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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
October 22, 1998
Date of Report (date of earliest event reported)
Commission File Number 0-20835
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 Identification No.)
incorporation or organization)
22 W. Hubbard Street, Chicago, IL 60610
(Address of principal executive office, including zip code)
(312) 494-0300
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 22, 1998, The Leap Group, Inc. (the "Company") and its subsidiaries
completed the sale to Young & Rubicam, Inc. of various assets ("the Asset Sale")
of its wholly-owned subsidiary, One World Communications, Inc. ("One World") and
the AT&T account of the Company's wholly-owned subsidiary, YAR Communications,
Inc. ("YAR") for $6.8 million in cash plus the assumption of certain
liabilities.
The disposition was made pursuant to the Asset Purchase Agreement dated as of
September 30, 1998, between the Company, Young & Rubicam, Inc., One World, and
YAR. The assets and liabilities involved in the transaction included, among
other things, accounts receivable, work in progress, fixed assets, other current
and non-current assets, accounts payable and other current and non-current
liabilities.
Certain assets and liabilities related to the One World business and the YAR
AT&T account have been retained by the Company, principally the related goodwill
which will be retired in connection with the disposition, and income tax
liabilities pertaining to pre-closing periods.
The divestiture of One World and the AT&T account at YAR will provide capital to
the Company for the purpose of increasing Internet-related revenue streams. The
Internet sector is an important part of the Company's growth strategy and the
Company is making a conscious decision to redirect resources in that direction.
AT&T Corporation, a major client of both One World and YAR, recently made across
the board reductions in its marketing programs for calendar year 1998 to reduce
costs and has indicated that cost control pressures are likely to continue in
the future. AT&T also indicated that it would be making efforts to consolidate
its advertising and marketing business, reducing its number of agency suppliers.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Unaudited pro forma financial information with respect to the
Asset Sale of One World and the YAR AT&T account is attached as an
exhibit to this Form 8-K.
(c) Exhibits (listed by numbers corresponding to the provisions of Item
601 of Regulation S-K)
(2) Asset Purchase Agreement dated as of September 30, 1998
between The Leap Group, Inc., Young & Rubicam, Inc., One
World Communications, Inc., and YAR Communications, Inc.
(99) Unaudited pro forma financial information of the Company
with respect to the Asset Sale.
SIGNATURE
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 hereunto duly authorized.
THE LEAP GROUP, INC.
(Registrant)
Date: November 6, 1998 By: /s/ Frederick A. Smith
------------------------------
Frederick A. Smith
Chief Executive Officer and
Acting Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
<S> <C>
(2) Asset Purchase Agreement dated September 30, 1998, between The
Leap Group, Inc., Young & Rubicam, Inc., One World
Communications, Inc. and YAR Communications, Inc.
(99) Unaudited pro forma financial information of the Company with
respect to the Asset Sale.
</TABLE>
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Exhibit 2
ASSET PURCHASE AGREEMENT
BY AND AMONG
YOUNG & RUBICAM, INC.,
THE LEAP GROUP, INC.,
ONE WORLD COMMUNICATIONS, INC.
AND
YAR COMMUNICATIONS, INC.
Dated as of September 30, 1998
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TABLE OF CONTENTS
Page
1. SALE AND PURCHASE OF THE PURCHASED ASSETS................................
1.1. Purchased Assets................................................. 1
1.2. Excluded Assets.................................................. 3
1.3. Purchase Price................................................... 4
1.4. Escrowed Funds; Net Tangible Asset Value......................... 4
1.5. Closing.......................................................... 5
1.6. Closing Deliveries............................................... 6
1.7. Additional Closing Transactions of Sellers....................... 8
1.8. Third Party Consents............................................. 8
2. ASSUMPTIONS OF LIABILITIES AND CONTRACTS................................. 9
2.1. Assumed Liabilities.............................................. 9
2.2. Excluded Liabilities............................................. 9
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS............................ 11
3.1. Organization and Good Standing................................... 11
3.2. Authority; No Conflict........................................... 11
3.3. Financial Statements............................................. 12
3.4. Books and Records................................................ 12
3.5. Title to Properties; Encumbrances................................ 12
3.6. Condition and Sufficiency of Assets.............................. 13
3.7. AT&T Account..................................................... 13
3.8. Work in Progress................................................. 13
3.9. No Undisclosed Liabilities....................................... 13
3.10. Taxes............................................................ 14
3.11. No Material Adverse Change....................................... 15
3.12. Employee Benefits................................................ 16
3.13. Compliance with Legal Requirements; Governmental Authorizations.. 18
3.14. Legal Proceedings; Orders........................................ 19
3.15. Absence of Certain Changes and Events............................ 21
3.16. Contracts; No Defaults........................................... 21
3.17. Insurance........................................................ 23
3.18. Environmental Matters............................................ 23
3.19. Employees........................................................ 24
