<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission file number 1-3916
THE LEAP GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4079500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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)
N/A
---
(FORMER NAME, FORMER ADDRESS & FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIODS AS THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES NO X
----------- -----------
The Registrant first became subject to such filing requirements on
September 26, 1996.
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
OUTSTANDING SHARES AT
CLASS DECEMBER 13, 1996
------------------------------ ---------------------
COMMON STOCK - $0.01 PAR VALUE 13,600,000
1
<PAGE>
THE LEAP GROUP, INC.
FORM 10-Q
FOR THE PERIOD ENDED
OCTOBER 31, 1996
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS --
JANUARY 31, 1996 AND
OCTOBER 31, 1996 (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF OPERATIONS --
THREE AND NINE MONTHS ENDED
OCTOBER 31, 1996 AND 1995 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF CASH FLOWS --
NINE MONTHS ENDED
OCTOBER 31, 1996 AND 1995 (UNAUDITED) 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE LEAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, October 31,
1996 1996
----------- ------------
(Unaudited)
------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents.................... $ 47,981 $33,339,922
Accounts receivable.......................... 362,388 4,568,680
Costs in excess of billings.................. 619,660 249,274
Prepaid expenses............................. 42,201 45,818
---------- -----------
Total current assets...................... 1,072,230 38,203,694
---------- -----------
Property and Equipment
Land......................................... 158,921 158,921
Building and improvements.................... 442,923 471,291
Furniture and equipment...................... 549,983 964,331
---------- -----------
1,151,827 1,594,543
Less accumulated depreciation................ (254,454) (504,097)
---------- -----------
Net property and equipment................ 897,373 1,090,446
---------- -----------
Other Assets...................................... 83,190 173,519
---------- -----------
Total Assets...................................... $2,052,793 $39,467,659
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable............................. $ 898,133 $ 2,357,228
Accrued expenses............................. 230,952 727,348
Notes payable to bank........................ 459,378 0
Current portion of long-term debt............ 56,295 50,577
Notes payable to officer..................... 400,000 0
---------- -----------
Total current liabilities................. 2,044,758 3,135,153
Long-Term Debt
Mortgage payable............................. 381,097 0
Capital lease obligations.................... 66,526 85,590
---------- -----------
Total Liabilities................................. 2,492,381 3,220,743
---------- -----------
Stockholders' Equity
Preferred Stock, $.01 par value,
20,000,000 shares authorized;
no shares issued or outstanding............ 0 0
Common Stock, $.01 par value;
100,000,000 shares authorized,
9,600,000 and 13,600,000 shares
issued and outstanding as of
January 31, 1996 and October 31,
1996, respectively ........................ 96,000 136,000
Additional paid in capital................... (95,000) 35,859,027
Retained earnings/(accumulated
deficit)................................... (440,588) 251,889
---------- -----------
Total Stockholders' Equity................ (439,588) 36,246,916
---------- -----------
Total Liabilities and Stockholders' Equity........ $2,052,793 $39,467,659
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
3
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
October 31, October 31,
-------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues................................ $ 4,990,339 $ 1,418,682 $12,280,442 $ 6,995,855
Operating expenses:
Direct costs and related
expenses.............................. 2,818,924 536,631 7,312,504 3,466,892
Salaries and related expenses.......... 1,108,752 561,290 2,800,004 1,504,248
General and administrative
expenses.............................. 451,026 249,041 1,200,930 712,731
----------- ----------- ----------- -----------
Total operating expenses............. 4,378,702 1,346,962 11,313,438 5,683,871
----------- ----------- ----------- -----------
Operating income........................ 611,637 71,720 967,004 1,311,984
Net interest income/(expense)........... 85,795 (31,890) (12,329) (120,127)
----------- ----------- ----------- -----------
Income before income taxes.............. 697,432 39,830 954,675 1,191,857
Income tax expense...................... (262,198) (15,932) (262,198) (492,943)
----------- ----------- ----------- -----------
Net income.............................. $ 435,234 $ 23,898 $ 692,477 $ 698,914
=========== =========== =========== ===========
Per share data:
Net income per share................... $0.04 $0.00 $0.07 $0.07
Weighted average number of =========== =========== =========== ===========
shares used in per share
computation............................ 11,442,013 10,108,680 10,553,124 10,108,680
=========== =========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
4
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
October 31, October 31,
------------ -----------
1996 1995
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 692,477 $ 698,914
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 271,524 83,250
Deferred income taxes................. 0 477,793
Changes in operating assets and
liabilities:
Accounts receivable................. (4,206,292) (104,712)
Costs in excess of billings......... 370,386 486,940
Prepaid expenses.................... (3,617) 3,469
Other assets........................ (112,210) (22,100)
Accounts payable.................... 1,459,095 (1,304,177)
Accrued expenses.................... 496,396 (63,801)
----------- -----------
Net cash (used in)/provided by
operating activities................... (1,032,241) 255,576
Cash flows from investing activities:
Capital expenditures.................... (392,253) (136,468)
Cash flows from financing activities:
Net proceeds from issuance of common 35,994,027 0
stock..................................
Net repayments on line of credit and (459,378) (551,873)
term note..............................
Net (repayment of)/proceeds from (418,214) 6,256
mortgage payable.......................
Net (repayment of)/proceeds from note
payable to officer..................... (400,000) 450,000
----------- -----------
Net cash provided by/(used in)
financing activities................... 34,716,435 (95,617)
----------- -----------
Net increase in cash and cash
equivalents............................. 33,291,941 23,491
Cash and cash equivalents, at beginning
of period............................... 47,981 6,715
----------- -----------
Cash and cash equivalents, at end of
period.................................. $33,339,922 $ 30,206
=========== ===========
Supplementary disclosure of cash paid
during the period:
Interest paid.......................... $ 135,461 $ 113,404
=========== ===========
Schedule of noncash investing and
financing activities:
Equipment purchased under capital
lease obligations..................... $ 50,463 $ 37,247
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
5
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The unaudited consolidated financial statements for the three and nine month
periods ended October 31, 1996 and 1995, respectively, reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods.
The consolidated financial statements should be read in conjunction with those
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Registration Statement (No. 333-05051) on Form S-1,
as amended and filed with the Securities and Exchange Commission on September
26, 1996.
The results of operations for the three and nine month periods ended October 31,
1996 are not necessarily indicative of the results of operations to be expected
for the entire fiscal year ending January 31, 1997.
NOTE 2 -- INITIAL PUBLIC OFFERING
In October 1996, the Company completed its initial public offering (the
"offering") and issued 4,000,000 shares of its common stock at a per share price
of $10.00. The Company received proceeds of approximately $36.0 million in
cash, net of underwriting discounts, commissions and other costs. The Company
used $2.86 million of the proceeds to repay certain of the Company's debt,
including all notes payable to banks, a loan secured by a mortgage on the
Company's office building, and a note from an officer of the Company. The
remainder of the proceeds have been invested in short-term U.S. Treasury Notes
and Bills, certificates of deposit, and a money market fund.
