and Manufacturers Bank (referred to below
as "Lender"). For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
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 Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL
INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
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 The Leap Partnership, Inc., its
successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor,
surety, accommodation party 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.
NOTE. The word "Note" means the note or credit agreement dated October 4,
1995, in the principal amount of $1,500,000.00 from Grantor to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean 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.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding however all IRA, Koegh, and trust accounts. Grantor authorizes Lender,
to the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Grantor's
incorporation. Grantor has its chief executive office at 22 West Hubbard
Street, Chicago, IL 60610. Grantor will notify Lender of any change in the
location of Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor 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 Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by
<PAGE>
10-04-1995 COMMERCIAL SECURITY AGREEMENT Page 2
(Continued)
================================================================================
Lender to perfect and continue Lender's security interest in the Collateral.
Upon request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's Interest upon any and all chattel paper if not delivered to Lender for
possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to perfect
or continue the security interest granted in this Agreement. Lender may at any
time, and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of this
Agreement for use as a financing statement. Grantor will reimburse Lender for
all expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral. Grantor promptly will notify
Lender before any change in Grantor's name including any change to the assumed
business names of Grantor. This is a continuing Security Agreement and will
continue in effect even though all or any part of the indebtedness is paid in
full and even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of incorporation and bylaws do not prohibit any term or
condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is enforceable
in accordance with its terms, is genuine, and complies with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are in fact obligated as they appear to be on the Collateral.
At the time any account becomes subject to a security interest in favor of
Lender, the account shall be a good and valid account representing an
undisputed, bona fide indebtedness incurred by the account debtor, for
merchandise held subject to delivery instructions or theretofore shipped or
delivered pursuant to a contract of sale, or for services theretofore performed
by Grantor with or for the account debtor; there shall be no setoffs or
counterclaims against any such account; and no agreement under which any
deductions or discounts may be claimed shall have been made with the account
debtor except those disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to
Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d) all
other properties where Collateral is or may be located. Except in the ordinary
course of its business, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent the
Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the State of
Illinois, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not sell,
offer to sell, or otherwise transfer or dispose of the Collateral. While
Grantor is not in default under this Agreement, Grantor may sell inventory, but
only in the ordinary course of its business and only to buyers who qualify as a
buyer in the ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or
otherwise permit the Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than the security interest provided for in this
Agreement, without the prior written consent of Lender. This includes security
interest even if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition of the
Collateral (for whatever reason) shall be held in trust for Lender and shall not
be commingled with any other funds; provided however, this requirement shall not
constitute consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than those which reflect
the security interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles, Grantor
shall deliver to Lender schedules of such Collateral, including such information
as Lender may require, including without limitation names and addresses of
account debtors and agings of accounts and general intangibles. Insofar as the
Collateral consists of inventory and equipment, Grantor shall deliver to Lender,
as often as Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent, and
location of such Collateral. Such information shall be submitted for Grantor
and each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all tangible
Collateral in good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral. Lender
and its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral wherever located.
Grantor shall immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the indebtedness, or upon any of the
other Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's interest in
the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, attorneys' fees or other charges
that could accrue as a result of foreclosure or sale of the Collateral. In any
contest Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly with
all laws, ordinances, rules and regulations of all governmental authorities, now
or hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral. Grantor may contest in good faith any such law,
ordinance or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's Interest in the Collateral, in Lender's
opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains a lien on the
Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49
<PAGE>
(Continued)
===============================================================================
U.S.C. Section 6901, et seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof and
asbestos. The representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for hazardous
wastes and substances. Grantor hereby (a) releases and waives any future
claims against Lender for indemnity or contribution in the event Grantor
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 and
losses resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, 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 and not including any disclaimer of the insurer's
liability for failure to give such a notice. 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 Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
REINSTATEMENT OF SECURITY INTEREST. If payment is made by Grantor, whether
voluntarily or otherwise, or by guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Grantor's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Grantor), the indebtedness shall be considered
unpaid for the purpose of enforcement of this Agreement and this Agreement shall
continue to be effective or shall be reinstated, as the case may be,
notwithstanding any cancellation of this Agreement or of any note or other
instrument or agreement evidencing the Indebtedness and the Collateral will
continue to secure the amount repaid or recovered to the same extent as if that
amount never had been originally received by Lender, and Grantor shall be bound
by any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Agreement.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor'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 Grantor.
<PAGE>
10-04-1995 Page 4
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
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 Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's accounts,
including deposit accounts, with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the creditor
or forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. 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.
Adverse Change. A material adverse change occurs in Grantor'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.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Illinois Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate indebtedness. Lender may declare the entire indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for Indebtedness or apply it to payment of the indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, 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 Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its 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 or amendment to 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, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Grantor hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either
Lender or Grantor against the other. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorney's fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
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.
<PAGE>
10-04-1995 COMMERCIAL SECURITY AGREEMENT Page 5
(Continued)
================================================================================
Multiple Parties; Corporate Authority. All obligations of Grantor under this
Agreement shall be joint and several, and all references to Grantor shall
mean each and every Grantor. This means that each of the Borrowers signing
below is responsible for all obligations in this Agreement.
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 Grantor,
notice to any Grantor will constitute notice to all Grantors. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor's
current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforeceable 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 offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provison
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
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 Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations 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 to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER 4,
1995.
GRANTOR:
The Leap Partnership, Inc.
By: /s/ Fred Smith
--------------------------------
Fred Smith, Partner/President
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. (IL-E40 LEAPPART.LN C16.OVL)
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: R. Steven Lutterbach and Elizabeth A. Lutterbach
2511 Fairway Drive
Michigan City, IN 46360
===================================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of One Million Five Hundred
Thousand & 00/100 Dollars ($1,500,000.00).
GUARANTY. For good and valuable consideration, R. Steven Lutterbach and
Elizabeth A. Lutterbach ("Guarantor") absolutely and unconditionally guarantees
and promises to pay to Manufacturers Bank ("Lender") or its order, in legal
tender of the United States of America, the Indebtedness (as that term is
defined below) of the Leap Partnership, Inc. ("Borrower") to Lender on the terms
and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty.
Borrower. The word "Borrower" means the Leap Partnership, Inc..
Guarantor. The word "Guarantor" means R. Steven Lutterbach and Elizabeth
A. Lutterbach.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $1,500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, consolidations of, and substitutions for the promissory
note or agreement. Notice to Guarantor: The Note evidences a revolving
line of credit from Lender to Borrower.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. This Guaranty covers a revolving line of
credit and guarantor understands and agrees that this guarantee shall be open
and continuous until the line of credit is terminated and the Indebtedness is
paid in full, as provided below.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. This Guaranty covers a revolving line
of credit and it is specifically anticipated that fluctuations will occur in the
aggregate amount of Indebtedness owing from Borrower to Lender. Grantor
specifically acknowledges and agrees that fluctuations in the amount of
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination
of this Guaranty. Guarantor's liability under this Guaranty shall terminate only
upon (a) termination in writing by Borrower and Lender of the line of credit,
(b) payment of the Indebtedness in full in legal tender, and (c) payment in full
in legal tender of all other obligations of Guarantor under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign,
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
encumber, hypothecate, transfer, or otherwise dispose of all or substantially
all of Guarantor's assets, or any interest therein; (d) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; (e) upon
Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
provided to Lender is true and correct in all material respects and fairly
presents the financial condition of Guarantor as of the dates thereof, and no
material adverse change has occurred in the financial condition of Guarantor
since the date of the financial statements; and (f) Guarantor has established
adequate means of obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which might in
any way affect Guarantor's risks under this Guaranty, and Guarantor further
agrees that, absent a request for information, Lender shall have no obligation
to disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any maker whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant (inducing
without limitation Borrower or Guarantor), the Indebtedness shall be considered
unpaid for the purpose of enforcement of this Guaranty and this Guaranty shall
continue to be effective or shall be reinstated, as the case may be,
notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
<PAGE>
(Continued)
================================================================================
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
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 Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may disignate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
/s/ R. Steven Lutterbach /s/ Elizabeth A. Lutterbach
x______________________________ x______________________________
R. Steven Lutterbach Elizabeth A. Lutterbach
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPART.LN C16.OVL]
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: Fred Smith
2944 Lakeshore Drive
Michigan City, IN 46360
================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of One Million Five Hundred
Thousand & 00/100 Dollars ($1,500,000.00).
GUARANTY. For good and valuable consideration, Fred Smith ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to Manufacturers
Bank ("Lender") or its order, in legal tender of the United States of America,
the Indebtedness (as that term is defined below) of the Leap Partnership, Inc.
("Borrower") to Lender on the terms and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty.
Borrower. The word "Borrower" means The Leap Partnership, Inc.
Guarantor. The word "Guarantor" means Fred Smith.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $1,500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. Notice to Guarantor: The Note evidences a
revolving line of credit from Lender to Borrower.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty. This Guaranty covers a revolving line of
credit and guarantor understands and agrees that this guarantee shall be open
and continuous until the line of credit is terminated and the Indebtedness is
paid in full, as provided below.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. This Guaranty covers a revolving line
of credit and it is specifically anticipated that fluctuations will occur in the
aggregate amount of Indebtedness owing from Borrower to Lender. Grantor
specifically acknowledges and agrees that fluctuations in the amount of
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination
of this Guaranty. Guarantor's liability under this Guaranty shall terminate only
upon (a) termination in writing by Borrower and Lender of the line of credit,
(b) payment of the Indebtedness in full in legal tender, and (c) payment in full
in legal tender of all other obligations of Guarantor under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
representation to Guarantor as to the creditworthiness of Borrower; (e) upon
Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
provided to Lender is true and correct in all material respects and fairly
presents the financial condition of Guarantor as of the dates thereof, and no
material adverse change has occurred in the financial condition of Guarantor
since the date of the financial statements; and (f) Guarantor has established
adequate means of obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which might in
any way affect Guarantor's risks under this Guaranty, and Guarantor further
agrees that, absent a request for information, Lender shall have no obligation
to disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any maker whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Borrower or Guarantor), the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty and this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
<PAGE>
(Continued)
================================================================================
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
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 Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
/s/ Fred Smith
x______________________________
Fred Smith
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPART.LN C16.OVL]
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: George Gier and Vicki Gier
1033 Auburn Lane
Bartlett, IL 60103
===================================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of One Million Five Hundred
Thousand & 00/100 Dollars ($1,500,000.00).
GUARANTY. For good and valuable consideration, George Gier and Vicki Gier
("Guarantor") absolutely and unconditionally guarantees and promises to pay to
Manufacturers Bank ("Lender") or its order, in legal tender of the United States
of America, the Indebtedness (as that term is defined below) of the Leap
Partnership, Inc. ("Borrower") to Lender on the terms and conditions set forth
in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty.
Borrower. The word "Borrower" means The Leap Partnership, Inc.
Guarantor. The word "Guarantor" means George Gier and Vicki Gier.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $1,500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. Notice to Guarantor: The Note evidences a
revolving line of credit from Lender to Borrower.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty. This Guaranty covers a revolving line of
credit and guarantor understands and agrees that this guarantee shall be open
and continuous until the line of credit is terminated and the Indebtedness is
paid in full, as provided below.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. This Guaranty covers a revolving line
of credit and it is specifically anticipated that fluctuations will occur in the
aggregate amount of Indebtedness owing from Borrower to Lender. Grantor
specifically acknowledges and agrees that fluctuations in the amount of
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination
of this Guaranty. Guarantor's liability under this Guaranty shall terminate only
upon (a) termination in writing by Borrower and Lender of the line of credit,
(b) payment of the Indebtedness in full in legal tender, and (c) payment in full
in legal tender of all other obligations of Guarantor under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
representation to Guarantor as to the creditworthiness of Borrower; (e) upon
Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
provided to Lender is true and correct in all material respects and fairly
presents the financial condition of Guarantor as of the dates thereof, and no
material adverse change has occurred in the financial condition of Guarantor
since the date of the financial statements; and (f) Guarantor has established
adequate means of obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which might in
any way affect Guarantor's risks under this Guaranty, and Guarantor further
agrees that, absent a request for information, Lender shall have no obligation
to disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Borrower or Guarantor), the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty and this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
<PAGE>
10-04-1995
COMMERCIAL GUARANTY
(Continued)
================================================================================
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
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 Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
/s/ George Gier /s/ Vicki Gier
x______________________________ x______________________________
George Gier Vicki Gier
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPART.LN C16.OVL]
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: Joseph A. Sciarrotta
2701 North Greenview, Unit 1
Chicago, IL 60614
===================================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of One Million Five Hundred
Thousand & 00/100 Dollars ($1,500,000.00).
GUARANTY. For good and valuable consideration, Joseph A. Sciarrotta
("Guarantor") absolutely and unconditionally guarantees and promises to pay to
Manufacturers Bank ("Lender") or its order, in legal tender of the United States
of America, the Indebtedness (as that term is defined below) of the Leap
Partnership, Inc. ("Borrower") to Lender on the terms and conditions set forth
in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty.
Borrower. The word "Borrower" means the Leap Partnership, Inc.
Guarantor. The word "Guarantor" means Joseph A. Sciarrotta.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $1,500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement. Notice to Guarantor: The Note evidences a
revolving line of credit from Lender to Borrower.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. This Guaranty covers a revolving line of
credit and guarantor understands and agrees that this guarantee shall be open
and continuous until the line of credit is terminated and the Indebtedness is
paid in full, as provided below.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. This Guaranty covers a revolving line
of credit and it is specifically anticipated that fluctuations will occur in the
aggregate amount of Indebtedness owing from Borrower to Lender. Grantor
specifically acknowledges and agrees that fluctuations in the amount of
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination
of this Guaranty. Guarantor's liability under this Guaranty shall terminate only
upon (a) termination in writing by Borrower and Lender of the line of credit,
(b) payment of the Indebtedness in full in legal tender, and (c) payment in full
in legal tender of all other obligations of Guarantor under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender had made no
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
representation to Guarantor as to the creditworthiness of Borrower; (e) upon
Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
provided to Lender is true and correct in all material respects and fairly
presents the financial condition of Guarantor as of the dates thereof, and no
material adverse change has occurred in the financial condition of Guarantor
since the date of the financial statements; and (f) Guarantor has established
adequate means of obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which might in
any way affect Guarantor's risks under this Guaranty, and Guarantor further
agrees that, absent a request for information, Lender shall have no obligation
to disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Borrower or Guarantor), the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty and this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
<PAGE>
(Continued)
================================================================================
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
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 Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
/s/ Joseph A. Sciarrotta
x______________________________
Joseph A. Sciarrotta
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPART.LN C16.OVL]
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
| Principal | Loan Date | Maturity | Loan No. | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| $1,500,000.00 | 10-04-1995 | 07-05-1996 | | | | | 09/80 | |
- ------------------------------------------------------------------------------------------------------------------------------------
| 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. |
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: The Leap Partnership, Inc. Lender: Manufacturers Bank
22 West Hubbard Street 1200 North Ashland Avenue
Chicago, IL 60610 Chicago, IL 60622
================================================================================
INSURANCE REQUIREMENTS. The Leap Partnership, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory and Equipment.
Type. All risks, including fire, theft and liability.
Amount. Full insurable value.
Basis. Replacement value.
Endorsements. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
thirty (30) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
INSURANCE MAILING ADDRESS. All documents and other materials relating to
insurance for this loan should be mailed, delivered or directed to the following
address:
Manufacturers Bank
1200 North Ashland Avenue
Chicago, IL 60622
(312) 278-4040
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, ten (10) days
from the date of this Agreement, evidence of the required insurance as provided
above, with an effective date of October 4, 1995, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required insurance
or fails to continue such insurance in force, Lender may do so at Grantor's
expense as provided in the applicable security document. The cost of any such
insurance, at the option of Lender, shall be payable on demand or shall be added
to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES
THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER 4, 1995.
GRANTOR:
The Leap Partnership, Inc.
/s/ Fred Smith
By:_____________________________
Fred Smith, Partner/President
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
| FOR LENDER USE ONLY |
| INSURANCE VERIFICATION |
| DATE:________________________ PHONE:____________________________|
| AGENT'S NAME:_________________________________________________________________________________ |
| INSURANCE COMPANY:_______________________________________________________________________________________________________ |
| POLICY NUMBER:___________________________________________________________________________________________________________ |
| EFFECTIVE DATES:_________________________________________________________________________________________________________ |
| COMMENTS:________________________________________________________________________________________________________________ |
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20(c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-I10 LEAPPART.LN C16.OVL]
<PAGE>
STATE OF ILLINOIS
UNIFORM COMMERCIAL CODE-- FINANCING STATEMENT--FORM UCC-1
INSTRUCTIONS
1. PLEASE TYPE this form. Fold only along perforation for mailing.
2. Remove Secured Party and Debtor copies and send other 3 copies with
interleaved carbon paper to the filing officer. Enclose filing fee.
3. If the space provided for any item(s) on the form is inadequate the item(s)
should be continued on additional sheets, preferably 5" x 8" or 8" x 10".
Only one copy of such additional sheets need be presented to the filing
officer with a set of three copies of the financing statement. Long
schedules of collateral, indentures, etc., may be on any size paper that is
convenient for the secured party.
This STATEMENT is presented to a filing officer for filing pursuant to the
Uniform Commercial Code.
For Filing Officer (Date, Time, Number, and Filing Office)
Debtor(s) (Last Name First) and address(es)
The Leap Partnership, Inc.
22 West Hubbard Street
Chicago, Illinois 60610
Secured Party(ies) and address(es)
MANUFACTURERS BANK
1200 N. ASHLAND AVENUE
CHICAGO, ILLINOIS 60622
1. This financing statement covers the following types (or items) of property:
All Debtor's goods, inventory and personal property, whether now or
hereafter existing or acquired, and all replacements, additions, and accessions
thereto, including but not limited to, machinery, furniture, fixtures, motor
vehicles, equipment and all other tangible personal property of every kind and
description; all Debtor's accounts, accounts receivable, contract rights,
general intangibles, instruments, securities, documents, warehouse receipts,
bills of lading, documents of title, agreements and chattel paper, and all other
intangible personal property of any kind and description, whether now or
hereafter existing or acquired; the books and records of the Debtor pertaining
to the foregoing; and all proceeds (including insurance and tort claims) and
products of all of the foregoing Collateral.
ASSIGNEE OF SECURED PARTY
2. [X] Products of Collateral are also covered.
0 Additional shares presented.
- ---
x Filed with Office of Secretary of State of Illinois.
- ---
Debtor is a transmitting utility as defined in UCC [S]9-105.
- ---
The Leap Partnership, Inc.
/s/ Fred Smith
By:____________________________
Signature of (Debtor)
Fred Smith (Secured Party)*
President
*Signature of Debtor Required in Most Cases:
Signature of Secured Party in Cases Covered By UCC
[S]9-402 (2)
STANDARD FORM--UNIFORM COMMERCIAL CODE-FORM UCC-1
This form of financing statement is approved by the Secretary of State.
<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 10-04-1995 04-04-1996 09/80
- --------------------------------------------------------------------------------------------------------------
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: 9.750% Date of Note: October 4, 1995
</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
October 4, 1995, until paid in full.
PAYMENT. Borrower will pay this loan in one principal payment of $500,000.00
plus interest on April 4, 1996. This payment due April 4, 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 November 4, 1995, 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 8.750% 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 9.750% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due.
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 /*days; or
(b) if the cure requires more than /*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.
*thirty (30)
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>
10-04-1995 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/ Fred Smith
--------------------------------------
Fred Smith, Partner/President
================================================================================
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>
Schedule A attached hereto and made a part of a Note, Commercial Security
Agreement and Uniform Commercial Code Financing Statement between The Leap
Partnership, Inc., 22 West Hubbard Street, Chicago, Illinois 60610 (BORROWER)
and Manufacturers Bank, 1200 North Ashland Avenue, Chicago, Illinois 60622
(LENDER), covering the following computer equipment:
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
2 SCK3480B5492 M2104LL/A Macintosh Quadra 650 8/500 w CD
SCK3480B8492
4 32Mb 72-pin, 60 nano, SIMM memory upgrade for
2 Apple Extended Keyboard II w/F-keys
2 RasterOps PaintBoard Lightning accelerated 24bit
2 S0121036503 GDM-2036s Sony 20in Multiscan Trinitron Graphic
S0121036525
1 QuarkXpress v3.2 for Mac
1 Adobe PhotoShop v2.51 for Mac
1 KPT Kai's Power Tools for PhotoShop
0 Adobe Illustrator 5.0 for Mac
1 MicroSoft Word 5.1 for Mac
1 Access PC v3.0 for Mac
1 Fractal Painter v2.0 for Mac
1 SDJ3440P2855 Apple LaserWriter 810 w/ethernet
3 8 Mb of RAM Memory Upgrade for the 810
1 A404356 SS-D8000 MicroNet DAT ext. drive w/Retrospect Remote
3 Asante FriendlyNet Thin EtherNet external adapter
3 10 foot sections of thin ethernet cable
2 Thin EtherNet Terminators
1 A401794 SS-1240 MicroNet 1186 Mb Ext. Micro/Max Hard Drive
10 3M D120 DAT Tapes
2 Wacom ArtZ 6x8 Graphics Tablet w/stylus
2 Apple System 7 PRO w/AppleScript/QuickTime/PowerTalk
1 8109231 AGFA Arcus Scanner
1 8206974 Agfa Arcus Transparency option
2 SCK3480B5492 M4920LL/A Mac PowerBook 165c COLOR 4Mb RAM/120
SCK3480B8492
2 8Mb psuedo-static module (Installed in PowerBooks)
2 Global Village PowerPort/Gold internal 14.4b
2 Lind External Battery Quick Charge
2 Kensington Notebook Traveler Executive
2 Extra PowerBook Battery
2 Global Village Teleports
1 Adobe CD Type on Call
1 Tripplite 6 Outlet Isobars
1 MousePads
1 Tripplite 4 Outlet Isobars
1 50-50 SCSI Cable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
2 SXB403JETCA6 Mac Quadra 800 8Mb RAM/500Mb HD w/system &
SXB342HSYCA6
ITEMS FOR QUADRA 650
2 S43500ZSD07 M0044Z/A APPLE 16-inch Color Display (Sony Trinitron)
S43501OED07
2 Asante FriendlyNet Thin EtherNet external adapter
2 Apple Extended Keyboard II w/F-keys
2 16Mb 72-pin, 60 nano, SIMM memory upgrade for
1 External Modem Global Village
1 Tripplite 6 Outlet Isobars
3 Tripplite 4 Outlet Isobars
1 C410494 MicroNet External 4Gb HD Array 4.0ms access/6.8Mb
1 Radius VideoVision Studio for Mac
1 AppleDesign Powered Speakers
1 MacroMedia Director v3.1
1 MacroModel w/Renderman V1.5
1 Specular Collage V1.0
1 TL40868W25Q QuickTake 100
1 RAM Doubler
1 AudioMedia II
1 JP44525 TEKTRONIX 220i 10Mb ram 600x300 color thermal wax
1 STF4130F4LGO Apple ColorOne Scanner w Accesory Kit
1 Teleport Gold Desktop Modem
1 BG3510CX1A8 Apple LaserWriter Select 360
BG3510CX1A8
2 Farallon PhoneNet DIN8
2 Thermal Paper Prints and Transparencies for 200i
2 Thermal Transfer Perforated Paper 200i
1 D406223 MicroNet ADV1000E External HardDrive
1 32 Mb Memory Upgrade for Quada
1 Asante 2072 Network Ethernet Hub 24-Port Mgt Module
3 Asante EN/SC 10BaseT w/Cable (EtherNet Interface for
24 6 Foot Patch Ethernet Cables
1 Shiva LanRover/4E (Communications
Server-Dial in and out 4 Lines)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
1 Apple WorkGroup Sever 952250Mb HD 48Mb RAM DAT
1 Apple Color Plus Plus 14" Display
1 Apple Keyboard II
1 Asante FriendlyNet 10BaseT External
1 Tripp-Lite OmniLAN un-Interuptible PowerSupply
1 Apple Workgroup Server 60 8/230 System 7, mouse,
1 Apple Color Plus Display 14"
1 Apple Keyboard II
1 Asante FriendlyNet Adapter
1 QuickMail 5 User
1 Global Village Teleport Mercury Fax Modem
1 Isobar 6 w 6ft Cord Ultimate LifeTime Warranty
1 Meeting Maker 10 Pak
1 QuickMail 5 User
1 QuarkXpress v 3.2 for Mac
2 Photoshop
1 RetroSpect Remote
1 Apple Share Pro
1 OnSite Repair
Press 3 CD's from original SyQuest cartridges (Notre Dame
One show folder, Read Me file, QuickTime, &
1 First CD
2 Subsequent CD's (each)
3 Apple Remote Access
6 MOD-1300 Tahiti Cartridges
1 SB-TMO-1300 Tahiti IIIOptical Drive
1 FC426J3R23ED PowerBook Duo 280c 12/320 w/Express Modem
1 SO15080784 Sony Multiple Scan 17 Display MultiSync
1 Apple Extended Keyboard II w/F-keys
1 Asante FriendlyNet 10baseT external adapter
1 FC4349R32TO PowerBook 540c 12/320 w/Modem
1 CC40211X1H3 Apple Portable StyleWriter (cable included)
1 10 BaseT FriendlyNet
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
1 SO10016979-1 SRS-D2KPC Sony Speakers
1 G406110 ADV500I MicroNet Internal for Duo 500Mb
1 TF4010QZ15H M1865LL/A Duo Dock II
1 Targus Case for PowerBook 500 Series
1 Dayna Ethernet
1 MicroSoft Office
1 QuickMail 10 User Pak
3 Asante Mini en/sc Adapters
6 Asante Micro en/sc Adapters
1 MicroSoft Office
1 16 Mb Module for Power Book 520 & 540
Memory Upgrade
1 Apple CD 300i External drive
1 25-50 Pin Cable
</TABLE>
-4-
<PAGE>
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$500,000.00 10-04-1995 07-05-1996 09/80
- -----------------------------------------------------------------------------------------------------
</TABLE>
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
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT is entered into between The Leap Partnership,
Inc. (referred to below as "Grantor"); and Manufacturers Bank (referred to below
as "Lender"). For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
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 Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL COMPUTER EQUIPMENT, INCLUDING BUT NOT LIMITED TO, THE COMPUTER
EQUIPMENT DESCRIBED ON SCHEDULE A ATTACHED TO AND MADE A PART OF.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
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 The Leap Partnership, Inc., its
successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor,
surety, accommodation party 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.
NOTE. The word "Note" means the note or credit agreement dated October 4,
1995, in the principal amount of $500,000.00 from Grantor to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean 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.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding however all IRA, Koegh, and trust accounts. Grantor authorizes Lender,
to the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Grantor's
incorporation.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor 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 Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by
<PAGE>
10-04-1995 COMMERCIAL SECURITY AGREEMENT Page 2
(Continued)
================================================================================
Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any and
all of the documents evidencing or constituting the Collateral, and Grantor
will note Lender's interest upon any and all chattel paper if not delivered
to Lender for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Illinois, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory and equipment, Grantor shall deliver to Lender, as often as
Lender shall require, such lists, descriptions, and designations of such
Collateral as Lender may require to identify the nature, extent, and
location of such Collateral. Such information shall be submitted for
Grantor and each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
Interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor 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 and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
<PAGE>
(Continued)
===============================================================================
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, 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 and not including any disclaimer of the insurer's
liability for failure to give such a notice. 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 Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
REINSTATEMENT OF SECURITY INTEREST. If payment is made by Grantor, whether
voluntarily or otherwise, or by guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Grantor's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Grantor), the Indebtedness shall be considered
unpaid for the purpose of enforcement of this Agreement and this Agreement shall
continue to be effective or shall be reinstated, as the case may be,
notwithstanding any cancellation of this Agreement or of any note or other
instrument or agreement evidencing the Indebtedness and the Collateral will
continue to secure the amount repaid or recovered to the same extent as if that
amount never had been originally received by Lender, and Grantor shall be bound
by any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Agreement.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor'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 Grantor.
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 Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's accounts,
including deposit accounts, with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the creditor
or forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent. 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.
<PAGE>
10-04-1995 Page 4
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
ADVERSE CHANGE. A material adverse change occurs in Grantor'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.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Illinois Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days before the time of the sale or disposition.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring, preparing
for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts of chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as many be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, 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 Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its 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 or amendment to 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, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Grantor hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either
Lender or Grantor against the other. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
service. Grantor also shall pay all court costs and such additional fees as
may be directed by the court.
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 Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, 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
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become
<PAGE>
10-04-1995 COMMERCIAL SECURITY AGREEMENT Page 5
(Continued)
================================================================================
due, owing or payable from the Collateral; (b) to execute, sign and endorse
any and all claims, instruments, receipts, checks, drafts or warrants
issued in payment for the Collateral; (c) to settle or compromise any and
all claims arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement for the claim;
and (d) to file any claim or claims or to take any action or institute or
take part in any proceedings, either in its own name or in the name of
Grantor, or otherwise, which in the discretion of Lender may seem to be
necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and shall be
irrevocable and shall remain in full force and effect until renounced by
Lender.
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 offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provison
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
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 Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations 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 to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER 4,
1995.
GRANTOR:
The Leap Partnership, Inc.