3.20. Labor Disputes; Compliance....................................... 25
3.21. Intangible Property.............................................. 25
3.22. Certain Payments................................................. 26
3.23. Intentionally Omitted............................................ 26
3.24. Disclosure....................................................... 26
3.25. Relationships with Related Persons............................... 26
3.26. Client Relationships............................................. 27
3.27. Suppliers........................................................ 27
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4. REPRESENTATIONS AND WARRANTIES OF BUYER.................................. 27
4.1. Organization and Good Standing.................................... 27
4.2. Authority; No Conflict............................................ 27
4.3. Certain Proceedings............................................... 28
5. ADDITIONAL AGREEMENTS.................................................... 28
5.1. Noncompetition and Nondisclosure.................................. 28
5.2. Allocation of Purchase Price...................................... 30
5.3. Change of Names................................................... 30
5.4. Agreements Regarding Employees After Closing...................... 30
5.5. Transfer Tax Compliance........................................... 31
5.6. Sales Tax Liability............................................... 31
5.7. Successor Employer................................................ 31
5.8. Non-Solicitation.................................................. 31
6. INDEMNIFICATION; REMEDIES................................................ 31
6.1. Survival.......................................................... 31
6.2. Indemnification of Parent and Buyer............................... 32
6.3. Indemnification of the Sellers.................................... 33
6.4. Indemnification Procedure for Third Party Claims.................. 34
6.5. Escrowed Amount; Right of Set-Off................................. 36
6.6. Sole Remedy....................................................... 36
6.7. Treatment......................................................... 36
7. CLOSING CONDITIONS....................................................... 36
7.1. Conditions to Each Party's Obligations to Effect the
Contemplated Transactions......................................... 36
7.2. Conditions to the Obligations of Sellers to Effect the
Contemplated Transactions......................................... 37
7.3. Conditions to the Obligations of Buyer and Parent to Effect
the Contemplated Transactions..................................... 37
7.4. Certificates...................................................... 38
8. DEFINITIONS.............................................................. 38
8.1. Definitions....................................................... 38
9. GENERAL PROVISIONS....................................................... 42
9.1. Expenses.......................................................... 42
9.2. Notices........................................................... 42
9.3. Further Assurances................................................ 43
9.4. Waiver............................................................ 43
9.5. Entire Agreement and Modification................................. 43
9.6. Assignments, Successors, and No Third-Party Rights................ 43
9.7. Severability...................................................... 43
9.8. Section Headings, Construction.................................... 43
9.9. Governing Law..................................................... 44
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9.10. Counterparts..................................................... 44
9.11. No Strict Construction........................................... 44
9.12. Alternative Dispute Resolution................................... 44
9.13. Publicity........................................................ 45
9.14. Termination...................................................... 45
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") dated as of September
30, 1998 by and among Young & Rubicam Inc., a Delaware corporation ("Buyer"),
The Leap Group, Inc., a Delaware corporation ("Leap"), One World Communications,
Inc., a Delaware corporation and wholly owned subsidiary of Leap (the
"Company"), and YAR Communications, Inc., a Delaware corporation and wholly
owned subsidiary of Leap ("YAR") (each of Leap, the Company and YAR also being
referred to herein as a "Seller" and collectively as "Sellers").
WHEREAS, upon the terms and subject to the conditions hereinafter set
forth, the Sellers desire to sell to Buyer, and Buyer desires to purchase from
the Sellers, substantially all of the right, title and interest of any of the
Sellers in (x) the assets, properties and rights used in or necessary to the
operation of the Company's business and (y) the AT&T Account (as defined in
Section 8.1 hereof) (the right, title and interest of the Sellers in the
Company's business, together with the AT&T Account being referred to herein as
the "Business"), all for the consideration and assumption of certain liabilities
and upon the terms set forth in this Agreement (the "Contemplated
Transactions");
WHEREAS, on or before the date hereof, Messrs. Smith, Gier, Sciarrotta
and Lutterbach have each executed and delivered a letter addressed to Buyer
expressing their support of the consummation of the Contemplated Transactions
and agreeing, in the event the Contemplated Transactions are put to a vote of
shareholders of Leap, to vote all of their respective shares of Leap in favor of
the Contemplated Transactions (the "Management Letter"); and
WHEREAS, on or before the date hereof, Buyer shall have received a
letter addressed to Buyer from AT&T, expressing AT&T's support of the assignment
of its contract with YAR to the Company, and the further assignment of such
contract, as well as the AT&T contract with the Company, to Buyer upon
consummation of the Contemplated Transactions (the "AT&T Letter").