NOTE 3 -- NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted average
number of common shares and dilutive common stock equivalent shares outstanding
during the year in accordance with the treasury stock method.
In accordance with certain Securities and Exchange Commission (SEC) Staff
Accounting Bulletins, the per share computation for periods prior to the
offering include all common and common stock equivalent shares issued within 12
months of the offering as if they were outstanding for all periods presented
using the treasury stock method and the anticipated initial public offering
price.
NOTE 4 -- SECURED LINE OF CREDIT
In October 1996, the Company obtained a line of credit facility from a bank,
secured by certain assets of the Company, which provides for borrowings up to a
maximum principal amount of $24 million to provide working capital financing and
funds for other general corporate purposes of the Company. As of October 31,
1996, there was no outstanding balance.
6
<PAGE>
ITEM 2. 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 in the Company's
Registration Statement (No. 333-05051) on Form S-1 ("Registration Statement") as
amended and filed with the Securities and Exchange Commission on September 26,
1996.
This report contains forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. When used in this report, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions as they relate to the Company
or its management are intended to identify such forward-looking statements. A
number of important factors could cause the Company's actual results,
performance or achievements for fiscal 1997 and beyond to differ materially from
that expressed in such forward-looking statements. These factors are set forth
in the Registration Statement under the heading "Risk Factors" and include,
without limitation, material changes in economic conditions in the markets
served by the Company's clients, competition in the Company's industry,
uncertainties relating to the developing market for new media, changing
technologies, seasonality and the Company's dependence on key clients and
projects and key personnel.
RESULTS OF OPERATIONS
Three Months Ended October 31, 1996 Compared to Three Months Ended October 31,
1995
Revenues
- --------
Revenues increased to $5 million for the three months ended October 31, 1996
from $1.4 million for the three months ended October 31, 1995, an increase of
$3.6 million or 252%. The net increase of $3.6 million is primarily
attributable to a significant increase in new and existing business which was
offset in part by the decrease in revenue from Miller Brewing Company
("Miller"). During the second half of calendar year 1995, Miller began to
reduce its advertising expenditures on campaigns in which the Company was
involved. This resulted in a significant decline in the Company's revenues
during that period. The Company's management viewed an expansion of Miller's
advertising budget for such campaigns as unlikely and determined that the
Company's resources could be better utilized for other opportunities. The
Company, therefore, resigned the Miller account in December 1995 in order to
pursue other assignments. Excluding Miller, revenues increased approximately
$4.1 million, or 466%, to $5 million for the three months ended October 31, 1996
from $882,000 for the three months ended October 31, 1995.
Direct Costs and Related Expenses
- ---------------------------------
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 increased to $2.8 million for the three months ended October
31, 1996 from $537,000 for the three months ended October 31, 1995, an increase
of $2.3 million or 425%. The increase was primarily attributable to an increase
in production activities. As a percentage of revenues, direct costs and related
expenses increased to 56.5% for the three months ended October 31, 1996, due to
a change in the mix of services performed during the period, from 37.8% for the
three months ended October 31, 1995.
7
<PAGE>
Salaries and Related Expenses
- -----------------------------
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
$1.1 million for the three months ended October 31, 1996 from $561,000 for the
three months ended October 31, 1995, an increase of $547,000 or 98%. The
increase in expense primarily reflects the addition of new employees since the
prior year to support new clients and to strengthen the Company's management
team.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses include space and facilities expenses,
corporate expenses, depreciation, insurance, legal and accounting fees and
management information system expenses. General and administrative expenses
increased to $451,000 for the three months ended October 31, 1996 from $249,000
for the three months ended October 31, 1995, an increase of $202,000 or 81%. The
increase is primarily due to additional depreciation, facilities costs to
support the Company's growth, and legal and accounting expenses arising from the
Company's obligations as a public company.
Interest Expense and Income
- ---------------------------
Interest income totaled $147,000 for the three months ended October 31, 1996.
The interest income was offset in part by interest expense of $61,000, resulting
in a net interest income of $86,000. For the three months ended October 31,
1995, there was no significant interest income, and interest expense and net
interest expense totaled $32,000. The difference in net interest expense/income
for the two periods resulted from the Company's retirement of debt and
investment of the net proceeds from the offering in October 1996, offset in part
by increased borrowings prior to receipt of the proceeds.
Income Taxes
- ------------
The combined federal and state effective income tax rates were 37.6% and 40.0%
for the three months ended October 31, 1996 and 1995, respectively. The decrease
in the effective income tax rate is due to the lower effective tax rate on U.S.
Treasury interest income and the utilization of prior year cumulative net
operating loss carryforwards which reduced income tax expense for the three
months ended October 31, 1996. Compared with the prior year, however, income tax
expense increased to $262,000 for the three months ended October 31, 1996 from
$16,000 for the three months ended October 31, 1995, an increase of $246,000.
The overall increase in income tax expense was due to increased earnings.
Nine Months Ended October 31, 1996 Compared to Nine Months Ended October 31,
1995
Revenues
- --------
Revenues increased to $12.3 million for the nine months ended October 31, 1996
from $7 million for the nine months ended October 31, 1995, an increase of $5.3
million or 76%. The net increase of $5.3 million is primarily attributable to a
significant increase in new and existing business which was offset in part by
the loss of revenue from Miller. Excluding Miller, revenues increased
approximately $10.6 million, or 625%, to $12.3 million for the nine months ended
October 31, 1996 from $1.7 million for the nine months ended October 31, 1995.
8
<PAGE>
Direct Costs and Related Expenses
- ---------------------------------
Direct costs and related expenses increased to $7.3 million for the nine months
ended October 31, 1996 from $3.5 million for the nine months ended October 31,
1995, an increase of $3.8 million or 111%. The increase was primarily
attributable to an increase in production activities. As a percentage of
revenues, direct costs increased to 59.5% for the nine months ended October 31,
1996, due to a change in the mix of services performed during the period, from
50.0% for the nine months ended October 31, 1995.
Salaries and Related Expenses
- -----------------------------
Salaries and related expenses increased to $2.8 million for the nine months
ended October 31, 1996 from $1.5 million for the nine months ended October 31,
1995, an increase of $1.3 million or 86%. The increase in expense primarily
reflects the addition of new employees since the prior year to support new
clients and to strengthen the Company's management team.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased to $1.2 million for the nine
months ended October 31, 1996 from $713,000 for the nine months ended October
31, 1995, an increase of $488,000 or 69%. The increase is primarily due to
additional depreciation, facilities costs to support the Company's growth, and
legal and accounting expenses arising from the Company's obligations as a public
company.