By: /s/ Fred Smith
--------------------------------
Fred Smith, Partner/President
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. (IL-E40 LEAPPAR.LN C26.OVL)
<PAGE>
Schedule A attached hereto and made a part of a Note, Commercial Security
Agreement and Uniform Commercial Code Financing Statement between Leap
Partnership, Inc., 22 West Hubbard Street, Chicago, Illinois 60610 (BORROWER)
and Manufacturers Bank, 1200 North Ashland Avenue, Chicago, Illinois 60622
(LENDER), covering the following computer equipment:
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
2 SCK3480B5492 M2104LL/A Macintosh Quadra 650 8/500 w CD
SCK3480B8492
4 32Mb 72-pin, 60 nano, SIMM memory upgrade for
2 Apple Extended Keyboard II w/F-keys
2 RasterOps PaintBoard Lightning accelerated 24bit
2 S0121036503 GDM-2036s Sony 20in Multiscan Trinitron Graphic
S0121036525
1 QuarkXpress v3.2 for Mac
1 Adobe PhotoShop v2.51 for Mac
1 KPT Kai's Power Tools for PhotoShop
0 Adobe Illustrator 5.0 for Mac
1 MicroSoft Word 5.1 for Mac
1 Access PC v3.0 for Mac
1 Fractal Painter v2.0 for Mac
1 SDJ3440P2855 Apple LaserWriter 810 w/ethernet
3 8 Mb of RAM Memory Upgrade for the 810
1 A404356 SS-D8000 MicroNet DAT ext. drive w/Retrospect Remote
3 Asante FriendlyNet Thin EtherNet external adapter
3 10 foot sections of thin ethernet cable
2 Thin EtherNet Terminators
1 A401794 SS-1240 MicroNet 1186 Mb Ext. Micro/Max Hard Drive
10 3M D120 DAT Tapes
2 Wacom ArtZ 6x8 Graphics Tablet w/stylus
2 Apple System 7 PRO w/AppleScript/QuickTime/PowerTalk
1 8109231 AGFA Arcus Scanner
1 8206974 Agfa Arcus Transparency option
2 SCK3480B5492 M4920LL/A Mac PowerBook 165c COLOR 4Mb RAM/120
SCK3480B8492
2 8Mb psuedo-static module (Installed in PowerBooks)
2 Global Village PowerPort/Gold internal 14.4b
2 Lind External Battery Quick Charge
2 Kensington Notebook Travelor Executive
2 Extra PowerBook Battery
2 Global Village Teleports
1 Adobe CD Type on Call
1 Tripplite 6 Outlet Isobars
1 MousePads
1 Tripplite 4 Outlet Isobars
1 50-50 SCSI Cable
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
2 SXB403JETCA6 Mac Quadra 800 8Mb RAM/500Mb HD w/system &
SXB342HSYCA6
ITEMS FOR QUADRA 650
2 S43500ZSD07 M0044Z/A APPLE 16-inch Color Display (Sony Trinitron)
S43501OED07
2 Asante FriendlyNet Thin EtherNet external adapter
2 Apple Extended Keyboard II w/F-keys
2 16Mb 72-pin, 60 nano, SIMM memory upgrade for
1 External Modem Global Village
1 Tripplite 6 Outlet Isobars
3 Tripplite 4 Outlet Isobars
1 C410494 MicroNet External 4Gb HD Array 4.0ms access/6.8Mb
1 Radius VideoVision Studio for Mac
1 AppleDesign Powered Speakers
1 MacroMedia Director v3.1
1 MacroModel w/Renderman V1.5
1 Specular Collage V1.0
1 TL40868W25Q QuickTake 100
1 RAM Doubler
1 AudioMedia II
1 JP44525 TEKTRONIX 220i 10Mb ram 600x300 color thermal wax
1 STF4130F4LG0 Apple ColorOne Scanner w Accessory Kit
1 Teleport Gold Desktop Modem
1 BG3510CX1A8 Apple LaserWriter Select 360
BG3510CX1A8
2 Farallon PhoneNet DIN8
2 Thermal Paper Prints and Transparencies for 200i
2 Thermal Transfer Perforated Paper 200i
1 D406223 MicroNet ADV1000E External HardDrive
1 32 Mb Memory Upgrade for Quada
1 Asante 2072 Network Ethernet Hub 24-Port Mgt Module
3 Asante EN/SC 10BaseT w/Cable (EtherNet Interface for
24 6 Foot Patch Ethernet Cables
1 Shiva LanRover/4E (Communications
Server-Dial in and out 4 Lines)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
1 Apple WorkGroup Sever 952250Mb HD 48Mb RAM DAT
1 Apple Color Plus Plus 14" Display
1 Apple Keyboard II
1 Asante FriendlyNet 10BaseT External
1 Tripp-Lite OmniLAN un-Interuptible PowerSupply
1 Apple Workgroup Server 60 8/230 System 7, mouse,
1 Apple Color Plus Display 14"
1 Apple Keyboard II
1 Asante FriendlyNet Adapter
1 QuickMail 5 User
1 Global Village Teleport Mercury Fax Modem
1 Isobar 6 w 6ft Cord Ultimate LifeTime Warranty
1 Meeting Maker 10 Pak
1 QuickMail 5 User
1 QuarkXpress v 3.2 for Mac
2 Photoshop
1 RetroSpect Remote
1 Apple Share Pro
1 OnSite Repair
Press 3 CD's from original SyQuest cartridges (Notre Dame
One show folder, Read Me file, QuickTime, &
1 First CD
2 Subsequent CD's (each)
3 Apple Remote Access
6 MOD-1300 Tahiti Cartridges
1 SB-TMO-1300 Tahiti IIIOptical Drive
1 FC426J3R23ED PowerBook Duo 280c 12/320 w/Express Modem
1 SO15080784 Sony Multiple Scan 17 Display MultiSync
1 Apple Extended Keyboard II w/F-keys
1 Asante FriendlyNet 10baseT external adapter
1 FC4349R32TO PowerBook 540c 12/320 w/Modem
1 CC40211X1H3 Apple Portable StyleWriter (cable included)
1 10 BaseT FriendlyNet
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
1 SO10016979-1 SRS-D2KPC Sony Speakers
1 G406110 ADV500I MicroNet Internal for Duo 500Mb
1 TF4010QZ15H M1865LL/A Duo Dock II
1 Targus Case for PowerBook 500 Series
1 Dayna Ethernet
1 MicroSoft Office
1 QuickMail 10 User Pak
3 Asante Mini en/sc Adapters
6 Asante Micro en/sc Adapters
1 MicroSoft Office
1 16 Mb Module for Power Book 520 & 540
Memory Upgrade
1 Apple CD 300i External drive
1 25-50 Pin Cable
</TABLE>
-4-
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: Fred Smith
2944 Lakeshore Drive
Michigan City, IN 46360
===================================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of Five Hundred
Thousand & 00/100 Dollars ($500,000.00).
GUARANTY. For good and valuable consideration, Fred Smith ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to Manufacturers
Bank ("Lender") or its order, in legal tender of the United States of America,
the Indebtedness (as that term is defined below) of The Leap Partnership, Inc.
("Borrower") to Lender on the terms and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty.
Borrower. The word "Borrower" means The Leap Partnership, Inc.
Guarantor. The word "Guarantor" means Fred Smith.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on
a continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might in any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any maker whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant (inducing
without limitation Borrower or Guarantor), the Indebtedness shall be considered
unpaid for the purpose of enforcement of this Guaranty and this Guaranty shall
continue to be effective or shall be reinstated, as the case may be,
notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party
<PAGE>
(Continued)
================================================================================
or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
x /s/ Fred Smith
-----------------------------
Fred Smith
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPAR.LN C26.OVL]
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: George Gier and Vicki Gier
1033 Auburn Lane
Bartlett, IL 60103
===================================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of Five Hundred Thousand & 00/100
Dollars ($500,000.00).
GUARANTY. For good and valuable consideration, George Gier and Vicki Gier
("Guarantor") absolutely and unconditionally guarantees and promises to pay to
Manufacturers Bank ("Lender") or its order, in legal tender of the United States
of America, the Indebtedness (as that term is defined below) of the Leap
Partnership, Inc. ("Borrower") to Lender on the terms and conditions set forth
in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means The Leap Partnership, Inc.
Guarantor. The word "Guarantor" means George Gier and Vicki Gier.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
Guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Borrower or Guarantor), the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty and this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party
<PAGE>
(Continued)
================================================================================
or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
/s/ George Gier /s/ Vicki Gier
x______________________________ x______________________________
George Gier Vicki Gier
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20(c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPAR.LN C26.OVL]
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: R. Steven Lutterbach and Elizabeth A. Lutterbach
2511 Fairway Drive
Michigan City, IN 46360
===================================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of Five Hundred Thousand & 00/100
Dollars ($500,000.00).
GUARANTY. For good and valuable consideration, R. Steven Lutterbach and
Elizabeth A. Lutterbach ("Guarantor") absolutely and unconditionally guarantees
and promises to pay to Manufacturers Bank ("Lender") or its order, in legal
tender of the United States of America, the Indebtedness (as that term is
defined below) of the Leap Partnership, Inc. ("Borrower") to Lender on the terms
and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means The Leap Partnership, Inc.
Guarantor. The word "Guarantor" means R. Steven Lutterbach and Elizabeth
A. Lutterbach.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Borrower or Guarantor), the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty and this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the
<PAGE>
(Continued)
================================================================================
matters set forth in this Guaranty. No alteration of or amendment to this
Guaranty 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 Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
/s/ R. Steven Lutterbach /s/ Elizabeth A. Lutterbach
x______________________________ x______________________________
R. Steven Lutterbach Elizabeth A. Lutterbach
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPAR.LN C26.OVL]
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
___________________________________________________________________________________________________
| Principal | Loan Date | Maturity | Loan No | Call | Collateral | Account | Officer | Initials |
| <S> | <C> | <C> | <C> | <C> | <C> | <C> | <C> | <C> |
| | | | | | | | 09/80 | |
|___________|___________|__________|_________|________|____________|_________|_________|__________|
| 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
Guarantor: Joseph A. Sciarrotta
2701 North Greenview, Unit I
Chicago, IL 60614
===================================================================================================
</TABLE>
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of Five Hundred Thousand & 00/100
Dollars ($500,000.00).
GUARANTY. For good and valuable consideration, Joseph A. Sciarrotta
("Guarantor") absolutely and unconditionally guarantees and promises to pay to
Manufacturers Bank ("Lender") or its order, in legal tender of the United States
of America, the Indebtedness (as that term is defined below) of The Leap
Partnership, Inc. ("Borrower") to Lender on the terms and conditions set forth
in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means The Leap Partnership, Inc.
Guarantor. The word "Guarantor" means Joseph A. Sciarrotta.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 4, 1995.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and 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.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
October 4, 1995, in the original principal amount of $500,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Related Documents. The words "Related Documents" mean 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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the Indebtedness; and (h)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with
<PAGE>
10-04-1995 COMMERCIAL GUARANTY Page 2
(Continued)
================================================================================
Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by Guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(a) to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (b) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (c) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Borrower or Guarantor), the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty and this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, notwithstanding any cancellation of this Guaranty or of any note or other
instrument or agreement evidencing the Indebtedness and Guarantor shall remain
liable for the amount repaid or recovered to the same extent as if that amount
never had been originally received by Lender, and Guarantor shall be bound by
any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party
<PAGE>
COMMERCIAL GUARANTY
(Continued)
================================================================================
or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Cook
County, State of Illinois. Lender and Guarantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Guarantor against the other. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimilie, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when 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 or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 4, 1995.
GUARANTOR:
x /s/ Joseph A. Sciarrotta
------------------------------
Joseph A. Sciarrotta
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20(c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-E20 LEAPPAR.LN C26.OVL]
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
<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 | 10-04-1995 | 04-04-1996 | | | | | 09/80 | |
- ------------------------------------------------------------------------------------------------------------------------------------
| 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. |
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: The Leap Partnership, Inc. Lender: Manufacturers Bank
22 West Hubbard Street 1200 North Ashland Avenue
Chicago, IL 60610 Chicago, IL 60622
================================================================================
INSURANCE REQUIREMENTS. The Leap Partnership, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Lender. These
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All of the Borrower's computer equipment, including but not limited
to, the computer equipment described on Schedule A attached hereto
and made a part hereof.
Type. All risks, including fire, theft and liability.
Amount. Full insurable value.
Basis. Replacement value.
Endorsements. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
thirty (30) days' prior written notice to Lender.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
INSURANCE MAILING ADDRESS. All documents and other materials relating to
insurance for this loan should be mailed, delivered or directed to the following
address:
Manufacturers Bank
1200 North Ashland Avenue
Chicago, IL 60622
(312) 278-4040
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, ten (10) days
from the date of this Agreement, evidence of the required insurance as provided
above, with an effective date of October 4, 1995, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required insurance
or fails to continue such insurance in force, Lender may do so at Grantor's
expense as provided in the applicable security document. The cost of any such
insurance, at the option of Lender, shall be payable on demand or shall be added
to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES
THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER 4, 1995.
GRANTOR:
The Leap Partnership, Inc.
/s/ Fred Smith
By:_____________________________
Fred Smith, Partner/President
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
| FOR LENDER USE ONLY |
| INSURANCE VERIFICATION |
| DATE:________________________ PHONE:____________________________|
| AGENT'S NAME:_________________________________________________________________________________ |
| INSURANCE COMPANY:_______________________________________________________________________________________________________ |
| POLICY NUMBER:___________________________________________________________________________________________________________ |
| EFFECTIVE DATES:_________________________________________________________________________________________________________ |
| COMMENTS:________________________________________________________________________________________________________________ |
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20(c) 1995 CFI ProServices, Inc.
All rights reserved. [IL-I10 LEAPPAR.LN C26.OVL]
<PAGE>
95
STATE OF ILLINOIS
UNIFORM COMMERCIAL CODE--FINANCING STATEMENT--FORM UCC-1
INSTRUCTIONS
1. PLEASE TYPE this form. Fold only along perforation for mailing.
2. Remove Secured Party and Debtor copies and send other 3 copies with
interleaved carbon paper to the filing officer. Enclose filing fee.
3. If the space provided for any item(s) on the form is inadequate the item(s)
should be continued on additional sheets, preferably 5" x 8" or 8" x 10".
Only one copy of such additional sheets need be presented to the filing
officer with a set of three copies of the financing statement. Long
schedules of collateral, indentures, etc., may be on any size paper that is
convenient for the secured party.
This STATEMENT is presented to a filing officer for filing pursuant to the
Uniform Commercial Code.
For Filing Officer (Date, Time, Number, and Filing Office)
Debtor(s) (Last Name First) and address(es)
The Leap Partnership, Inc.
22 West Hubbard Street
Chicago, Illinois 60610
Secured Party(ies) and address(es)
Manufacturers Bank
1200 North Ashland Avenue
Chicago, Illinois 60622
1. This financing statement covers the following types (or items) of property:
Computer equipment described on the attached Schedule A, together with all
accessories, accessions, attachments, whether now owned or hereafter acquired
and all substitutions, renewals, replacements and improvements thereto,
including all proceeds of Insurance and all proceeds of the Collateral.
ASSIGNEE OF SECURED PARTY
2. [X] Products of Collateral are also covered.
4 Additional shares presented.
- ---
X Filed with Office of Secretary of State of Illinois.
- ---
Debtor is a transmitting utility as defined in UCC (S)9-105.
- ---
The Leap Partnership, Inc.
By: /s/ Fred Smith
----------------------------
Signature of (Debtor)
(Secured Party)*
Fred Smith, President
*Signature of Debtor Required in Most Cases:
Signature of Secured Party in Cases Covered By
UCC (S)9-402 (2)
STANDARD FORM--UNIFORM COMMERCIAL CODE--FORM UCC-1
This form of financing statement is approved by the Secretary of State.
<PAGE>
Schedule A attached hereto and made a part of a Note, Commercial Security
Agreement and Uniform Commercial Code Financing Statement between The Leap
Partnership, Inc., 22 West Hubbard Street, Chicago, Illinois 60610 (BORROWER)
and Manufacturers Bank, 1200 North Ashland Avenue, Chicago, Illinois 60622
(LENDER), covering the following computer equipment:
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
2 SCK3480B5492 M2104LL/A Macintosh Quadra 650 8/500 w CD
SCK3480B8492
4 32Mb 72-pin, 60 nano, SIMM memory upgrade for
2 Apple Extended Keyboard II w/F-keys
2 RasterOps PaintBoard Lightening accelorated 24bit
2 S0121036503 GDM-2036s Sony 20in Multiscan Trinitron Graphic
S0121036525
1 QuarkXpress v3.2 for Mac
1 Adobe PhotoShop v2.51 for Mac
1 KPT Kai's Power Tools for PhotoShop
0 Adobe Illustrator 5.0 for Mac
1 MicroSoft Word 5.1 for Mac
1 Access PC v3.0 for Mac
1 Fractal Painter v2.0 for Mac
1 SDJ3440P2855 Apple LaserWriter 810 w/ethernet
3 8 Mb of RAM Memory Upgrade for the 810
1 A404356 SS-D8000 MicroNet DAT ext. drive w/Retrospect Remote
3 Asante FriendlyNet Thin EtherNet external adapter
3 10 foot sections of thin ethernet cable
2 Thin EtherNet Terminators
1 A401794 SS-1240 MicroNet 1186 Mb Ext. Micro/Max Hard Drive
10 3M D120 DAT Tapes
2 Wacom ArtZ 6x8 Graphics Tablet w/stylus
2 Apple System 7 PRO w/AppleScript/QuickTime/PowerTalk
1 8109231 AGFA Arcus Scanner
1 8206974 Agfa Arcus Transparency option
2 SCK3480B5492 M4920LL/A Mac PowerBook 165c COLOR 4Mb RAM/120
SCK3480B8492
2 8Mb psuedo-static module (Installed in PowerBooks)
2 Global Village PowerPort/Gold internal 14.4b
2 Lind External Battery Quick Charge
2 Kensington Notebook Travelor Executive
2 Extra PowerBook Battery
2 Global Village Teleports
1 Adobe CD Type on Call
1 Tripplite 6 Outlet Isobars
1 MousePads
1 Tripplite 4 Outlet Isobars
1 50-50 SCSI Cable
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
2 SXB403JETCA6 Mac Quadra 800 8Mb RAM/500Mb HD w/system &
SXB342HSYCA6
ITEMS FOR QUADRA 650
2 S43500ZSD07 M0044Z/A APPLE 16-inch Color Display (Sony Trinitron
S435010ED07
2 Asante FriendlyNet Thin EtherNet external adapter
2 Apple Extended Keyboard II w/F-keys
2 16Mb 72-pin, 60 nano, SIMM memory upgrade for
1 External Modem Global Village
1 Tripplite 6 Outlet Isobars
3 Tripplite 4 Outlet Isobars
1 C410494 MicroNet External 4Gb HD Array 4.0ms access/6.8Mb
1 Radius VideoVision Studio for Mac
1 AppleDesign Powered Speakers
1 MacroMedia Director v3.1
1 MacroModel w/Renderman V1.5
1 Specular Collage V1.0
1 TL40868W25Q QuickTake 100
1 RAM Doubler
1 AudioMedia II
1 JP44525 TEKTRONIX 220i 10Mb ram 600x300 color thermal wax
1 STF4130F4LG0 Apple ColorOne Scanner w Accessory Kit
1 Teleport Gold Desktop Modem
1 BG3510CX1A8 Apple LaserWriter Select 360
BG3510CX1A8
2 Farallon PhoneNet DIN8
2 Thermal Paper Prints and Transparancies for 200i
2 Thermal Transfer Perforated Paper 200i
1 D406223 MicroNet ADV1000E External HardDrive
1 32 Mb Memory Upgrade for Quada
1 Asante 2072 Network Ethernet Hub 24-Port Mgt Module
3 Asante EN/SC 10BaseT w/Cable (EtherNet Interface for
24 6 Foot Patch Ethernet Cables
1 Shiva LanRover/4E (Communications
Server-Dial in and out 4 Lines)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
1 Apple WorkGroup Sever 952250Mb HD 48Mb RAM DAT
1 Apple Color Plus Plus 14" Display
1 Apple Keyboard II
1 Asante FriendlyNet 10BaseT External
1 Tripp-Lite OmniLAN un-Interuptible PowerSupply
1 Apple Workgroup Server 60 8/230 System 7, mouse,
1 Apple Color Plus Display 14"
1 Apple Keyboard II
1 Asante FriendlyNet Adapter
1 QuickMail 5 User
1 Global Village Teleport Mercury Fax Modem
1 Isobar 6 w 6ft Cord Ultimate LifeTime Warranty
1 Meeting Maker 10 Pak
1 QuickMail 5 User
1 QuarkXpress v 3.2 for Mac
2 Photoshop
1 RetroSpect Remote
1 Apple Share Pro
1 OnSite Repair
Press 3 CD's from original SyQuest cartridges (Notre Dame
One show folder, Read Me file, QuickTime, &
1 First CD
2 Subsequent CD's (each)
3 Apple Remote Access
6 MOD-1300 Tahiti Cartridges
1 SB-TMO-1300 Tahiti IIIOptical Drive
1 FC426J3R23ED PowerBook Duo 280c 12/320 w/Express Modem
1 SO15080784 Sony Multiple Scan 17 Display MultiSync
1 Apple Extended Keyboard II w/F-keys
1 Asante FriendlyNet 10baseT external adapter
1 FC4349R32TO PowerBook 540c 12/320 w/Modem
1 CC40211X1H3 Apple Portable StyleWriter (cable included)
1 10 BaseT FriendlyNet
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Qty. Serial# Description
- ---- ------- -----------
<S> <C> <C>
1 SO10016979-1 SRS-D2KPC Sony Speakers
1 G406110 ADV5001 MicroNet Internal for Duo 500Mb
1 TF4010QZ15H M1865LL/A Duo Dock II
1 Targus Case for PowerBook 500 Series
1 Dayna Ethernet
1 MicroSoft Office
1 QuickMail 10 User Pak
3 Asante Mini en/sc Adapters
6 Asante Micro en/sc Adapters
1 MicroSoft Office
1 16 Mb Module for Power Book 520 & 540
Memory Upgrade
1 Apple CD 300i External drive
1 25-50 Pin Cable
</TABLE>
-4-
<PAGE>
Exhibit 10.3
This Instrument prepared by:
Gerald Petacque
Mail to:
Gerald Petacque
19 West Jackson
Suite 300
Chicago, Illinois 60604
Common Address of Property
22 West Hubbard Street
Chicago, Illinois 60610
P.I.N. 17-09-255-022-0000
(for recorder's use only)
THIS DOCUMENT CONSTITUTES A SECURITY AGREEMENT FOR PURPOSES OF ARTICLE 9 OF THE
UNIFORM COMMERCIAL CODE.
MORTGAGE, ASSIGNMENT OF LEASES & SECURITY AGREEMENT
THIS MORTGAGE, ("Mortgage") is made as of May 7, 1996 by and between Leap
Partnership, Inc., an Illinois corporation (the "Mortgagor", and if there is
more than one Mortgagor, Mortgagors shall be collectively referred to as
"Mortgagor") whose mailing address is 22 West Hubbard Street, Chicago, Illinois
60610 and Manufacturers Bank (the "Mortgagee"), whose office is located at: 1200
North Ashland Avenue, Chicago, Illinois 60622.
WITNESS:
WHEREAS, Mortgagor is indebted to Mortgagee in the principal amount of
$596,000.00 together with interest thereon at the rates provided in that certain
Mortgage Note ("Mortgage Note"), a copy of which is attached hereto as Exhibit
"1" and made a part hereof.
WHEREAS, as a condition of making the loan evidenced by the aforesaid
Mortgage Note, and all Mortgage Notes thereafter executed by Mortgagor
evidencing future advances or loans and all renewals and refinancing of said
Notes made pursuant to Paragraph 31 (Future Advances) hereof including but not
limited to advances made by Mortgagee in accordance with the terms, covenants
and provisions of this Mortgage and the performance of the terms, covenants and
provisions herein contained, Mortgagee has required that Mortgagor mortgage the
"Premises" (as hereinafter defined) to the
<PAGE>
Mortgagee, and Mortgagor has executed, acknowledged, and delivered this Mortgage
to secure, in addition to the indebtedness evidenced by the aforesaid Mortgage
Note, any and all sums, indebtedness and liabilities of any and every kind now
or hereafter owing to or to become due to Mortgagee from Mortgagor.
Mortgagor does, by these presents, grant, convey and mortgage unto
Mortgagee, its successors and assigns forever, the Real Estate and all of their
estates, rights, titles, and interests (free from all rights and benefits under
and by virtue of the Homestead Exemption Laws of the State of Illinois, which
said rights and benefits the Mortgagor does hereby expressly release and waive,
and free from all right to retain possession of said real estate after default
in payment or breach of any of the covenants and agreements herein contained)
legally described on Exhibit "2" attached hereto and made a part hereof
(sometimes herein referred to as the "Real Estate"), which Real Estate, together
with the following described property, is collectively referred to as the
"Premises", together with:
A) All right, title, and interest of Mortgagor, including any after-
acquired title or reversion, in and to the beds of the ways, streets, avenues,
and alleys adjoining the Premises.
B) All and singular the tenements, hereditaments, easements, appurtenances,
passages, liberties, and privileges thereof or in any way now or hereafter
appertaining, including homestead and any other claim at law or in equity as
well as any after-acquired title, franchise, or license, and the reversion and
reversions and remainder and remainders thereof;
C) In accordance with the Collateral Assignment of Lease and Rents dated of
even date herewith, all rents, issues, proceeds and profits accruing and to
accrue from the Premises; and
D) All buildings and improvements of every kind and description now or
hereafter erected or placed thereon and all materials intended for construction,
reconstruction, alteration, and repairs of such improvements now or hereafter
erected thereon, all of which materials shall be deemed to be included within
the Premises immediately upon the delivery thereof to the Premises, and all
fixtures, equipment, materials and other types of personal property (other than
that belonging to tenants) used in the ownership and operation of the
improvement situated thereon with parking and other related facilities, in
possession of Mortgagor and now or hereafter located in, on, or upon, or
installed in or affixed to, the Real Estate legally described herein, or any
improvements or structures thereon, together with all accessories and parts now
attached to or used in connection with any such equipment, materials and
personal property or which may hereafter, at any time, be placed in or added
thereto, and also any and all replacements and proceeds of any such equipment,
materials, and personal property, together with the proceeds of any of the
foregoing; it being mutually agreed, intended, and declared, that all the
aforesaid property shall, so far as permitted by law, be deemed to form a part
and parcel of the Real Estate and for the purpose of this Mortgage to be Real
Estate, and covered by this Mortgage; and as to any of the property aforesaid
which does not so form a part and parcel of the Real Estate or does not
constitute a "fixture" (as such term is defined in the Uniform Commercial Code),
this Mortgage is hereby deemed to be, as well, a Security Agreement under the
Uniform Commercial Code for the purpose of creating hereby a security interest
2
<PAGE>
in such property, which Mortgagor hereby grants to the Mortgagee as the Secured
Party (as such term is defined in the Uniform Commercial Code).
TO HAVE AND TO HOLD, the same unto the Mortgagee and its successors and
assigns forever, for the purposes and uses herein set forth.
Provided, however, that if the Mortgagor shall pay the principal and all
interest as provided by Mortgage, and shall pay all other sums herein provided
for, or secured hereby, and shall well and truly keep and perform all of the
covenants herein contained, then this Mortgage shall be released at the cost of
the Mortgagor, otherwise to remain in full force and effect.
1. MORTGAGOR'S COVENANTS. To protect the security of this Mortgage,
Mortgagor agrees and covenants with the Mortgagee that Mortgagor shall:
A. Payment of Principal and Interest. Pay promptly when due the principal and
interest on the indebtedness evidenced by the Mortgage at the times and in the
manner herein and in this Mortgage provided.
B. Taxes and Deposits Therefor.
(i) Pay immediately when first due and owing, all general taxes, special
taxes, special assessments, water charges, sewer charges, and other
charges which may be levied against the Premises, and to furnish to
Mortgagee upon request therefor, duplicate receipts therefor within
thirty (30) days after payment thereof. Mortgagor may, in good faith
and with reasonable diligence, contest the validity or amount of any
such taxes or assessments provided: (a) that such contest shall have
the effect of preventing the collection of the tax or assessment so
contested and the sale or forfeiture of said Premises or any part
thereof, or any interest therein, to satisfy the same; (b) that
Mortgagor has notified Mortgagee in writing of the intention of the
Mortgagor to contest the same, before any tax or assessment has been
increased by any interest, penalties, or costs; and (c) that Mortgagor
shall have deposited with Mortgagee at such place as Mortgagee may
from time to time in writing appoint, a sum of money, bond, Letter of
Credit or other security reasonably acceptable to Mortgagee which
shall be sufficient in the reasonable judgment of the Mortgagee to pay
in full such contested tax and assessment and all penalties and
interest that might become due thereon, and shall keep said money on
deposit or keep in effect said bond or Letter of Credit in an amount
sufficient, in the reasonable judgment of the Mortgagee, to pay in
full such contested tax and assessment; and all penalties and interest
that might become due thereon, and shall keep on deposit an amount
sufficient at all times, increasing such amount to cover additional
penalties and interest whenever, in the reasonable judgment of the
Mortgagee, such increase is advisable. In case the Mortgagor, after
demand is made upon it by Mortgagee, shall fail to prosecute such
contest with reasonable
3
<PAGE>
diligence, or shall fail to maintain sufficient funds on deposit as
hereinabove provided, the Mortgagee may, at its option upon notice to
Mortgagor, apply the monies and/or liquidate the securities deposited
with Mortgagee, in payment of, or on account of, such taxes and
assessments, or any portion thereof then unpaid, including the payment
of all penalties and interest thereon. If the amount of the money
and/or security so deposited shall be insufficient as aforesaid for
the payment in full of such taxes and assessments, together with all
penalties and interest thereon, the Mortgagor shall forthwith upon
demand, either (a) deposit with the Mortgagee a sum which, when added
to the funds then on deposit, shall be sufficient to make such payment
in full, or (b) in case the Mortgagee shall have applied funds on
deposit on account of such taxes and assessments, restore said deposit
to an amount reasonably satisfactory to Mortgagee. Provided Mortgagor
is not then in default hereunder, the Mortgagee shall, upon the final
disposition of such contest and upon Mortgagor's delivery to Mortgagee
of an official bill for such taxes, apply the money so deposited in
full payment of such taxes and assessments or that part thereof then
unpaid, together with all penalties and interest due thereon and
return on demand the balance of said deposit, if any, to the
Mortgagor.
(ii) Mortgagor shall deposit with the Mortgagee commencing on the date of
disbursement of the proceeds of the loan secured hereby and on the
first day of each month following the month in which said disbursement
occurs, a sum equal to the amount of all real estate taxes and
assessments (general and special) next due upon or for the Premises
(the amount of such taxes next due to be based upon the Mortgagee's
reasonable estimate as to the amount of taxes and assessments to be
levied and assessed) reduced by the amount, if any, then on deposit
with the Mortgagee, divided by the number of months to elapse before
two months prior to the date when such taxes and assessments will
become due and payable. Such deposits are to be held without any
allowance of interest to Mortgagor and are to be used for the payment
of taxes and assessments (general and special) on the Premises next
due and payable when they become due. If the funds so deposited are
insufficient to pay any such taxes or assessments (general or special)
when the same become due and payable, the Mortgagor shall, within ten
(10) days after receipt of demand therefor from the Mortgagee, deposit
such additional funds as may be necessary to pay such taxes and
assessments (general and special) in full. If the funds so deposited
exceed the amount required to pay such taxes and assessments (general
and special) for any year, the excess shall be applied on a subsequent
deposit or deposits. Said deposits need not be kept separate and apart
from any other funds of the Mortgagee.
Anything in this paragraph (ii) to the contrary notwithstanding, if
the funds so deposited are insufficient to pay any such taxes or
assessments (general or special) or any installment thereof, Mortgagor
will, not later than the
4
<PAGE>
thirtieth (30th) day prior to the last day on which the same may be
paid without penalty or interest, deposit with the Mortgagee the full
amount of any such deficiency.
If any such taxes or assessments (general or special) shall be
levied, charged, assessed or imposed upon or for the Premises, or any
portion thereof, and if such taxes or assessments shall also be a
levy, charge, assessments or imposition upon or for any other Premises
not encumbered by the lien of this MORTGAGE, then the computation of
any amount to be deposited under paragraph (ii) shall be based upon
the entire amount of such taxes or assessments, and Mortgagor shall
not have the right to apportion the amount of any such taxes or
assessments for the purposes of such computation.
C. Insurance.
REQUIRED INSURANCE. Mortgagor will at all times maintain or cause to
be maintained on the Goods, the Premises and on all other Collateral, all
insurance required at any time or from time to time by the other Loan Documents
or as reasonably requested by Mortgagee.
All insurance shall be in the form and content as reasonably approved by
the Mortgagee (which shall be carried in companies reasonably acceptable to
Mortgagee) and the policies and renewals marked "PAID" shall be delivered to the
Mortgagee at least thirty (30) days before the expiration of the old policies
and shall have attached thereto standard noncontributing mortgage clause(s) in
favor of and entitling Mortgagee to collect any and all of the proceeds payable
under all such insurance, as well as standard waiver of subrogation endorsement,
if available. Mortgagor shall not carry separate insurance, concurrent in kind
or form and contributing in the event of loss, with any insurance required
hereunder. In the event of any casualty loss, Mortgagor will give immediate
notice by mail to the Mortgagee.
(viii) INSURANCE DEPOSIT. The Mortgagor will deposit with Mortgagee
within ten (10) days after notice of demand by Mortgagee in addition
the monthly payments of interest or principal payable under the terms
of Mortgage Note secured hereby and in addition to the deposits for
general and special taxes a sum equal to the premiums that will next
become due and payable on policies of fire, extended coverage and
other hazard insurance, covering the mortgaged Premises, less all sums
already paid therefor, divided by the number of months to elapse
before one (1) month prior to the date when such insurance premiums
will become due and payable, such sums to be held in trust without
interest to pay said insurance premiums. If the Mortgagor defaults in
so insuring the Premises, or in so assigning and delivering certified
copies of the policies, the Mortgagee may, at the Option of the
Mortgagee, effect such insurance from year to year and pay the premium
therefor, and the Mortgagor will reimburse the Mortgagee for any
premiums so paid, with interest from time of payment at
5
<PAGE>
the default rate as set forth in Mortgage Note on demand and the same
shall be secured by this MORTGAGE.
(ix) MORTGAGEE'S INTEREST IN AND USE OF TAX AND INSURANCE DEPOSITS;
SECURITY INTEREST. In the event of a default hereunder, the Mortgagee
may, at its option but without being required so to do, apply any
monies at the time of deposit pursuant to paragraphs l(B)(ii) and
l(C)(viii) hereof on any of Mortgagor's obligations contained herein
or in Mortgage Note, in such order and manner as the Mortgagee may
elect. When the indebtedness has been fully paid, any remaining
deposits shall be paid to Mortgagor of to the then owner or owners of
the Premises as the same appear on the records of the Mortgagee. A
security interest, within the meaning of the Uniform Commercial Code
of the State in which the Premises are located, is hereby granted to
the Mortgagee in and to all monies at any time on deposit pursuant to
Paragraphs l(B)(ii) and l(C)(viii) hereof and such monies and all of
Mortgagor's right, title and interest therein are hereby assigned to
Mortgagee, all as additional security for the indebtedness hereunder
and shall, in the absence of default hereunder, be applied by the
Mortgagee for the purposes for which made hereunder and shall not be
subject to the direction or control of the Mortgagor; provided,
however, that the Mortgagee shall not be liable for any failure to
apply to the payment of taxes or assessments or insurance premiums any
amount so deposited unless Mortgagor, while not in default hereunder,
shall have furnished Mortgagee with the bills therefor and requested
Mortgagee, in writing, to make application of such funds to the
payment of the particular taxes or assessments or insurance premiums
for payment of which they were deposited, accompanied by the bills for
such taxes or assessments or insurance premiums. Mortgagee shall not
be liable for any act or omission taken in good faith, but only for
its gross negligence or willful misconduct.