The parties, intending to be legally bound, agree as follows
(capitalized terms that are not otherwise defined in the body of this Agreement
being defined in Section 8.1 herein):
1. SALE AND PURCHASE OF THE PURCHASED ASSETS.
1.1. Purchased Assets. On the terms and subject to the conditions
hereinafter set forth, at the Closing, the Sellers shall sell, convey, transfer,
assign and deliver to Buyer, free and clear of all Encumbrances (except as
disclosed in the Disclosure Letter), and Buyer shall purchase from the Sellers,
all of their respective right, title and interest in and to all of the property
and assets which are used in or arise out of the conduct of the Business or are
considered to be assets of the Sellers in connection with the Business as of the
Closing Date, located at the Company's offices specified in Section 1.1(c) below
or as otherwise set forth below (collectively, the "Purchased Assets"),
including, but not limited to, the following:
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(a) All fixed assets, fixtures, equipment, including computer
hardware and software, machinery, tools, furnishings, furniture, artwork, office
furniture and equipment, plans, specifications, leasehold improvements and other
similar personal property used by the Company in the conduct of the Business
(collectively, the "Tangible Personal Property");
(b) All inventory of the Company, including without limitation,
raw materials and finished goods (collectively, the "Inventory");
(c) The two real estate leases under which the Company is a
tenant, as follows:
315 Fifth Avenue, New York, New York 10016 (Floors 6,
7, 8, 9, 10 and 11); and
923 East 3rd Street, Suite 115, Los Angeles, CA 90013;
(d) All pre-paid assets, pre-paid accounts and security
deposits, uniforms, equipment, office, operating, factory, marketing and other
supplies of the Company;
(e) All of the right, title and interest of the Sellers in and
to all Contracts with the Business (including all of YAR's right, title and
interest in the AT&T Account, which right, title and interest will be assigned
to the Company by YAR at or prior to the Closing pursuant to Section 1.7
herein), including, without limitation, those Contracts specifically disclosed
in Part 3.16 of the Disclosure Letter, all of which are being assigned to and
assumed by Buyer (each an "Assigned Contract" and collectively, "Assigned
Contracts"), and including, without limitation, any agreements containing any
restrictive covenants limiting the rights of third parties to compete with the
Company or to solicit its employees and customers;
(f) Any and all trademarks, trademark registrations and
trademark applications, trade-names, logos, copyrights, patents and patent
applications, patent and other licenses thereof, patent disclosures and
inventions (whether or not patentable and whether or not reduced to practice),
know-how, trade secrets, lists of past and present customers, potential
customers, recorded knowledge, business plans, performance standards,
catalogues, research data, analyses and computer software and programs, sales
data, sales and advertising materials, scheduling and service methods, sales and
service manuals and all other proprietary, confidential and other similar
information (in whatever form or medium) of the Company;
(g) All of the Company's bank accounts and deposits with third
parties, together with any unpaid interest accrued thereon from the respective
obligors and any security or collateral therefore, including recoverable
deposits (other than that certain account of the Company at Manufacturers Bank,
as designated by Leap, into which the Purchase Price shall be paid at Closing);
(h) All cash, cash equivalents, investments, accounts receivable
(excluding any bonus not reflected in the Audited Net Tangible Asset Statement
(as defined in Section 1.4 below) due to the Company or YAR for work performed
by the Company or YAR prior to the Closing Date pursuant to an Assigned
Contract, and excluding any accounts
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receivable that Buyer and Leap classify as bad debt), notes bonds or other
evidence of Indebtedness of any Person held by the Company (other than that
certain account of the Company at Manufacturers Bank, as designated by Leap,
into which the Purchase Price shall be paid at Closing) in respect of the
Business and all cash, accounts receivable (excluding any bonus not reflected in
the Audited Net Tangible Asset Statement (as defined in Section 1.4 below) due
to the Company or YAR for work performed by the Company or YAR prior to the
Closing Date pursuant to an Assigned Contract, and excluding any accounts
receivable that Buyer and Leap classify as bad debt), notes or other evidence of
Indebtedness of any Person held by YAR or the Company in respect of the AT&T
Account;
(i) All records, files, documents and papers of the Company,
and, only insofar as such records, files, documents and papers relate to the
AT&T Account, of each of the Sellers, including but not limited to, financial
statements, journals, ledgers, correspondence, customer records, employment
records (for current Company employees only) and books of account and excluding
all tax records, records maintained by the Sellers' accountants and attorneys
and records relating to Excluded Assets (as defined in Section 1.2) and Excluded
Liabilities (as defined in Section 3.2); it is expressly agreed that the Sellers
shall be afforded, after the Closing, reasonable access to the records, files,
etc., for valid purposes not inconsistent with this Agreement, at convenient
times and places provided that use of this privilege is not abused or
unreasonable;
(j) All permits, franchises, licenses, approvals and
authorizations by or of any Government Entities or other Persons required for
the conduct of the Business or in connection with ownership of the Purchased
Assets, to the extent that such are transferable;
(k) All causes of action, claims, rights of recovery and set-off
of every kind and character pertaining or relating to the Purchased Assets
(excluding any accounts receivable that Buyer and Leap classify as bad debt),
including all insurance, warranty and condemnation proceeds received after the
Closing Date with respect to damage, destruction or loss of any Purchased
Assets; and
(l) All right, title and interest of any of the Sellers in the
names "One World Communications" and "Kang & Lee", and all combinations and
variations thereof, together with all goodwill associated therewith and with the
Business.