Interest Expense and Income
- ---------------------------
Interest income totaled $147,000 for the nine months ended October 31, 1996. The
interest income was offset by interest expense of $159,000, resulting in net
interest expense of $12,000. For the nine months ended October 31, 1995, there
was no significant interest income, and interest expense and net interest
expense totaled $120,000. The $108,000 decrease in net interest expense between
the two periods resulted from increased borrowings prior to the Company's
receipt of the offering proceeds, offset in part by retirement of debt and
investment of the offering proceeds in October 1996.
Income Taxes
- ------------
The combined federal and state effective income tax rates were 27.5% and 41.4%
for the nine months ended October 31, 1996 and 1995, respectively. The decrease
in the effective income tax rate is due to the lower effective tax rate on U.S.
Treasury interest income and the utilization of prior year cumulative net
operating loss carryforwards which reduced income tax expense for the nine
months ended October 31, 1996. Compared with the prior year, income tax expense
decreased to $262,000 for the nine months ended October 31, 1996 from $493,000
for the nine months ended October 31, 1995, a decrease of $231,000 or 47%. The
overall decrease in income tax expense was due to decreased earnings, the lower
effective tax rate on U.S. Treasury interest income, and the utilization of the
prior year cumulative net operating loss carryforwards which offset income tax
expense for the nine months ended October 31, 1996.
9
<PAGE>
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. As a result of
the public offering in late September 1996, the Company raised $36.0 million in
cash, net of underwriting discounts, commissions, and other financing costs, and
has used the proceeds to repay Company debt. Net proceeds from the offering
which have not yet been applied have been invested in short-term U.S. Treasury
Notes and Bills, certificates of deposit, and in a money market fund. At October
31, 1996, the Company had no material capital commitments.
The Company's net working capital increased $36 million to $35 million at
October 31, 1996 from a working capital deficit of $973,000 at January 31, 1996.
The Company's cash and cash equivalents increased $33.3 million and $23,000 for
the nine months ended October 31, 1996 and 1995, respectively. The increase
during the nine months ended October 31, 1996 is due to receipt of the net
proceeds from the initial public offering and the subsequent investment of those
monies, as discussed above.
Subsequent to the initial public offering, the Company obtained a line of credit
facility, secured by certain assets of the Company, which provides up to a
maximum principal amount of $24 million. The line of credit bears interest at
the London Interbank Offered Rate (LIBOR) plus .5%. As of October 31, 1996,
there was no outstanding balance.
The Company believes that the remaining net proceeds of the offering, together
with existing credit facilities and any funds from operations, will be
sufficient to meet the Company's cash requirements for at least the next twelve
months. The Company's long-term capital requirements will depend on numerous
factors, including the rates at which the Company grows, expands its personnel
and infrastructure to accommodate growth and invests in new technologies. The
Company has various ongoing needs for capital, including working capital for
operations, project development costs and capital expenditures to maintain and
expand its operations. In addition, as part of its strategy, the Company
evaluates potential acquisitions of, or alliances with, businesses that extend
or complement the Company's business. While the Company has no present plans,
commitments or agreements with respect to any material acquisition or alliance,
the Company may in the future consummate acquisitions or alliances which may
require the Company to make additional capital expenditures, and such
expenditures may be significant. Future acquisitions and alliances may be funded
with available cash from the net proceeds of the offering, seller financing,
institutional financing, issuance of common stock of the Company and/or
additional equity or debt offerings.
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.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to the Registration Statement for a discussion of
existing legal proceedings. There have been no material developments
in such proceedings nor any new legal proceedings within the quarter
reported on.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: See Exhibit Index appearing on page 12, which is
incorporated herein by reference
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LEAP GROUP, INC.
--------------------
(Registrant)
Date: December 9, 1996 By: /s/ R. STEVEN LUTTERBACH
---------------------------------------------
R. Steven Lutterbach, Chief Executive Officer
Date: December 9, 1996 By: /s/ PETER VEZMAR
---------------------------------------------
Peter Vezmar, Chief Financial Officer
11
<PAGE>
THE LEAP GROUP, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
- ------- --------
<S> <C>
4.1 Credit Agreement, dated October 7, 1996,
between The Leap Group, Inc. and the Union
Bank of Switzerland
11. Statement Regarding Computation of Per-Share
Earnings
27. Financial Data Schedule
</TABLE>
12
<PAGE>
EXHIBIT 4.1
THE LEAP GROUP, INC.
CREDIT AGREEMENT, DATED OCTOBER 7, 1996, BETWEEN
THE LEAP GROUP, INC. AND THE UNION BANK OF SWITZERLAND
<PAGE>
General Terms and Conditions
of Credit Arrangements
-----------------------------------------
Investment Services -- Los Angeles
[LOGO OF UNION BANK
OF SWITZERLAND]
<PAGE>
I. Purpose of this Agreement.
(a) General. This Agreement sets forth terms and conditions applicable to (i)
any loan (a "Loan") made or to be made to the undersigned (the "Customer") by
Union Bank of Switzerland, Los Angles Branch (the "Bank"), (ii) any letter of
credit (a "Letter of Credit") to be issued by the Bank at the request of the
Customer, whether or not the Customer is identified therin as the account party,
and (iii) any other Obligation (as defined below) of the Customer to the Bank.
Schedule I hereto, as amended from time to time (which is hereby incorporated
herein and made a part of this Agreement), sets forth the amount, if any, of any
line of credit made available to the Customer by the Bank and certain other
terms applicable hereunder. Except as otherwise explicitly stated in such
Schedule, such line of credit shall be uncommitted, and accordingly the Bank may
in its absolute discretion at any time decline to make any Loan to the Customer
or issue any Letter of Credit at the request of the Customer notwithstanding any
other provision or circumstance that may otherwise appear inconsistent with such
absolute discretion. Except as otherwise explicitly stated in such Schedule, any
such line of credit may terminated or reduced by the Bank at any time.
(b) Scope of Agreement. Unless expressly agreed in writing by the Bank to the
contrary, all of the provisions of this Agreement shall apply to each Loan, each
Letter of Credit, and any other Obligation as hereinafter defined, whether or
not referred to on Schedule I hereto. The word "Obligations" herein means any
and all indebtedness, obligations and liabilities of any kind, now or hereafter
existing, of the Customer to the Bank, whether absolute or contingent and
however arising or acquired by the Bank, including without limitation (i) the
obligation to pay the principal, interest and other amounts described herein
respecting any Loan, (ii) the obligation to reimburse the Bank for any drawing
under any Letter of Credit and (iii) any guaranty by the Customer of the
obligations of any other person or entity to the Bank.
II. Relation to other Documents.
(a) Note. Any Loan or Loans made or to be made to the Customer by the Bank
shall be evidenced by a promissory note in substantially the form of Exhibit A
hereto (the "Note"), which shall be dated the date hereof, signed by the
Customer and received by the Bank before any such Loan will be made. The
principal amount of each such Loan and each repayment thereof may be endorsed by
the Bank on the schedule attached thereto, but any failure to make such an
endorsement or any error in doing so shall not affect the obligations of the
Customer hereunder or under the Note, which shall be absolute and unconditional.