(x) MORTGAGEE CONSENT SHALL BE REQUIRED: Mortgagor shall not amend,
modify, change, cancel or terminate any of the insurance policies
required to be maintained by Mortgagor without the prior written
consent of Mortgagee.
D. PRESERVATION AND RESTORATION OF PREMISES AND COMPLIANCE WITH GOVERNMENTAL
REGULATIONS. Mortgagor shall (a) promptly repair, restore, or rebuild any
buildings and other improvements now or hereafter on the Premises which may
become damaged or destroyed to substantially the same character as prior to
such damage or destruction, without regard to the availability or adequacy
of any casualty insurance proceeds or eminent domain awards; (b) keep the
Premises constantly in good condition and repair, without waste; (c) keep
the Premises free from mechanics' liens or other liens or claims for the
lien not expressly subordinated to the lien hereof (collectively called
"Liens"), subject, however to the rights of the Mortgagor set forth in the
next paragraph below; (d) immediately pay when due any indebtedness which
may be secured by a lien hereof
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(no such subsequent lien to be permitted hereunder) and upon request
exhibit satisfactory evidence of the discharge of such lien to Mortgagee;
(e) complete within a reasonable time any building(s) or other
improvement(s) now or at any time in the process of erection upon the
Premises; (f) comply with all federal, state and local requirements of law,
regulations, ordinances, orders and judgments and all covenants, easements
and restrictions of record with respect to the Premises and the use
thereof; (g) make no alterations in the Premises without Mortgagee's prior
written consent; (h) suffer or permit no change in the general nature of
the occupancy of the Premises without Mortgagee's prior written consent (i)
observe and comply with all conditions and requirements (if any) necessary
to preserve and extend all rights, easements, licenses, permits (including
without limitation zoning variations and any non-conforming uses and
structures), privileges, franchises and concessions applicable to the
Premises or contracted for in connection with any present or future use of
the Premises; and (k) pay each item of indebtedness secured by this
MORTGAGE when due without set-off, recoupment, or deduction according to
the terms hereof and of Mortgage Note. As used in this paragraph and
elsewhere in this MORTGAGE, the term "indebtedness" means and includes the
unpaid principal sum evidenced by Mortgage Note, together with all
interest, additional interest, late charges and prepayment premiums
thereon, and all other sums at any time secured by this Mortgage.
Anything in (c) and (d) above to the contrary notwithstanding,
Mortgagor may, in good faith and with reasonable diligence, contest the
validity of amount of any lien not expressly subordinated to the lien
hereof, and defer payment and discharge thereof during the pending of such
contest, provided: (i) that such contest shall have the effect of
preventing the sale or forfeiture of the Premises or any part thereof, or
any interest therein, to satisfy such lien; (ii) that, within ten (10) days
after Mortgagor has been notified of the assertion of such lien, Mortgagor
shall have notified Mortgagee in writing of Mortgagor's intention to
contest such a lien; and (iii) that Mortgagor shall have deposited with
Mortgagee a sum of money which shall be sufficient in the judgment of the
Mortgagee to pay in full such lien and interest which might become due
thereon, and shall keep on deposit an amount so sufficient at all times,
increasing such amount to cover additional interest whenever, in the
judgment of Mortgagee, such increase is advisable. Such deposits are to be
held without any allowance of interest. If Mortgagor shall fail to
prosecute such contest with reasonable diligence or shall fail to pay the
amount of the lien plus any interest finally determined to be due upon the
conclusion of such contest, to the extent such amount exceeds the amount
which Mortgagee will pay as provided below, or shall fail to maintain
sufficient funds on deposit as hereinabove provided, Mortgagee may, at its
option, apply the money so deposited in payment of or on account of such
lien, or that part thereof then unpaid, together with all interest thereon.
If the amount of money so deposited shall be insufficient for the payment
in full of such lien, together with all interest thereon, Mortgagor shall
forthwith, upon demand, deposit with Mortgagee a sum which, when added to
the funds then on deposit, shall be sufficient to make such payment in
full. Mortgagee shall, upon the final disposition of such contest,
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apply the money so deposited full payment of such lien or that part thereof
then unpaid (provided Mortgagor is not then in default hereunder) when so
required in writing by Mortgagor and when furnished by Mortgagor with
sufficient funds to make such payment in full and with evidence
satisfactory to Mortgagee of the amount of payment to be made.
E. RESTRICTIONS ON TRANSFER AND FINANCING. For the purpose of protecting
Mortgagee's security, keeping the Premises free from substantial financing
liens, and/or allowing Mortgagee to raise the interest rate and to collect
assumption fees, Mortgagor agrees that any sale, conveyance, further
encumbrance or other transfer of title to the Premises, or any interest
therein (whether voluntary or by operation of law) without the Mortgagee's
prior written consent, shall be an Event of Default hereunder.
For the purposes of this paragraph E and without limiting the
generality of the foregoing, the occurrence at any time of any of the
following events, without Mortgagee's prior written consent, shall be
deemed to be an unpermitted transfer of title to the Premises and therefore
an Event of Default hereunder:
(i) any sale, conveyance, assignment, or other transfer of, or the
mortgage, pledge, or grant of a security interest in, all or any part
of the legal and/or equitable title to the Premises including, without
limitation, all or any part of the beneficial interest of a trustee
Mortgagor; or
(ii) any sale, conveyance, assignment, or other transfer of, or the
mortgage, pledge, or grant of a security interest in, any shares of
stock of a corporate Mortgagor, a corporation which is the beneficiary
of a trustee Mortgagor;* or
(iii) any sale, conveyance, assignment, or other transfer of, or the
mortgage, pledge, or grant of a security interest in any membership
interest of a limited liability company; or
(iv) any sale, conveyance, assignment, or other transfer of, or the
mortgage, pledge, or grant of a security interest in, any general
partnership interest of a partnership Mortgagor or a partnership
beneficiary of a trustee Mortgage, a partnership which is a general
partner in a partnership Mortgagor, a partnership which is a general
partner in a partnership beneficiary of a trustee Mortgagor, a
partnership which is the owner of substantially all of the capital
stock of any corporation described in paragraph 1 (E)(ii) above, or
any other partnership having an interest, whether direct or indirect,
in Mortgagor; or
(v) if Mortgagor, beneficiary or any other person shall modify,
amend, terminate, dissolve or in any other way alter its trust,
corporate or partnership existence or fall from good standing or
convey, transfer, distribute, lease or otherwise dispose of all or
substantially all of its property, assets or business.
Any such sale, transfer, assignment, conveyance, lease, lien,
pledge, mortgage, hypothecation or any other encumbrance or alienation
or
* That notwithstanding any provisions contained in this Paragraph E. or
subdivision thereof, Mortgagor shall have a right to transfer shares of its
stock as long as such transfer(s) shall not be for all or a majority of the
capital stock of the Mortgagor.
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contract or agreement to do any of the foregoing shall be null and
void and of no force or effect, but the attempted making thereof
shall, at the option of the Mortgagee, constitute an Event of Default
hereunder. Any consent by the Mortgagee, or any waiver of an Event of
Default, under this paragraph 1(E) shall not constitute a consent to,
or waiver of any right, remedy or power of the Mortgagee upon a
subsequent Event of Default under this paragraph 1(E).
2. MORTGAGEE'S PERFORMANCE OF DEFAULTED ACTS. In case of default herein,
Mortgagee may, but need not, at any time subject to the provisions of this
Mortgage, make any payment or perform any act herein required of Mortgagor in
any form and manner deemed expedient by Mortgagee, and Mortgagee may, but need
not, make full or partial payments of principal or interest on prior
encumbrances, if any, and purchase, discharge, compromise, or settle any tax
lien or other prior or junior lien or title or claim thereof, or redeem from any
tax sale or forfeiture affecting the Premises or contest any tax or assessment.
All monies paid or incurred in connection therewith, including attorneys' fees,
and any other monies advanced by Mortgagee to protect the Premises and the lien
hereof, shall be so much additional indebtedness secured hereby, and shall
become immediately due and payable by Mortgagor to Mortgagee without notice and
with interest thereon at the Default Rate as defined herein. Inaction of
Mortgagee shall never be considered as a waiver of any right accruing to it on
account of any default on the part of the Mortgagor.
3. EMINENT DOMAIN. So long as any portion of the principal balance
evidenced by Mortgage Note remains unpaid, any and all awards heretofore or
hereafter made or to be made to the present and all subsequent owners of the
Premises, by any governmental or other lawful authority for taking, by
condemnation or eminent domain, of the whole or any part of the Premises or any
improvement located thereon, or any easement therein or appurtenant thereto
(including any award from the United States Government at any time after the
allowance of the claim therefor, the ascertainment of the amount thereof and the
issuance of the warrant for payment thereof), are hereby assigned by Mortgagor
to Mortgagee, to the extent of the unpaid indebtedness evidenced by Mortgage
Note, which award Mortgagee is hereby authorized to give appropriate receipts
and acquittances therefor, and subject to the terms of paragraph 24 hereof,
Mortgagee shall apply the proceeds of such award as a credit upon any portion of
the indebtedness secured hereby or, at its option, permit the same to be used to
repair and restore the improvements in the same manner as set forth in paragraph
24 hereof with regard to insurance proceeds received subsequent to a fire or
other casualty to the Premises. Mortgagor shall give Mortgagee immediate notice
of the actual or threatened commencement of any such proceedings under
condemnation or eminent domain, affecting all or any part of the said Premises
or any easement therein or appurtenances thereof, including severance and
consequential damage and change in grade of streets, and will deliver to
Mortgagee copies of any and all papers served in connection with any such
proceedings. Mortgagor shall make, execute and deliver to Mortgagee, at any time
or times upon request, free, clear and discharged of any encumbrances of any
kind
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whatsoever, any and all further assignments and/or instruments deemed necessary
by Mortgagee for the purpose of validly and sufficiently assigning all awards in
accordance with and subject to the provisions hereof, and other compensation
heretofore and hereafter to be made to Mortgagor for any taking, either
permanent or temporary, under any such proceeding. Notwithstanding anything
aforesaid to the contrary, Mortgagor shall have the sole authority to conduct
the defense of any condemnation or eminent domain proceeding and (so long as the
amount of any condemnation or eminent domain award exceeds the unpaid principal
balance evidenced by Mortgage Note) the sole authority to agree to and/or accept
the amounts, terms, and conditions of any and all condemnation or eminent domain
awards.
4. (A) ACKNOWLEDGMENT OF DEBT. Mortgagor shall furnish, from time to time,
within thirty (30) days after Mortgagee's request, a written statement of the
amount due upon this Mortgage and whether any alleged offsets or defenses exist
against the indebtedness secured by this Mortgage.
(B) FURNISHING OF FINANCIAL STATEMENTS TO MORTGAGEE. Mortgagor covenants and
agrees that it will keep and maintain books and records of account in which
full, true and correct entries shall be made of all dealings and
transactions relative to the Premises, which books and records of account
shall, at reasonable times and on reasonable notice, be open to the
inspection of the Mortgagee and its accountants and other duly authorized
representatives. Such books of record and account shall be kept and
maintained in accordance with the generally accepted accounting principles
consistently applied.
(C) Mortgagor covenants and agrees upon Mortgagee's request to furnish to the
Mortgagee, within ninety (90) days following the end of every fiscal year
applicable to the operation of the improvements on the Premises, a copy of
a report of the operations of the improvements on the Premises for the year
then ended, to be certified by a general partner or the chief financial
officer of Mortgagor satisfactory to the Mortgagee, including a balance
sheet and supporting schedules and containing a detailed statement of
income and expenses. Each such certificate to each such annual report shall
certify that the certifying party examined such records as were deemed
necessary for such certification and that those statements are true and
correct and complete.
5. ILLEGALITY OF TERMS HEREOF. Nothing herein or in Mortgage Note contained
nor any transaction related thereto shall be construed or shall so operate
either presently or prospectively, (a) to require Mortgagor to pay interest at a
rate greater than is now lawful in such case to contract for, but shall require
payment of interest only to the extent of such lawful rate; or (b) to require
Mortgagor to make any payment or do any act contrary to law, and if any clause
and provision herein contained shall otherwise so operate to invalidate this
Mortgage, in whole or in part, then such clause or clauses and provisions only
shall be held for naught as though not herein contained and the remainder of
this Mortgage shall remain operative and in full force and effect, and Mortgagee
shall be given a reasonable time to correct any such error.
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6. SUBROGATION. In the event the proceeds of the loan made by the Mortgagee
to the Mortgagor, or any part thereof, or any amount paid out or advanced by the
Mortgagee, be used directly or indirectly to pay off, discharge, or satisfy, in
whole or in part, any prior lien or encumbrance upon the Premises or any part
thereof, then the Mortgagee shall be subrogated to such other lien or
encumbrance and to any additional security held by the holder thereof and shall
have the benefit of the priority of all of same.
7. EXECUTION OF SECURITY AGREEMENT AND FINANCING STATEMENT. Mortgagor,
within five (5) days after request by mail, shall execute, acknowledge, and
deliver to Mortgagee a Security Agreement, Financing Statement, or other similar
security instrument, in form satisfactory to the Mortgagee, and reasonably
satisfactory to Mortgagor and conforming to the terms hereof covering all
property of any kind whatsoever owned by the Mortgagor, which, in the sole
opinion of Mortgagee, is essential to the operation of the Premises and
concerning which there may be any doubt as to whether the title to same has been
conveyed by or a security interest therein perfected by this Mortgage under the
laws of the State of Illinois and will further execute, acknowledge, and deliver
any financing statement, affidavit, continuation statement or certificate, or
other documents as Mortgagee may request in order to perfect, preserve,
maintain; continue, and extend the security instrument. Mortgagor further agrees
to pay Mortgagee, on demand, all costs and expenses incurred by Mortgagee in
connection with the recording, filing, and refiling of any such document. This
instrument is intended by the parties to be, and shall be construed as, a
security agreement, as that term is defined and used in Article 9 of the
Illinois Uniform Commercial Code, as amended, and shall grant to the Mortgagee a
security interest in that portion of the premises with respect to which a
security interest can be granted under Article 9 of the Illinois Uniform
Commercial Code, as amended, which security interest shall also include a
security interest in the personalty described in Exhibit 3 attached hereto and
made a part hereof, a security interest in all other tangible and intangible
personal property, including without limitation, to the extent of the
Mortgagor's present or future interest, all licenses, permits and general
intangibles now or hereafter located upon the premises, or related to or used or
usable in connection with any present or future operation upon such property,
and a security interest in the proceeds of all insurance policies now or
hereafter covering all or any part of such collateral.
8. MORTGAGEE'S PAYMENT OF GOVERNMENTAL, MUNICIPAL OR OTHER CHARGES OR
LIENS. Upon the occurrence of an Event of Default hereunder Mortgagee is hereby
authorized subject to the terms of and provisions of this Mortgage, to make or
advance, in the place and stead of the Mortgagor, any payment relating to taxes,
assessments, water rates, sewer rentals, and other governmental or municipal
charges, fines, impositions, or liens asserted against the Premises and may do
so according to any bill, statement, or estimate procured from the appropriate
public office without inquiry into the accuracy of the bill, statement, or
estimate or into the validity of any tax, assessment, sale, forfeiture, tax
lien, or title or claim thereof, and the Mortgagee is further authorized to make
or advance in the place and stead of the Mortgagor any payment relating to any
apparent or threatened adverse title, lien, statement of lien,
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encumbrance, claim, or charge; or payment otherwise relating to any other
purpose herein and hereby authorized but not enumerated in this paragraph, and
may do so whenever, in its reasonable judgment and discretion, such advance or
advances shall seem necessary or desirable to protect the full security intended
to be created by this instrument, and, provided further, that in connection with
any such advance, Mortgagee, in its option, may and is hereby authorized to
obtain a continuation report of title or title insurance policy prepared by a
title insurance company of Mortgagee's choosing.
All such advances and indebtedness authorized by this paragraph shall be
repayable by Mortgagor upon demand with interest at the Default Rate.
9. STAMP TAX; EFFECT OF CHANGES IN LAW REGARDING TAXATION.
(A) If, by the laws of the United States of America or of any state or
subdivision thereof having jurisdiction over the Mortgagor any tax is due
or becomes due in respect of the issuance of Mortgage Note, the Mortgagor
covenants and agrees to pay such tax in the manner required by any such
law. The Mortgagor further covenants to reimburse the Mortgagee for any
sums which Mortgagee may expend by reason of the imposition of any tax on
the issuance of Mortgage Note.
(B) In the event of the enactment, after this date, of any law of the state in
which the Premises are located deducting from the value of the land for the
purpose of taxation any lien thereon, or imposing upon the Mortgagee the
payment of the whole or any part of the taxes or assessments or charges or
liens herein required to be paid by Mortgagor, or changing in any way the
laws relating to the taxation of mortgages or debts secured by mortgages or
the Mortgagee's interest in the Premises, or the manner of collection of
taxes, so as to affect this Mortgage or the debt secured hereby or the
holder thereof, then, and in any such event, the Mortgagor, upon demand by
the Mortgagee, shall pay such taxes or assessment or reimburse the
Mortgagee therefor; provided however, that if in the opinion of counsel for
the Mortgagee (i) it might be unlawful to require Mortgagor to make such
payment; or (ii) the making of such payment might result in the imposition
of interest beyond the maximum amount permitted by law; then and in any
such event, the Mortgagee may elect, by notice in writing given to the
Mortgagor, to declare all of the Indebtedness to be and become due and
payable sixty (60) days from the giving of such notice.
10. PURPOSE OF LOAN. Mortgagor (as advised by its beneficiary(ies) if
Mortgagor is a land trust, if such is the case) represents, understands and
agrees that the obligations secured hereby constitute a business loan as defined
in this paragraph. This Mortgage is an exempt transaction under the Truth-In-
Lending Act, 15. U.S.C., paragraph 1601 et. seq. and this Mortgage and Mortgage
Note 3 which is secured thereby are to be construed and governed by the laws of
the State of Illinois and that the entire proceeds of Mortgage Note shall be
used for business purposes as defined in the Illinois Compiled Statutes at 815
ILCS 205/4.
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11. MORTGAGEE'S RIGHT OF INSPECTION. The Mortgagee and any persons
authorized by the Mortgagee shall have the right to enter upon and inspect the
Premises at all reasonable prior notice; and if, at any time after default by
the Mortgagor in the performance of any of the terms, covenants, or provisions
of this Mortgage or Mortgage Note or the Loan Documents, the Management or
maintenance of the Premises shall be determined by the Mortgagee to be
unsatisfactory, the Mortgagor shall employ for the duration of such default, as
managing agent of the Premises, any person from time to time designated by the
Mortgagee and Mortgagor shall be liable for any inspection fee. In addition, in
the event of any default(s) under the terms of this Mortgage or any other loan
documents securing the Note, or when deemed reasonable and necessary by
Mortgagee, Mortgagee and its representative shall have a right to enter upon the
premises and improvements thereon (in addition to any rights Mortgagee may have
under Mortgage Note and any loan documents securing the Note) to conduct a
comprehensive Environmental Audit including and not limited to a Phase I and
Phase II Audit and/or to conduct an Americans With Disabilities Act Audit.
Mortgagor, Mortgagor's Beneficiaries, if property is vested in a land trust and
Guarantor(s), if premises are vested in a corporation, the corporation's
officers, directors and shareholders jointly and severally are liable to
promptly pay on or before five (5) days from the presentation from Mortgagee all
costs, fees and expenses incurred in connection with the Environmental and
Americans With Disabilities Act Audits.
12. REPRESENTATIONS AND WARRANTIES. Mortgagor hereby represents [and if the
Premises are vested in a land trust, the beneficiary(ies) hereinafter named, by
directing Mortgagor to execute and deliver this Mortgage and by joining in the
execution of this Mortgage, to the best of their knowledge represent(s) and
warrant(s)] to Mortgagee as of the date hereof and as of all dates hereafter
that:
(a) OWNERSHIP. Mortgagor owns the entire Premises and no person or entity,
other than Mortgagor and the Mortgagee has any interest (direct or
indirect, collateral or otherwise) (other than the lessee's leasehold
interest) in the Premises;
(b) USE OF MORTGAGE PROCEEDS. Mortgagor intends to utilize, and its utilizing,
the proceeds of the indebtedness evidenced by Mortgage Note and secured
hereby for its business purposes;
(c) UNTRUE STATEMENTS. Mortgagor has not made any untrue statement or false
disclosure to Mortgagee to induce it to issue its Commitment with respect
to its financial status or ability to repay the indebtedness or perform the
covenants contained in the Loan Documents specified in Mortgage Note, or
omitted to state a material fact necessary to make statements made or
matters disclosed to Mortgagee, in light of the circumstances under which
said statements were made or matters disclosed, not misleading;
(d) DEFAULT UNDER AGREEMENTS. Mortgagor is not in default under any agreement
to which it is a party, the effect of which will materially and adversely
affect performance by Mortgagor of its obligations pursuant to and as
contemplated by the terms and provisions of the aforesaid Commitment
Letter, Mortgage Note, or any of the Loan Documents therein specified, and
the consummation of the transaction(s) herein and therein contemplated, and
compliance with the terms
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hereof and thereof will not violate any presently existing applicable
order, writ, injunction, or decree of any court or governmental department,
commission, bureau, agency, or instrumentality, and will not conflict with,
be inconsistent with, or result in any breach of any of the terms,
covenants, conditions, or provisions of, or constitute a default under any
articles, by-laws, partnership agreement, indenture, mortgage, deed of
trust, instrument, document, agreement or contract to which Mortgagor may
be bound; and
(e) PROCEEDINGS AND INSURANCE. Mortgagor is not involved or to the best of its
knowledge, is not threatened to be involved in, any actions, suits, or
proceedings affecting them or the Premises before any court or
governmental, administrative, regulatory, adjudicating, or arbitrational
body or agency of any kind which is not covered by insurance, and which
will materially affect performance by Mortgagor of its obligations pursuant
to this Mortgage, Mortgage Note, or the Loan Documents specified therein:
(f) MORTGAGOR DULY ORGANIZED. Mortgagor has been duly organized and is in good
standing under the laws of the State of Illinois; has legal authority to
bind Mortgagor; that this Mortgage, Mortgage Note (and any other Loan
Documents) are valid and enforceable in accordance with their terms;
(g) CONDITION OF PREMISES. The buildings are in high quality physical order,
repair and condition, are structurally sound and wind and water tight, and
all plumbing, electrical, heating, ventilation, air conditioning, elevator
and other mechanical systems and equipment are in good operating order,
repair and condition;
(h) TAXES. Mortgagor has filed all federal, state, county, and municipal income
tax returns required to have been filed by it and has paid all taxes which
have become due pursuant to such returns or pursuant to any assessments
received by it, and Mortgagor does not know of any basis for additional
assessment in respect of such taxes;
(i) LITIGATION. There is not now pending against or affecting Mortgagor,
Beneficiary or any Guarantor of Mortgage Note or the Premises nor, to the
knowledge of Mortgagor, is there threatened, any action, suit or proceeding
at law or in equity or by or before any administrative agency which if
adversely determined would materially impair or affect the financial
condition or operation of Mortgagor, Beneficiary, or any Guarantor of
Mortgage Note or the Premises.
(j) PERMITS AND APPROVALS. All permits, certificates, approvals and licenses
required for or in connection with the ownership, use, occupancy or
enjoyment of the Premises or in connection with the organization,
existence, and conduct of the business of Mortgagor have been duly and
validly issued and are and shall at all times be in full force and effect;
(k) ZONING. The Premises are duly and validly zoned as to permit the current
use, occupancy and operation of the Premises and such zoning is final and
unconditional and in full force and effect, and no attacks are pending or
threatened with respect thereto. The Premises comply with the requirements,
standards and limitations set forth in the applicable zoning ordinance and
other applicable ordinances in all particulars including but not limited
to, bulk, density, height, character, dimension, location and parking
restrictions or provisions;
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(l) UTILITIES. All utility services necessary and sufficient for the full use,
occupancy and operation of the Premises are available to and currently
servicing the Premises without the necessity of any off-site improvements
or further connection costs.
(m) BROKERAGE COMMISSIONS AND OTHER FEES. That Mortgagee is not liable for nor
responsible for the payment of any brokerage commissions or fees in
connection with the loan to be disbursed by Mortgagee hereunder.
(n) HAZARDOUS WASTE, DISABILITY LAWS, ETC. That the premises are free of any
asbestos and the premises have not been used for the purpose of storing,
disposal or treatment of hazardous substances or hazardous waste, and there
has been no surface or subsurface contamination due to the storing,
disposal or treatment of any hazardous substances, hazardous wastes or
regulated substances as those terms are defined in the Comprehensive
Environmental Response, Liability and Compensation Act, 42 U.S.C. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.,
the Environmental Protection Act, III. Rev. Stat. 1985 (supp. 1986 and
1987) ch. 111-1/2 par. 1101 et seq., and the premises are in full
compliance with all disability laws and neither Mortgagor nor any and all
previous owners of the real estate have received any notification of any
asserted present or past failure to comply with any such environmental
protection and/or disability laws or any rules or regulations adopted
pursuant thereto. Mortgagor shall immediately notify Mortgagee of any
notice or threatened action from any governmental agency or from any tenant
under a lease of any portion of the premises of a failure to comply with
any such environmental protection and/or disability laws and with any rules
or regulations adopted pursuant thereto.
13. DEFAULT AND FORECLOSURE
(A) Events of Default and Remedies. The following shall constitute an Event of
Default under this Mortgage:
(i) FAILURE TO PROVIDE INSURANCE. Any failure to provide the
insurance specified in paragraphs l(C)(i) through l(C)(vii) inclusive;
(ii) DEFAULT IN PAYMENT OF PRINCIPAL OR INTEREST. Any default in the
payment of principal and/or interest under Mortgage Note secured
hereby which default or failure remains uncured for a period of ten
(10) days; or
(iii) DEFAULT IN PERFORMANCE OF COVENANTS OR CONDITIONS. Any default
in the performance or observance of any other term, covenant, or
condition in this Mortgage, or in any other instrument now or
hereafter evidencing or securing said indebtedness which default
continues for thirty (30) days;
(iv) VOLUNTARY BANKRUPTCY PROCEEDINGS. If the Mortgagor, any
Beneficiary or any Guarantor of Mortgage Note shall file a petition in
voluntary bankruptcy or under Chapter 7 or Chapter 11 of the Federal
Bankruptcy Code or any similar law, state or federal, whether now or
hereafter existing, which action is not dismissed within thirty (30)
days; or
(v) ADMISSION OF INSOLVENCY. If the Mortgagor, any Beneficiary or
any Guarantor of Mortgage Note shall file an answer admitting
insolvency
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or inability to pay their debts or fail to obtain a vacation or stay
of involuntary proceedings within thirty (30) days after the filing
thereof or
(vi) ADJUDICATION OF BANKRUPTCY. If the Mortgagor, any Beneficiary
or any Guarantor of Mortgage Note shall be adjudicated a bankrupt, or
a trustee or a receiver shall be appointed for the Mortgagor, any
Beneficiary or any Guarantor of Mortgage Note which appointment is not
relinquished within thirty (30) days for all or any portion of the
Premises or its or their property in any involuntary proceedings; or
(vii) INVOLUNTARY PROCEEDINGS. Any court shall have taken
jurisdiction of all or any portion of Mortgage Note, in any
involuntary proceeding for reorganization, dissolution, liquidation,
or winding up of the Mortgagor, any Beneficiary or any Guarantor of
Mortgage Note, and such trustees or receiver shall not be discharged
or such jurisdiction relinquished or vacated or stayed on appeal or
otherwise stayed within the thirty (30) days after appointment; or
(viii) ASSIGNMENT FOR BENEFIT OF CREDITORS. The Mortgagor, any
Beneficiary or any Guarantor of Mortgage Note shall make an assignment
for the benefit of creditors, or shall admit in writing its or their
insolvency or shall consent to the appointment of a receiver or
trustee or liquidator of all or any portion of the Premises; or
(ix) TRUTH OR FALSITY OF WARRANTIES. The untruth of falsity of any
of the warranties contained herein, or the Collateral Assignment of
Lease(s) and Rent(s) given to secure the payment of Mortgage Note 3;
(x) FORECLOSURE OF OTHER LIENS. If the holder of a junior or senior
mortgage or other lien on the Premises (without hereby implying
Mortgagee's consent to any such junior or senior mortgage or other
lien) declares a default or institutes foreclosure or other
proceedings for the enforcement of its remedies thereunder;
(xi) DAMAGE OR DESTRUCTION. If the Premises or any material part
thereof is demolished, destroyed or damaged by any cause whatsoever
and the loss is not adequately covered by insurance actually collected
and Mortgagor fails to deposit with the Mortgagee the deficiency upon
written request;
(xii) ABANDONMENT. If the premises shall be abandoned.
(xiii) DEFAULT UNDER OTHER INDEBTEDNESS. If the Mortgagor, any
beneficiary or the guarantor of Mortgage Note shall be in default
under any other indebtedness, obligation, Loan Documents, commitment
letter or any liability as evidenced to the Mortgagee;
(xiv) MATERIAL ADVERSE CHANGE. If there occurs, in the judgment of
the Mortgagee, a material adverse change in the net assets or
financial condition of the Mortgagor, any Beneficiary or any Guarantor
of Mortgage Note as reflected on any updated financial statement(s) or
as disclosed by an audit required by Mortgagee, compared to such
party's net assets or financial condition as reflected on the
financial statement(s) submitted to Mortgagee as of the date hereof;
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(xv) FALSE REPRESENTATION. If any representation or warranty made by
Mortgagor, any Beneficiary or any Guarantor of Mortgage Note or others
in, under or pursuant to the Loan Documents shall be false or
misleading in any respect on or at any time after the date when made
or if any inaccuracy shall exist in any of the financial statements,
operating information or other information furnished to Mortgagee in
connection with the Loan Documents;
(xvi) FAILURE TO NOTIFY MORTGAGEE OF DEFAULT OR FALSE REPRESENTATION.
If Mortgagor, any Beneficiary or any Guarantor of Mortgage Note shall
fail to notify Mortgagee in writing as soon as it shall be practicable
to do so upon learning that any representation of warranty made by
Mortgagor, any Beneficiary or any Guarantor of Mortgage Note to
Mortgagee is false or misleading in any material respect or upon
learning of the occurrence of any event which with the passage of time
or the giving of notice or both would constitute an Event of Default
under the Loan Documents;
(xvii) FAILURE TO OBTAIN MORTGAGEE'S CONSENT TO TRANSFER OR FINANCING.
If Mortgagor or any party(ies) set forth in this Mortgage shall make
any unpermitted transfer or financing in violation hereof;
(xviii) JUDGMENT, LEVY OR ATTACHMENT. If any final judgment for the
payment of money in excess of Five Thousand Dollars ($5,000.00) shall
be rendered against Mortgagor, any Beneficiary or any Guarantor of
Mortgage Note or if any writ, attachment, levy, citation, lien, or
distress warrant shall be issued against the Premises or any part
thereof or interest therein;
(xix) INABILITY TO PAY IMPOSITIONS AND OTHER DEBTS. If Mortgagor shall
fail to pay any of the Impositions when due, or if Mortgagor shall
suffer or permit any other accounts payable in connection with the
Premises to become past due, or if Mortgagor, any Beneficiary or any
Guarantor of Mortgage Note shall generally fail or be unable to pay
its debts as they come due, or shall admit in writing its inability to
pay its debts as they become due, or shall make a general assignment
for the benefit of creditors;
(xx) OTHER INDEBTEDNESS. If Mortgagor, any Beneficiary or any
Guarantor of Mortgage Note shall default in the due and punctual
performance of any covenants, conditions, warranties, representations,
or other obligation, including, without limitation, the repayment of
indebtedness, under any documents or instruments evidencing or
securing any other indebtedness owed to Mortgagee and shall fail to
cure such default within the applicable cure or grace period, if any;
(xxi) DEFAULT UNDER LEASES. If Mortgagor, any Beneficiary or any
Guarantor of Mortgage Note defaults under any Lease.