1.2. Excluded Assets. Notwithstanding the foregoing, the following
assets of the Company shall be retained by the Company and are not included in
the Purchased Assets and not sold or transferred to Buyer hereunder (the
"Excluded Assets"):
(a) The formal corporate records and corporate seal of the
Company, including any records having exclusively to do with the corporate
organization of the Company;
(b) The Company's rights pursuant to or under this Agreement,
including the payments made and to be made to the Company hereunder;
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(c) The tax records, tax returns and all related work papers of
the Company;
(d) Any bonus not reflected in the Audited Net Tangible Asset
Statement (as defined in Section 1.4 below) due to the Company or YAR for work
performed by the Company or YAR prior to the Closing Date pursuant to an
Assigned Contract; and
(e) Any accounts receivable that Buyer and Leap classify as bad
debt.
1.3. Purchase Price. The purchase price (the "Purchase Price") for
the Purchased Assets will be $6,800,000 payable to the Company in cash in
accordance with this Agreement. At Closing, $5,300,000 will be paid by Buyer to
the Company and $1,500,000 subject to the escrow provision of Sections 1.4
below.
1.4. Escrowed Funds; Total Net Tangible Asset Value. Of the total
Purchase Price to be delivered at the Closing to the Company by the Buyer,
$1,500,000 shall be placed into an escrow account (the "Escrowed Amount") by
Buyer pursuant to the terms of an escrow agreement to be entered into by the
parties in the form attached hereto as Exhibit 1.4 (the "Escrow Agreement") and
to be applied as follows:
(a) As soon as practicable after the Closing, but in any event
within 90 days following the Closing, Leap shall deliver to Buyer an audited
statement (the "Audited Net Tangible Asset Statement") of the total tangible
asset value of the Purchased Assets, minus any Assumed Liabilities (as defined
in Section 2.1 below) as of the Closing Date ("Total Net Tangible Asset Value"),
together with a report thereon of Arthur Andersen, independent accountants for
the Company ("Company's Accountants"), to the effect that the Audited Net
Tangible Asset Statement fairly presents the Total Net Tangible Asset Value of
the Purchased Assets as of the Closing Date in accordance with generally
accepted accounting principles consistently applied, it being understood that
fees are recognized as revenue in the month earned. The cost of preparing the
Audited Net Tangible Asset Statement and the report thereon shall be paid by
Leap.
(b) In the event that the Total Net Tangible Asset Value
calculated in accordance with paragraphs (a) and (e) of this Section 1.4 is less
than $800,000, the Purchase Price shall be reduced by the amount of such
difference (the "Post Closing Adjustment") and Buyer and Leap shall instruct the
escrow agent to pay the amount of the Post Closing Adjustment from the Escrowed
Amount to Buyer with interest earned thereon (if any) from the Closing Date to
the date of payment of the Post Closing Adjustment, and to pay the balance of
the Escrowed Amount, if any, to the Company with interest earned thereon (if
any) from the Closing Date to the date of payment. In the event that the
Escrowed Amount is not sufficient to enable the Sellers to pay the full
liability, if any, determined by reference to the Post Closing Adjustment to
Buyer, the Sellers shall pay to Buyer within five business days of such
determination the shortfall between the Escrowed Amount and the Post Closing
Adjustment, with interest earned thereon (if any) from the Closing Date to the
date of payment of such shortfall.
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(c) In the event that the Total Net Tangible Asset Value
calculated in accordance with paragraphs (a) and (e) of this Section 1.4 is
equal to or exceeds $800,000, (x) Buyer and Leap shall instruct the escrow agent
to pay the entire Escrowed Amount, together with interest earned thereon (if
any) to the Company, and (y) in addition to the release of the entire Escrowed
Amount, Buyer shall pay to the Company the amount, if any, by which the Total
Net Tangible Book Value so calculated exceeds $800,000, with interest earned
thereon from the Closing Date to the date of payment.
(d) From and after the Closing Date until the delivery of the
Audited Net Tangible Asset Statement and thereafter during the period of any
dispute referred to in paragraph (e) of this Section 1.4, Buyer shall provide
Leap's representatives full access to the books, records, facilities and
employees of the Business as then conducted by Buyer and shall cooperate fully
with Leap's representatives, in each case to the extent required by Leap's
representatives, in order to prepare the Audited Net Tangible Asset Statement
and to investigate the basis for any dispute; provided, that any such
investigation shall be conducted in such a manner as not to interfere
unreasonably with Buyer's operation of the Business. Employees of Buyer and its
independent accountants shall be entitled access to Company's Accountants' work
papers prepared in connection with the Audited Net Tangible Asset Statement,
shall be entitled to participate in any physical inventory done in connection
with the preparation of the Audited Net Tangible Asset Statement and shall be
entitled at Buyer's expense to discuss such work papers with Company's
Accountants.