(b) Loan Advices. The date and amount of each Loan made hereunder and the
fixed rate or floating rate basis on which interest is to accrue thereon until
maturity as well as the maturity in the case of each Fixed Rate Loan (as defined
in paragraph III(a)), shall be set forth in a written loan advice to be
delivered to the Customer by the Bank (a "Loan Advice"). Each Loan Advice shall
be conclusive and binding upon the Customer, absent manifest error, unless the
Customer otherwise notifies the Bank in writing no later than the close of
business, Los Angeles time, on the business day on which the Loan Advice is
received by the Customer, in the case of an asserted error in the rate of
interest on a Fixed Rate Loan, or on the third business day thereafter in any
other case.
III. Loans.
(a) Types of Loans. The terms "Loans" as used herein means Fixed Rate Loans or
Floating Rate Loans or both, as the context requires. "Fixed Rate Loans" are
Loans made hereunder on which pursuant to the related Loan Advice, interest is
to accrue at a fixed rate for a fixed period. "Floating Rate Loans" are Loans
made hereunder on which, pursuant to the related Loan Advice, interest is to
accrue at floating rates related to the Base Rate, the Prime Rate or the Federal
Funds Rate (as such terms are defined in paragraph V (a)), or any other rate
agreed upon by the parties that may change from time to time.
(b) Manner of Funding. Unless otherwise agreed, all Loans shall be made by
crediting the principal amount thereof to an account maintained by the Customer
with the Bank.
(c) Maturity of Floating Rate Loans. All Floating Rate Loans are payable ON
DEMAND, as to both principal and interest, in the Bank's absolute discretion,
whether or not an Event of Default (as defined in paragraph III(d)) shall have
occurred. This right to demand can be waived by the Bank only in a writing
expressly so stating. Any provision or circumstance that may otherwise appear
inconsistent with this right shall not be interpreted as limiting the right in
the absence of the Bank's express written agreement to the contrary.
(d) Maturity of Fixed Rate Loans; Acceleration in Certain Events. All Fixed
Rate Loans shall mature, and shall be repaid in full, at the end of the term
specified in the relevant Loan Advice. The Bank may, by notice to the Customer,
declare all Fixed Rate Loans to be due and payable at any time at which any of
the following events ("Events of Default") shall have occurred and be
continuing:
(i) the principal of or interest on any Loan or any other amount payable in
respect of any Obligation shall not be paid when due;
(ii) the aggregate Lending Value of the Collateral in which the Bank has a
first priority, perfected security interest is determined by the Bank to
be less than the Required
<PAGE>
Lending Value (the foregoing terms being used as defined in Article VI);
(iii) the Customer shall fail to provide promptly such financial and other
information as the Bank may reasonably request from time to time;
(iv) the Customer shall fail to perform any other agreement set forth herein
(including any covenant set forth on Schedule I hereto), or any
representation or other statement of the Customer herein (including in
Schedule I hereto) or in any other document delivered in connection with
any Obligation shall prove to have been incorrect in any material respect
when made or deemed made;
(v) if the Customer is a natural person, the Customer shall die or shall be
declared legally incompetent;
(vi) any indebtedness of the Customer for borrowed money shall not have been
paid when due, or any event or condition shall have caused such
indebtedness to become, or shall have permitted the holder hereof to
declare such indebtedness to be, due and payable prior to its stated
maturity;
(vii) any legal proceeding shall have been instituted or any other event shall
have occurred or condition shall exist that in the Bank's judgment could
have a material adverse effect on the financial condition of the Customer
or on the Customer's ability to perform the Customer's obligations
hereunder, or that calls into question the validity or binding effect of
any agreement of the Customer hereunder or under the Note; or
(viii) the Customer makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions
or applies to any tribunal for any receiver of or any trustee for the
Customer or any substantial part of the Customer's property, commences
any proceeding relating to the Customer under any reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statue of any jurisdiction, whether now or hereafter in effect, or there
is commenced against or with respect to the Customer or any substantial
portion of its property any such proceeding and an order for relief is
issued or such proceeding remains undismissed for a period of 30 days;
provided that, upon the occurrence of any Event of Default described in clause
(v) or (viii) above, all Fixed Rate Loans, Floating Rate Loans and other
Obligations shall automatically become due and payable without any demand or
other action by the Bank or any other person or entity.
(e) "Breakage" on Fixed Rate Loans. The Customer agreed promptly at the Bank's
request to reimburse the Bank for any loss or cost which the Bank notifies the
Customer has been incurred by the Bank as a result of any payment of the
principal of a Fixed Rate Loan before the expiration of the fixed rate period,
or the customer's failure to take any Fixed Rate Loan on the date agreed upon,
including any such payment or failure resulting from the acceleration of the
maturity of the Loan. Any written notice from the Bank as to the amount such
loss or cost shall be conclusive absent manifest error.
IV. Letters of Credit
(a) Application; Commissions. The Customer may request that a Letter of Credit
be issued by completing, executing and delivering to the Bank an application in
such form as the Bank may specify from time to time. In the event of any
inconsistency between this Agreement and any such application, this Agreement
shall be controlling. The Customer agrees to pay to the Bank such commissions
and other charges in respect of Letters of Credit as may be set forth on
Schedule I hereto or otherwise agreed upon by the Bank and the Customer from
time to time.
(b) Reimbursement. The Customer shall reimburse to the Bank immediately upon
demand the amount of any drawing under any Letter of Credit. Such reimbursement
obligation of the Customer in respect of each Letter of Credit shall be
unconditional and absolute notwithstanding, and neither the Bank nor any of its
correspondents shall have any liability by reason of, (i) any draft,
certificate, bill of lading or other document presented under or in connection
with such Letter of Credit, including any instrument purporting to transfer or
assign such Letter of Credit or any rights thereunder, proving to be forged,
fraudulent, inaccurate or invalid in any respect (ii) the existence of any
claim, setoff or other rights which the Customer may have at any time against
the beneficiary or any other person or entity, (iii) the failure of any drawing
to conform to the terms of such Letter of Credit (provided that the Bank shall
have acted in good faith and shall not have engaged in willful misconduct in
connection therewith) or the misapplication of the proceeds thereof by the
beneficiary or any other person or entity, (iv) any difference in character
quality, quantity, condition or value of the property purporting to be
represented by bills of lading or other documents of title from that expressed
in such documents, or (v) any other act, omission or circumstance that would,
but for the provisions of this paragraph (b), constitute a legal or equitable
discharge of any obligation of the Customer hereunder.