Upon the occurrence of an Event of Default, the entire
indebtedness secured hereby, including, but not limited to, principal
and accrued interest shall, at the option of the Mortgagee and without
demand
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or notice to Mortgagor, become immediately due and payable with
interest accruing thereafter on the unpaid principal balance of
Mortgage Note at the Default Rate (as hereinafter defined) and,
thereupon, or at any time after the occurrence of any such Event of
Default, the Mortgagee may proceed to foreclose this Mortgage by
judicial proceedings according to the statutes in such case provided,
and any failure to exercise said option shall not constitute a waiver
of the right to exercise the same at any other time.
(B) EXPENSE OF LITIGATION. In any suit to foreclose the lien on this Mortgage
or enforce any other remedy of the Mortgagee under this Mortgage, Mortgage
Note, or any other document given to secure the indebtedness represented by
Mortgage Note, there shall be allowed and included as additional
indebtedness in the judgment or decree, all expenditures and expenses which
may be paid or incurred by or on behalf of Mortgagee for reasonable
attorneys' fees, appraisers' fees, outlays for documentary and expert
evidence, stenographers' charges, publication costs, survey costs and cost
(which may be estimated as to items to be expended after entry of the
decree), of procuring all abstracts of title, title searches and
examinations, title insurance policies, and similar data and assurances
with respect to title as Mortgagee may deem reasonably necessary either to
prosecute such suit or to evidence to bidders at any sale which may be had
pursuant to such decree, the true condition of the title to or value of the
Premises. All expenditures and expenses of the nature in this paragraph
mentioned, and such expenses and fees as may be incurred in the protection
of said Premises and the maintenance of the lien of this Mortgage,
including the fees of any attorney affecting this Mortgage, Mortgage Note
or the Premises, or in preparation for the commencement or defense of any
proceeding or threatened suit or proceeding, shall be immediately due and
payable by Mortgagor, with interest thereon at the Default Rate.
(C) MORTGAGEE'S RIGHT OF POSSESSION IN CASE OF EVENT OF DEFAULT. In any case in
which, under the provisions of this Mortgage, the Mortgagee has a right to
institute foreclosure proceedings whether or not the entire principal sum
secured hereby is declared to be immediately due as aforesaid, or whether
before or after the institution of legal proceedings to foreclose the lien
hereof, or before or after sale thereunder, forthwith upon demand of
Mortgagee, Mortgagor shall surrender to Mortgagee, and Mortgagee shall be
entitled to take actual possession of the Premises or any part thereof,
personally or by its agent or attorneys, as for condition broken and
Mortgagee, in its discretion may enter upon and take and maintain
possession of all or any part of said Premises, together with all
documents, books, records, papers, and accounts of the Mortgagor or the
then owner of the Premises relating thereto, and may exclude the Mortgagor,
its agents or servants, wholly therefrom, and may, in its own name as
Mortgagee and under the powers herein granted:
(i) hold, operate, manage and control the Premises and conduct the
business, if any thereof, either personally or by its agents, and with
full power to use such measures, legal or equitable, as in its
discretion or in the
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discretion of its successors or assigns may be deemed proper or
necessary to enforce the payment or security of the avails, rents,
issues, and profits of the Premises including actions for recovery of
rent, actions in forcible detainer, and actions in distress for rent,
hereby granting full power and authority to exercise each and every of
the rights, privileges, and powers herein granted at any and all times
hereafter, without notice to the Mortgagor;
(ii) cancel or terminate any lease or sublease or management agreement
for any cause or on any ground which would entitle Mortgagor to cancel
the same;
(iii) extend or modify any then existing lease(s) or management
agreement(s) and make new lease(s) or management agreement(s), which
extensions, modification, and new lease(s) or management agreement(s)
may provide for terms to expire, or for options to extend or renew
terms to expire, beyond the maturity date of the indebtedness
hereunder and the issuance of a deed or deeds to a purchaser or
purchasers at a foreclosure sale, it being understood and agreed that
any such lease(s) and management agreement(s) and the options or other
such provisions to be contained therein, shall be binding upon
Mortgagor and all persons whose interests in the Premises are subject
to the lien hereof and shall also be binding upon the purchaser or
purchasers at any foreclosure sale, notwithstanding any redemption
from sale, discharge or the mortgage indebtedness, satisfactory of any
foreclosure decree, or issuance of any certificate of sale or deed to
any purchaser;
(iv) make all necessary or proper repairs, decorations, renewals,
replacements, alterations, additions, betterment, and improvements to
the Premises as to Mortgagee may seem judicious, to insure and
reinsure the Premises and all risks incidental to Mortgagee's
possession, operation and management thereof, and to receive all
avails, rents, issues and profits.
(D) MORTGAGEE'S DETERMINATION OF PRIORITY OF PAYMENTS. Any avails, rents,
issues, and profits of the Premises received by the Mortgagee after having
taken possession of the Premises, or pursuant to any assignment thereof to
the Mortgagee under the provisions of this Mortgage or of any separate
security documents or instruments shall be applied in payment of or on
account of the following, in such order as the Mortgagee (or in case of a
receivership, as the Court) may determine:
(i) to the payment of the operation expenses of the Premises, which
shall include reasonable compensation to the Mortgagee or the receiver
and its agent or agents, if management of the Premises has been
delegated to an agent or agents, and shall also include lease
commissions and other compensation and expenses of seeking and
procuring tenants and entering into leases, established claims for
damages, if any, and premiums on insurance hereinabove authorized;
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(ii) to the payment of taxes, special assessments, and water taxes now
due or which may hereafter become due on the Premises, or which may
become a lien prior to the lien on this Mortgage;
(iii) to the payment of all repairs and replacements, of said Premises
and of placing said property in such condition as will, in the
judgment of the Mortgagee or receiver, make it readily rentable;
(iv) to the payment of any indebtedness secured hereby or any
deficiency which may result from any foreclosure suit;
(v) any overplus or remaining funds to the Mortgagor, their successors
or assigns, as their rights may appear.
(E) APPOINTMENT OF RECEIVER. Upon or at any time after the filing of any
complaint to foreclosure this Mortgage, the Court may, upon application,
appoint a receiver of the Premises. Such appointment may be made either
before or after sale upon appropriate notice as provided by law and without
regard to the solvency or insolvency, at the time of application for such
receiver, of the person or persons, if any, liable for the payment of the
indebtedness secured hereby and without regard to the then value of the
Premises, and without bond being required of the applicant. Such receiver
shall have the power to take possession, control, and care of the Premises
and to collect the rents, issues, and profits of the Premises during the
pendency of such foreclosure suit, and, in the case of a sale and a
deficiency, during the full statutory period of redemption (provided that
the period of redemption has not been waived by the Mortgagor), as well as
during any further times when the Mortgagor, its heirs, administrators,
executors, successors, or the assigns, except for the intervention of such
receiver, would be entitled to collect such rents, issues, and profits, and
all other powers which may be necessary or are useful in such cases for the
protection, possession, control, management, and operation of the Premises
during the whole of said period, to extend or modify any then new lease(s)
or management agreement(s), and to make new lease(s) or management
agreement(s), which extensions, modifications, and new lease(s) or
management agreement(s) may provide for terms to expire, or for options to
lease(s) to extend or renew terms to expire, beyond the maturity date of
the indebtedness hereunder, it being understood and agreed that any such
lease(s) and management agreement(s) and the options or other such
provisions to be contained therein, shall be binding upon Mortgagor and all
persons whose interests in the Premises are subject to the lien hereof and
upon the purchaser or purchasers at any foreclosure sale, notwithstanding
any redemption from sale, discharge of the mortgage indebtedness,
satisfaction of any foreclosure decree or issuance of any certificate of
sale or deed to any purchaser.
(F) APPLICATION OF PROCEEDS OF FORECLOSURE SUIT. The proceeds of any
foreclosure sale of the Premises shall be distributed in the following
order of priority: FIRST, on account of all costs and expenses incident to
the foreclosure proceedings, including all such items as are mentioned in
paragraph (B) hereof; SECOND, all other items which, under the terms
hereof, constitute secured indebtedness
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additional to that evidenced by Mortgage Note, with interest thereon at the
Default Rate; THIRD, all principal and interest at the Default Rate)
remaining unpaid on Mortgage Note; and FOURTH, any overplus to Mortgagor,
its successors or assigns, as their rights may appear.
(G) RECISION OF FAILURE TO EXERCISE. The failure of the Mortgagee to exercise
the option for acceleration of maturity and/or foreclosure following any
Event of Default as aforesaid, or to exercise any other option granted to
the Mortgagee hereunder in any one or more instances, or the acceptance by
Mortgagee of partial payments hereunder, shall not constitute a waiver of
any such Event of Default nor extend or affect any cure period, if any, but
such option shall remain continuously in force. Acceleration of maturity,
once claimed hereunder by Mortgagee, may, at the option of Mortgagee, be
rescinded by written acknowledgment to that effect by the Mortgagee and
shall not affect the Mortgagee's right to accelerate the maturity for any
future Event of Default.
(H) SALE OF SEPARATE PARCELS, RIGHT OF MORTGAGEE TO PURCHASE. In the event of
any foreclosure sale of said Premises, the same may be sold in one or more
parcels. Mortgagee may be the purchaser at any foreclosure sale of the
Premises or any part thereof.
(I) WAIVER OF STATUTORY RIGHTS. Mortgagor shall not and will not (nor shall any
beneficiary of Mortgagor) apply for or avail itself of any appraisement,
valuation, stay, extension or exemption laws or any so-called "Moratorium
Laws", now existing or hereafter enacted, in order to prevent or hinder the
enforcement of foreclosure of the lien of this Mortgage, but hereby waives
the benefit of such laws. Mortgagor, for itself and all who may claim
through or under it, including its beneficiary, waives any and all right to
have the property and estates comprising the Premises marshaled upon any
foreclosure of the lien hereof and agrees that any court having
jurisdiction to foreclose such lien may order the Premises sold as an
entirety.
IN THE EVENT OF THE COMMENCEMENT OF A JUDICIAL PROCEEDING TO FORECLOSE THIS
MORTGAGE, MORTGAGOR DOES HEREBY EXPRESSLY WAIVE ANY AND ALL RIGHTS OF REDEMPTION
FROM SALE UNDER ANY ORDER OR DECREE OR FORECLOSURE OF THIS MORTGAGE ON BEHALF
OF MORTGAGOR, AND EACH AND EVERY PERSON IT MAY LEGALLY BIND ACQUIRING ANY
INTEREST IN OR TITLE TO THE PROPERTY AFTER THE DATE OF THE EXECUTION OF THIS
MORTGAGE AND ON BEHALF OF ALL OTHER PERSONS TO THE EXTENT PERMITTED BY THE
APPLICABLE PROVISIONS OF THE STATUTES AND LAWS OF THE STATE OF ILLINOIS, AND
FOR ALL THAT IT MAY LEGALLY BIND WHO ACQUIRE ANY INTEREST IN OR TITLE TO THE
MORTGAGED PREMISES SUBSEQUENT TO THE DATE HEREOF, AGREES THAT WHEN SALE IS HAD
UNDER ANY DECREE OF
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FORECLOSURE OF THIS MORTGAGE, UPON CONFIRMATION OF SUCH SALE, THE SHERIFF OF
THE COUNTY IN WHICH THE PROPERTY IS LOCATED, OR OTHER OFFICER MAKING SUCH
SALE, OR HIS SUCCESSOR IN OFFICE, SHALL BE AND IS AUTHORIZED IMMEDIATELY TO
EXECUTE AND DELIVER TO THE PURCHASER AT SUCH SALE, A DEED CONVEYING THE
PROPERTY, SHOWING THE AMOUNT PAID THEREFOR, OR IF PURCHASED BY THE PERSON IN
WHOSE FAVOR THE ORDER OF DECREE IS ENTERED, THE AMOUNT OF HIS BID THEREFOR
THE MORTGAGOR FURTHER HEREBY WAIVES AND RELEASES ALL RIGHTS UNDER AND BY
VIRTUE OF THE HOMESTEAD EXEMPTION LAWS OF THE STATE OF ILLINOIS AND ALL RIGHT
TO RETAIN POSSESSION OF SAID MORTGAGED PROPERTY AFTER ANY DEFAULT IN OR BREACH
OF ANY OF THE COVENANTS, AGREEMENTS OR PROVISIONS HEREIN CONTAINED.
(J) DEFAULT RATE. The term "Default Rate" shall mean 5.000% percentage points
over the Index as defined in the Note.
14. ASSIGNMENT OF RENTS, ISSUES AND PROFITS. Mortgagor hereby assigns and
transfers to Mortgagee all the rents, issues and profits of the Premises and
hereby gives to and confers upon Mortgagee the right, power, and authority to
collect such rents, issues and profits. Mortgagor irrevocably appoints Mortgagee
its true and lawful attorney-in-fact, at the option of Mortgagee at any time and
from time to time, after the occurrence of an Event of Default and after Notice
and the expiration of any applicable grace period, to demand, receive and
enforce payment, to give receipts, releases and satisfactions, and to sue, in
the name of Mortgagor or Mortgagee, for all such rents, issues and profits and
apply the same to the indebtedness secured hereby; provided, however, that
Mortgagor shall have the right to enter into leases for the Premises at rents
not less than the going rate for comparable space in the same community, collect
such rents, issues and profits (but not more than two months in advance,
including any security deposits) prior to or at any time there is not an Event
of Default under this Mortgage or Mortgage Note. The Assignment of the rents,
issues and profits of the Premises in this paragraph is intended to be an
absolute assignment from Mortgagor to Mortgagee and not merely the passing of a
security interest. The rents, issues and profits are hereby assigned absolutely
by Mortgagor to Mortgagee contingent only upon the occurrence of an Event of
Default under any of the Loan Instruments.
15. COLLECTION UPON DEFAULT. Upon any Event of Default, Mortgagee may, at
any time without notice, either in person, by agent or by a receiver appointed
by a court, and without regard to the adequacy of any security for the
indebtedness hereby secured, enter upon and take possession of the Premises, or
any part thereof, in its own name use for or otherwise collect such rents,
issues, and profits, including less costs and expenses of operation and
collection, including reasonable attorneys' fees, those past due and unpaid, and
apply the same, upon any indebtedness secured hereby, and in such order as
Mortgagee may determine. The collection of such rents, issues and profits, or
the
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entering upon and taking possession of the Premises, or the application thereof
as aforesaid, shall not cure or waive any default or notice of default hereunder
or invalidate any act done in response to such default or pursuant to such
notice of default.
16. ASSIGNMENT OF LEASES. Mortgagor hereby assigns and transfers to
Mortgagee as additional security for the payment of the Indebtedness hereby
secured, all present and future leases upon all or any part of the Premises and
to execute and deliver, at the request of Mortgagee, all such further assurances
and assignments in the Premises as Mortgagee shall from time to time reasonably
require.
17. RIGHTS AND REMEDIES ARE CUMULATIVE. All rights and remedies herein
provided are cumulative and the holder of Mortgage Note secured hereby and of
every other obligation secured hereby may recover judgment hereon, issue
execution therefor, and resort to every other right or remedy available at law
or in equity without first exhausting and without affecting or impairing the
security of any right afforded by this Mortgage.
18. GIVING OF NOTICE. Any notice or demands which either writing and shall
be hand delivered or mailed by certified mail, return receipt requested,
addressed to such other party at the address, hereinabove or hereinafter set
forth, or at such other address as either party hereto may, from time to time,
by notice in writing, designate to the other party, as a place for service of
notice All such notices and demands which are mailed shall be effectively given
two (2) business days after the date of post marking. All such notices and
demands which are hand delivered shall be effectively given on the date of such
delivery. In case no other address has been so specified, notices and demands
hereunder shall be sent to the following address:
To Mortgagee: Manufacturers Bank
1200 North Ashland Avenue
Chicago, Illinois 60622
With A Copy To: Gerald M. Petacque
l9 W. Jackson Blvd.
Chicago, Illinois 60604
To Mortgagor: The Leap Partnership, Inc.
22 West Hubbard Street
Chicago, Illinois 60610
Attention: Peter Vezmar, Chief Financial Officer
With A Copy To: Philip E. Ruben
Kwiatt, Silverman & Ruben, Ltd.
500 Central Avenue
Northfield, Illinois 60093
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19. TIME IS OF THE ESSENCE. It is specifically agreed that time is of the
essence of this Mortgage. Whenever under the terms hereof the time for
performance or payment shall be extended to the next business day. The waiver of
the options or obligations secured hereby shall not at any time thereafter be
held to be abandonment of such rights. Except as otherwise specifically
required, notice of the exercise of any option granted to the Mortgagee herein,
or in Mortgage Note secured hereby is not required to be given.
20. COMMITMENT LETTER. The indebtedness evidenced by the Mortgage and
secured hereby has by Mortgagee pursuant to the terms of a verbal commitment
issued by Mortgagee and subsequently accepted as set forth in such commitment.
All terms and conditions of such verbal commitment are incorporated herein by
reference as if fully set forth.
21. COVENANTS TO RUN WITH THE LAND. All the covenants hereof shall run
with the land.
22. CAPTIONS. THE CAPTIONS AND HEADINGS OF VARIOUS PARAGRAPHS ARE FOR
CONVENIENCE ONLY, AND ARE NOT TO BE CONSTRUED AS DEFINING OR LIMITING IN ANY WAY
THE SCOPE OR INTENT OF THE PROVISIONS THEREOF.
23. CONSTRUCTION. Mortgagor does hereby acknowledge that all negotiations
relative to the loan evidenced by Mortgage Note, this Mortgage, and all other
documents and instruments securing Mortgage NOTE, TOOK PLACE IN THE STATE OF
ILLINOIS. MORTGAGOR AND MORTGAGEE (BY MAKING THE LOAN EVIDENCED BY MORTGAGE
NOTE) DO HEREBY AGREE THAT MORTGAGE NOTE, THIS MORTGAGE AND ALL OTHER DOCUMENTS
SECURING MORTGAGE NOTE SHALL BE CONSTRUED AND ENFORCED ACCORDING TO THE LAWS OF
THE STATE OF ILLINOIS.
24. APPLICATION OF INSURANCE PROCEEDS AND EMINENT DOMAIN AWARDS.
(A) In the event of any such loss or damage to the Premises, as described in
paragraph 1(C)(i) hereof, Mortgagor shall give notice to Mortgagee, and the
Mortgagee is authorized (a) to settle and adjust any claim under insurance
policy(ies) which insure against such risks or (b) to allow Mortgagor to
agree with the insurance company or companies on the amount to be paid in
regard to such loss. In either case, Mortgagee is authorized to collect and
receipt for any such money and Mortgagee is authorized to execute the
proofs of loss on behalf of Mortgagor, the insurance proceeds after
deducting therefrom any expenses incurred in the collection thereof
(including the fees of an adjuster) may at the option of the Mortgagee be
applied as follows: (i) as a credit upon any portion of the indebtedness
secured hereby; or (ii) to reimburse Mortgagor for repairing or restoring
the improvements, provided that Mortgagor complies with each of the
provisions specified in paragraph 24(B)(i) through 24(B)(iii) hereof, in
which event the Mortgagee shall not be obliged to see to the proper
application thereof nor
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shall the amount so released or used for restoration be deemed a payment
on the indebtedness secured hereby.
(B) In the event that Mortgagee elects to make the proceeds of insurance
available for the restoration of the improvements so damaged, no
disbursement thereof shall occur unless Mortgagor is in compliance with
each of the following conditions:
(i) No Event of Default shall then exist under any of the terms,
covenants and conditions of Mortgage Note, this MORTGAGE, or any other
documents or instruments evidencing or securing Mortgage Note;
(ii) Mortgagee shall first be given satisfactory proof that such
improvements have been fully restored or that by the expenditure of
the proceeds of insurance, and any sums deposited by Mortgagor
pursuant to the terms of subparagraph (iii) hereof, will be fully
restored, free and clear of mechanic's and materialmen's liens, except
for liens for which adequate provisions is made pursuant to paragraph
1(D) hereof, within six (6) months from the date of such loss or
damage;
(iii) In the event such Proceeds shall be insufficient to restore the
improvements Mortgagor shall deposit promptly with Mortgagee funds
which, together with the insurance proceeds, would be sufficient to
restore the improvements.
(C) The excess of the insurance proceeds above the amount necessary to complete
any necessary restoration shall, after completion of the repair and
restoration, be applied as a credit upon any portion, as selected by
Mortgagee, of the indebtedness secured hereby, but the funds released by
Mortgagee for restoration shall in no event be deemed a payment of the
indebtedness secured hereby.
(D) In the event Mortgagee shall elect to permit the Mortgagor to use such
proceeds for the restoring of the improvements or in the event Mortgagee
shall elect to permit Mortgagor to use such proceeds for the restoring of
the improvements, such proceeds shall be made available, from time to time,
upon Mortgagee being furnished with satisfactory evidence of the estimated
cost of such restoration and with architect's certificates, partial or
final waivers of lien, as the case may be, contractors' sworn statements,
and if the estimated cost of the work exceeds ten (10%) percent of the
original principal amount of the indebtedness secured hereby, with all
plans and specifications for such rebuilding or restoration as Mortgagee
may reasonably require and approve. No payment made prior to the final
completion of the work shall exceed ninety (90%) percent of the value of
the work performed, from time to time, and at all times the undisbursed
balance of said proceeds remaining in the hands of the Mortgagee shall be
at least sufficient to pay for the cost of the completion of the work, free
and clear of any liens. In the event of foreclosure of this Mortgage, or
other transfer of title to the Premises in extinguishment of the
indebtedness secured hereby, all right, title, and interest of the
Mortgagor, in and to any insurance policies then in force, and any claims
or
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proceeds thereunder shall to the extent of the indebtedness, pass to the
Mortgagee or any purchaser or grantee.
(E) In the event that Mortgagee elects to make available to the Mortgagor the
proceeds of any award for eminent domain to restore any improvements on the
Premises, no disbursement thereof shall occur unless Mortgagor is in
compliance with each of the following condition:
(i) No Event of Default shall then exist under any of the terms,
covenants, and conditions of Mortgage Note, this Mortgage, or any
other documents or instruments evidencing or securing Mortgage Note;
(ii) Mortgagee shall first be given satisfactory proof that such
improvements have been fully restored or that by the expenditure of
such award and any such sums deposited with Mortgagee pursuant to the
terms of subparagraph (iii) hereof, will be fully restored, free and
clear of all mechanic's and materialmen's liens, except for liens for
which adequate provision is made pursuant to paragraph 1(D) hereof,
within six (6) months from the date of such taking;
(iii) In the event such award shall be insufficient to restore the
improvements, Mortgagor shall deposit promptly with Mortgagee funds
which, together with the award proceeds, would be sufficient to
restore the improvements;
(iv) The rental income to be derived from the improvements, subsequent
to such taking by eminent domain, shall not adversely affect the
Mortgagor's ability to pay the indebtedness evidenced by the Mortgage;
(v) The disbursement of the award will be made according to those
provisions of paragraph 24 which relate to the disbursement of
insurance proceeds for repair and restoration of the improvements and
the conditions precedent to be satisfied by the Mortgagor with regard
thereto;
(vi) The excess of the proceeds of the award, above the amount
necessary to complete such restoration, shall be applied as a credit
upon any portion, as selected by Mortgagee, of the indebtedness
secured hereby, but the proceeds of the award released by Mortgagee
for restoration shall, in no event, be deemed a payment of the
indebtedness secured hereby.
25. FILING AND RECORDING CHARGES AND TAXES. Mortgagor will pay all filing,
registration, recording and search and information fees, and all expenses
incident to the execution and acknowledgment of this Mortgage and all other
documents securing Mortgage Note and all federal, state, county and municipal
taxes, other taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution, delivery, filing, recording or registration of
Mortgage Note, this Mortgage and all other documents securing Mortgage Note and
all assignments thereof.
26. NON-JOINDER OF TENANT. After an Event of Default, Mortgagee shall have
the right and option to commence a civil action to foreclose the lien on this
Mortgage and to obtain an order or judgment of foreclosure and sale subject to
the rights of any
26
<PAGE>
tenant or tenants of the Premises. The failure to join any tenant or tenants of
the Premise as party defendant or defendants in any such civil action or the
failure of any such order or judgment to foreclose their rights shall not be
asserted by the Mortgagor.
27. BINDING ON SUCCESSORS AND ASSIGNS. Without expanding the liability of
any guarantor contained in any instrument of Guaranty executed in connection
herewith, this Mortgage and all provisions hereof shall extend and be binding
upon Mortgagor and all persons claiming under or through Mortgagor, and the word
"mortgagor" when used herein, shall include all such persons and all persons
liable for the payment of the indebtedness or any part thereof, whether or not
such persons shall have executed Mortgage Note or this Mortgage. The word
"mortgagee" when used herein, shall include the successors and assigns of the
Mortgagee named herein and the holder or holders, from time to time, of Mortgage
Note secured hereby: Whenever used, the singular number shall include the
plural, and the plural the singular, and the use of any gender shall include all
genders.
28. INSURANCE UPON FORECLOSURE. In case of an insured loss after
foreclosure proceedings have been instituted, the proceeds of any insurance
policies, if not applied in rebuilding or restoring the buildings or
improvements, shall be used to pay the amount due in accordance with any decree
of foreclosure and any balance shall be paid as the court may direct. In the
case of foreclosure of this Mortgage, the court, in its decree, may provide that
the decree creditor may cause a new loss clause to be attached to each casualty
insurance policy making the proceeds payable to decree creditors; and any such
foreclosure decree may further provide that in case of one or more redemption
under said decree, each successive redemptor may cause the proceeding loss
clause attached to each casualty insurance policy to be canceled and a new loss
clause to be attached thereto, making the proceeds thereunder payable to such
redemptor. In the event of foreclosure sale, Mortgagee is authorized, without
the consent of Mortgagor, to assign any and all insurance policies to the
purchaser at the sale, or to take such other steps as Mortgagee may deem
advisable to cause the interest of such purchaser to be protected by any of the
said insurance policies.
29. ATTORNEY'S FEES. Mortgagor shall pay for Mortgagee's attorney's fees,
costs, and expenses for negotiations, preparation of, drafting of Mortgage Note
and other loan documents including but not limited to advice received by
Mortgagee from Mortgagee's attorneys from time to time arising out of this
Mortgage and other loan documents.
30. OTHER CONTRACTS. The Mortgagor hereby assigns to the Mortgagee as
further security for the indebtedness secured hereby, the Mortgagor's interest
in all agreements, contracts (including contracts for the lease or sale of the
premises or any portion thereof), licenses and permits affecting the premises.
Such assignment shall not be construed as a consent by the Mortgagee to any
agreement, contract, license or permit so assigned, or to impose upon the
Mortgagee any obligations with respect thereto. The Mortgagor shall not cancel
or amend any of the agreements, contracts, licenses and
27
<PAGE>
permits hereby assigned (nor permit any of the same to terminate if they are
necessary or desirable for the operation of the premises) without first
obtaining, on each occasion, the prior written approval of the Mortgagee. This
paragraph shall not be applicable to any agreement, contract, license or permit
that terminates if it is assigned without the consent of any patty thereto
(other than Mortgagor) or issuer thereof, unless such consent has been obtained
or this Mortgage is ratified by such party or issuer, nor shall this paragraph
be construed as a present assignment of any contract, license, or permit that
the Mortgagor is required by law to hold in order to operate the mortgaged
premises for the purpose intended.
31. FUTURE ADVANCES. Upon request of Mortgagor, Mortgagee, at Mortgagee's
option, so long as this Mortgage secures the indebtedness held by Mortgagee, may
make future advances to Mortgagor subject to the following further conditions
that:
A) All the advances must be made on or before twenty (20) years from the date
of this Mortgage;
B) That at no time shall the principal amount of the indebtedness secured by
this Mortgage not including sums advanced in accordance herewith to protect
the security of the Mortgage exceed the original amount of the Mortgage
(U.S. $596,000.00),
C) Such future advances with interest thereon shall be secured by this
Mortgage when evidenced by Mortgage(s) stating that said Mortgage(s) are
secured hereby. Such Mortgage(s) may be in the form of a Demand GRID
Mortgage(s);
D) That such subsequent advances shall have the same priority over liens,
encumbrances, and other matters as advances secured by this Mortgage as of
the Date of this Mortgage;
E) Such future advances constitute "Revolving Credit" as defined in the
Illinois Compiled Statutes at 815 ILCS 205/4.1.
IN WITNESS WHEREOF, Mortgagor has caused these presents to be signed the
day and year first above written.
28
<PAGE>
CORPORATE MORTGAGOR
WITNESS our hands and seals this____day of_______________________, 1996.
The Leap Partnership, Inc., an Illinois corporation
By: /s/ Peter Vezmar
---------------------------------------------
Peter Vezmar.
Title: Chief Financial Officer
ATTEST:
/s/ Phillip E. Rubin
- -----------------------
Asst. Secretary
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I,___________________ , a Notary Public in and for said County, in the
State aforesaid, do hereby certify that the undersigned officer Peter Vezmar,
personally known to me to be the Chief Financial Officer, of the above named
corporation, and that he as such officer, being authorized to do so, executed
the foregoing instrument for the uses and purposes therein set forth, by signing
the name of the corporation by himself as such officer.
Given under my hand and notarial seal this___day of_______________ , 1996.
----------------------------------
Notary Public
My Commission Expires:
- ---------------------------------
29
<PAGE>
EXHIBIT "1"
MORTGAGE NOTE
$596,000.00 Chicago, Illinois
May 7, 1996
FOR VALUE RECEIVED, the undersigned, The Leap Partnership, Inc., an Illinois
corporation ("Leap"), (hereinafter referred to from time to time as "Maker")
hereby promises to pay to the order of Manufacturers Bank ("Payee"), at its
offices at 1200 North Ashland Avenue, Chicago, Illinois 60622 or at such other
place as Payee may from time to time designate, in the manner hereinafter
provided, the principal sum of Five Hundred Ninety-Six Thousand and no/100
($596,000.00) Dollars, in lawful money of the United States of America, together
with interest ("Interest Rate") from the date of disbursement on the outstanding
balance from time to time as follows:
Principal and interest payable monthly at the Initial Variable Rate of Nine
and a Quarter (9.25%) per cent per annum ("Interest Rate") based on a 10-year
amortization in equal monthly installments of Seven Thousand Seven Hundred
Ninety-Four and 00/100 ($7,794.00) Dollars commencing on the 1/st/ of July, 1996
and on the 1/st/ day of each month thereafter until this Note is paid in full
except a final payment of principal and interest remaining unpaid, if any,
unless sooner paid by acceleration or otherwise, shall be due on the 1/st/ day
of June, 2001 ("Maturity Date").
VARIABLE INTEREST RATE. The Interest Rate on this Note is subject to change
from time to time on changes in an Index which is the Payee's Reference Rate
(the "Index"). Payee will tell Maker the current Index Rate upon Maker's
request. Maker understands that Payee 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 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.
THIS IS A BALLOON NOTE AND ON THE MATURITY DATE A SUBSTANTIAL PORTION OF
THE PRINCIPAL AMOUNT OF THIS NOTE WILL REMAIN UNPAID BY THE MONTHLY PAYMENTS
ABOVE REQUIRED.
All funds disbursed hereunder by Payee whether by check, credit to the
accounts of the Maker, by mail, wire transfer or other delivery to the Maker or
to escrowees for the benefit of Maker shall be deemed outstanding hereunder and
to have been received by Maker as of the date of such mailing, wire transfer or
other delivery, and interest shall accrue from and after such mailing, wire
transfer or other delivery.
<PAGE>
Interest shall be computed on the basis of a 360-day year for the actual
number of days elapsed. In the event that the unpaid principal balance of this
Mortgage Note ("Note") becomes due and payable on a date other than the first
day of a calendar month, a final payment of interest at the rate provided in
this Note shall be due and payable on such date.
This Note is secured by a certain Mortgage, Assignment of Leases and
Security Agreement of even date herewith executed by Leap ("Mortgage") which
pertains to certain real estate located at 22 West Hubbard, Chicago, Cook
County, Illinois 60610, and legally described on Exhibit "2" attached to the
Mortgage ("Real Estate"), and is further secured by the other Loan and Security
documents ("Loan Documents") (as defined in the Mortgage) all of which documents
bear even date herewith, which are made a part hereof and which are hereby
incorporated by reference.