(e) Buyer may dispute any amounts reflected on or omitted from
the Audited Net Tangible Asset Statement after such statement and the
accompanying work papers of Company's Accountants are reviewed by Buyer, and at
Buyer's election, by Price Waterhouse Coopers ("Buyer's Accountants"). Buyer may
so dispute such amounts only if it shall deliver to Company's Accountants and
Leap written notice (a "Dispute Notice") setting forth each disputed item,
specifying the amount thereof in dispute and an explanation of the basis for
such dispute, within 60 Calendar Days of Buyer's receipt of the Audited Net
Tangible Asset Statement and copies of, or access to, the work papers of
Company's Accountants. In the event of such a dispute, Buyer's Accountants and
the Company's Accountants shall promptly attempt to resolve the dispute and any
resolution by them as to any disputed amounts shall be final, binding and
conclusive on the parties hereto. If Buyer's Accountants and Company's
Accountants are unable to reach a resolution after good faith negotiation, the
findings of Buyer's Accountants shall be conclusive and binding. Subject to the
foregoing, the Audited Net Tangible Asset Statement delivered by Leap to Buyer
shall be final, binding and conclusive on the parties hereto. If Sellers are
entitled to receive a portion of the Escrowed Amount (as determined by reference
to the Audited Net Tangible Asset Statement), then Buyer and Leap shall instruct
the Escrow Agent to pay said undisputed amount to the Company while retaining
the balance until the dispute is resolved.
1.5. Closing. The purchase and sale (the "Closing") provided for in
this Agreement will take place at the offices of Buyer at 285 Madison Avenue,
New York, New York at 10:00 a.m. (local time) on October 22, 1998, or such other
place or date as the parties may otherwise agree.
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1.6. Closing Deliveries. At the Closing:
(a) The Sellers shall deliver to Buyer ("Seller Closing
Documents"):
(i) the Escrow Agreement, executed by each of the Sellers;
(ii) non-competition agreements, each in the form of Exhibit
1.6(a)(ii), executed by each of the Sellers (the "Noncompetition Agreements");
(iii) Bill of Sale in a form reasonably satisfactory to
Buyer ;
(iv) duly executed instruments of assignment of the Assigned
Contracts;
(v) duly executed instruments of assignment or transfer of
the intellectual property referred to in Section 1.1(f);
(vi) UCC termination statements releasing all liens on the
Company's assets held by any lender of any of the Sellers;
(vii) a Good Standing Certificate for the Company from all
states in which the Company is authorized to do business;
(viii) copies of resolutions of the board of directors of
Leap and the Company, certified by Leap's and the Company's corporate secretary,
respectively, as having been duly adopted and being in current force and effect,
authorizing the transactions and documents contemplated by this Agreement;
(ix) releases of all liens (and appropriate executed UCC
termination statements) existing as of the Closing in respect of any assets of
the Business, except as set forth in Section 3.5 of the Disclosure Letter;
(x) assignment of leases and estoppel certificates for the
leases referenced in Section 1.1(c) hereof, in a form reasonably satisfactory to
Buyer;
(xi) copy of each of the Company's and Leap's Articles of
Incorporation and all amendments thereto (including an executed amendment to be
filed upon the Closing changing the Company's name), certified by the Secretary
of State of Delaware, and a copy of each of the Company's and Leap's By-laws,
and all amendments thereto, certified by the Secretary of the Company and Leap,
respectively;
(xii) Letters executed by each of Leap, the Company, Eliot
Kang & Associates Inc. (formerly known as Kang & Lee Advertising, Inc.), Eliot
Kang Enterprises Inc. (formerly known as K&L West Advertising, Inc.) and Eliot
Kang, acknowledging that (1) each such Person has released the other from all
payments, obligations or liabilities arising out of the Kang & Lee Asset
Purchase Agreement and any documents entered into in connection therewith,
including, without limitation, the Employment Agreement and Noncompetition
Agreement
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entered into among Leap, Eliot Kang and the other parties named therein and each
dated as of November 1, 1997, and (2) that Leap and Eliot Kang shall have
amended the Stock Option Agreement, between Leap and Eliot Kang, dated November
11, 1997, in a manner reasonably satisfactory to Leap and Eliot Kang.
(xiii) (1) a legal opinion in a form reasonably satisfactory
to Buyer issued to the Buyer by Morris, Nichols, Arsht & Tunnell ("Special
Counsel") special Delaware counsel to the Sellers, which opinion shall include
an opinion that consummation of the Contemplated Transactions do not require a
vote of shareholders of Leap, (2) a legal opinion in a form reasonably
satisfactory to Buyer issued to the Buyer by Katten, Muchin & Zavis, special
counsel to the Sellers, (3) a waiver letter, executed by Leap, waiving any
conflict in favor of Buyer which may arise out of Special Counsel's future
representation of Buyer, including in connection with any action or proceeding
arising out of the Contemplated Transactions, and (4) a legal opinion in a form
reasonably satisfactory to Buyer issued to the Buyer by corporate counsel to the
Sellers;
(xiv) all other such assignments and other instruments or
documents (including certificate of title) as shall be necessary in the judgment
of Buyer to evidence the sale, assignment, transfer and conveyance by the
Company to Buyer of the Purchased Assets in accordance with the terms hereof
(provided that Buyer agrees that the only necessary assignment of an Assigned
Contract that shall be required for Closing is the assignments with respect to
the AT&T Account), and
(xv) a Closing Statement in a form of reasonably
satisfactory to Buyer.