(c) Covenants Concerning Letters of Credit. The Customer agrees to obtain
promptly any import, export or other license required in connection with
property to which any Letter of Credit directly or indirectly relates, and
agrees to comply with all applicable laws and regulations in regard
<PAGE>
to any shipment, warehousing or financing of any such property. The Customer
agrees to protect, indemnify and hold harmless the Bank and its correspondents
from and against all claims, actions, suits and other proceedings, and all
losses, damages and costs (including fees and expenses of counsel) which the
Bank or any of its correspondents may suffer or incur by reason of the issuance
of any Letter of Credit or any act or omission in respect of any Letter of
Credit, except to the extent resulting from the bad faith or willful misconduct
of the party seeking indemnification.
(9) EVENT OF DEFAULT. If an Event of Default occurs and is continuing, the
Customer will, on demand by the Bank, pay to the Bank in cash an amount equal to
the maximum amount that may at any time thereafter be drawn under all Letters of
Credit, to be held by the Bank in such manner as the Bank may determine and
applied to the Customer's reimbursement obligations hereunder (with any excess
to be returned to the Customer, subject to Article VI hereof, upon expiration of
all Letters of Credit and reimbursement in full of all amounts drawn
thereunder).
V. INTEREST AND OTHER PAYMENTS
- --------------------------------------------------------------------------------
(a) INTEREST; DEFAULT INTEREST. The rate at which each Fixed Rate Loan shall
bear interest, and the maturity of such Loan, will be specified in the relevant
Loan Advice. Floating Rate Loans will bear interest on a daily basis as
specified herein (including the related Loan Advices). Any Loan or other
Obligation for which no interest has been stated in the relevant Loan Advice or
other documentation shall, unless otherwise agreed by the parties in writing,
bear interest at the same rates as, and for all purposes of this Agreement and
the Note shall be treated as, a Floating Rate Loan. As used herein and in
Schedule I hereto, (i) the term "Prime Rate" means the rate per annum announced
by Union Bank of Switzerland in New York as its "prime rate" from time to time,
which rate shall be determined daily, (ii) the term "Federal Funds Rate" means
the average rate per annum quoted to Union Bank of Switzerland at 11:00 a.m.
(New York City time) on each day for overnight Federal Funds transactions
arranged by three New York Federal Funds brokers selected by Union Bank of
Switzerland, and (iii) the term "Base Rate" means the higher of the Prime Rate
and a rate per annum 1% in excess of the Federal Funds Rate. All interest shall
be computed on the basis of the number of days elapsed and a 360-day year.
Unpaid interest accrued on each Loan shall be due at maturity and, prior
thereto, monthly on the same day each month as the day of the month on which the
applicable Loan was made, or on such other monthly basis as the Bank may specify
by at least ten days' written notice to the Customer. Each repayment or
prepayment of principal shall be accompanied by all accrued and unpaid interest
thereon. Notwithstanding the preceding sentences of this paragraph, any
principal, interest, fee or other Obligation (including reimbursement of any
drawing under a Letter of Credit) not paid when due shall bear interest, payable
on demand, at a floating rate per annum which is two percentage points above the
Base Rate. Notwithstanding the foregoing, the Customer shall not be required to
pay interest for any period at a rate exceeding the maximum rate permitted by
law. If the amount of interest payable by the Customer for any period is reduced
pursuant to the preceding sentence, the amount of interest payable for each
succeeding period shall be increased to the maximum rate permitted by law until
the amount of such reduction has been received by the Bank.
(b) INCREASED COSTS. In the event that any change in applicable law or
regulation or in the interpretation thereof by any governmental authority
charged with the administration thereof subjects the Bank to any tax or charge
of any kind whatsoever with respect to any Fixed Rate Loan or Letter of Credit,
or changes the basis of taxation of payments to the Bank in respect of any Fixed
Rate Loan or Letter of Credit (except for changes in the rate of tax based
solely on the overall net income of the Bank or Union Bank of Switzerland) or
imposes, modifies or deems applicable any reserve or similar requirement against
assets held by or deposits in or for the account of, or loans made or letters of
credits issued by, the Bank, or imposes on the Bank, directly or indirectly, any
other conditions affecting the cost of deposits obtained by the Bank, and the
result of any of the foregoing is to increase the cost to the Bank of making or
maintaining any Fixed Rate Loan or of issuing or maintaining any Letter of
Credit by an amount which the Bank deems to be material, then the Customer will
pay to the Bank upon its demand the additional amount or amounts necessary to
compensate the Bank for such additional costs. Any written notice from the Bank
as to the amount of compensation due under this paragraph shall be conclusive
absent manifest error.
(c) CAPITAL ADEQUACY. If the adoption or effectiveness after the date hereof of
any applicable law, rule or regulation regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the Bank's capital in
respect of this Agreement or any Loan or Letter of Credit to a level below that
which the Bank could have achieved but for such adoption, effectiveness, change
or compliance by an amount deemed by the Bank to be material, the Customer shall
pay to the Bank, on demand, such additional amount or amounts as will compensate
the Bank for such reduction. Any written notice from the Bank as to such
additional amount or amounts shall be conclusive absent manifest error.
(d) PAYMENTS; OVERDRAFTS; BUSINESS DAYS. All payments required to be made by the
Customer hereunder shall be made in U.S. dollars immediately available to the
Bank at its office
<PAGE>
Obligations (including all expenses incurred in connection with any workout or
any bankruptcy or similar proceedings relating to the Customer). The Customer
shall also reimburse the Bank from time to time at the Bank's request for any
out-of-pocket expenses incurred by the Bank in connection with the Collateral
and the Bank's security interest therein. The Customer will indemnify the Bank
and hold the Bank harmless from and against all liabilities, losses, damages,
costs and expenses (including settlement costs and fees and disbursements of
counsel) which may be incurred by the Bank in connection with any investigative,
administrative or judicial proceeding relating to or arising out of this
Agreement, any Loan, Letter of Credit or other Obligation or any actual or
proposed use of the proceeds of any Loan or other Obligation, except to the
extent resulting from the Bank's own bad faith or willful misconduct.