This Note is further secured by the following:
(1) A certain Commercial Security Agreement dated October 4, 1995
("Security Agreement") executed by Leap, as Debtor, in favor of Payee as
Secured Party which Security Agreement secures a certain Promissory Note dated
October 4, 1995 in the amount of One Million Five Hundred Thousand
($1,500,000.00) Dollars executed by Leap, as Maker, in favor of Payee.
(2) A certain Commercial Security Agreement dated October 4, 1995
("Security Agreement") executed by Leap, as Debtor, in favor of Payee as Secured
Party which Security Agreement secures a certain Promissory Note dated October
4, 1995 in the amount of Five Hundred Thousand ($500,000.00) Dollars executed by
Leap, as Maker, in favor of Payee.
That all of the aforesaid Notes and Security Agreements are hereby
incorporated by reference and made a part hereof. That any default(s) under the
terms of any one or more of the aforesaid Notes and/or Security Agreements
shall, also, be an occurrence of default(s) under the terms of all the Notes,
this Note, the Mortgage and Security Agreements. That any default(s) under the
terms of this Note and/or the Mortgage shall, also, be an occurrence of
default(s) under the terms of all the Notes and Security Agreements.
Whenever under the terms hereof the time for performance of same falls upon
a Saturday, Sunday or holiday such time for performance or payment shall be
extended to the next business day.
Maker shall not, without the prior written consent of Payee, create,
effect, contract for, consent to or permit any Prohibited Transfer (as defined
in the Mortgage).
If Maker fails to pay any installment or payment of principal or interest
or other charge due hereunder when due, or if at any time hereafter the right to
foreclose or
2
<PAGE>
exercise the remedies available under the Mortgage, or other Loan Documents or
which Payee may have at law in equity or otherwise, or to accelerate this Note
shall accrue to the Payee under any of the provisions contained in this Note,
the Mortgage, or the other Loan Documents, including, without limitation, by
reason of the Real Estate or any part thereof or any legal, equitable or
beneficial interest therein, being sold, assigned, transferred, conveyed,
mortgaged or otherwise liened or encumbered to or in favor of any party other
than Payee, or by reason of Maker or any beneficiary of Maker other than Payee,
or by reason of Maker or any beneficiary of Maker entering into any contract or
agreement for any of the foregoing, or if at any time hereafter any other
default occurs under the Mortgage, this Note, Guaranty, if any, of this Note or
any of the Loan Documents, and Maker fails to cure the same within the time
period, if any, provided for curing the same under the terms of the Mortgage or
other Loan Documents, then at the option and election of the Payee, and without
further notice, grace or opportunity to cure, the entire unpaid principal
balance outstanding hereunder, together with all interest accrued thereon, may
be accelerated and become immediately due and payable at the place of payment
aforesaid.
In case the right to accelerate this Note shall accrue by reason of any of
the events of default referred to in the preceding paragraph, in lieu of or in
addition to any other right or remedy then available under this Note or the
other Loan Documents, the Payee shall have the right and option, without further
notice, to implement, as of and from the date of default, the "Default Rate" (as
hereinafter defined) to the entire principal balance outstanding under this Note
and all accrued interest thereon. For purposes of this Note, the "Default Rate"
shall be 5.000% percentage points over the Index or the Maximum Interest Rate
Payee is permitted to by law.
Without limiting the foregoing, the Payee shall have the option in lieu of
or in addition to acceleration and/or implementing the Default Rate and/or
exercising any other right or remedy, to require that Maker shall pay the Payee
a late payment charge equal to five (5%) percent for each dollar of any monthly
payment not received within ten (10) days of when due to partially defray the
additional expenses incidental to the handling and processing of past due
payments. The foregoing late payment charge shall apply individually to all past
due payments and shall be subject to no daily pro rata adjustment or reduction.
Time is of the essence hereof.
Maker, for itself, and its successors and assigns, estates, heirs, and
personal representatives, and each Maker, endorser or guarantor, if any, of this
Note, for their successors and assigns, estates, heirs, and personal
representatives, hereby forever waive(s) presentment, protest and demand, notice
of protest, demand, dishonor and none payment of this Note, and all other
notices in connection with the delivery, acceptance, perforrnance, default or
enforcement of the payment of this Note and waives and renounces all rights to
the benefits of any statute of limitations and any moratorium, appraisement,
exemption and homestead law now provided or which may hereby be
3
<PAGE>
provided by any federal or state statute or decisions, including but not limited
to exemptions provided by or allowed under the Bankruptcy Code, against the
enforcement and collection of the obligations evidenced by this Note, and any
and all amendments, substitutions, extensions, renewals, increases and
modifications hereof. Maker agrees to pay all costs and expenses of collection
and enforcement of this Note when incurred, including Payee's attorneys' fees
and legal and court costs, including any incurred on appeal or in connection
with bankruptcy or insolvency, whether or not any lawsuit or proceeding is ever
filed with respect hereto. No extensions of time of the payment of this Note or
any instalment hereof or any other modification, amendment or forbearance made
by agreement with any person now or hereafter liable for the payment of this
Note shall operate to release, discharge, modify, change or affect the liability
of any Maker, endorser, guarantor of any other person with regard to this Note,
either in whole or in part.
No failure on the part of Payee or any holder hereof to exercise any right
or remedy hereunder, whether before or after the occurrence of a default, shall
constitute a waiver thereof, and no waiver of any past default shall constitute
a waiver of any future default or of any other default. No failure to accelerate
the debt evidenced hereby by reason of default hereunder, or acceptance of a
past due installment, or indulgence granted from time to time shall be construed
to be a waiver of the right to insist upon prompt payment thereafter or to
impose the Default Rate retroactively or prospectively, or to impose late
payment charges, or shall be deemed to be a novation of this Note or as a
reinstatement of the debt evidenced hereby or as a waiver of such right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which the Payee or any holder hereof may have, whether by the laws
of the state governing this Note, by agreement, or otherwise, and none of the
foregoing shall operate to release, change or affect the liability of Maker or
any Co-Maker, endorser or guarantor of this Note, and each Co-Maker, endorser
and guarantor hereby expressly waive the benefit of any statute or rule of law
or equity which would produce a result contrary to or in conflict with the
foregoing. This Note may not be modified or amended orally, but only by an
agreement in writing signed by the party against whom such agreement is sought
to be enforced.
The parties hereto intend and believe that each provision in this Note
comports with all applicable local, state, and federal laws and judicial
decisions. However, if any provisions, provision, or portion of any provision in
this Note is found by a court of competent jurisdiction to be in violation of
any applicable local, state or federal ordinance, statute, law, or
administrative or judicial decision, or public policy, and if such court would
declare such portion, provision or provisions of this Note to be illegal,
invalid, unlawful, void or unenforceable as written, then it is the intent of
all parties hereto that such portion, provision or provisions shall be given
force and effect to the fullest possible extent that they are legal, valid and
enforceable, and that the remainder of this Note shall be construed as if such
illegal, invalid, unlawful, void or unenforceable portion, provision or
provisions were severable and not contained therein, and that the rights,
obligations and interest of the Maker and the holder hereof under the remainder
of this Note shall continue in full force and effect.
4
<PAGE>
All terms, conditions and agreements herein are expressly limited so that
in no contingency or event whatsoever, whether by reason of advancement of the
proceeds hereof, acceleration of maturity of the unpaid principal balance
hereof, or otherwise, shall the amount paid or agreed to be paid to the holders
hereof for the use, forbearance or detention of the money to be advanced
hereunder exceed the highest lawful rate permissible under applicable laws. If,
from any circumstances whatsoever, fulfillment of any provision hereof shall
involve transcending the limit of validity prescribed by law which a court of
competent jurisdiction may deem applicable hereto, then ipso facto the
obligation to be fulfilled shall be reduced to the limit of such validity, and
if under any circumstances the holder hereof shall ever receive as interest an
amount which would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the unpaid principal
balance due hereunder and not to the payment of interest.
This Note shall inure to the benefit of the Payee and its successors and
assigns and shall be binding upon the undersigned and its successors and
assigns. As used herein, the term "Payee" shall mean and include the successors
and assigns of the identified payee and the holder or holders of this Note from
time to time.
Maker acknowledges and agrees that (i) this Note and the rights and
obligations of all parties hereunder shall be governed by and construed under
the laws of the State of Illinois; (ii) that the obligation evidenced by this
Note is an exempt transaction under the Truth-in-Lending Act, 15 U.S.C. Sec.
1601 et. seq.; (iii) that said obligation constitutes a "business loan" which
comes within the purview of 815 ILCS 205/4 (c); and (iv) that the proceeds of
the loan evidenced by this Note will not be used for the purchase of registered
equity securities within the purview of Regulation "G" issued by the Board of
Governors of the Federal Reserve System.
The obligations of the Maker of this Note shall be direct and primary and
when the context of construction of the terms of this Note so require, all words
used in the singular herein shall be deemed to have been used in the plural and
the masculine shall include the feminine and neuter. This Note shall be the
joint and several obligation of Maker, all sureties, guarantors and endorsers,
and shall be binding upon them and their successors and assigns.
Maker hereby irrevocably agrees and consents and submits to the
jurisdiction of any court of general jurisdiction in the State of Illinois, but
further agrees that any litigation, actions or proceedings will be litigated at
the Payee's sole discretion and election only in courts having situs within the
City of Chicago, State of Illinois, in any United States District Court located
within the State of Illinois including the United States District Court for the
Northern District of Illinois, Eastern Division, if such court shall have
jurisdiction over the subject matter, with respect to any legal proceeding
arising out of or related to this Note and irrevocably waives any right that may
exist with respect to a jury or jury trial and right to transfer or change the
venue.
5
<PAGE>
BY SIGNING THIS NOTE, Maker accepts and agrees to the terms and
covenants contained in this Note.
6
<PAGE>
Corporate Maker
The Leap Partnership, Inc., an Illinois
corporation
By: /s/ Peter Vezmar
---------------------------------
Peter Vezmar, Chief Financial Officer
------------------------------------
| "OFFICIAL SEAL" |
| COLLEEN C. CORRERA |
| Notary Public, State of Illinois |
| My Commission Expires 8/22/98 | /s/ Colleen C. Correra
------------------------------------ -----------------------------
7
<PAGE>
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I,_______________________ , a Notary Public in and for said County, in the
State aforesaid, do hereby certify that the undersigned officer, Peter Vezmar,
personally known to me to be the Chief Financial Officer, The Leap Partnership,
Inc., an Illinois corporation, and that they as such officer, being authorized
to do so, executed the foregoing instrument for the uses and purposes therein
set forth, by signing the name of the corporation by himself as such officer.
Given under my hand and notarial seal this____ day of________________
__________, 1996.
____________________________________
Notary Public
My Commission Expires:
- -----------------------------
8
<PAGE>
EXHIBIT "2"
LEGAL DESCRIPTION
COMMON ADDRESS: 22 West Hubbard, Chicago, Illinois 60610
P.I.N. 17-09-255-022-0000
LOT 5 AND THE WEST l AND 1/3 FEET OF LOT 4 IN WOLCOTT'S ADDITION TO CHICAGO IN
THE EAST l/2 OF THE NORTH EAST 1/4 OF SECTION 9, TOWNSHIP 39 NORTH, RANGE 14
EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.
<PAGE>
EXHIBIT 3
Mortgagor/Debtor: The Leap Partnership, Inc., an Illinois corporation
Secured Party: Manufacturers Bank
DESCRIPTION OF COLLATERAL
All of the following property now or at any time hereafter owned by
Mortgagor/Debtor (hereinafter referred to from time to time as "Debtor") or in
which the Mortgagor/Debtor may now or at any time hereafter have any interest or
rights, together with all of Mortgagor/Debtor's rights, title and interest
therein and thereto:
1. All machinery, apparatus, equipment, inventory, fittings, fixtures,
appliances, furnishings, supplies and articles of personal property of every
kind and nature whatsoever, including, but not limited to, any for the purpose
of supplying or distributing heat, light, air, power, water, ventilation, air
conditioning or refrigeration (whether single units or centrally controlled),
all screens, screen doors, storm windows, storm doors, shades, awnings, gas
and electric fixtures and equipment, fans, radiators, heaters, engines,
machinery, boilers, ranges, furniture, motors, sinks, bathtubs, carpets, floor
coverings, windows shades, drapes, furnaces, stokers, conduits, switchboards,
pipes, tanks, lifting equipment, fire control or fire extinguishing apparatus
or equipment, ducts, compressors, pumps, furniture and furnishings, located on
or affixed to, attached to, incorporated in, or placed upon the "Premises" (as
described in Exhibit 2) or in any building or improvements now located thereon
or hereafter located thereon, except for any of the foregoing items of
property which are owned by any tenant of any such building or improvement and
which, according to the terms of any applicable lease, may be removed by such
tenant at the expiration or termination of said lease.
2. All equipment, material, inventory and supplies wherever located and
whether in the possession of the Debtor or any third party, intended or prepared
for use in connection with the construction of, incorporation into or affixment
to the Property or any building or improvement being, or to be, constructed upon
the Property, including, without limitation, all lumber, masonry, steel and
metal (assembled, fabricated or otherwise), in the possession of any third party
intended or designated for incorporation into or affixment to any such building
or improvement.
3. Any and all contracts and agreements for construction, construction
supervision, architectural services, maintenance, management, operation,
marketing, leasing and other professional services pertaining to the Property
heretofore or hereafter entered by Debtor or Trustee, including any
subcontracts, material supply contracts, and including all of Debtor's or
Trustee's rights to receive services, work, materials, supplies and other goods
thereunder, claims and rights with respect to nonperformance or breach of such
contracts and agreements, including rights under any payment and performance
bond(s) issued to Debtor or Trustee and/or said contractor(s), and all plans and
specifications, drawings,
1
<PAGE>
models and work product relating to the buildings and other improvements
intended to be undertaken on the Property pursuant to the Loan Documents.
4. Any and all accounts, chattel paper and general intangibles, now or
hereafter acquired, as those terms are defined in the Uniform Commercial Code,
including but not limited to, all of the Debtor's or Trustee's right, title and
interest in, to and under any contracts, leases, licenses or other agreements of
any kind entered into by Debtor or Trustee in connection with the ownership,
construction, maintenance, use, operation, leasing or marketing of the Property,
including but not limited to any escrow, franchise, warranty, service,
management, operation, equipment or concession contract, agreement or lease, and
end-loan commitment, including all of Debtor's or Trustee's rights to receive
services or benefits and claims and rights to receive services or benefits and
claims and rights with respect to non-performance or breach thereunder.
5. All governmental or administrative permits, licenses, certificates,
consents and approvals relating to the Property or any building or improvements
thereon or to be constructed or made thereon.
6. All proceeds of or any payments due to or for the account of Debtor or
Trustee under any policy of insurance (or similar agreement) insuring, covering
or payable upon loss, damage, destruction or other casualty or occurrence of or
with respect to any of the foregoing described Collateral, the Property or any
building or improvement now or hereafter located on the Property, whether or not
such policy or agreement is owned or was provided by Debtor or names Debtor or
Secured Party as beneficiary or loss payee and all refunds of unearned premiums
payable to Debtor or Trustee on or with respect to any such policies or
agreements.
7. Any and all proceeds or rights to proceeds arising out of any
condemnation or exercise of right of eminent domain pertaining to the Property
or any building or improvement now or hereafter located on the Property.
8. All proceeds of, substitutions and replacements for accessions to and
products of any of the foregoing in whatever form, including, without
limitation, cash, checks, drafts and other instruments for the payment of money
(whether intended as payment or credit items), chattel paper, security
agreements, documents of title and all other documents and instruments.
2
<PAGE>
Exhibit 10.4
[CTTC LOGO]
Instalment Note
(Use with Trust Deed From CTTC 7)
$500,000.00 Chicago, Illinois February 1, 1995
FOR VALUE RECEIVED, *The Leap Partnership, Inc. promise to pay the THE
ORDER OF R. Steven Lutterbach the principal sum of five hundred thousand
($500,000.00) Dollars and interest from February 1, 1995, on the balance of
principal remaining from time to time unpaid at the rate of Prime + 1 1/2(*) per
cent per annum payable in instalments (including principal and interest) as
follows: accrued interest or more on the last day of each month, and principal
reductions as required by mortgagee or more on the last day of each month
thereafter until this note is fully paid except that the final payment of
principal and interest, if not sooner paid, shall be due on the 1st day of
August, 1995. All such payments on account of the indebtedness evidenced by this
note shall be first applied to interest on the unpaid principal balance and the
remainder to principal.
The principal of each of said instalments unless paid when due shall bear
interest after maturity at the rate of Prime + 3% per cent per annum. Said
payments are to be made , as the legal holder of this note may,
from time to time, in writing appoint, and in the absence of such appointment,
then at the office of
R. Steven Lutterbach
2511 Fairway Drive
Michigan City, Indiana 46360
**(Prime rate as published by Wall Street Journal; plus applicable "closing
costs".)
The payment of this note is secured by trust deed, bearing even date
herewith, to Chicago Title and Trust Company, Trustee, on real estate in the
County of Cook, Illinois; and it is agreed that at the election of the holder or
holders hereof and without notice, the principal sum remaining unpaid hereon,
together with accrued interest thereon, shall become at once due and payable at
the place of payment aforesaid in case of default in the payment of principal or
interest when due in accordance with the terms hereof or in case default shall
occur and continue for three days (in which event election may be made at any
time after the expiration of said three days, without notice) in the performance
of any other agreement contained in said trust deed.
All parties hereto severally waive presentment for payment, notice of
dishonor, protest and notice of protest.
Identification No. 783409
---------------
CHICAGO TITLE AND TRUST COMPANY,
Trustee
By [SIGNATURE OF ASSISTANT SECRETARY]
----------------------------------------
Assistant Secretary
Assistant Vice President
The Leap Partnership, Inc.
- -------------------------------------------------
/s/ Fred Smith
- -------------------------------------------------
Fred Smith, President
/s/ Joe Sciarrotta
- -------------------------------------------------
Joe Sciarrotta, Vice President
/s/ George Gier
- -------------------------------------------------
George Gier, Secretary
IMPORTANT!
THIS IS A VALUABLE DOCUMENT! WHEN FULLY PAID, THIS NOTE AND THE TRUST DEED
SECURING IT MUST BE SURRENDERED TO THE PARTY OBLIGED TO MAKE THE FINAL PAYMENT.
THAT PARTY MUST IMMEDIATELY THEREAFTER PRESENT THIS NOTE AND THE TRUST DEED
SECURING IT TO CHICAGO TITLE AND TRUST COMPANY, TRUSTEE, IN ORDER TO OBTAIN A
RELEASE DEED.
<PAGE>
================================================================================
INSTALMENT NOTE
================================================================================
The Leap Partnership, Inc.
Maker
------------------------------------
22 West Hubbard Street
Chicago, Illinois 60610
- -----------------------------------------
Date February 1, 1995
Amount $500,000.00
Instalment
Last payment due August 1, 1995
Principal and Interest Payable at the Office of
R. Steve Lutterbach
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2511 Fairway Drive
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Michigan City, Indiana 46360
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[LOGO]
CHICAGO TITLE AND
TRUST COMPANY
111 WEST WASHINGTON STREET
CHICAGO 60602
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Received on the within NOte
the following sums:
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DATE INTEREST PRINCIPAL REMARKS
- --------------------------------------------------------------------------------
19 Dollars Co. Dollars Co.
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<PAGE>
TRUSTEE'S DEED
Form 2459 Rev. 5-77 Individual The above space for recorders use only
_______________________________________________________________________________
THIS INDENTURE, made this 9TH day of March, 1994, between AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO, a corporation duly organized and existing as a
national banking association under the laws of the United States of America, and
duly authorized to accept and execute trusts within the State of Illinois, not
personally but as Trustee under the provisions of a deed or deeds in trust duly
recorded and delivered to said national banking association in pursuance of a
certain Trust Agreement, dated the 8TH day of JANUARY, 1986, and known as Trust
Number 66420, party of the first part, and THE LEAP PARTNERSHIP, INC.
22 W. HUBBARD, CHICAGO, ILLINOIS 60610.
party of the second part.
WITNESSETH, that said party of the first part, in consideration of the sum of
- -TEN AND NO/100---------($10.00)-------------- Dollars, and other good and
valuable considerations in hand paid, does hereby convey and quit claim unto
said parties of the second part, the following described real estate, situated
in COOK County, Illinois, to-wit:
LOT 5 AND THE WEST 1 AND 1/3 FEET OF LOT 4 IN WOLCOTT'S ADDITION TO CHICAGO IN
THE EAST 1/2 OF THE NORTH EAST 1/4 OF SECTION 9, TOWNSHIP 39 NORTH, RANG3 14
EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.
PIN # 17-09-255-022-0000
together with the tenements and appurtenances thereunto belonging.
TO HAVE AND TO HOLD the same unto said party of the second part, and to the
proper use, benefit and behoof, forever, of said party of the second part.
This deed is executed by the party of the first part, as Trustee, as aforesaid,
pursuant to and in the exercise of the power and authority granted to and vested
in it by the terms of said Deed or Deeds in Trust and the provisions of said
Trust Agreement above mentioned, and of every other power and authority
thereunto enabling. This deed is made subject to the liens of all trust deeds
and/or mortgages upon said real estate, if any, recorded or registered in said
county.
IN WITNESS WHEREOF, said party of the first part has caused its corporate seal
to be hereto affixed, and has caused its name to be signed to these presents by
one of its Vice Presidents or its Assistant Vice Presidents and attested by its
Assistant Secretary, the day and year first above written.
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO
as Trustee, as aforesaid, and not personally
[SEAL LOGO] By______________________________________________________
VICE PRESIDENT
Attest__________________________________________________
ASSISTANT SECRETARY
________________________________________________________________________________
STATE OF ILLINOIS, )
COUNTY OF COOK ) SS.
THIS INSTRUMENT
PREPARED BY
PETER H. JOHANSEN
______________________
AMERICAN NATIONAL BANK
AND TRUST COMPANY
OF CHICAGO
33 N. LASALLE
CHICAGO, ILLINOIS
I, the undersigned, a Notary Public in and for the County and State aforesaid,
DO HEREBY CERTIFY, that the above named ______________________ Vice President
and Assistant Secretary of the AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, A National Banking Association. Grantor, personally known to me to be
the same persons whose names are subscribed to the foregoing instrument as such
___________________ Vice President and Assistant Secretary respectively,
appeared before me this day in person and acknowledged that they signed and
delivered the said instrument as their own free and voluntary act and as the
free and voluntary act of said National Banking Association for the uses and
purposes therein set forth; and the said Assistant Secretary then and there
acknowledged that said Assistant Secretary as custodian of the corporate seal of
said National Banking Association caused the corporate seal of said National
Banking Association to be affixed to said instrument as said Assistant
Secretary's own free and voluntary act and as the free and voluntary act of said
National Banking Association for the uses and purposes therein set forth.
-------------------------------- Date 3/11/94
"OFFICIAL SEAL"
DOROTHY THIEL /S/ DOROTHY THIEL
NOTARY PUBLIC, STATE OF ILLINOIS
DET My Commission Expires 02/11/96 Notary Public
--------------------------------
_______________________________________________________________________________
D NAME Leap Partnership, Inc. FOR INFORMATION ONLY
E INSERT STREET ADDRESS OF ABOVE
L DESCRIBED PROPERTY HERE
I STREET 22 W. HUBBARD
V 22 W. HUBBARD
E ______________________________
R CITY Chicago, Illinois 60610
Y CHICAGO, ILLINOIS
OR ______________________________
INSTRUCTIONS
RECORDER'S OFFICE BOX NUMBER BOX 333
---------
_______________________________________________________________________________
This space for affixing riders and revenue stamps
2 STATE OF ILLINOIS ---
COOK 2 [SEAL] REAL ESTATE TRANSFER TAX ---
CO. NO. 016 4 * * * ---
9 P.B.10686 MAR 15'94 DEPT. OF 525.00 ---
4 REVENUE ---
6 ---
0 Cook County
7 REAL ESTATE TRANSACTION TAX
9 ---------- ---
8 REVENUE --------- ---
5 STAMP MAR 15'94 [SEAL] 2 6 2. 5 0 ---
8 P.B.11424 --------- ---
---------- ---
* 0 CITY OF CHICAGO *
3 REAL ESTATE TRANSACTION TAX
* 0 ------------------------------------ *
6 DEPT. OF
* 3 REVENUE MAR 15'94 [SEAL] 999.00 *
6 P.B.11187
* ------- *
COOK COUNTY, ILLINOIS
FILED FOR RECORD
94 MAR 15 PM 1:37
* 0 CITY OF CHICAGO *
3 REAL ESTATE TRANSACTION TAX
* 0 ------------------------------------ *
6 DEPT. OF
* 3 REVENUE MAR 15'94 [SEAL] 999.00 *
7 P.B.11187
* ------- *
* 0 CITY OF CHICAGO *
3 REAL ESTATE TRANSACTION TAX
* 0 ------------------------------------ *
6 DEPT. OF
* 3 REVENUE MAR 15'94 [SEAL] 999.00 *
8 P.B.11187
* ------- *
* 0 CITY OF CHICAGO *
3 REAL ESTATE TRANSACTION TAX
* 0 ------------------------------------ *
6 DEPT. OF
* 3 REVENUE MAR 15'94 [SEAL] 940.50 *
9 P.B.11187
* ------- *
<PAGE>
COOK COUNTY, ILLINOIS
FILED FOR RECORD
94 MAR 15 PM 1:37
030637
CITY OF CHICAGO
REAL ESTATE TRANSACTION TAX
- ---------------------------
DEPT. OF REVENUE
P.B. 11187
MAR 15 '94
[SEAL]
999.00
- ---------------------------
030638
CITY OF CHICAGO
REAL ESTATE TRANSACTION TAX
- ---------------------------
DEPT. OF REVENUE
P.B. 11187
MAR 15 '94
[SEAL]
999.00
- ---------------------------
030639
CITY OF CHICAGO
REAL ESTATE TRANSACTION TAX
- ---------------------------
DEPT. OF REVENUE
P.B. 11187
MAR 15 '94
[SEAL]
940.50
- ---------------------------
<PAGE>
|
[LOGO OF CHICAGO] TRUST DEED |
[TITLE AND TRUST] 783409 |
[ COMPANY ] 95271933 |
|
CTTC 7 | THE ABOVE SPACE FOR RECORDER'S USE ONLY
________________________________________________________________________________
THIS INDENTURE, made February 1, 1995, between
The Leap Partnership, Inc.
herein referred to as "Mortgagors," and CHICAGO TITLE AND TRUST COMPANY, an
Illinois corporation doing business in Chicago, Illinois, herein referred to as
TRUSTEE, witnesseth:
THAT, WHEREAS the Mortgagors are justly indebted to the legal holders of the
Instalment Note hereinafter described, said legal holder or holders being herein
referred to as Holders of the Note, in the principal sum of five hundred
thousand ($500,000.00) Dollars, evidenced by one certain Instalment Note of the
Mortgagors of even date herewith, made payable to THE ORDER OF R. Steven
Lutterbach, "mortgagee" and delivered, in and by which said Note the Mortgagors
promise to pay the said principal sum and interest from February 1, 1995 on the
balance of principal remaining from time to time unpaid at the rate of Prime+
1-1/2(*) per cent per annum in instalments (including principal and interest) as
follows:
**(Prime rate as published by Wall Street Journal; plus applicable "closing
costs".) accrued interest or more on the last day of each month, and principal
reductions as required by mortgage or more on the last day of each month
thereafter until said note is fully paid except that the final payment of
principal and interest, if not sooner paid, shall be due on the 1st day of
August 1995. All such payments on account of the indebtedness evidenced by said
note to be first applied to interest on the unpaid principal balance and the
remainder to principal; provided that the principal of each instalment unless
paid when due shall bear interest at the rate of Prime+3% per annum, and all of
said principal and interest being made payable as the holders of the note may,
from time to time, in writing appoint, and in absence of such appointment, then
at the office of R. Steven Lutterbach, 2511 Fairway Drive, Michigan City,
Indiana 46360.
NOW, THEREFORE, the Mortgagors to secure the payment of the said principal
sum of money and said interest in accordance with the terms, provisions and
limitations of this trust deed, and the performance of the covenants and
agreements herein contained, by the Mortgagors to be performed, and also in
consideration of the sum of One Dollar in hand paid, the receipt whereof is
hereby acknowledged, do by these presents CONVEY and WARRANT unto the Trustee,
its successors and assigns, the following described Real Estate and all of their
estate, right, title and interest therein, situate, lying and being in the City
of Chicago COUNTY OF Cook AND STATE OF ILLINOIS, to wit:
Legal Description:
Lot 5 and the West 1 and 1/3 feet of Lot 4 in Wolcott's addition to Chicago in
the East 1/2 of the North East 1/4 of Section 9, Township 39 North, Range 14
East and the Third Principal Meridian in Cook County, Illinois.
Property Address: [COOK COUNTY
22 West Hubbard Street RECORDER
Chicago, Illinois 60610 STAMP]
PIN #:
Volume 500 Tax No. 17-09-255-022-0000
which, with the property hereinafter described, is referred to herein as the
"premises,"
TOGETHER with all improvements, tenements, easements, fixtures, and
appurtenances thereto belonging, and all rents, issues and profits thereof for
so long and during all such times as Mortgagors may be entitled thereto (which
are pledged primarily and on a parity with said real estate and not
secondarily) and all apparatus, equipment or articles now or hereafter therein
or thereon used to supply heat, gas, air conditioning, water, light, power,
refrigeration (whether single units or centrally controlled), and ventilation,
including (without restricting the foregoing), screens, window shades, storm
doors and windows, floor coverings, inador beds, awnings, stoves and water
heaters. All of the foregoing are declared to be a part of said real estate
whether physically attached thereto or not, and it is agreed that all similar
apparatus, equipment or articles hereafter placed in the premises by the
mortgagors or their successors or assigns shall be considered as constituting
part of the real estate.
TO HAVE AND TO HOLD the premises unto the said Trustee, its successors and
assigns, forever, for the purposes, and upon the uses and trusts herein set
forth, free from all rights and benefits under and by virtue of the Homestead
Exemption Laws of the State of Illinois, which said rights and benefits the
Mortgagors do hereby expressly release and waive.
This trust deed consists of two pages. The covenants, conditions and
provisions appearing on page 2 (the reverse side of this trust deed) are
incorporated herein by reference and are a part hereof and shall be binding on
the mortgagors, their heirs, successors and assigns.
WITNESS the hand _____ and seal _____ of Mortgagors the day and year first
above written.
The Leap Partnership, Inc. /s/ Fred Smith
_____________________________ [SEAL] ___________________________ [SEAL]
Fred Smith, President
/s/ Joe Sciarrotta /s/ George Gier
_____________________________ [SEAL] ___________________________ [SEAL]
Joe Sciarrotta, Vice President George Gier, Secretary
________________________________________________________________________________
STATE OF ILLINOIS, ) I, Philip E. Ruben a Notary Public in and for and
) SS. residing in said County, in the State aforesaid,
County of Cook ) DO HEREBY CERTIFY THAT Fred Smith and George Gier
who are personally known to me to be the same
persons whose names are subscribed to the
foregoing instrument, appeared before me this day
in person and acknowledged that they signed,
sealed and delivered the said instrument as their
free and voluntary act, for the uses and purposes
set forth.
[NOTARY SEAL]
???[copy illegible]??? my hand and Notarial Seal
this 1st day of February 1995.
/s/ Philip E. Ruben Notary Public
-------------------------
Notarial Seal
<PAGE>
Page 2
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THE COVENANTS, CONDITIONS AND PROVISIONS REFERRED TO ON PAGE I (THE REVERSE
SIDE OF THIS TRUST DEED):
1. Mortgagors shall (a) promptly repair, restore or rebuild any buildings or
improvements now or hereafter on the premises which may become damaged or be
destroyed; (b) keep said premises in good condition and repair, without waste,
and free from mechanic's or other liens or claims for lien not expressly
subordinated to the lien hereof; (c) pay when due any indebtedness which may
be secured by a lien or charge on the premises superior to the lien hereof,
and upon request exhibit satisfactory evidence of the discharge of such prior
lien to Trustee or to holders of the note; (d) complete within a reasonable
time any building or buildings now or at any time in process of erection upon
said premises; (e) comply with all requirements of law or municipal ordinances
with respect to the premises and the use thereof; (f) make no material
alterations in said premises except as required by law or municipal ordinance.