(b) Buyer shall deliver to the Sellers ("Buyer's Closing
Documents"):
(i) bank cashier's checks or certified checks payable to the
Company or wire transfers to accounts specified in writing by the Company (at
least two days in advance), in an amount equal to $5,300,000 of the Purchase
Price to be delivered at the Closing;
(ii) the Escrow Agreement attached hereto and made a part
hereof as Exhibit 1.6(b)(ii), executed by Buyer;
(iii) bank cashier's check or certified check payable to the
Escrow Agent or wire transfers to accounts specified in writing by the Escrow
Agent (at least two days in advance) in an amount equal to $1,500,000;
(iv) a certified copy of resolutions adopted by Board of
Directors authorizing execution of this Agreement and consummation of the
Contemplated Transactions; and
(v) a legal opinion in the form of Exhibit 1.6(b)(v) issued
to the Sellers by corporate counsel to the Buyer.
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(c) Buyer on the one hand, and the Company, Leap and YAR on the
other hand, shall also deliver to the other party such other documents,
instruments, certificates, and opinions as may be required by this Agreement or
as otherwise necessary to consummate the Contemplated Transactions, including,
without limitation, conveyance documents and assumption agreements.
1.7. Additional Closing Transactions of Sellers.
(a) At the Closing, Leap and Eliot Kang shall have executed an
amendment to the Stock Option Agreement, dated November 11, 1997, between Leap
and Eliot Kang, which amendment shall accelerate the vesting and exercisability
of options to purchase common stock of Leap previously granted to Eliot Kang so
that not less than one-half of all options granted to Eliot Kang are fully
vested and exercisable as of the Closing Date.
(b) At the Closing, Leap shall deliver duly executed instruments
of release of Eliot Kang, Eliot Kang & Associates Inc. and/or Eliot Kang
Enterprises Inc. from all liabilities, obligations and responsibilities arising
out of the Kang & Lee Asset Purchase Agreement and any other documents entered
into in connection therewith (other than the Stock Option Agreement referred to
in 1.7(a) above), including without limitation, the Employment Agreement and
Noncompetition Agreement, each dated as of November 1, 1997.
(c) On or before the Closing, YAR shall assign to the Company,
pursuant to duly executed instruments of assignment reasonably satisfactory to
Buyer, all of YAR's right, title and interest in and to the AT&T Account in
order for the Company to sell the AT&T Account to Buyer as part of the Purchased
Assets at the Closing in accordance with this Agreement.
(d) On or before the Closing, Leap and YAR shall transfer and
assign to the Company all their respective right, title and interest, if any, in
the names "One World Communications" and "Kang & Lee" and all combinations and
variations thereof, pursuant to duly executed instruments of assignment
reasonably satisfactory to Buyer, in order for the Company to transfer all of
the right, title and interest in and to such names to Buyer as part of the
Purchased Assets at the Closing in accordance with this Agreement.
1.8. Third Party Consents. In the event that all required consents to
the assignment by third parties for the Assigned Contracts of the Company are
not received as of the Closing Date, and Buyer nonetheless elects to proceed
with the Closing, and anything in this Agreement to the contrary
notwithstanding, in the event an assignment or purported assignment to Buyer of
any Assigned Contracts of the Company, or any claim, right or benefit arising
thereunder or resulting therefrom, without the consent of other parties thereto,
would constitute a breach thereof or would not result in Buyer receiving all of
the rights of the Company thereunder, such Assigned Contract shall be deemed not
to have been assigned by the Company to the Buyer; provided, however, (i) if
requested by Buyer, the Company and Leap will use their best efforts to obtain
any such consent and (ii) if such consent is not obtained and is required to
effectively assign any Assigned Contract to Buyer, the Company and Leap will
fully cooperate with Buyer in any reasonable arrangement to provide Buyer with
the full claims, rights and benefits under any
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such Assigned Contract, including enforcement at the cost and for the benefit of
Buyer of any and all rights of the Company, as the case may be, against a third
party thereto arising out of the breach or cancellation by such third party or
otherwise, and any amount received by the Company in respect thereof shall be
held for and immediately paid over to Buyer.
2. ASSUMPTIONS OF LIABILITIES AND CONTRACTS.
2.1. Assumed Liabilities. As of the Closing Date, except as otherwise
agreed to herein, Buyer will assume and thereafter pay and fully satisfy when
due, (i) all liabilities and obligations under any Assigned Contract for which
an assignment is delivered to Buyer (for work performed under said Assigned
Contract on and after Closing Date), (ii) all other liabilities of the Company
in connection with the Business which are disclosed in the Disclosure Letter and
which Buyer specifically agrees to assume, (iii) all bonuses, if any, reflected
in the Audited Net Tangible Asset Statement in respect of 1998 due to employees
of the Company, even if based upon work performed prior to the Closing Date, and
(iv) all accrued vacation reflected in the Audited Net Tangible Asset Statement
due to employees of the Company (all such liabilities and obligations to be
assumed by Buyer hereunder shall be referred to herein as the "Assumed
Liabilities"); provided, however, in no event will Buyer's assumption of the
Assumed Liabilities, in any manner, limit, waive or restrict Buyer's right to
indemnification by the Company and Leap pursuant to Section 6.2 below; it being
the understanding and acknowledgment of the parties that Buyer is relying solely
on the disclosures set forth in the Disclosure Letter to determine the
liabilities and obligations of the Company that are being assumed hereunder.