(c) GOVERNING LAW; SUITS; JURY TRIAL. UNLESS OTHERWISE AGREED BY THE PARTIES IN
WRITING, ALL THE RIGHTS AND OBLIGATIONS OF THE BANK AND THE CUSTOMER WITH
RESPECT HERETO OR UNDER THE NOTE OR ANY OTHER DOCUMENT, AND WITH RESPECT TO ANY
OBLIGATION OR OTHER TRANSACTION OR RELATIONSHIP (ALL SUCH DOCUMENTS,
OBLIGATIONS, TRANSACTIONS AND RELATIONSHIPS BEING REFERRED TO HEREIN
COLLECTIVELY AS THE "RELATIONSHIP") SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND SHALL BE BINDING UPON AND SHALL
INURE TO THE BENEFIT OF THE CUSTOMER, THE BANK AND THEIR RESPECTIVE HEIRS,
SUCCESSORS AND ASSIGNS. The Customer hereby submits to the nonexclusive IN
PERSONAM jurisdiction of, and agrees that any action or proceeding related in
any way to the Relationship shall, if the Bank so chooses, be brought and
enforced in, any State or Federal court located in the County of Los Angeles,
State of California, and hereby waives any objection to jurisdiction or venue in
any such proceeding commenced in said courts. The Customer hereby waives
personal service of any summons, complaint or other process and agrees that any
process required to be served on the Customer for purposes of any such
proceeding may be served on the Customer, with the same effect as personal
service within the State of California, by certified mail or by courier service
providing evidence of delivery addressed to the Customer at the Customer's
address for notices as provided in paragraph VII(d) and shall be deemed to have
been served when received or delivered at such address. THE CUSTOMER AND THE
BANK EACH HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THE RELATIONSHIP, OR ANY OTHER
CLAIM OR DISPUTE WITH RESPECT HERETO OR THERETO HOWSOEVER ARISING, TO WHICH THE
CUSTOMER AND THE BANK ARE PARTIES. If any provision hereof is invalid or
unenforceable under applicable law, the other provisions hereof shall remain in
full force and effect. All rights and remedies granted to the Bank hereunder,
under any other document and under applicable law shall be cumulative and may be
exercised by the Bank from time to time.
(d) WAIVER; MODIFICATION; NOTICES; DEMANDS. No delay on the part of the Bank in
exercising any of its options, powers or rights, and no partial or single
exercise thereof, shall constitute a waiver thereof. No waiver of any rights
hereunder, or under any other document or applicable law and no amendment or
modification hereof or thereof, shall be effective unless the same shall be in
writing, duly signed on behalf of the party against whom such waiver,
modification or amendment is asserted, and each such waiver, if any, shall
apply only with respect to the specific instance involved, and unless otherwise
expressly agreed to in writing, shall in no way impair the rights or obligations
of any party in any other respect at any other time. Any notice or demand or
request shall be in writing and shall be deemed to have been received and shall
be effective on the day on which delivered if (a) personally delivered, (b)
transmitted by telex, telecopier or telegram, or (c) mailed by certified mail or
sent by courier service providing evidence of delivery (in which case such
notice shall be deemed to be delivered on the date shown on any receipt or other
evidence of delivery or refusal), and notices transmitted as provided in clauses
(b) or (c) (i) in the case of the Bank, shall be addressed to the Bank at 444
South Flower Street, Los Angeles, California 90071, or at any other address
designated by the Bank for such purpose in a notice given to the notifying party
in the manner herein provided and (ii) in the case of the Customer, shall be
addressed to the Customer at the Customer's address set forth below (or if none
is set forth, at the Customer's address in the records of the Bank), or at any
other address designated by the Customer for such purpose in a notice given to
the Bank in the manner hereinabove provided. The Customer agrees that the Bank
may act in connection with any Loan, Letter of Credit or other Obligation upon
instructions (whether written or oral, and whether delivered by telephone,
electronically or by other means) which the Bank in good faith believes to be
from the Customer or a person authorized by the Customer.
(e) ADDITIONAL OBLIGORS. If this Agreement, the Note or any other document
pertaining to any Obligation is signed by more than one person, all signatories
shall be jointly and severally liable, and the word "Customer" herein shall be
deemed to refer to all such signatories, jointly, and to each individually, as
the context may require. If one or more other persons or entities (each a
"Guarantor") shall have guaranteed any Obligation, shall have provided
collateral security therefore or shall otherwise have incurred any fixed or
contingent, direct or indirect liability in respect thereof (or shall be
required to do any of the foregoing in accordance with Schedule I hereto or
otherwise), then for purposes of paragraphs III(d) and VII(a) hereof (i) the
word "Customer" shall be deemed to refer
<PAGE>
to the Customer named herein and each Guarantor, jointly, and to each
individually, as the context may require, and (ii) as applied to each Guarantor,
references to this Agreement and the Note shall be deemed to refer to such
guarantee, security agreement or other document or instrument as such Guarantor
shall have entered into with or for the benefit of the Bank.
(f) Successors and Assigns. This Agreement shall inure to the benefit of, and
shall be enforceable by, the parties hereto and their respective successors and
assigns; provided that the Customer shall not assign any of its obligations
hereunder without the prior, written consent of the Bank. The Bank may assign
any of its rights hereunder or under the Note to any other office or affiliate
of Union Bank of Switzerland or to any Federal Reserve Bank.
(g) Cooperation; Additional Documentation. The Customer will execute all such
other documents, including without limitation any government from under margin
regulations, as the Bank may deem necessary or appropriate in connection with
any Obligation, and will cooperate with and assist the Bank in protecting and
realizing upon the Bank's rights and interests. The Customer will not utilize
any credit facility provided by the Bank unless the Customer shall have
supplied to the Bank appropriately completed account documents and such other
documentation as the Bank may request from time to time.
(h) Power of Attorney. The Customer hereby irrevocably appoints the Bank, and
any officer of the Bank designated by the Bank from time to time, with full
power of substitution, the Customer's attorney-in-fact with full power and
authority in the Customer's name and on the Customer's behalf, in such
attorney-in-fact's sole discretion, to exercise all rights and powers of the
Customer with respect to the Collateral and any Account and take any action to
preserve or realize upon the Bank's security interest, and otherwise to perform
any act which the Customer is obligated to perform hereunder.
(i) Other Relationships. This Agreement is intended to supersede any
inconsistent provision of any custody agreement, investment management
agreement, and other agreements between the Customer and the Bank which do not
directly relate to a credit transaction as herein contemplated.
- --------------------------------------------------------------------------------
THE CUSTOMER HEREBY CONFIRMS THAT HE, SHE OR IT HAS READ THE FOREGOING
PROVISIONS (INCLUDING THE WAIVER OF JURY TRIAL CONTAINED IN PARAGRAPH VII(c))
AND THE CUSTOMER AND THE BANK HEREBY AGREE TO BE BOUND BY SUCH PROVISIONS.
Name of Customer: The Leap Group, Inc.
-----------------------------
Signature: /s/ Peter Vezmar
-----------------------------
[Officer Name: Peter Vezmar
-----------------------------
Title: CFO
-----------------------------]
Name of Customer: The Leap Group, Inc.