2. Mortgagors shall pay before any penalty attaches all general taxes, and
shall pay special taxes, special assessments, water charges, sewer service
charges, and other charges against the premises when due, and shall, upon
written request, furnish to Trustee or to holders of the note duplicate
receipts therefor. To prevent default hereunder Mortgagors shall pay in full
under protest, in the manner provided by statute, any tax or assessment which
Mortgagors may desire to contest.
3. Mortgagors shall keep all buildings and improvements now or hereafter
situated on said premises insured against loss or damage by fire, lightning or
windstorm (and flood damage, where the lender is required by law to have its
loan so insured) under policies providing for payment by the insurance
companies of moneys sufficient either to pay the cost of replacing or
repairing the same or to pay in full the indebtedness secured hereby, all in
companies satisfactory to the holders of the note, under insurance policies
payable, in case of loss or damage, to Trustee for the benefit of the holders
of the note, such rights to be evidenced by the standard mortgage clause to be
attached to each policy, and shall deliver all policies, including additional
and renewal policies, to holders of the note, and in case of insurance about
to expire, shall deliver renewal policies not less than ten days prior to the
respective dates of expiration.
4. In case of default therein, Trustee or the holders of the note may, but
need not, make any payment or perform any act hereinbefore required of
Mortgagors in any form and manner deemed expedient, and may, but need not,
make full or partial payments of principal or interest on prior encumbrances,
if any, and purchase, discharge, compromise or settle any tax lien or other
prior lien or title or claim thereof, or redeem from any tax sale or
forfeiture affecting said premises or contest any tax or assessment. All
moneys paid for any of the purposes herein authorized and all expenses paid or
incurred in connection therewith, including attorney's fees, and any other
moneys advanced by Trustee or the holders of the note to protest the mortgaged
premises and the lien hereof, plus reasonable compensation to Trustee for each
matter concerning which action herein authorized may be taken, shall be so
much additional indebtedness secured hereby and shall become immediately due
and payable without notice and with interest thereon at a rate equivalent to
the post maturity rate set forth in the note securing this trust deed, if any,
otherwise the prematurity rate set forth therein. Inaction of Trustee or
holders of the note shall never be considered as a waiver of any right
accruing to them on account of any default hereunder on the part of
Mortgagors.
5. The Trustee or the holders of the note hereby secured making any payment
hereby authorized relating to taxes or assessments, may do so according to any
bill, statement or estimate procured from the appropriate public office
without inquiry into the accuracy of such bill, statement or estimate or into
the validity of any tax, assessment, sale, forfeiture, tax lien or title or
claim thereof.
6. Mortgagors shall pay each item of indebtedness herein mentioned, both
principal and interest, when due according to the terms hereof. At the option
of the holders of the note, and without notice to Mortgagors, all unpaid
indebtedness secured by this Trust Deed shall, notwithstanding anything in the
note or in this Trust Deed to the contrary, become due and payable (a)
immediately in the case of default in making payment of any instalment of
principal or interest on the note, or (b) when default shall occur and
continue for three days in the performance of any other agreement of the
Mortgagors herein contained.
7. When the indebtedness hereby secured shall become due whether by
acceleration or otherwise, holders of the note or Trustee shall have the right
to foreclose the lien hereof. In any suit to foreclose the lien hereof, there
shall be allowed and included as additional indebtedness in the decree for
sale all expenditures and expenses which may be paid or incurred by or on
behalf of Trustee or holders of the note for attorneys' fees, Trustee's fees,
appraiser's fees, outlays for documentary and expert evidence, stenographers'
charges, publication costs and costs (which may be estimated as to items to be
expended after entry of the decree) of procuring all such abstracts of title,
title searches and examinations, title insurance policies, Torrens
certificates, and similar data and assurances with respect to title as Trustee
or holders of the note may deem to be reasonably necessary either to prosecute
such suit or to evidence to bidders at any sale which may be had pursuant to
such decree the true condition of the title to or the value of the premises.
All expenditures and expenses of the nature in this paragraph mentioned shall
become so much additional indebtedness secured hereby and immediately due and
payable, with interest thereon at a rate equivalent to the post maturity rate
set forth in the note securing this trust deed, if any, otherwise the
prematurity rate set forth therein, when paid or incurred by Trustee or
holders of the note in connection with (a) any proceeding, including probate
and bankruptcy proceedings, to which either of them shall be a party, either
as plaintiff, claimant or defendant, by reason of this trust deed or any
indebtedness hereby secured; or (b) preparations for the commencement of any
suit for the foreclosure hereof after accrual of such right to foreclose
whether or not actually commenced; or (c) preparations for the defense of any
threatened suit or proceeding which might affect the premises or the security
hereof, whether or not actually commenced.
8. The proceeds of any foreclosure sale of the premises shall be distributed
and applied in the following order of priority: First, on account of all costs
and expenses incident to the foreclosure proceedings, including all such items
as are mentioned in the preceding paragraph hereof; second, all other items
which under the terms hereof constitute secured indebtedness additional to
that evidenced by the note, with interest thereon as herein provided; third,
all principal and interest remaining unpaid on the note; fourth, any overplus
to Mortgagors, their heirs, legal representatives or assigns, as their rights
may appear.
9. Upon, or at any time after the filing of a bill to foreclose this trust
deed, the court in which such bill is filed may appoint a receiver of said
premises. Such appointment may be made either before or after sale, without
notice, without regard to the solvency or insolvency of Mortgagors at the time
of application for such receiver and without regard to the then value of the
premises or whether the same shall be then occupied as a homestead or not and
the Trustee hereunder may be appointed as such receiver. Such receiver shall
have power to collect the rents, issues and profits of said premises during
the pendency of such foreclosure suit and, in case of a sale and a deficiency,
during the full statutory period of redemption, whether there be redemption or
not, as well as during any further times when Mortgagors, except for the
intervention of such receiver, would be entitled to collect such rents, issues
and profits, and all other powers which may be necessary or are usual in such
cases for the protection, possession, control, management and operation of the
premises during the whole of said period. The Court from time to time may
authorize the receiver to apply the net income in his hands in payment in
whole or in part of: (a) The indebtedness secured hereby, or by any decree
foreclosing this trust deed, or any tax, special assessment or other lien
which may be or become superior to the lien hereof or of such decree, provided
such application is made prior to foreclosure sale; (b) the deficiency in case
of a sale and deficiency.
10. No action for the enforcement of the lien or of any provision hereof
shall be subject to any defense which would not be good and available to the
party interposing same in an action at law upon the note hereby secured.
11. Trustee or the holders of the note shall have the right to inspect the
premises at all reasonable times and access thereto shall be permitted for
that purpose.
12. Trustee has no duty to examine the title, location, existence or
condition of the premises, or to inquire into the validity of the signatures
or the identity, capacity, or authority of the signatories on the note or
trust deed, nor shall Trustee be obligated to record this trust deed or to
exercise any power herein given unless expressly obligated by the terms
hereof, nor be liable for any acts or omissions hereunder, except in case of
its own gross negligence or misconduct or that of the agents or employees of
Trustee, and it may require indemnities satisfactory to it before exercising
any power herein given.
13. Trustee shall release this trust deed and the lien thereof by proper
instrument upon presentation of satisfactory evidence that all indebtedness
secured by this trust deed has been fully paid; and Trustee may execute and
deliver a release hereof to and at the request of any person who shall, either
before or after maturity thereof, produce and exhibit to Trustee the note,
representing that all indebtedness hereby secured has been paid, which
representation Trustee may accept as true without inquiry. Where a release is
requested of a successor trustee, such successor trustee may accept as the
genuine note herein described any note which bears an identification number
purporting to be placed thereon by a prior trustee hereunder or which conforms
in substance with the description herein contained of the note and which
purports to be executed by the persons herein designated as the makers
thereof; and where the release is requested of the original trustee and it has
never placed its identification number on the note described herein, it may
accept as the genuine note herein described any note which may be presented
and which conforms in substance with the description herein contained of the
note and which purports to be executed by the persons herein designated as
makers thereof.
14. Trustee may resign by instrument in writing filed in the office of the
Recorder or Registrar of Titles in which this instrument shall have been
recorded or filed. In case of the resignation, inability or refusal to act of
Trustee, the then Recorder of Deeds of the county in which the premises are
situated shall be Successor in Trust. Any Successor in Trust hereunder shall
have the identical title, powers and authority as are herein given Trustee.
15. This Trust Deed and all provisions hereof, shall extend to and be
binding upon Mortgagors and all persons claiming under or through Mortgagors,
and the word "Mortgagors" when used herein shall include all such persons and
all persons liable for the payment of the indebtedness or any part thereof,
whether or not such persons shall have executed the note or this Trust Deed.
The word "note" when used in this instrument shall be construed to mean
"notes" when more than one note is used.
16. Before releasing this trust deed, Trustee or successor shall receive for
its services a fee as determined by its rate schedule in effect when the
release deed is issued. Trustee or successor shall be entitled to reasonable
compensation for any other act or service performed under any provisions of
this trust deed. The provisions of the "Trust And Trustees Act" of the State
of Illinois shall be applicable to this trust deed.
- -------------------------------------------------------------------------------
IMPORTANT!
FOR THE PROTECTION OF BOTH THE BORROWER
AND LENDER THE INSTALMENT NOTE SECURED
BY THIS TRUST DEED HOLDER IDENTIFIED BY
CHICAGO TITLE AND TRUST COMPANY,
TRUSTEE, BEFORE THE TRUST DEED IS FILED
OF RECORD.
[X]
MAIL TO: Mr. Philip E. Ruben, Esquire
Kwiatt, Silverman & Ruben, Ltd.
500 Central Avenue
Northfield, Illinois 60093
783409
Identification No.____________________________
CHICAGO TITLE AND TRUST COMPANY,
Trustee.
(Signature of Xxxxx)
By____________________________________________
Assistant Secretary/Assistant Vice President
FOR RECORDER'S INDEX PURPOSES INSERT STREET
ADDRESS OF ABOVE DESCRIBED PROPERTY HERE
22 West Hubbard Street
_______________________________________________
Chicago, Illinois 60610
_______________________________________________
<PAGE>
Exhibit 10.8
THE LEAP GROUP, INC.
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
<PAGE>
Article I
---------
Introduction
------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purpose of Plan 1
2. Administration 1
3. Shares Subject to the Plan 2
4. Eligible Persons 2
5. Granting of Options to Employees 2
6. Effective Date 3
7. Miscellaneous 3
8. Rule 16b-3 Compliance 3
Article II Non-qualified Stock Options
- ---------- ---------------------------
1. Eligible Employees 3
2. Calculation of Exercise Price 3
3. Terms and Conditions of Options 4
4. Withholding Taxes 4
Article III Incentive Options
- ----------- -----------------
1. Eligible Employees 4
2. Calculation of Exercise Price 4
3. Terms and Conditions of Options 5
Article IV Termination of Employment and Death 6
- ---------- -----------------------------------
Article V Manner of Exercise 7
- --------- ------------------
Article VI Options Not Transferable 8
- ---------- ------------------------
Article VII Adjustment of Shares 8
- ----------- --------------------
Article VIII Listing and Registration of Shares 9
- ------------ ----------------------------------
Article IX Amendment 9
- ---------- ---------
Article X Other Provisions 10
- --------- ----------------
</TABLE>
-2-
<PAGE>
THE LEAP GROUP, INC.
1996 AMENDED AND RESTATED STOCK OPTION PLAN
ARTICLE I
INTRODUCTION
WHEREAS, pursuant to a stock exchange agreement between, among others,
The Leap Group, Inc., a Delaware corporation ("Leap" or the "Company") and The
Leap Partnership, Inc., an Illinois corporation ("Partnership"), Leap is
presently the parent company of Partnership. Pursuant to the approval and
authorization of the Board of Directors and the Shareholders of the Partnership
on January 3, 1996 and the Board of Directors and stockholders of Leap, is the
successor in interest to this 1996 Stock Option Plan and restates and amends in
its entirety as follows:
1. Purpose of Plan. The purpose of this 1996 Amended and Restated Stock
Option Plan (the "Plan") is to promote the interests of The Leap Group, Inc., a
Delaware corporation ("the Company"), and its stockholders by providing key
employees of the Company, its subsidiaries, and affiliated entities with
opportunities to acquire or increase their proprietary interest in the Company
and thereby participate in the growth of the Company generated by their efforts.
In addition, the opportunity to acquire a proprietary interest in the Company
will aid in attracting and retaining key personnel of outstanding ability. The
stock options offered pursuant to this Plan ("Options") are a matter of separate
inducement and are not in lieu of any salary or other compensation for the
services of any key employee.
The Options granted under the Plan are intended to be either Incentive
Options ("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or Options that do not meet the
requirements of Section 422 of the Code ("Non-qualified Options"), but the
Company makes no warranty as to the qualification of any Option as an Incentive
Option.
2. Administration. The Plan shall be administered by an Option Committee
(herein called the "Committee") of not less than three (3) Directors of the
Company who shall be appointed, from time to time, by the Board of Directors of
the Company or by the Board of Directors as a whole. No person who shall have
been or is a member of the Committee shall be eligible to receive an Option
under the Plan. No person shall be eligible to serve on the Committee unless
that person is then a "disinterested person" within the meaning of Paragraph
3(d) of Rule 16b-3 of the Securities and Exchange Commission ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "Act"),
if and as Rule 16b-3 is then in effect. The Committee is authorized to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the form and content of Options or rights to be issued under
the Plan, to determine whether an Option shall be a Non-qualified Option or an
Incentive Option, to determine any and all vesting rights of Options, to permit
or require the acceleration of the exercise of such Options and rights, and to
make all other determinations
-3-
<PAGE>
necessary or advisable for the administration of the Plan but only to the extent
not contrary to the express provisions of the Plan. The Plan and the Options as
may be granted hereunder and all related matters shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
The act or the act or determination of the Committee and any action taken or
determination so made pursuant to this and the other paragraphs of the Plan
shall be conclusive on all parties.
The Committee also shall have the authority to require, in its
discretion, that the employee agree, promptly after the grant of an Option, not
to sell or otherwise dispose of shares of the Company's common stock, .01 par
value, acquired pursuant to the exercise of an Option granted under the Plan
("Shares", a "Share" or "Common Stock") for a period following the date of
acquisition. The determination of the Committee on matters referred to in this
Article I shall be conclusive.
Notwithstanding anything to the contrary contained herein, any or all
powers and functions of the Committee may at any time and from time to time be
exercised by the Board of Directors or an executive committee thereof and
references herein to the "Committee" shall also be deemed to refer to the Board
of Directors or an executive committee thereof unless the context otherwise
requires; provided, however, that, with respect to the participation in the Plan
of employees who are members of the Board of Directors or of the executive
committee, as the case may be, Board of Directors or the executive committee
only if, at the time of such exercise, a majority of the members of the entire
Board of Directors and a majority of the directors acting in the particular
matter, or all the members of the executive committee, as the case may be, are
"disinterested persons" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Act.
The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Board of
Directors or the Committee in the engagement of such counsel, consultant or
agent shall be paid by the Company. No member or former member of the Committee,
the Board of Directors or an executive committee thereof shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted hereunder.
3. Shares Subject to the Plan. Subject to adjustment as provided by
Article VII hereof, the aggregate number of Shares subject to Options which may
be granted under the Plan shall not exceed three million (3,000,000) Shares.
Options granted under this Plan will be either Incentive Options or non-
qualified stock Options. In the event the number of Shares to be delivered upon
the exercise in full of any Option granted under the Plan is reduced for any
reason whatsoever or in the event any Option granted under this Plan lapses or
terminates for any reason before being completely exercised, the Shares covered
by the unexercised portion of such Option shall be released and may again be
made subject to Options granted under the Plan. Shares of Common Stock of the
Company shall be delivered unless Article VII shall be applicable. Common Stock
issued pursuant to the exercise of Options granted under the Plan shall be fully
paid and non-assessable. In no event shall an Option granted hereunder be
exercised for a fraction of a share.
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Shares which may be acquired under the Plan may be either authorized but
unissued Shares, Shares of issued stock held in the Company's treasury, or both,
at the discretion of the Company. If and to the extent that Options granted
under the Plan expire or terminate without having been exercised, new Options
may be granted with respect to the Shares covered by such expired or terminated
Options, provided that the grant and the terms of such new Options shall in all
respects comply with the provisions of the Plan.
Except as may be provided otherwise in the Plan, the Company may, from
time to time during the period beginning March 11, 1996 (the "Effective Date")
and ending at the close of business on March 10, 2006 (the "Termination Date"),
grant Options to certain key employees of the Company, or of any subsidiary
corporation or parent corporation of the Company now existing or hereafter
formed or acquired, under the terms hereinafter set forth.
As used in the Plan, the terms "subsidiary corporation" and "parent
corporation" shall mean, respectively, a corporation coming within the
definition of such terms contained in Section 425 of the Code.
4. Eligible Persons. Options may be granted under the Plan to any key
employee of the Company or any subsidiary thereof, including any such employee
who is also an officer or director of the Company or a subsidiary ("Employee
Optionees", or "Optionees"). Except as otherwise provided herein, no Option may
be granted under the Plan to any person who is or has been a member of the
Committee.
Any person who shall have retired from the active employment by the
Company, although such person shall have entered into a consulting contract with
the Company, shall not be eligible to receive an Option.
5. Granting of Options to Employees. Subject to the terms and conditions
of the Plan, the Committee shall have authority to grant, from time to time and
as of any date or dates prior to the close of business on March 10, 2006 as
shall be specified by the Committee, to such eligible employees, Options to
purchase such number of authorized but unissued, or reacquired Shares of Common
Stock of the Company on such terms and conditions whether pursuant to or as set
forth in Articles II and III as the Committee may determine. More than one
Option may be granted to the same employee. In selecting Employee Optionees, and
in determining the number of Shares to be covered by each Option granted to
Employee Optionees the Committee may consider the office or position held by the
Employee Optionee, the Employee Optionee's degree of responsibility for and
contribution to the growth and success of the Company, the Employee Optionee's
length of service, age, promotions, potential and any other factors which it may
consider relevant.
6. Effective Period of Plan. The Plan shall become effective as of the
Effective Date and shall expire on the Termination Date and has been approved by
the stockholders of The Leap Group, Inc. and The Leap Partnership, Inc.
7. Miscellaneous. All references in the Plan to "Articles", "Paragraphs",
and other subdivisions refer to the corresponding Articles, Paragraphs, and
subdivisions of the Plan.
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8. Rule 16b-3 Compliance. The Company intends:
a. that the Plan meet the requirements of Rule 16b-3;
b. that transactions of the type specified in the first paragraph
of Rule 16b-3 by officers of the Company (whether or not they are directors)
pursuant to the Plan will be exempt from the operation of Section 16(b) of the
Act.
In all cases, the terms, provisions, conditions and limitations of the
Plan shall be construed and interpreted consistent with the Company's intent as
stated in this Article I, Paragraph 8.
ARTICLE II
NON-QUALIFIED STOCK OPTIONS
1. Eligible Employees. Key employees and officers (whether or not they are
directors) of the Company, its subsidiaries and affiliated entities shall be
eligible to receive Non-qualified Options under this Article II.
2. Calculation of Exercise Price. The exercise price to be paid for each
share of Common Stock deliverable upon exercise of each Non-qualified Option
granted under Article II shall be equal to the fair market value per share of
Common Stock at the time of grant as determined by the Committee. In the
absence of a public market price for the Common Stock, the Committee may, but
need not, obtain an appraisal to determine the fair market value and shall be
entitled to rely upon the fair market value as determined by such appraisal.
The exercise price for each Non-qualified Option granted under Article II shall
be subject to adjustment as provided in Article VII.
If the Shares are listed on a national securities exchange in the United
States on the date any Option is granted, the fair market value per Share shall
be deemed to be the closing quotation at which such Shares are sold on such
national securities exchange on the date immediately prior to the date such
Option is granted. If the Shares are listed on a national securities exchange
in the United States on such date but the Shares are not traded on such date,
or such national securities exchange is not open for business on such date, the
fair market value per Share shall be determined as of the closest preceding
date on which such exchange shall have been open for business and the Shares
were traded. If the Shares are listed on more than one national securities
exchange in the United States on the date any such Option is granted, the
Committee shall determine which national securities exchange shall be used for
the purpose of determining the fair market value per Share.
If at the date an Option is granted a public market exists for the
Shares but the Shares are not listed on a national securities exchange in the
United States, the fair market value per Share shall be deemed to be the mean
between the closing bid and asked quotations in the over-the-
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counter market for such Shares in the United States on the date such Option is
granted. If there are no bid and asked quotations for such Shares on such date,
the fair market value per Share shall be deemed to be the mean between the
closing bid and asked quotations in the over-the-counter market in the United
States for such Shares on the closest date preceding the date such Option is
granted for which such quotations are available.
3. Terms and Conditions of Options. Non-qualified Options granted under
Article II shall be in such form as the Committee may from time to time
approve. Options granted under Article II shall be subject to the following
terms and conditions and may contain such additional terms and conditions, not
inconsistent with Article II and other pertinent Articles contained herein, as
the Committee shall deem desirable.
Subject to Article IX, no Non-qualified Option granted under Article II
shall be exercisable with respect to any of the Shares subject to the Option
earlier than the date which is one year from the date of grant nor later than
the date which is ten years after the date of grant (the "Non-qualified Option
Expiration Date"). To the extent not prohibited by other provisions of the
Plan, each Non-qualified Option granted under Article II shall be exercisable
at such time or times as the Committee in its discretion may determine at or
prior to the time such Option is granted; provided, however, that unless the
Committee determines otherwise, each Non-qualified Option granted under Article
II shall be exercisable from time to time, in whole or in part, at any time
after one year from the date of grant and prior to the Non-qualified Option
Expiration Date.
4. Withholding Taxes. The Company may require an employee exercising a
Non-qualified Option granted hereunder, or disposing of Shares acquired
pursuant to the exercise of an Incentive Option in a disqualifying disposition
(within the meaning of Section 421(b) of the Code), to reimburse the
corporation that employs such employee for any taxes required by any government
to be withheld or otherwise deducted and paid by such corporation in respect of
the issuance or disposition of Shares. In lieu thereof, the corporation that
employs such employee shall have the right to withhold the amount of such taxes
from any other sums due or to become due from such corporation to the employee
upon such terms and conditions as the Committee shall prescribe.
ARTICLE III
INCENTIVE OPTIONS
1. Eligible Employees. Key employees and officers (whether or not they are
directors) of the Company, its subsidiaries and affiliated entities shall be
eligible to receive Incentive Options under this Article III.
An Incentive Option shall not be granted to any person who, at the time
such Option is granted, owns stock of the Company or any subsidiary corporation
or parent corporation of the Company possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of
any subsidiary corporation or parent corporation of the Company, unless (i) the
exercise price per Share is not less than one hundred ten percent (110%)
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of the fair market value per Share on the date such Option is granted and (ii)
such Option by its terms is not exercisable after the expiration of ten (10)
years from the date such Option is granted. In determining stock ownership of an
employee, the rules of Section 425(d) of the Code shall be applied, and the
Committee may rely on representations of fact made to it by the employee and
believed by it to be true.
2. Calculation of Exercise Price. Subject to the limitation in paragraph 1
above, the exercise price to be paid for each share of Common Stock deliverable
upon exercise of each Incentive Option granted under Article III shall be equal
to the fair market value per share of Common Stock at the time of grant as
determined by the Committee. In the absence of a public market price for the
Common Stock, the Committee shall make a determination of fair market value in
accordance with Section 422 of the Code and may, but need not, obtain an
appraisal to determine the fair market value and shall be entitled to rely upon
the fair market value as determined by such appraisal. The exercise price for
each Incentive Option granted under Article II shall be subject to adjustment
as provided in Article VII.
If the Shares are listed on a national securities exchange in the United
States on the date any Option is granted, the fair market value per Share shall
be deemed to be the closing quotation at which such Shares are sold on such
national securities exchange on the date immediately prior to the date such
Option is granted. If the Shares are listed on a national securities exchange
in the United States on such date but the Shares are not traded on such date,
or such national securities exchange is not open for business on such date, the
fair market value per Share shall be determined as of the closest preceding
date on which such exchange shall have been open for business and the Shares
were traded. If the Shares are listed on more than one national securities
exchange in the United States on the date any such Option is granted, the
Committee shall determine which national securities exchange shall be used for
the purpose of determining the fair market value per Share.
If at the date an Option is granted a public market exists for the
Shares but the Shares are not listed on a national securities exchange in the
United States, the fair market value per Share shall be deemed to be the mean
between the closing bid and asked quotations in the over-the-counter market for
such Shares in the United States on the date such Option is granted. If there
are no bid and asked quotations for such Shares on such date, the fair market
value per Share shall be deemed to be the mean between the closing bid and asked
quotations in the over-the-counter market in the United States for such Shares
on the closest date preceding the date such Option is granted for which such
quotations are available.
The exercise price for each Incentive Option shall be subject to
adjustment as provided in Article VII.
3. Terms and Conditions of Options. Incentive Options granted under Article
III shall be in such form as the Committee may from time to time approve.
Options granted under Article III shall be subject to the following terms and
conditions and may contain such additional terms and conditions, not
inconsistent with Article III and other pertinent Articles contained herein, as
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the Committee shall deem desirable:
a. Option Period and Conditions and Limitations on Exercise.
Subject to Article IX, no Incentive Option granted under Article III shall be
exercisable with respect to any of the Shares subject to such Option earlier
than the date which is one year from the date of grant nor later than the date
which is ten years after the date of grant; provided, however, that in the case
of an Employee Optionee who, at the time such Option is granted, owns (within
the meaning of Section 425(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or of its Parent Corporation
or any Subsidiary Corporation, then such Option shall not be exercisable with
respect to any of the Shares subject to such Option later than five years after
the date of grant. The date on which an Incentive Option ultimately becomes
unexercisable under the previous sentence is hereinafter referred to as the "ISO
Expiration Date". To the extent not prohibited by other provisions of the Plan,
each Incentive Option granted under Article III shall be exercisable at such
time or times as the Committee in its discretion may determine at or prior to
the time such Option is granted; provided, however, that unless the Committee
determines otherwise, each Incentive Option granted under this Article III shall
be exercisable from time to time, in whole or in part, subject to the dollar
limitations set forth in Article III, Paragraph 3(b), at any time after one year
from the date of grant and prior to the ISO Expiration Date.
b. Limitation on Amount. Notwithstanding any other provision of the
Plan, the aggregate fair market value (determined as of the time the Incentive
Option is granted) of the Common Stock with respect to which Incentive Options
are exercisable for the first time by an Employee Optionee during any calendar
year cannot exceed $100,000 as provided under Section 422A(b)(7) of the Code.
ARTICLE IV
TERMINATION
1. Determination of Employment Termination Date. Unless otherwise specified
by the Committee, an Employee Optionee's employment shall be deemed to have
terminated at the close of business on the day preceding the first date on
which he is no longer for any reason whatsoever (including his death) employed
by the Company or a subsidiary or affiliated entity of the Company.
2. Voluntary Termination or Termination For Cause. If an Employee
Optionee's employment is voluntarily terminated (understood not to include
retirement, disability or death) or is terminated for cause, as hereafter
defined, each Option granted to him under Articles II and III, and all rights
thereunder, shall wholly and completely terminate thirty (30) days after the
date of employment termination.
"For cause" shall mean: (i) with respect to an employee who is a party
to a written employment agreement with, or, alternatively, participates in a
compensation or benefit plan of,
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the Company or a subsidiary corporation or parent corporation of the Company,
which agreement or plan contains a definition of "for cause" or "cause" (or
words of like import) for purposes of termination of employment thereunder by
the Company or such subsidiary corporation or parent corporation of the Company,
"for cause" or "cause" as defined therein; provided, however, in the event that
an employee is a participant in a compensation or benefit plan of the Company
and is also a party to a written employment agreement with the Company, the
termination provisions of the written employment agreement shall control; or
(ii) in all other cases, as determined by the Committee or the Board of
Directors in its sole discretion, (a) the willful commission by an employee of
an act that causes or may cause substantial damage to the Company or a
subsidiary corporation or parent corporation of the Company; (b) the commission
by an employee of an act of fraud in the performance of such employee's duties
on behalf of the Company or a subsidiary corporation or parent corporation of
the Company; (c) the commission of the employee of a felony in connection with
the performance of the duties of such employee on behalf of the Company or a
subsidiary corporation or parent corporation of the Company; or (d) the
continuing failure of an employee to perform the duties of such employee to the
Company or a subsidiary corporation or parent corporation of the Company after
written notice thereof and a reasonable opportunity to cure such failure are
given to the employee by the Board of Directors or the Committee.
3. Termination Due to Death, Disability. If an Employee Optionee's
employment is terminated due to death, disability, retirement or for reason or
reasons that do not constitute "for cause", each Option granted to him under
Articles II and III, and all rights thereunder, shall terminate, subject to
Article IX, as of the original date of termination as stated in the respective
Option grant.
In the event and to the extent that an Incentive Option granted under
Article III is not exercised (i) within three months after the Employee
Optionee's employment is terminated because of retirement or disability not
within the meaning of Section 22(e)(3) of the Code or (ii) within one year
after the Employee Optionee's employment is terminated because of disability
within the meaning of Section 22(e)(3) of the Code, such Option shall be taxed
as a Non-qualified Option and shall be subject to the manner of exercise
provisions described in Article VI.
ARTICLE V
MANNER OF EXERCISE
Options granted under the Plan shall be exercised by the Optionee as to
all or part of the Shares covered thereby by the giving of written notice of the
exercise thereof to the corporate secretary or other appropriate officer of the
Company at the principal business office of the Company, specifying the number
of Shares to be purchased and accompanied by payment of the purchase price.
Upon the exercise of an Option granted hereunder, the Company shall
cause the purchased
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Shares to be issued only when it shall have received the full purchase price for
the Shares in cash; provided, however, that in lieu of cash, the holder of an
Option may, if the terms of such Option so provide and to the extent permitted
by applicable law, exercise his Option, (a) in whole or in part, by delivering
to the Company common stock of the Company (in proper form for transfer and
accompanied by all requisite stock transfer tax stamps or cash in lieu thereof)
owned by such holder having a fair market value equal to the cash exercise price
applicable to that portion of the Option being exercised by the delivery of such
stock, the fair market value of the stock so delivered to be determined as of
the date immediately preceding the date on which the Option is exercised, or as
may be required in order to comply with or to conform to the requirements of any
applicable laws or regulations, or (b) in part, by delivering to the Company an
executed promissory note on such terms and conditions as the Committee shall
determine, at the time of grant, in its sole discretion; provided, however, that
the principal amount of such note shall not exceed ninety percent (90%) (or such
lesser percentage as would be permitted by applicable margin regulations) of the
aggregate purchase price of the Shares then being purchased pursuant to the
exercise of such Option.
If the Committee so requires and if necessary, such person or persons
shall also deliver a written representation that all Shares being purchased are
being acquired for investment and not with a view to, or for resale in
connection with, any distribution of such Shares.
ARTICLE VI
OPTIONS NOT TRANSFERABLE
No Option granted pursuant to this Plan shall be transferable otherwise
than by will or by the laws of descent and distribution and, during the
lifetime of the Optionee to whom any such Option is granted, it shall be
exercisable only by the Optionee (or an Optionee's lawfully appointed
guardian). Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of, or to subject to execution, attachment or similar process, any
Option granted pursuant to this Plan, or any right thereunder, contrary to the
provisions hereof, shall be void and ineffective, shall give no right to the
purported transferee, and shall, at the sole discretion of the Committee,
result in forfeiture of the Option with respect to the Shares involved in such
attempt.
ARTICLE VII
ADJUSTMENT OF SHARES
In the event that at any time after the effective date of the Plan the
outstanding Shares of Common Stock are changed into or exchanged for a
different number or kind of Shares of the Company or other securities of the
Company by reason of merger, consolidation, reorganization, recapitalization,
reclassification, stock split, stock dividend, split-up, split-off, spin-off,
or combination of Shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of Shares subject to this Plan (including
Shares as to which all outstanding Options granted or portions thereof then
unexercised, shall be exercisable), to the end that after
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such event the Shares subject to this Plan and each Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change in the total
price applicable to the Option or the unexercised portion of the Option (except
for any change in the aggregate price resulting from rounding-off of share
quantities or prices) and with any necessary corresponding adjustment in
exercise price per share. Any such adjustment made by the Committee shall be
final and binding upon all Optionees, the Company and all other interested
persons. Any adjustment of an Incentive Option under this Paragraph shall be
made in such manner as not to constitute a "modification" within the meaning of
Section 425(h)(3) of the Code.