2.2. Excluded Liabilities. Notwithstanding anything to the contrary
contained in this Agreement or any agreement, document, certificate or
instrument being delivered pursuant to this Agreement (collectively, the
"Transaction Documents"), and regardless of whether such debt, liability or
obligation is disclosed in this Agreement, in any of the Transaction Documents,
in the Disclosure Letter or on any Schedule or Exhibit hereto or thereto, Buyer
shall not assume or agree to pay, perform or discharge or in any manner be
responsible for any Excluded Liabilities. As used herein, the term "Excluded
Liabilities" means:
(i) all liabilities and obligations of the Company or Leap
arising under the Kang & Lee Asset Purchase Agreement whether arising prior to
or after the Closing Date as well as any liability or obligation to any employee
of the Company with respect to any equity ownership interest in the Company,
Leap or any other entity;
(ii) all liabilities and obligations of any of the Sellers
now or hereafter arising from or with respect to the termination by any of the
Sellers of the employment or other relationship of or with any current or future
employees, consultants or independent contractors of such Seller or any of its
affiliates, any other claims brought against any of the Sellers arising from
such Seller's employment or engagement of any person, any existing or future
employee benefit plans of any of the Sellers or their respective affiliates,
whether or not under ERISA, any future obligations or liabilities of any of the
Sellers or their respective affiliates to existing or future employees of such
Seller or its affiliates under COBRA or WARN (including to any such employees
who became employees of Buyer or its affiliates as
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contemplated by this Agreement or otherwise) and any severance pay obligations
of any of the Sellers or their respective affiliates;
(iii) any liability or obligation of the Sellers arising out
of or in connection with the negotiation and preparation of this Agreement and
consummation and performance of the transactions contemplated hereby, including
without limitation, legal and accounting fees (including those associated with
the preparation of the audited financial statements referred to in Section 3.3),
brokerage commissions, finder's fees or similar fees or commissions, and income
or other Tax liability so arising;
(iv) any liability or obligation of the Sellers arising from
the failure of any of the Sellers to perform or discharge any of its agreements
contained herein;
(v) any obligation of the Sellers for Taxes (except as
otherwise specifically provided for in Section 5.8);
(vi) any liability or obligation of the Sellers incurred by
or accruing to any of the Sellers prior to the Closing Date including work
performed under the Assigned Contracts prior to the Closing Date, except as
otherwise agreed hereunder;
(vii) accounts payable of the Sellers and liabilities
incurred by the Sellers in the Ordinary Course of Business, except as otherwise
agreed hereunder;
(viii) any liability or obligation to the extent relating to
an Excluded Asset;
(ix) any liabilities or obligations in respect of any
directors' and officers' liability insurance policy for the Company or Leap
(including, without limitation, any obligation or liability in respect of any
deductible thereunder) or in respect of any by-law or charter provision of the
Company or Leap providing indemnification for officers, directors or others;
(x) any liability or obligation arising out of or relating
to any Scheduled Plans (as defined in Section 3.12), including, without
limitation, any liability arising under Title IV of ERISA (as defined in Section
8.1);
(xi) any liability or obligation to or in respect of any
employment or consulting agreements with employees or independent contractors of
any of the Sellers;
(xii) any claims, judgments, causes of action, liabilities,
losses, damages, deficiencies, costs or expenses (including, without limitation,
the fees and expenses of counsel) resulting from or arising directly or
indirectly out of any actual or alleged act, error or omission of any of the
Sellers or any of their respective brokers, agents, employees, independent
contractors or representatives prior to the Closing (including any Legal
Proceeding instituted by any Governmental Body); and
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(xiii) any liability or obligation under any Contract to
pay any amounts to any Person in respect of a Change in Control.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
The Sellers, jointly and severally, represent and warrant to Buyer as
follows:
3.1. Organization and Good Standing.
(a) Each of the Company, YAR and Leap is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, with full corporate power and authority to conduct its business as it
is now being conducted, to own, hold under lease, or otherwise possess or use
the properties and assets that it purports to own, hold under lease, or
otherwise possess or use, and to perform all its obligations under the contracts
to which it is a party or by which it is bound. Part 3.1(a) of the Disclosure
Letter sets forth all other jurisdictions in which the Company is authorized to
do business.
(b) The Company has delivered to Buyer copies of the
Organizational Documents of the Company, as currently in effect.
(c) Part 3.1(c) of the Disclosure Letter contains a complete and
accurate list of the directors and officers of the Company.