-----------------------------
Signature: /s/ R. Steven Lutterbach
-----------------------------
[Officer Name: R. Steven Lutterbach
-----------------------------
Title: CEO/Chairman
-----------------------------]
Union Bank of Switzerland
Los Angeles Branch
By: /s/ Roger Wacker
-----------------------------
Roger Wacker
Title: Managing Director & Branch
-----------------------------
Manager
By: /s/ Victor Massarano
-----------------------------
Victor Massarano
Title: Vice President-Investment
-----------------------------
Services
Date: 10/7/96
-----------------------------
<PAGE>
[LOGO OF UNION BANK OF SWITZERLAND]
Exhibit A
PROMISSORY NOTE
---------------
Date: October 7, 1996
--
The undersigned (the "Customer"), for value received, hereby promises to pay to
the order of UNION BANK OF SWITZERLAND, Los Angeles Branch (the "Bank"), at its
office at 444 South Flower Street, Los Angeles, California, in lawful money of
the United States, the aggregate unpaid principal amount of all loans ("Loans")
made by the Bank to the Customer as contemplated by the General Terms and
Conditions of Credit Arrangements dated October 7, 1996, as amended from time to
time (the "Agreement"), between the Customer and the Bank. Such principal
amount shall be payable on demand or, subject to acceleration by the Bank in
certain circumstances, on one or more fixed maturity dates, all as specified in
or pursuant to the Agreement. Each Loan evidenced by this Note shall bear
interest at the rate or rates, and such interest shall be payable on the date or
dates, specified in or pursuant to the Agreement.
The principal amount of each Loan and all repayments thereof may be endorsed by
the Bank upon the schedule attached hereto; provided that the failure of the
Bank to make any such endorsements (or any error in doing so) shall not affect
the obligations of the Borrower hereunder or under the Agreement, which are
absolute and unconditional.
Name of Customer
The Leap Group, Inc.
Signature: /s/ R. Steven Lutterbach
------------------------
Title: CEO/Chairman
Signature: /s/ Peter Vezmar
------------------------
Title: CFO
<PAGE>
[LOGO OF UNION BANK OF SWITZERLAND]
Schedule I
----------
Additional Terms and Conditions
of Credit Arrangements
----------------------
Capitalized terms not otherwise defined in this Schedule shall have the meanings
set forth in the General Terms and Conditions of Credit Arrangements dated
October 7, 1996, between Union Bank of Switzerland, Los Angeles Branch, and The
Leap Group, Inc. (the "General Terms"). All terms set forth below are subject to
such limitations and changes as may be set forth in or contemplated by the
General Terms.
<TABLE>
<S> <C>
Amount of Uncommitted Line of
Credit, if any, Available for Loans: US$24,000,000.00
Interest Rate and Maturities - UBS LIBOR + 0.500% per annum, for terms of from one
Fixed Rate Loans: to twelve months (as selected by the Customer). Each
borrowing must be in a principal amount of at least
$100,000.00. Interest to be paid quarterly in arrears and
at maturity.
Interest Rates - UBS PRIME Rate per annum. Each borrowing must be
Floating Rate Loans: in a principal amount of at least $25,000.00. Interest to
be paid in arrears on the last day of each calendar
quarter and at maturity.
Lending Value of Collateral: Collateral cash balances and UBS money
market instruments in US$ 95%
UBS's Certificates of Deposit 95%
U.S. Treasury Securities 90%
U.S. Corporate and Municipal Bonds
(Minimum AA rated) 80%
U.S. Corporate and Municipal Bonds
(Minimum A rated) 70%
U.S. Government Agency Securities
(GNMA, FNMA, etc.) 70%
U.S. Commercial Paper (Minimum A1, P1 rated) 70%
U.S. Equities (minimum market price of
$10.00 per share) listed on the:
New York Stock Exchange 70%
American Stock Exchange 60%
NASDAQ National Market 50%
U.S. Equities and Convertibles for
Regulation U Loans 50%
Foreign Bonds, Eurobonds (Minimum AA rated) 80%
Foreign Bonds, Eurobonds (Minimum A rated) 70%
Foreign Equities acceptable to UBS
(all major foreign exchanges) 50%
All the above values are subject to change without notice.
</TABLE>
Page 1
<PAGE>
Schedule I
----------
Additional Terms and Conditions
of Credit Arrangements
----------------------
<TABLE>
<S> <C>
Additional Documentation (1) Copy of the Customer's Articles of Incorporation and
Required: State of Delaware Corporate Filing.
(2) Officers' Certificate of Corporate Resolutions
Covering General Banking Powers and Custody
Services executed by Customer.
Other Modifications to General
Terms: Article VII (h) is hereby deleted.
</TABLE>
The Leap Group, Inc.
Signature: /s/ R. STEVEN LUTTERBACH
----------------------------------
Name: R. Steven Lutterbach
Title: CEO/Chairman
Signature: /s/ PETER VEZMAR
----------------------------------
Name: Peter Vezmar
Title: CFO
Page 2
<PAGE>
[LOGO OF UNION BANK OF SWITZERLAND]
CUSTODY CASH ACCOUNT AGREEMENT
TO: Union Bank of Switzerland,
Los Angeles Branch
You are hereby requested to open a Custody Cash Account to hold securities and
assets of the undersigned (hereafter "Owner"), in connection with which you will
furnish your regular custodian service, as hereafter provided.
1. Custody of Securities - You hereby agree to hold and keep as custodian
hereunder all securities and assets from time to time delivered to or collected
by you for the account of Owner. Such securities or other assets may be held by
you in the custody of one or more banks or other depositories within or without
the United States.
It is expressly agreed that you do not assume any obligation to evaluate,
advise or recommend to Owner the purchase, retention, sale, exchange or deposit
in reorganization or otherwise of any securities and other assets at any time
held in the Custody Cash Account unless provided for by a separate written
agreement between the parties. You will endeavor to forward to Owner any
proxies, financial statements and redemption, conversion, record date or other
notices or literature received by you in connection with or relating to
securities so held by you, unless otherwise agreed, but you shall be under no
obligation to forward such proxies, financial statements, redemption,
conversion, record date or other notices or literature and shall have no
liability for failure to do so.
2. Collection of Income - You shall collect and receive the interest and
other income from securities and other assets held by you under the terms of
this agreement, including dividends on stock standing in your name, the name of
your nominee or the nominee name of any of your depositories, and shall credit
to this account any amounts so collected as received. Charges, if any, will be
charged to the account of Owner under advice. You are authorized to sign on
behalf and in the name of Owner and Owner's nominees or other representatives
any declarations, certificates of ownership or other documents which are now or
may hereafter be required with respect to all coupons, registered interest,
dividends or other income on securities or other assets now or hereafter held or
received for the account of Owner, and Owner agrees to reimburse, indemnify and
hold you harmless of and from any liability, loss, claim, damage or expense
which may arise or to which you may be subjected by reason of the execution of
any such documents.
3. Transactions in Principal - Upon the request or instructions of Owner
you undertake to place for Owner's risk and account orders for (a) the purchase
of securities or other assets, provided that funds of Owner are on hand or
available for such purchase, and (b) the sale of securities or other assets held
for the account of Owner in deliverable form. You shall advise Owner of the
details of all such purchases and sales upon completion. You may refer each
such order to any bank, broker or sub-agent of your choice, unless otherwise
specified. You shall have no liability or responsibility whatsoever for any
error, neglect or default of any such bank, broker or sub-agent or for
mutilations, interruptions, omissions, errors or delays occurring in the mails,
or on the part of any telegraph, cable or wireless company, or any employee of
such company, or by reason of any cause beyond your control.