ARTICLE VIII
LISTING AND REGISTRATION OF SHARES
Each Option granted pursuant to this Plan shall be subject to the
requirement that if at any time the Committee determines, in its discretion,
that the listing, registration, or qualification of the Shares subject to such
Option under any securities exchange or under any state or Federal law, or the
consent of approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the issue or purchase of
Shares thereunder, such Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained and the same shall have been free of any conditions not
acceptable to the Committee.
Upon any exercise of an Option which may be granted hereunder and
payment of the purchase price, a certificate or certificates for the Shares as
to which the Option has been exercised shall be issued by the Company in the
name of the person exercising the Option and shall be delivered to or upon the
order of such person or persons.
The Company may endorse such legend or legends upon the certificates for
Shares issued upon exercise of an Option granted hereunder, and the Committee
may issue such "stop transfer" instructions to its transfer agent in respect of
such Shares, as the Committee, in its discretion, determines to be necessary or
appropriate to (i) prevent a violation of, or to perfect an exemption from, the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), (ii) implement the provisions of any agreement between the
Company and the Optionee with respect to such Shares, or (iii) permit the
Company to determine the occurrence of a disqualifying disposition, as
described in Section 421(b) of the Code, of Shares transferred upon exercise of
an Incentive Option granted under the Plan.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares, as well as all fees and expenses necessarily
incurred by the Company in connection with such issuance or transfer, except
fees and expenses which may be necessitated by the filing or amending of a
Registration Statement under the Securities Act, which fees and expenses shall
be borne by the recipient of the Shares unless such Registration Statement has
been filed by the Company for its own corporate purposes (and the Company so
states) in which event the recipient of the Shares shall bear only such fees
and expenses as are attributable solely to the inclusion of such Shares in the
Registration Statement.
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ARTICLE IX
AMENDMENT
The Committee may, with the consent of the person or persons entitled to
exercise any outstanding Option granted pursuant to this Plan, amend such
Option; provided, however, that any such amendment increasing the number of
Shares of Common Stock subject to such Option (except as provided in Article
VII) or reducing the exercise price per share of such Option (except as
provided in Article VII or in this Article IX) shall in each case be subject to
approval by the stockholders of the Company. The Committee may at any time or
from time to time, in its discretion, in the case of any Option previously
granted pursuant to this Plan which is not then immediately exercisable in
full, accelerate the time or times at which such Option may be exercised to any
earlier time or times except that any acceleration of an Incentive Option shall
be subject to Article III, Paragraph 3(b). The Committee, in its absolute
discretion, may grant to holders of outstanding Options granted pursuant to
this Plan, in exchange for the surrender and cancellation of such Options, new
Options having exercise prices lower (or higher) than the exercise price
provided in the Options so surrendered and cancelled and containing such other
terms and conditions as the Committee may deem appropriate.
ARTICLE X
OTHER PROVISIONS
1. Stockholder Rights. The person or persons entitled to exercise, or who
have exercised an Option granted pursuant to this Plan shall not be entitled to
any rights as a stockholder of the Company with respect to any Shares subject
to such Option until he shall have become the holder of record of such Shares.
2. Company's Right to Terminate Employment. No Option granted pursuant to
this Plan shall be construed as limiting any right which the Company or any
subsidiary or affiliated entity of the Company may have to terminate at any
time, with or without cause, the employment of any person or require
re-election as a director or a directors removal with or without cause to whom
an Option has been granted.
3. Compliance with Laws and Regulations. Notwithstanding any provision of
the Plan or the terms of any Option granted pursuant to this Plan, the Company
shall not be required to issue any Shares hereunder if such issuance would, in
the judgment of the Committee, constitute a violation of any state or Federal
law or of the rules or regulations of any governmental regulatory body.
4. Notice of Disposition. The Committee may require any person who
exercises an Incentive Option to give prompt notice to the Company of any
disposition of Shares of Common Stock acquired upon exercise of an Incentive
Option within one year after such exercise.
5. Use of Proceeds. The cash proceeds of the sale of Shares subject to the
Options granted
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hereunder are to be added to the general funds of the Company and used for its
general corporate purposes or such other appropriate purposes as the Board of
Directors shall determine.
6. Securities Act. Except as hereafter provided, the holder of an Option
granted hereunder, upon any exercise thereof, shall execute and deliver to the
Company a written statement, in form satisfactory to the Company, in which such
holder represents and warrants that such holder is purchasing or acquiring the
Shares acquired thereunder for such holder's own account, for investment only
and not with a view to the resale or distribution thereof, and agrees that any
subsequent resale or distribution of any of such Shares shall be made only
pursuant to either (a) a Registration Statement on an appropriate form under
the Securities Act, which Registration Statement has become effective and is
current with regard to the Shares being sold, or (b) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the holder shall, prior to any offer of sale or sale of such Shares,
obtain a prior favorable written opinion, in form and substance satisfactory to
the Company, from counsel for or approved by the Company, as to the application
of such exemption thereto. The foregoing restriction shall not apply to (i)
issuances by the Company so long as the Shares being issued are registered
under the Securities Act and a prospectus in respect thereof is current or (ii)
reofferings of Shares by affiliates of the Company (as defined in Rule 405 or
any successor rule or regulation promulgated under the Securities Act) if the
Shares being reoffered are registered under the Securities Act and a
prospectus in respect thereof is current.
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Exhibit 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 12th
day of March, 1996, by and between The Leap Group, Inc., a Delaware corporation
("Leap"), The Leap Partnership, Inc., an Illinois corporation (the "Partnership"
and together with Leap the "Company") and R. Steven Lutterbach ("Executive").
WITNESSETH:
-----------
WHEREAS, the Partnership is a wholly-owned subsidiary of Leap; and
WHEREAS, the Company desires to engage Executive to serve as Chairman
and Chief Executive Officer of the Company and Executive desires to serve as the
Company's Chairman and Chief Executive Officer in accordance with the terms and
conditions herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements hereinafter contained, the parties agree as follows:
1. Employment. The Company hereby employs Executive and Executive
hereby accepts employment by the Company on a full-time basis upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall be for a period of three (3) years
commencing on March 12, 1996, and terminating on March 11, 1999 (the "Term").
3. Duties. Effective upon execution of this Agreement, Executive
agrees that during the term of his employment by the
<PAGE>
Company, he shall be employed as Chairman and Chief Executive Officer of the
Company and in such capacity shall be responsible for all acts consistent with
his position as Chairman and Chief Executive Officer of the Company as may be
delegated to him from time to time by the Board of Directors of the Company or
in accordance with the By-laws of the Company. Effective as of March 12, 1996,
and so long as the Executive is Chairman and Chief Executive Officer of the
Company, the Executive shall be a member of the Board of Directors of both Leap
and the Company.
4. Extent of Services. Executive shall devote his entire working
time during normal working hours, attention, and energies to the best of his
ability to the business of the Company and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit or other pecuniary advantages, but
this restriction shall not be construed preventing Executive from investing his
personal assets in businesses which do not compete with the Company or the
Company's clients and will not require any services on his part in the operation
of the affairs of the companies in which such investments are made, and in which
his participation is solely that of an investor.
5. Compensation.
(a) For the period of the Term, the Company shall pay an annual salary
to Executive of Three Hundred Thousand ($300,000.00), payable in accordance with
the Company's normal
2
<PAGE>
practices for similarly situated executives, or at such other intervals as may
be mutually agreed upon by the Company and Executive. The annual salary to
Executive may be increased from time to time at the discretion of the Board of
Directors.
(b) The Company shall also reimburse the Executive for travel,
administrative and other expenses incurred by Executive in the course of
performing his duties pursuant to this Agreement. Such amount shall be payable
to Executive in accordance with the Company's normal practices for similarly
situated employees, or at such other intervals as may be mutually agreed upon by
the Company and Executive.
6. Executive Benefits. Executive shall be entitled to participate,
if eligible in accordance with the terms of the program in which he desires to
participate, in all executive benefit programs of the Company (including pension
and profit sharing plans, group life and medical insurance programs and medical
expense reimbursement plans), which the Company shall from time to time have for
the benefit of employees of like status.
7. Vacation Time. Executive shall be entitled to annual paid
vacations in accordance with the Company's normal practices for similarly
situated employees.
8. Termination of Employment. This Agreement may be terminated by
the Company at any time after the occurrence of any of the following events:
3
<PAGE>
(i) Executive is unable to perform his duties for a period of
120 days or is otherwise permanently, mentally or
physically disabled.
(ii) The death of Executive.
(iii) The decision by the Company to terminate this Agreement
for cause. "Cause" shall consist of the following:
Executive's conviction on a felony charge or Executive's
commission of any crime involving moral turpitude;
Executive's dishonesty or fraud resulting in damage to the
business of the Company; Executive's embezzlement or theft
of assets of the Company; in the sole discretion of the
Company, Executive's grossly negligent conduct, Executive's
course of personal conduct of an illegal or unethical
nature which tends to place the Company in disrepute, or
otherwise negatively affects the ability of the Company to
conduct its business; Executive's substantial and
continuous insubordination or violation of his duties or
responsibilities; Executive's competition with the Company
or aid to a competitor of the Company to the detriment of
the Company; or a breach of this Agreement by Executive,
including failure to perform duties and services to the
Company as required pursuant to Sections 3 and 4 hereof. In
the event Executive is arrested for any of the types of
matters above, the Company may place Executive on
suspension without pay until such matter is dismissed or
Executive is convicted and this Agreement is terminated.
9. Confidential Information and Noncompetition.
(a) In the course of Executive's employment by the Company, it will be
necessary for Executive to acquire information which could include information
concerning the Company's clients and prospective clients, the identity of key
advertising personnel in the employ of clients, the Company's or the Company's
clients' computer programs and software, the actual or proposed advertising
4
<PAGE>
ideas, plans, programs or campaigns of the Company or its clients, information
supplied to the Company by its clients, including marketing plans, demographic
information, sales results or projections and like information, plans of the
Company to expand areas of its business, or other confidential or proprietary
information belonging to the Company or relating to the Company's affairs
(collectively, the "Confidential Information"). Executive understands that it is
essential to the protection of the Company's good will and to the maintenance of
the Company's competitive position that the Confidential Information be kept
secret. Executive agrees to hold and safeguard the Confidential Information in
trust for the Company and agrees that Executive will not, without the prior
written consent of the Company, misappropriate or disclose or make available to
anyone for use outside the Company's organization at any time, either during
Executive's employment with the Company or following termination of Executive's
employment, for any reason whatsoever, any of the Confidential Information,
except as required in the performance of Executive's duties with the Company.
Upon termination of Executive's employment, Executive will deliver to the
Company all records, correspondence or other documents containing Confidential
Information and execute any further documents deemed necessary to effectuate the
purposes of this paragraph.
(b) Executive acknowledges and agrees that to the extent Executive
creates any protectible property during the Term
5
<PAGE>
of this Agreement, regardless of whether said property is created during the
course of his employment, including, without limitation, any plans, methods,
slogans, product names, ideas, or copyrightable or patentable subject matter,
Company shall own all right, title and interest therein, including the
copyright, as work for hire as defined in the applicable federal statutes and
Executive will have no right, title or interest therein.
(c) Except as otherwise provided in this paragraph, Executive agrees
that for two (2) years immediately following termination of Executive's
employment with the Company, for any reason whatsoever, Executive will not,
directly or indirectly, including as an owner (of a 5% or more equity interest),
executive, consultant or other contractor of any person, corporation or other
entity, make any proposals to or solicit the business of any clients of the
Company. Reference in this paragraph to "clients of the Company" shall mean any
persons or entities that are clients of the Company as of the date of
Executive's termination or that have been clients of the Company at any time
within two (2) years prior thereto or any prospective client solicited by the
Company within three months prior to the Executive's termination. If a client of
the Company was not a client at the time of Executive's termination, but was a
client of the Company within two years prior thereto, then the restrictions upon
Executive for any such client, as stated in this paragraph, shall be two years
from the date the customer was no longer a client of the Company.
6
<PAGE>
(d) Executive agrees that, during Executive's employment with the
Company and for two (2) years immediately following termination of Executive's
employment, for any reason whatsoever, Executive will not, directly or
indirectly, solicit, induce or recommend any employee of the Company to leave
the employ of the Company or hire any employee of the Company.
10. Remedies. Executive agrees that the period of time provided for
in Paragraph 9 above is the minimum period of time necessary and that the other
provisions and restrictions set forth in Paragraph 9 above are necessary to
protect the Company and the Company's clients and their respective successors
and assigns in the use and employment of the goodwill of the business conducted
by the Company and the Company's clients. Executive agrees that the services to
be performed by him for the Company are special and unique, that damages cannot
compensate in the event of a violation of the above covenants and agreements and
that injunctive relief shall be essential for the protection of the Company and
its successors and assigns. Accordingly, Executive agrees and consents that, in
the event he shall violate or breach any of said restrictive covenants, the
Company shall be entitled to obtain (and he hereby consents thereto) injunctive
relief against him, without bond, but upon due notice, in addition to such
further or other relief as may appertain at equity or law. Obtainment of such an
injunction by the Company shall not be considered an election of remedies or a
waiver of any right by the Company to assert any
7
<PAGE>
other remedies the Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from the forbearance or failure by the Company
to take action hereon. Executive agrees that if any provisions hereof shall be
adjudicated to be invalid or unenforceable, such adjudication is to apply only
with respect to the operation of such provision in the particular jurisdiction
in which such adjudication is made; provided, further, to the extent any
provision hereof is deemed unenforceable by virtue of its scope in terms of area
or length of time, but may be made enforceable by limitations thereon, Executive
agrees that the same shall be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction in which
enforcement is sought.
11. Independent Covenants. The covenants and agreements of Executive
contained in Paragraphs 9 and 10 above shall be construed as an agreement which
is independent of any other provision of this Agreement or any other
understanding or agreement between the parties and supported by good, sufficient
and valid consideration and the existence of any claim or cause of action of
Executive against the Company, of whatsoever nature, shall not constitute a
defense to the enforcement by the Company of the covenants contained herein.
12. Indemnification. Each of the parties agrees to indemnify and
hold the other harmless of and from any and all loss, cost, damage and expense
(including attorneys' fees and court
8
<PAGE>
costs) which he or it shall suffer, sustain or incur as a result of, in
connection with or arising from the indemnifying party's breach of any of the
provisions of this Agreement, or the efforts of either party to enforce the
terms hereof, including, but not limited to, the restrictive covenants contained
herein.
13. Notices. If any notice be required hereunder, it shall be in
writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, to:
If to the Executive at:
R. Steven Lutterbach
2511 Fairway Drive
Michigan City, IN 46360
If to the Company at:
The Leap Group, Inc.
22 W. Hubbard Street
Chicago, IL 60610
with a copy to: Philip E. Ruben
500 Central Ave
Northfield, IL 60093
14. Assignment and Delegation. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns. The
duties of Executive under this Agreement are personal to him and shall not be
subject to voluntary or involuntary alienation, assignment, delegation or
transfer. However, the rights and benefits of Executive under this Agreement
shall inure to the benefit of Executive's heirs, legatees, executors and
administrators except as otherwise provided.
9
<PAGE>
15. Severability. If any provision of this Agreement is adjudicated
to be partially or completely invalid or unenforceable, such adjudication is to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. All provisions of this
Agreement are severable, and this Agreement shall be interpreted and enforced as
if all completely invalid or unenforceable provisions were not contained herein
and partially valid and enforceable provisions shall be enforceable to the
extent valid and enforceable.
16. Entire Agreement. This Agreement contains the entire agreement
between the parties. All prior discussions, compensation understandings,
negotiations and agreements are merged herein. This Agreement may not be orally
changed or canceled, but may only be changed or canceled by an agreement to such
effect in writing signed by the party against whom enforcement of same is
sought.
17. Governing Law. The validity, construction and enforceability of
this Agreement shall be governed by the internal laws, and not the laws of
conflicts, of the State of Illinois.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed on the date and year first above written.
EXECUTIVE: THE LEAP GROUP, INC.
/s/ R. Steven Lutterbach By: /s/ Frederick Smith
- ---------------------------- -----------------------------
R. Steven Lutterbach Frederick Smith
Vice-Chairman and COO
THE LEAP PARTNERSHIP, INC.
By: /s/ Thomas R. Sharbaugh
-----------------------------
Thomas R. Sharbaugh,
President
11
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 12th
day of March, 1996, by and between The Leap Group, Inc., a Delaware corporation
("Leap"), The Leap Partnership, Inc., an Illinois corporation (the "Partnership"
and together with Leap, the "Company") and Thomas Sharbaugh ("Executive").
WITNESSETH:
-----------
WHEREAS, the Partnership is a wholly-owned subsidiary of Leap; and
WHEREAS, the Partnership desires to engage Executive to serve as
President of the Partnership and Executive desires to serve as the Partnership's
President in accordance with the terms and conditions herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements hereinafter contained, the parties agree as follows:
1. Employment. The Partnership hereby employs Executive and
Executive hereby accepts employment by the Partnership on a full-time basis upon
the terms and conditions hereinafter set forth.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall be for a period of three (3) years
commencing on April 1, 1996, and terminating on March 30, 1999 (the "Term").
3. Duties. Effective upon execution of this Agreement, Executive
agrees that during the term of his employment by the Company, he shall be
employed as President of the Partnership and in such capacity shall be
responsible for all acts consistent with his position as President of the
Partnership as may be delegated to him from time to time by the Board of
Directors of the Partnership or in accordance with the By-laws of the
Partnership. Such duties may include, without limitation, undertaking all
actions necessary for the continued, day-to-day affairs of the Partnership and
managing the relations with the clients of the Partnership. Effective as of
April 1, 1996, and so long as the Executive is President of the Partnership, the
Executive shall be a member of the Board of Directors of both Leap and the
Partnership.
4. Extent of Services. Executive shall devote his entire working
time during normal working hours, attention, and energies to the best of his
ability to the business of the Partnership and shall not, during the term of
this Agreement, be engaged in any
<PAGE>
other business activity, whether or not such business activity is pursued for
gain, profit or other pecuniary advantages, but this restriction shall not be
construed preventing Executive from investing his personal assets in businesses
which do not compete with the Company or the Company's clients and will not
require any services on his part in the operation of the affairs of the
companies in which such investments are made, and in which his participation is
solely that of an investor.
5. Compensation.
(a) For the period of the Term, the Company shall pay an annual salary
to Executive of Three Hundred Thousand ($300,000.00), payable in accordance with
the Company's normal practices for similarly situated executives, or at such
other intervals as may be mutually agreed upon by the Company and Executive. The
annual salary to Executive may be increased from time to time at the discretion
of the Board of Directors.
(b) The Company shall also reimburse the Executive for travel,
administrative and other expenses incurred by Executive in the course of
performing his duties pursuant to this Agreement. Such amount shall be payable
to Executive in accordance with the Company's normal practices for similarly
situated employees, or at such other intervals as may be mutually agreed upon by
the Company and Executive.
6. Executive Benefits. Executive shall be entitled to participate,
if eligible in accordance with the terms of the program in which he desires to
participate, in all executive benefit programs of the Company (including pension
and profit sharing plans, group life and medical insurance programs and medical
expense reimbursement plans), which the Company shall from time to time have for
the benefit of employees of like status.
7. Vacation Time. Executive shall be entitled to annual paid
vacations in accordance with the Company's normal practices for similarly
situated employees.
8. Stock Ownership and Stock Rights.
(a) Definition. For purposes of this Agreement, the "Plan" shall mean
The Leap Group, Inc. and The Leap Partnership, Inc. 1996 Stock Option Plan,
dated January 3, 1996.
(a) Grant of Option. Upon execution of this Agreement, the Company
shall grant to Executive options to acquire 1,800,000
2
<PAGE>
shares of Leap common stock under the Plan at an exercise price of $7.25 per
share exercisable over a period of ten (10) years (the "Option Shares"), such
shares to vest as follows: (i) an option to purchase 1,400,000 shares shall vest
upon execution of this Agreement; (ii) an option to purchase 100,000 shares
shall vest one year therafter; (iii) an option to purchase 100,000 shares shall
vest two years therafter; (iv) an option to purchase 100,000 shares shall vest
three years therafter and (v) an option to purchase 100,000 shares shall vest
four years therafter.
9. Termination of Employment. This Agreement may be terminated by
the Company at any time after the occurrence of any of the following events:
(a) Executive is unable to perform his duties for a period of 120 days
or is otherwise permanently, mentally or physically disabled.
(b) The death of Executive.
(c) The decision by the Company to terminate this Agreement for cause.
"Cause" shall consist of the following: Executive's conviction on a felony
charge or Executive's commission of any crime involving moral turpitude;
Executive's dishonesty or fraud resulting in damage to the business of the
Company; Executive's embezzlement or theft of assets of the Company; in the sole
discretion of the Company, Executive's grossly negligent conduct, Executive's
course of personal conduct of an illegal or unethical nature which tends to
place the Company in disrepute, or otherwise negatively affects the ability of
the Company to conduct its business; Executive's substantial and continuous
insubordination or violation of his duties or responsibilities; Executive's
competition with the Company or aid to a competitor of the Company to the
detriment of the Company; or a breach of this Agreement by Executive, including
failure to perform duties and services to the Company as required pursuant to
Sections 3 and 4 hereof. In the event Executive is arrested for any of the types
of matters above, the Company may place Executive on suspension without pay
until such matter is dismissed or Executive is convicted and this Agreement is
terminated.
10. Confidential Information and Noncompetition.
(a) In the course of Executive's employment by the Company, it will be
necessary for Executive to acquire information which could include information
concerning the Company's clients and prospective clients, the identity of key
advertising personnel
3
<PAGE>
in the employ of clients, the Company's or the Company's clients' computer
programs and software, the actual or proposed advertising ideas, plans, programs
or campaigns of the Company or its clients, information supplied to the Company
by its clients, including marketing plans, demographic information, sales
results or projections and like information, plans of the Company to expand
areas of its business, or other confidential or proprietary information
belonging to the Company or relating to the Company's affairs (collectively, the
"Confidential Information"). Executive understands that it is essential to the
protection of the Company's good will and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret. Executive
agrees to hold and safeguard the Confidential Information in trust for the
Company and agrees that Executive will not, without the prior written consent of
the Company, misappropriate or disclose or make available to anyone for use
outside the Company's organization at any time, either during Executive's
employment with the Company or following termination of Executive's employment,
for any reason whatsoever, any of the Confidential Information, except as
required in the performance of Executive's duties with the Company. Upon
termination of Executive's employment, Executive will deliver to the Company all
records, correspondence or other documents containing Confidential Information
and execute any further documents deemed necessary to effectuate the purposes of
this paragraph.
(b) Executive acknowledges and agrees that to the extent Executive
creates any protectible property during the Term of this Agreement, regardless
of whether said property is created during the course of his employment,
including, without limitation, any plans, methods, slogans, product names,
ideas, or copyrightable or patentable subject matter, Company shall own all
right, title and interest therein, including the copyright, as work for hire as
defined in the applicable federal statutes and Executive will have no right,
title or interest therein.
(c) Except as otherwise provided in this paragraph, Executive agrees
that for two (2) years immediately following termination of Executive's
employment with the Company, for any reason whatsoever, Executive will not,
directly or indirectly, including as an owner (of a 5% or more equity interest),
executive, consultant or other contractor of any person, corporation or other
entity, make any proposals to or solicit the business of any clients of the
Company. Reference in this paragraph to "clients of the Company" shall mean any
persons or entities that are clients of the Company as of the date of
Executive's termination or that have been clients of the Company at any time
within two (2) years prior
4
<PAGE>
thereto or any prospective client solicited by the Company within three months
prior to the Executive's termination. If a client of the Company was not a
client at the time of Executive's termination, but was a client of the Company
within two years prior thereto, then the restrictions upon Executive for any
such client, as stated in this paragraph, shall be two years from the date the
customer was no longer a client of the Company. Notwithstanding the above, the
Company agrees that Executive may seek employment with Sears, Roebuck & Co. or
Anheuser Busch Companies, Inc. and not violate the terms above.
(d) Executive agrees that, during Executive's employment with the
Company and for two (2) years immediately following termination of Executive's
employment, for any reason whatsoever, Executive will not, directly or
indirectly, solicit, induce or recommend any employee of the Company to leave
the employ of the Company or hire any employee of the Company.
11. Remedies. Executive agrees that the period of time provided for
in Paragraph 10 above is the minimum period of time necessary and that the other
provisions and restrictions set forth in Paragraph 10 above are necessary to
protect the Company and the Company's clients and their respective successors
and assigns in the use and employment of the goodwill of the business conducted
by the Company and the Company's clients. Executive agrees that the services to
be performed by him for the Company are special and unique, that damages cannot
compensate in the event of a violation of the above covenants and agreements and
that injunctive relief shall be essential for the protection of the Company and
its successors and assigns. Accordingly, Executive agrees and consents that, in
the event he shall violate or breach any of said restrictive covenants, the
Company shall be entitled to obtain (and he hereby consents thereto) injunctive
relief against him, without bond, but upon due notice, in addition to such
further or other relief as may appertain at equity or law. Obtainment of such an
injunction by the Company shall not be considered an election of remedies or a
waiver of any right by the Company to assert any other remedies the Company has
at law or in equity. No waiver of any breach or violation hereof shall be
implied from the forbearance or failure by the Company to take action hereon.
Executive agrees that if any provisions hereof shall be adjudicated to be
invalid or unenforceable, such adjudication is to apply only with respect to the
operation of such provision in the particular jurisdiction in which such
adjudication is made; provided, further, to the extent any provision hereof is
deemed unenforceable by virtue of its scope in terms of area or length of time,
but may be made enforceable by limitations thereon, Executive agrees that the
5
<PAGE>
same shall be enforceable to the fullest extent permissible under the laws and
public policies applied in such jurisdiction in which enforcement is sought.
12. Independent Covenants. The covenants and agreements of Executive
contained in Paragraphs 10 and 11 above shall be construed as an agreement which
is independent of any other provision of this Agreement or any other
understanding or agreement between the parties and supported by good, sufficient
and valid consideration and the existence of any claim or cause of action of
Executive against the Company, of whatsoever nature, shall not constitute a
defense to the enforcement by the Company of the covenants contained herein.
13. Indemnification. Each of the parties agrees to indemnify and
hold the other harmless of and from any and all loss, cost, damage and expense
(including attorneys' fees and court costs) which he or it shall suffer, sustain
or incur as a result of, in connection with or arising from the indemnifying
party's breach of any of the provisions of this Agreement, or the efforts of
either party to enforce the terms hereof, including, but not limited to, the
restrictive covenants contained herein.
14. Notices. If any notice be required hereunder, it shall be in
writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, to:
If to the Executive at: Thomas Sharbaugh
810 Fox Glen Drive
St. Charles, IL 60174
If to the Company at: The Leap Group, Inc.
22 W. Hubbard Street
Chicago, IL 60610
Telephone (312) 494-0300
Fax (312) 494-0120
With a copy to: Philip E. Ruben, Esq.
Kwiatt, Silverman & Ruben, Ltd.
500 N. Central Avenue
Northfield, IL 60093
Telephone (847) 441-7676
Fax (847) 441-7696
15. Assignment and Delegation. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns. The
duties of Executive under this Agreement are
6
<PAGE>
personal to him and shall not be subject to voluntary or involuntary alienation,
assignment, delegation or transfer. However, the rights and benefits of
Executive under this Agreement shall inure to the benefit of Executive's heirs,
legatees, executors and administrators except as otherwise provided.
16. Severability. If any provision of this Agreement is adjudicated
to be partially or completely invalid or unenforceable, such adjudication is to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. All provisions of this
Agreement are severable, and this Agreement shall be interpreted and enforced as
if all completely invalid or unenforceable provisions were not contained herein
and partially valid and enforceable provisions shall be enforceable to the
extent valid and enforceable.
17. Entire Agreement. This Agreement contains the entire agreement
between the parties. All prior discussions, compensation understandings,
negotiations and agreements are merged herein. This Agreement may not be orally
changed or canceled, but may only be changed or canceled by an agreement to such
effect in writing signed by the party against whom enforcement of same is
sought.
18. Governing Law. The validity, construction and enforceability of
this Agreement shall be governed by the internal laws, and not the laws of
conflicts, of the State of Illinois.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed on the date and year first above written.
EXECUTIVE: THE LEAP GROUP, INC.
/s/ Thomas Sharbaugh
- ------------------------------ By: /s/ R. Steven Lutterbach
Thomas Sharbaugh -------------------------------
R. Steven Lutterbach,
Chairman and CEO
THE LEAP PARTNERSHIP, INC.
By: /s/ Frederick Smith
-------------------------------
Frederick Smith,
President
8
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 12th
day of March, 1996, by and between The Leap Group, Inc., a Delaware corporation
("Leap"), The Leap Partnership, Inc., an Illinois corporation (the "Partnership"
and together with Leap the "Company") and Frederick Smith ("Executive").
WITNESSETH:
-----------
WHEREAS, the Partnership is a wholly-owned subsidiary of Leap; and
WHEREAS, the Company desires to engage Executive to serve as Vice-
Chairman and Chief Operating Officer of the Company and Executive desires to
serve as the Company's Vice-Chairman and Chief Operating Officer in accordance
with the terms and conditions herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements hereinafter contained, the parties agree as follows:
1. Employment. The Company hereby employs Executive and Executive
hereby accepts employment by the Company on a full-time basis upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall be for a period of three (3) years
commencing on March 12, 1996, and terminating on March 11, 1999 (the "Term").
3. Duties. Effective upon execution of this Agreement, Executive
agrees that during the term of his employment by the
<PAGE>
Company, he shall be employed as Vice-Chairman and Chief Operating Officer of
the Company and in such capacity shall be responsible for all acts consistent
with his position as Vice-Chairman and Chief Operating Officer of the Company as
may be delegated to him from time to time by the Board of Directors of the
Company or in accordance with the By-laws of the Company. Effective as of March
12, 1996, and so long as the Executive is Vice-Chairman and Chief Operating
Officer of the Company, the Executive shall be a member of the Board of
Directors of both Leap and the Company.
4. Extent of Services. Executive shall devote his entire working
time during normal working hours, attention, and energies to the best of his
ability to the business of the Company and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit or other pecuniary advantages, but
this restriction shall not be construed preventing Executive from investing his
personal assets in businesses which do not compete with the Company or the
Company's clients and will not require any services on his part in the operation
of the affairs of the companies in which such investments are made, and in which
his participation is solely that of an investor.
5. Compensation.
(a) For the period of the Term, the Company shall pay an annual
salary to Executive of Two Hundred Thousand ($200,000.00), payable in accordance
with the Company's normal
2
<PAGE>
practices for similarly situated executives, or at such other intervals as may
be mutually agreed upon by the Company and Executive. The annual salary to
Executive may be increased from time to time at the discretion of the Board of
Directors.
(b) The Company shall also reimburse the Executive for travel,
administrative and other expenses incurred by Executive in the course of
performing his duties pursuant to this Agreement. Such amount shall be payable
to Executive in accordance with the Company's normal practices for similarly
situated employees, or at such other intervals as may be mutually agreed upon by
the Company and Executive.
6. Executive Benefits. Executive shall be entitled to participate,
if eligible in accordance with the terms of the program in which he desires to
participate, in all executive benefit programs of the Company (including pension
and profit sharing plans, group life and medical insurance programs and medical
expense reimbursement plans), which the Company shall from time to time have for
the benefit of employees of like status.
7. Vacation Time. Executive shall be entitled to annual paid
vacations in accordance with the Company's normal practices for similarly
situated employees.
8. Termination of Employment. This Agreement may be terminated by
the Company at any time after the occurrence of any of the following events:
3
<PAGE>
(i) Executive is unable to perform his duties for a period of
120 days or is otherwise permanently, mentally or physically
disabled.
(ii) The death of Executive.
(iii) The decision by the Company to terminate this Agreement
for cause. "Cause" shall consist of the following: Executive's
conviction on a felony charge or Executive's commission of any crime
involving moral turpitude; Executive's dishonesty or fraud resulting
in damage to the business of the Company; Executive's embezzlement
or theft of assets of the Company; in the sole discretion of the
Company, Executive's grossly negligent conduct, Executive's course
of personal conduct of an illegal or unethical nature which tends to
place the Company in disrepute, or otherwise negatively affects the
ability of the Company to conduct its business; Executive's
substantial and continuous insubordination or violation of his
duties or responsibilities; Executive's competition with the Company
or aid to a competitor of the Company to the detriment of the
Company; or a breach of this Agreement by Executive, including
failure to perform duties and services to the Company as required
pursuant to Sections 3 and 4 hereof. In the event Executive is
arrested for any of the types of matters above, the Company may
place Executive on suspension without pay until such matter is
dismissed or Executive is convicted and this Agreement is
terminated.
9. Confidential Information and Noncompetition.
(a) In the course of Executive's employment by the Company, it will be
necessary for Executive to acquire information which could include information
concerning the Company's clients and prospective clients, the identity of key
advertising personnel in the employ of clients, the Company's or the Company's
clients' computer programs and software, the actual or proposed advertising
4
<PAGE>
ideas, plans, programs or campaigns of the Company or its clients, information
supplied to the Company by its clients, including marketing plans, demographic
information, sales results or projections and like information, plans of the
Company to expand areas of its business, or other confidential or proprietary
information belonging to the Company or relating to the Company's affairs
(collectively, the "Confidential Information"). Executive understands that it
is essential to the protection of the Company's good will and to the maintenance
of the Company's competitive position that the Confidential Information be kept
secret. Executive agrees to hold and safeguard the Confidential Information in
trust for the Company and agrees that Executive will not, without the prior
written consent of the Company, misappropriate or disclose or make available to
anyone for use outside the Company's organization at any time, either during
Executive's employment with the Company or following termination of Executive's
employment, for any reason whatsoever, any of the Confidential Information,
except as required in the performance of Executive's duties with the Company.
Upon termination of Executive's employment, Executive will deliver to the
Company all records, correspondence or other documents containing Confidential
Information and execute any further documents deemed necessary to effectuate the
purposes of this paragraph.
(b) Executive acknowledges and agrees that to the extent Executive
creates any protectible property during the Term
5
<PAGE>
of this Agreement, regardless of whether said property is created during the
course of his employment, including, without limitation, any plans, methods,
slogans, product names, ideas, or copyrightable or patentable subject matter,
Company shall own all right, title and interest therein, including the
copyright, as work for hire as defined in the applicable federal statutes and
Executive will have no right, title or interest therein.
(c) Except as otherwise provided in this paragraph, Executive agrees
that for two (2) years immediately following termination of Executive's
employment with the Company, for any reason whatsoever, Executive will not,
directly or indirectly, including as an owner (of a 5% or more equity interest),
executive, consultant or other contractor of any person, corporation or other
entity, make any proposals to or solicit the business of any clients of the
Company. Reference in this paragraph to "clients of the Company" shall mean any
persons or entities that are clients of the Company as of the date of
Executive's termination or that have been clients of the Company at any time
within two (2) years prior thereto or any prospective client solicited by the
Company within three months prior to the Executive's termination. If a client
of the Company was not a client at the time of Executive's termination, but was
a client of the Company within two years prior thereto, then the restrictions
upon Executive for any such client, as stated in this paragraph, shall be two
years from the date the customer was no longer a client of the Company.
6
<PAGE>
(d) Executive agrees that, during Executive's employment with the
Company and for two (2) years immediately following termination of Executive's
employment, for any reason whatsoever, Executive will not, directly or
indirectly, solicit, induce or recommend any employee of the Company to leave
the employ of the Company or hire any employee of the Company.
10. Remedies. Executive agrees that the period of time provided for in
Paragraph 9 above is the minimum period of time necessary and that the other
provisions and restrictions set forth in Paragraph 9 above are necessary to
protect the Company and the Company's clients and their respective successors
and assigns in the use and employment of the goodwill of the business conducted
by the Company and the Company's clients. Executive agrees that the services to
be performed by him for the Company are special and unique, that damages cannot
compensate in the event of a violation of the above covenants and agreements and
that injunctive relief shall be essential for the protection of the Company and
its successors and assigns. Accordingly, Executive agrees and consents that, in
the event he shall violate or breach any of said restrictive covenants, the
Company shall be entitled to obtain (and he hereby consents thereto) injunctive
relief against him, without bond, but upon due notice, in addition to such
further or other relief as may appertain at equity or law. Obtainment of such an
injunction by the Company shall not be considered an election of remedies or a
waiver of any right by the Company to assert any
7
<PAGE>
other remedies the Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from the forbearance or failure by the Company
to take action hereon. Executive agrees that if any provisions hereof shall be
adjudicated to be invalid or unenforceable, such adjudication is to apply only
with respect to the operation of such provision in the particular jurisdiction
in which such adjudication is made; provided, further, to the extent any
provision hereof is deemed unenforceable by virtue of its scope in terms of area
or length of time, but may be made enforceable by limitations thereon, Executive
agrees that the same shall be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction in which
enforcement is sought.
11. Independent Covenants. The covenants and agreements of Executive
contained in Paragraphs 9 and 10 above shall be construed as an agreement which
is independent of any other provision of this Agreement or any other
understanding or agreement between the parties and supported by good, sufficient
and valid consideration and the existence of any claim or cause of action of
Executive against the Company, of whatsoever nature, shall not constitute a
defense to the enforcement by the Company of the covenants contained herein.
12. Indemnification. Each of the parties agrees to indemnify and hold the
other harmless of and from any and all loss, cost, damage and expense (including
attorneys' fees and court
8
<PAGE>
costs) which he or it shall suffer, sustain or incur as a result of, in
connection with or arising from the indemnifying party's breach of any of the
provisions of this Agreement, or the efforts of either party to enforce the
terms hereof, including, but not limited to, the restrictive covenants contained
herein.
13. Notices. If any notice be required hereunder, it shall be in writing
and shall be delivered personally or sent by registered or certified mail,
return receipt requested, to:
If to the Executive at:
Frederick Smith
2944 Lakeshore Drive
Michigan City, IN 46360
If to the Company at:
The Leap Group, Inc.
22 W. Hubbard Street
Chicago, IL 60610
with a copy to: Philip E. Ruben
500 Central Ave
Northfield, IL 60093
14. Assignment and Delegation. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns. The duties of
Executive under this Agreement are personal to him and shall not be subject to
voluntary or involuntary alienation, assignment, delegation or transfer.
However, the rights and benefits of Executive under this Agreement shall inure
to the benefit of Executive's heirs, legatees, executors and administrators
except as otherwise provided.
9
<PAGE>
15. Severability. If any provision of this Agreement is adjudicated to be
partially or completely invalid or unenforceable, such adjudication is to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. All provisions of this
Agreement are severable, and this Agreement shall be interpreted and enforced as
if all completely invalid or unenforceable provisions were not contained herein
and partially valid and enforceable provisions shall be enforceable to the
extent valid and enforceable.
16. Entire Agreement. This Agreement contains the entire agreement
between the parties. All prior discussions, compensation understandings,
negotiations and agreements are merged herein. This Agreement may not be orally
changed or canceled, but may only be changed or canceled by an agreement to such
effect in writing signed by the party against whom enforcement of same is
sought.
17. Governing Law. The validity, construction and enforceability of this
Agreement shall be governed by the internal laws, and not the laws of conflicts,
of the State of Illinois.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed on the date and year first above written.
EXECUTIVE: THE LEAP GROUP, INC.
/s/ Frederick Smith
- --------------------- By: /s/ R. Steven Lutterbach
Frederick Smith -----------------------------
R. Steven Lutterbach,
Chairman and CEO
THE LEAP PARTNERSHIP, INC.
By: /s/ Thomas R. Sharbaugh
-----------------------------
Thomas R. Sharbaugh,
President
11
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 12th day of
March, 1996, by and between The Leap Group, Inc., a Delaware corporation
("Leap"), The Leap Partnership, Inc., an Illinois corporation (the "Partnership"
and together with Leap the "Company") and George Gier ("Executive").
WITNESSETH:
-----------
WHEREAS, the Partnership is a wholly-owned subsidiary of Leap; and
WHEREAS, the Company desires to engage Executive to serve as Executive
Vice-President of the Company and Executive desires to serve as the Company's
Executive Vice-President in accordance with the terms and conditions herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements hereinafter contained, the parties agree as follows:
1. Employment. The Company hereby employs Executive and Executive hereby
accepts employment by the Company on a full-time basis upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for termination hereinafter provided,
the term of this Agreement shall be for a period of three (3) years commencing
on March 12, 1996, and terminating on March 11, 1999 (the "Term").
3. Duties. Effective upon execution of this Agreement, Executive agrees
that during the term of his employment by the Company, he shall be employed as
Executive Vice-President of the
<PAGE>
Company and in such capacity shall be responsible for all acts consistent with
his position as Executive Vice-President of the Company as may be delegated to
him from time to time by the Board of Directors of the Company or in accordance
with the By-laws of the Company. Effective as of March 12, 1996, and so long as
the Executive is Executive Vice-President of the Company, the Executive shall be
a member of the Board of Directors of both Leap and the Company.
4. Extent of Services. Executive shall devote his entire working time
during normal working hours, attention, and energies to the best of his ability
to the business of the Company and shall not, during the term of this Agreement,
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit or other pecuniary advantages, but this restriction
shall not be construed preventing Executive from investing his personal assets
in businesses which do not compete with the Company or the Company's clients and
will not require any services on his part in the operation of the affairs of the
companies in which such investments are made, and in which his participation is
solely that of an investor.
5. Compensation.
(a) For the period of the Term, the Company shall pay an annual salary
to Executive of Two Hundred Thousand ($200,000.00), payable in accordance with
the Company's normal practices for similarly situated executives, or at such
other
2
<PAGE>
intervals as may be mutually agreed upon by the Company and Executive. The
annual salary to Executive may be increased from time to time at the discretion
of the Board of Directors.
(b) The Company shall also reimburse the Executive for travel,
administrative and other expenses incurred by Executive in the course of
performing his duties pursuant to this Agreement. Such amount shall be payable
to Executive in accordance with the Company's normal practices for similarly
situated employees, or at such other intervals as may be mutually agreed upon by
the Company and Executive.
6. Executive Benefits. Executive shall be entitled to participate, if
eligible in accordance with the terms of the program in which he desires to
participate, in all executive benefit programs of the Company (including pension
and profit sharing plans, group life and medical insurance programs and medical
expense reimbursement plans), which the Company shall from time to time have for
the benefit of employees of like status.
7. Vacation Time. Executive shall be entitled to annual paid vacations in
accordance with the Company's normal practices for similarly situated employees.
8. Termination of Employment. This Agreement may be terminated by the
Company at any time after the occurrence of any of the following events:
(i) Executive is unable to perform his duties for a period of 120
days or is otherwise permanently, mentally or physically
disabled.
3
<PAGE>
(ii) The death of Executive.
(iii) The decision by the Company to terminate this Agreement for
cause. "Cause" shall consist of the following: Executive's
conviction on a felony charge or Executive's commission of any
crime involving moral turpitude; Executive's dishonesty or
fraud resulting in damage to the business of the Company;
Executive's embezzlement or theft of assets of the Company; in
the sole discretion of the Company, Executive's grossly
negligent conduct, Executive's course of personal conduct of an
illegal or unethical nature which tends to place the Company in
disrepute, or otherwise negatively affects the ability of the
Company to conduct its business; Executive's substantial and
continuous insubordination or violation of his duties or
responsibilities; Executive's competition with the Company or
aid to a competitor of the Company to the detriment of the
Company; or a breach of this Agreement by Executive, including
failure to perform duties and services to the Company as
required pursuant to Sections 3 and 4 hereof. In the event
Executive is arrested for any of the types of matters above,
the Company may place Executive on suspension without pay until
such matter is dismissed or Executive is convicted and this
Agreement is terminated.
9. Confidential Information and Noncompetition.
(a) In the course of Executive's employment by the Company, it will be
necessary for Executive to acquire information which could include information
concerning the Company's clients and prospective clients, the identity of key
advertising personnel in the employ of clients, the Company's or the Company's
clients' computer programs and software, the actual or proposed advertising
ideas, plans, programs or campaigns of the Company or its clients,
4
<PAGE>
information supplied to the Company by its clients, including marketing plans,
demographic information, sales results or projections and like information,
plans of the Company to expand areas of its business, or other confidential or
proprietary information belonging to the Company or relating to the Company's
affairs (collectively, the "Confidential Information"). Executive understands
that it is essential to the protection of the Company's good will and to the
maintenance of the Company's competitive position that the Confidential
Information be kept secret. Executive agrees to hold and safeguard the
Confidential Information in trust for the Company and agrees that Executive will
not, without the prior written consent of the Company, misappropriate or
disclose or make available to anyone for use outside the Company's organization
at any time, either during Executive's employment with the Company or following
termination of Executive's employment, for any reason whatsoever, any of the
Confidential Information, except as required in the performance of Executive's
duties with the Company. Upon termination of Executive's employment, Executive
will deliver to the Company all records, correspondence or other documents
containing Confidential Information and execute any further documents deemed
necessary to effectuate the purposes of this paragraph.
(b) Executive acknowledges and agrees that to the extent Executive
creates any protectible property during the Term of this Agreement, regardless
of whether said property is created
5
<PAGE>
during the course of his employment, including, without limitation, any plans,
methods, slogans, product names, ideas, or copyrightable or patentable subject
matter, Company shall own all right, title and interest therein, including the
copyright, as work for hire as defined in the applicable federal statutes and
Executive will have no right, title or interest therein.
(c) Except as otherwise provided in this paragraph, Executive agrees
that for two (2) years immediately following termination of Executive's
employment with the Company, for any reason whatsoever, Executive will not,
directly or indirectly, including as an owner (of a 5% or more equity interest),
executive, consultant or other contractor of any person, corporation or other
entity, make any proposals to or solicit the business of any clients of the
Company. Reference in this paragraph to "clients of the Company" shall mean any
persons or entities that are clients of the Company as of the date of
Executive's termination or that have been clients of the Company at any time
within two (2) years prior thereto or any prospective client solicited by the
Company within three months prior to the Executive's termination. If a client of
the Company was not a client at the time of Executive's termination, but was a
client of the Company within two years prior thereto, then the restrictions upon
Executive for any such client, as stated in this paragraph, shall be two years
from the date the customer was no longer a client of the Company.
6
<PAGE>
(d) Executive agrees that, during Executive's employment with the
Company and for two (2) years immediately following termination of Executive's
employment, for any reason whatsoever, Executive will not, directly or
indirectly, solicit, induce or recommend any employee of the Company to leave
the employ of the Company or hire any employee of the Company.
10. Remedies. Executive agrees that the period of time provided for in
Paragraph 9 above is the minimum period of time necessary and that the other
provisions and restrictions set forth in Paragraph 9 above are necessary to
protect the Company and the Company's clients and their respective successors
and assigns in the use and employment of the goodwill of the business conducted
by the Company and the Company's clients. Executive agrees that the services to
be performed by him for the Company are special and unique, that damages cannot
compensate in the event of a violation of the above covenants and agreements and
that injunctive relief shall be essential for the protection of the Company and
its successors and assigns. Accordingly, Executive agrees and consents that, in
the event he shall violate or breach any of said restrictive covenants, the
Company shall be entitled to obtain (and he hereby consents thereto) injunctive
relief against him, without bond, but upon due notice, in addition to such
further or other relief as may appertain at equity or law. Obtainment of such an
injunction by the Company shall not be considered an election of remedies or a
waiver of any right by the Company to assert any
7
<PAGE>
other remedies the Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from the forbearance or failure by the Company
to take action hereon. Executive agrees that if any provisions hereof shall be
adjudicated to be invalid or unenforceable, such adjudication is to apply only
with respect to the operation of such provision in the particular jurisdiction
in which such adjudication is made; provided, further, to the extent any
provision hereof is deemed unenforceable by virtue of its scope in terms of area
or length of time, but may be made enforceable by limitations thereon, Executive
agrees that the same shall be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction in which
enforcement is sought.
11. Independent Covenants. The covenants and agreements of Executive
contained in Paragraphs 9 and 10 above shall be construed as an agreement which
is independent of any other provision of this Agreement or any other
understanding or agreement between the parties and supported by good, sufficient
and valid consideration and the existence of any claim or cause of action of
Executive against the Company, of whatsoever nature, shall not constitute a
defense to the enforcement by the Company of the covenants contained herein.
12. Indemnification. Each of the parties agrees to indemnify and hold the
other harmless of and from any and all loss, cost, damage and expense (including
attorneys' fees and court
8
<PAGE>
costs) which he or it shall suffer, sustain or incur as a result of, in
connection with or arising from the indemnifying party's breach of any of the
provisions of this Agreement, or the efforts of either party to enforce the
terms hereof, including, but not limited to, the restrictive covenants contained
herein.
13. Notices. If any notice be required hereunder, it shall be in writing
and shall be delivered personally or sent by registered or certified mail,
return receipt requested, to:
If to the Executive at:
George Gier
1033 Auburn Lane
Bartlett, IL 60103
If to the Company at:
The Leap Group, Inc.
22 W. Hubbard Street
Chicago, IL 60610
with a copy to: Philip E. Ruben
500 Central Ave
Northfield, IL 60093
14. Assignment and Delegation. This Agreement shall inure to the benefit of
and be binding upon the Company, its successors and assigns. The duties of
Executive under this Agreement are personal to him and shall not be subject to
voluntary or involuntary alienation, assignment, delegation or transfer.
However, the rights and benefits of Executive under this Agreement shall inure
to the benefit of Executive's heirs, legatees, executors and administrators
except as otherwise provided.
9
<PAGE>
15. Severability. If any provision of this Agreement is adjudicated to be
partially or completely invalid or unenforceable, such adjudication is to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. All provisions of this
Agreement are severable, and this Agreement shall be interpreted and enforced as
if all completely invalid or unenforceable provisions were not contained herein
and partially valid and enforceable provisions shall be enforceable to the
extent valid and enforceable.
16. Entire Agreement. This Agreement contains the entire agreement between
the parties. All prior discussions, compensation understandings, negotiations
and agreements are merged herein. This Agreement may not be orally changed or
canceled, but may only be changed or canceled by an agreement to such effect in
writing signed by the party against whom enforcement of same is sought.
17. Governing Law. The validity, construction and enforceability of this
Agreement shall be governed by the internal laws, and not the laws of conflicts,
of the State of Illinois.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed on the date and year first above written.
EXECUTIVE: THE LEAP GROUP, INC.
/s/ George Gier
- ------------------------- By: /s/ R. Steven Lutterbach
George Gier ------------------------------
R. Steven Lutterbach,
Chairman and CEO
THE LEAP PARTNERSHIP, INC.
By: /s/ Thomas R. Sharbaugh
-------------------------------
Thomas R. Sharbaugh,
President
11
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 12th
day of March, 1996, by and between The Leap Group, Inc., a Delaware corporation
("Leap"), The Leap Partnership, Inc., an Illinois corporation (the "Partnership"
and together with Leap the "Company") and Joseph A. Sciarrotta ("Executive").
WITNESSETH:
-----------
WHEREAS, the Partnership is a wholly-owned subsidiary of Leap; and
WHEREAS, the Company desires to engage Executive to serve as Executive
Vice-President of the Company and Executive desires to serve as the Company's
Executive Vice-President in accordance with the terms and conditions herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements hereinafter contained, the parties agree as follows:
1. Employment. The Company hereby employs Executive and Executive
hereby accepts employment by the Company on a full-time basis upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall be for a period of three (3) years
commencing on March 12, 1996, and terminating on March 11, 1999 (the "Term").
3. Duties. Effective upon execution of this Agreement, Executive
agrees that during the term of his employment by the Company, he shall be
employed as Executive Vice-President of the
<PAGE>
Company and in such capacity shall be responsible for all acts consistent with
his position as Executive Vice-President of the Company as may be delegated to
him from time to time by the Board of Directors of the Company or in accordance
with the By-laws of the Company. Effective as of March 12, 1996, and so long as
the Executive is Executive Vice-President of the Company, the Executive shall be
a member of the Board of Directors of both Leap and the Company.
4. Extent of Services. Executive shall devote his entire working
time during normal working hours, attention, and energies to the best of his
ability to the business of the Company and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit or other pecuniary advantages, but
this restriction shall not be construed preventing Executive from investing his
personal assets in businesses which do not compete with the Company or the
Company's clients and will not require any services on his part in the operation
of the affairs of the companies in which such investments are made, and in which
his participation is solely that of an investor.
5. Compensation.
(a) For the period of the Term, the Company shall pay an annual
salary to Executive of Two Hundred Thousand ($200,000.00), payable in accordance
with the Company's normal practices for similarly situated executives, or at
such other
2
<PAGE>
intervals as may be mutually agreed upon by the Company and Executive. The
annual salary to Executive may be increased from time to time at the discretion
of the Board of Directors.
(b) The Company shall also reimburse the Executive for travel,
administrative and other expenses incurred by Executive in the course of
performing his duties pursuant to this Agreement. Such amount shall be payable
to Executive in accordance with the Company's normal practices for similarly
situated employees, or at such other intervals as may be mutually agreed upon by
the Company and Executive.
6. Executive Benefits. Executive shall be entitled to participate,
if eligible in accordance with the terms of the program in which he desires to
participate, in all executive benefit programs of the Company (including pension
and profit sharing plans, group life and medical insurance programs and medical
expense reimbursement plans), which the Company shall from time to time have for
the benefit of employees of like status.
7. Vacation Time. Executive shall be entitled to annual paid
vacations in accordance with the Company's normal practices for similarly
situated employees.
8. Termination of Employment. This Agreement may be terminated by
the Company at any time after the occurrence of any of the following events:
(i) Executive is unable to perform his duties for a period of
120 days or is otherwise permanently, mentally or
physically disabled.
3
<PAGE>
(ii) The death of Executive.
(iii) The decision by the Company to terminate this Agreement
for cause. "Cause" shall consist of the following:
Executive's conviction on a felony charge or Executive's
commission of any crime involving moral turpitude;
Executive's dishonesty or fraud resulting in damage to the
business of the Company; Executive's embezzlement or theft
of assets of the Company; in the sole discretion of the
Company, Executive's grossly negligent conduct, Executive's
course of personal conduct of an illegal or unethical
nature which tends to place the Company in disrepute, or
otherwise negatively affects the ability of the Company to
conduct its business; Executive's substantial and
continuous insubordination or violation of his duties or
responsibilities; Executive's competition with the Company
or aid to a competitor of the Company to the detriment of
the Company; or a breach of this Agreement by Executive,
including failure to perform duties and services to the
Company as required pursuant to Sections 3 and 4 hereof. In
the event Executive is arrested for any of the types of
matters above, the Company may place Executive on
suspension without pay until such matter is dismissed or
Executive is convicted and this Agreement is terminated.
9. Confidential Information and Noncompetition.
(a) In the course of Executive's employment by the Company, it
will be necessary for Executive to acquire information which could include
information concerning the Company's clients and prospective clients, the
identity of key advertising personnel in the employ of clients, the Company's or
the Company's clients' computer programs and software, the actual or proposed
advertising ideas, plans, programs or campaigns of the Company or its clients,
4
<PAGE>
information supplied to the Company by its clients, including marketing plans,
demographic information, sales results or projections and like information,
plans of the Company to expand areas of its business, or other confidential or
proprietary information belonging to the Company or relating to the Company's
affairs (collectively, the "Confidential Information"). Executive understands
that it is essential to the protection of the Company's good will and to the
maintenance of the Company's competitive position that the Confidential
Information be kept secret. Executive agrees to hold and safeguard the
Confidential Information in trust for the Company and agrees that Executive will
not, without the prior written consent of the Company, misappropriate or
disclose or make available to anyone for use outside the Company's organization
at any time, either during Executive's employment with the Company or following
termination of Executive's employment, for any reason whatsoever, any of the
Confidential Information, except as required in the performance of Executive's
duties with the Company. Upon termination of Executive's employment, Executive
will deliver to the Company all records, correspondence or other documents
containing Confidential Information and execute any further documents deemed
necessary to effectuate the purposes of this paragraph.
(b) Executive acknowledges and agrees that to the extent Executive
creates any protectible property during the Term of this Agreement, regardless
of whether said property is created
5
<PAGE>
during the course of his employment, including, without limitation, any plans,
methods, slogans, product names, ideas, or copyrightable or patentable subject
matter, Company shall own all right, title and interest therein, including the
copyright, as work for hire as defined in the applicable federal statutes and
Executive will have no right, title or interest therein.
(c) Except as otherwise provided in this paragraph, Executive agrees
that for two (2) years immediately following termination of Executive's
employment with the Company, for any reason whatsoever, Executive will not,
directly or indirectly, including as an owner (of a 5% or more equity interest),
executive, consultant or other contractor of any person, corporation or other
entity, make any proposals to or solicit the business of any clients of the
Company. Reference in this paragraph to "clients of the Company" shall mean any
persons or entities that are clients of the Company as of the date of
Executive's termination or that have been clients of the Company at any time
within two (2) years prior thereto or any prospective client solicited by the
Company within three months prior to the Executive's termination. If a client of
the Company was not a client at the time of Executive's termination, but was a
client of the Company within two years prior thereto, then the restrictions upon
Executive for any such client, as stated in this paragraph, shall be two years
from the date the customer was no longer a client of the Company.
6
<PAGE>
(d) Executive agrees that, during Executive's employment with the
Company and for two (2) years immediately following termination of Executive's
employment, for any reason whatsoever, Executive will not, directly or
indirectly, solicit, induce or recommend any employee of the Company to leave
the employ of the Company or hire any employee of the Company.
10. Remedies. Executive agrees that the period of time provided for
in Paragraph 9 above is the minimum period of time necessary and that the other
provisions and restrictions set forth in Paragraph 9 above are necessary to
protect the Company and the Company's clients and their respective successors
and assigns in the use and employment of the goodwill of the business conducted
by the Company and the Company's clients. Executive agrees that the services to
be performed by him for the Company are special and unique, that damages cannot
compensate in the event of a violation of the above covenants and agreements and
that injunctive relief shall be essential for the protection of the Company and
its successors and assigns. Accordingly, Executive agrees and consents that, in
the event he shall violate or breach any of said restrictive covenants, the
Company shall be entitled to obtain (and he hereby consents thereto) injunctive
relief against him, without bond, but upon due notice, in addition to such
further or other relief as may appertain at equity or law. Obtainment of such an
injunction by the Company shall not be considered an election of remedies or a
waiver of any right by the Company to assert any
7
<PAGE>
other remedies the Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from the forbearance or failure by the Company
to take action hereon. Executive agrees that if any provisions hereof shall be
adjudicated to be invalid or unenforceable, such adjudication is to apply only
with respect to the operation of such provision in the particular jurisdiction
in which such adjudication is made; provided, further, to the extent any
provision hereof is deemed unenforceable by virtue of its scope in terms of area
or length of time, but may be made enforceable by limitations thereon, Executive
agrees that the same shall be enforceable to the fullest extent permissible
under the laws and public policies applied in such jurisdiction in which
enforcement is sought.
11. Independent Covenants. The covenants and agreements of Executive
contained in Paragraphs 9 and 10 above shall be construed as an agreement which
is independent of any other provision of this Agreement or any other
understanding or agreement between the parties and supported by good, sufficient
and valid consideration and the existence of any claim or cause of action of
Executive against the Company, of whatsoever nature, shall not constitute a
defense to the enforcement by the Company of the covenants contained herein.
12. Indemnification. Each of the parties agrees to indemnify and
hold the other harmless of and from any and all loss, cost, damage and expense
(including attorneys' fees and court
8
<PAGE>
costs) which he or it shall suffer, sustain or incur as a result of, in
connection with or arising from the indemnifying party's breach of any of the
provisions of this Agreement, or the efforts of either party to enforce the
terms hereof, including, but not limited to, the restrictive covenants contained
herein.
13. Notices. If any notice be required hereunder, it shall be in
writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, to:
If to the Executive at:
Jospeh A. Sciarrotta
2701 N. Greenview
Chicago, IL 60614
If to the Company at:
The Leap Group, Inc.
22 W. Hubbard Street
Chicago, IL 60610
with a copy to: Philip E. Ruben
500 Central Ave
Northfield, IL 60093
14. Assignment and Delegation. This Agreement shall inure to the
benefit of and be binding upon the Company, its successors and assigns. The
duties of Executive under this Agreement are personal to him and shall not be
subject to voluntary or involuntary alienation, assignment, delegation or
transfer. However, the rights and benefits of Executive under this Agreement
shall inure to the benefit of Executive's heirs, legatees, executors and
administrators except as otherwise provided.
9
<PAGE>
15. Severability. If any provision of this Agreement is adjudicated
to be partially or completely invalid or unenforceable, such adjudication is to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. All provisions of this
Agreement are severable, and this Agreement shall be interpreted and enforced as
if all completely invalid or unenforceable provisions were not contained herein
and partially valid and enforceable provisions shall be enforceable to the
extent valid and enforceable.
16. Entire Agreement. This Agreement contains the entire agreement
between the parties. All prior discussions, compensation understandings,
negotiations and agreements are merged herein. This Agreement may not be orally
changed or canceled, but may only be changed or canceled by an agreement to such
effect in writing signed by the party against whom enforcement of same is
sought.
17. Governing Law. The validity, construction and enforceability of
this Agreement shall be governed by the internal laws, and not the laws of
conflicts, of the State of Illinois.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed on the date and year first above written.
EXECUTIVE: THE LEAP GROUP, INC.
/s/ Joseph A. Sciarrotta
- ---------------------------- By: /s/ R. Steven Lutterbach
Joseph A. Sciarrotta -------------------------------
R. Steven Lutterbach,
Chairman and CEO
THE LEAP PARTNERSHIP, INC.
By: /s/ Thomas R. Sharbaugh
-------------------------------
Thomas R. Sharbaugh,
President
11
<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Period from Fiscal Year Ended Three Months Ended
inception (September 20, January 31, April 30,
1993) to January 31, -------------------------- --------------------------
1994 1995 1996 1995 1996
------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average and common
shares outstanding.......... 9,600,000 9,600,000 9,600,000 9,600,000 9,600,000
Effect of options granted
within one year prior to
the offering, based on the
treasury stock method....... 710,308 710,308 710,308 710,308 710,308
Total...................... 10,310,308 10,310,308 10,310,308 10,310,308 10,310,308
Net income (loss)............ $ (75,739) $(1,065,309) $ 700,460 $ 305,663 $ (184,382)
Net income (loss)
per common share............ $ (.01) $ (.10) $ .07 $ .03 $ (.02)
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
THE LEAP PARTNERSHIP, INC., an Illinois corporation and a wholly-owned
subsidiary of the Registrant.
LILYPAD SERVICES, INC., an Illinois corporation and a wholly-owned subsidiary of
the Registrant.
TADPOLE PRODUCTIONS, INC., an Illinois corporation and a wholly-owned subsidiary
of the Registrant.
<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.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Chicago, Illinois
May 30, 1996
<PAGE>
Exhibit 23.3
CONSENT
-------
I hereby consent to the use of my name as a prospective member of the Board
of Directors of The Leap Group, Inc. in the Prospectus forming a part of the
Registration Statement on Form S-1 (the "Registration Statement") and for use of
this consent for filing as Exhibit 23.3 to the Registration Statement.
/s/ Guy B. Day
--------------------------
Guy Day
Dated: May 29, 1996
<PAGE>
Exhibit 23.4
CONSENT
-------
I hereby consent to the use of my name as a prospective member of the Board
of Directors of The Leap Group, Inc. in the Prospectus forming a part of the
Registration Statement on Form S-1 (the "Registration Statement") and for use of
this consent for filing as Exhibit 23.4 to the Registration Statement.
/s/ John G. Keane
--------------------------
John Keane
Dated: May 30, 1996
<PAGE>
Exhibit 23.5
CONSENT
-------
I hereby consent to the use of my name as a prospective member of the Board
of Directors of The Leap Group, Inc. in the Prospectus forming a part of the
Registration Statement on Form S-1 (the "Registration Statement") and for use of
this consent for filing as Exhibit 23.5 to the Registration Statement.
/s/ Thomas McElligott
--------------------------
Thomas McElligott
Dated: May 30, 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>