You will tender against payment or receipt, as the case may be, those
securities which may be called, redeemed or exchanged. You will not be
responsible for taking any alternative actions such as conversion of securities
in connection with any such calls, redemptions or exchanges. Any such actions
shall be the responsibility of Owner. You are hereby advised that all
directions with respect to this account will be given in writing by Owner unless
there is filed with you a power of attorney, in form satisfactory to you, giving
to some other person, or persons, the authority to give directions. It is
understood, however, that you, in your discretion, may accept and act upon
orders from Owner, or such attorney, or any person acting in Owner's behalf,
whether given orally, by telephone or otherwise, which you believe to be
genuine. You will not be held liable for executing, failing to execute, or for
any mistakes in the execution of any such order, excepting in the case of your
willful default.
4. Foreign Currency - Unless otherwise directed, all funds received into
this account other than in U.S. Dollars shall be converted at the risk and for
the account of the Owner into U.S. Dollars, to the extent practicable, and all
funds paid out of or debited to this account other than in U.S. Dollars shall be
converted into foreign currencies as necessary at the risk and for the account
of the Owner, to the extent practicable. In effecting such conversions, you may
use such methods or agencies as you may see fit, including your own facilities
at customary rates.
5. Stock Dividends, Rights to Subscribe, Etc. - You shall be under no
obligation to take any action with regard to Stock Dividends, Warrants, Rights
to Subscribe, Plans of Reorganization or Recapitalization, or Plans for the
Exchanges of Securities, or the Conversion of Convertible Securities whether or
not called for Redemption.
6. Withdrawal of Securities, Etc. - Any and all securities and other
assets may be withdrawn by Owner from this account at any time upon a written
order or receipt signed by Owner.
<PAGE>
7. Amendment or Termination of Agreement - This Agreement may be altered
at any time by letter or other written instrument in such manner as may be
mutually agreed upon by you and Owner, and may be terminated at any time either
by Owner or by you, whereupon all securities and other assets of every kind and
nature held in custody for the account of Owner shall be paid over, delivered or
surrendered upon a written order or receipt signed by Owner, in form acceptable
to you.
8. Joint Accounts - If this account is a joint account, any one of the
joint owners whose signatures are on file with you has independent an individual
power over the account unless this Agreement specifically provides otherwise.
You shall honor instructions of either joint owner without any duty of inquiry,
including instructions pursuant to any Investment Advisory Agreement or
Investment Management Agreement between you and the joint owners, instructions
to close the account or instructions directing a transfer to an account in a
joint owner's individual name. You may require the signature of all joint owners
before carrying out any instructions if one joint owner has asked you in writing
not to honor instructions of the other joint owner(s).
Each of the joint owners agrees that they intend to create a joint tenancy
with right of survivorship in the account. This means that in the event of the
death of any joint owner, the ownership of any balance in the account passes
absolutely to the survivor(s). It is understood that upon the death of any joint
owner the balance of the account may not be withdrawn until after any necessary
tax waivers or other required legal papers are obtained and delivered to you.
Each of the joint owners agrees that he or she is jointly and severally liable
for any obligation to you under this Agreement and understands that you may use
all of the assets in the account to pay the debt of another joint owner.
9. In General - You shall give to the securities and other assets in your
custody the same degree of care and protection with respect to their physical
custody which you give to your own Assets, and Owner agrees that you shall not
be liable for loss or damage caused directly or indirectly by invasion,
insurrection, riot, civil war or commotion, or military or usurped power, or by
order of any civil authority, or other causes beyond your control.
You shall furnish Owner with a complete statement of the account every
month, unless otherwise requested by Owner.
Owner shall pay to you compensation for your services hereunder in
accordance with your fee schedule as in effect from time to time.
Owner agrees that if securities and other assets in the account are held in
the custody of one or more banks or other depositories, within or without the
United States, you shall not be responsible for any loss in respect thereof
unless you were grossly negligent in the selection of such bank or other
depository.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California. The undersigned irrevocably agrees that
jurisdiction and venue for any legal action or proceeding arising out of or
relating to this Agreement shall be proper in the courts of the State of
California located in the County of Los Angeles or of the United States of
America for the Central District of California, and in no other court, and the
undersigned hereby expressly submits to the exclusive jurisdiction of such
courts in any such action or proceeding. The undersigned irrevocably waives, to
the full extent permitted by law, any objection it may now or hereafter have
based upon improper venue or forum non conveniens with respect to any such legal
action or proceeding.
Very truly yours,
Place: Los Angeles /s/ PETER VEZMAR
------------------------------- -----------------------------------
Customer signature
Dated: 10/7/96 /s/ R. STEVEN LUTTERBACH
------------------------------- -----------------------------------
Customer signature
FULL ADDRESS: TITLE OF ACCOUNT:
22 W. Hubbard The Leap Group, Inc.
Chicago, Illinois 60610
Agrees and accepted:
UNION BANK OF SWITZERLAND
Los Angeles Branch
/s/ ROGER WACKER
- --------------------------------------
Roger Wacker,
Managing Director & Branch Manager
/s/ VICTOR MASSARANO
- --------------------------------------
Victor Massarano,
Vice President-Investment Services
Dated: Los Angeles 10/7/96
-------------------------------
<PAGE>
EXHIBIT 11
THE LEAP GROUP, INC.
STATEMENT REGARDING COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average of common shares outstanding 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 508,680 508,680 508,680 508,680
Weighted average of common shares issued
in the offering 1,333,333 - 444,444 -
Total 11,442,013 10,108,680 10,553,124 10,108,680
Net income (loss) $435,234 $23,898 $692,477 $698,914
Net income (loss) per common share $ 0.04 $ 0.00 $ 0.07 $ 0.07
</TABLE>
<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 October 31, 1996, the
Consolidated Statements of Operations for the Three and Nine Months ended
October 31, 1996 and 1995, and the Consolidated Statements of Cash Flows for the
Nine Months ended October 31, 1996 and 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 33,340
<SECURITIES> 0
<RECEIVABLES> 4,569
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,204
<PP&E> 1,595
<DEPRECIATION> (504)
<TOTAL-ASSETS> 39,468
<CURRENT-LIABILITIES> 3,135
<BONDS> 0
<COMMON> 136
0
0
<OTHER-SE> 36,111
<TOTAL-LIABILITY-AND-EQUITY> 39,468
<SALES> 0
<TOTAL-REVENUES> 12,280
<CGS> 0
<TOTAL-COSTS> 7,313
<OTHER-EXPENSES> 4,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 955
<INCOME-TAX> 262
<INCOME-CONTINUING> 692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 692
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