3.2. Authority; No Conflict.
(a) All corporate and stockholder acts and other proceedings
required to be taken by each of the Sellers to authorize the execution, delivery
and performance of this Agreement and the consummation of the Contemplated
Transactions have been duly and properly taken. This Agreement constitutes, and
the Escrow Agreement, the Bill of Sale and executed instruments of assignment of
the Assigned Contracts and the AT&T Account and the Noncompetition Agreements at
the Closing will constitute, the legal, valid, and binding obligation of the
Sellers to which each is a party, enforceable against each of them in accordance
with their terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium, reorganization, or similar laws affecting creditor's
rights generally and by general equitable principles (whether considered in a
proceeding at equity or at law) and implied covenants of good faith and fair
dealing. The Sellers have the absolute and unrestricted right, power, authority,
and capacity to execute and deliver this Agreement and Seller's Closing
Documents and to perform their respective obligations under this Agreement and
Seller's Closing Documents. The Stockholders of Leap are not required to vote in
favor of the Contemplated Transactions, in order for Leap or any of the Sellers
to fulfill their respective obligations hereunder or in connection with the
Contemplated Transactions.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement or any other documents
executed by any of the Sellers in connection herewith, nor the consummation or
performance of any of the Contemplated Transactions will, directly or
indirectly:
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(i) contravene, conflict with, or result in (with or
without notice or lapse of time) a violation or breach of (A) any provision of
the Organizational Documents of the Sellers, (B) any resolution adopted by the
respective boards of directors or the shareholders of the Sellers, (C) any Legal
Requirement or any Order to which the Sellers, or any of the assets owned or
used by them, may be subject, or give any Governmental Body or other Person the
right (with or without notice or lapse of time) to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under
any such Legal Requirement or Order; (D) any of the terms or requirements of, or
give any Governmental Body the right (with or without notice or lapse of time)
to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by the Sellers or that otherwise relates to the
business of, or any of the assets owned or used by the Sellers, or (E) any
provision of, or give any Person the right (with or without notice or lapse of
time) to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract;
(ii) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other Governmental Body;
(iii) result in (with or without notice or lapse of time)
the imposition or creation of any Encumbrance upon or with respect to any of the
assets owned or used by the Sellers; or
(iv) require the giving of any notice or obtaining of any
consent of any Person.
3.3. Financial Statements. Part 3.3 of the Disclosure Letter sets
forth: the unaudited financial statements of the Company as of and for the
fiscal year ended January 31, 1998, and for the period February 1, 1998 to July
31, 1998 (the unaudited balance sheet at July 31, 1998 shall be referred to
herein as the "Balance Sheet") (collectively, the "Current Financial
Statements"). Company and Leap warrant and represent that the Current Financial
Statements are materially correct, complete and fairly present the financial
condition, results of operations and cash flows of the Company as of the
respective dates thereof and for the period referred to therein, all in
accordance with GAAP.
3.4. Books and Records. The books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to Buyer, are complete and correct. At the Closing, all of those books
and records will be in the possession of the Company. All of the issued and
outstanding shares of capital stock of the Company are held solely by Leap.
3.5. Title to Properties; Encumbrances. The Company does not own any
real property. Part 3.5 of the Disclosure Letter contains a complete and
accurate list of all leaseholds or other interests in real property currently or
previously owned by the Company. The Company has good and valid title to all the
properties and assets (whether real, personal, or mixed and whether tangible or
intangible) reflected as owned in the books and records of the Company,
including the Purchased Assets, the Intangible Property, all of the properties
and assets reflected
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in the Balance Sheet (except for personal property sold since the date of the
Balance Sheet in the Ordinary Course of Business) and all of the properties and
assets purchased or otherwise acquired by the Company since the date of the
Balance Sheet (except for supplies, inventory, and personal property acquired
and sold since the date of the Balance Sheet in the Ordinary Course of
Business). Except as set forth in Part 3.5 of the Disclosure Letter, all
properties and assets owned by the Company are free and clear of all
Encumbrances.
3.6. Condition and Sufficiency of Assets. Except for the Excluded
Assets, the Purchased Assets constitute all of the property and assets of the
Company, other than assets sold or disposed in the Ordinary Course of Business.
All such assets are sold to Buyer in normal operating condition (any claim to
the contrary must be asserted by Buyer within 180 days after the Closing or else
will be deemed to be waived). The Company has the right to convey, and upon
consummation of the transactions which are the subject of this Agreement, Buyer
will be vested with good and valid title to the Purchased Assets or enforceable
leasehold interests in or valid rights under contract to use the Purchased
Assets (subject to receipt of any required third party consents, the obtaining
of all of such consents as of Closing having been waived by Buyer), free and
clear of all Encumbrances, except as set forth in Part 3.6 of the Disclosure
Letter. The equipment and other tangible personal property used by the Company
in the conduct of its business, and to the knowledge of the Company and Leap
(without inquiry), the heating, ventilation, mechanical, electrical, sewer,
sprinkler and air-conditioning systems at the facilities leased by the Company
which leases are set forth in Part 3.16 of the Disclosure Letter, are in good
operating condition and repair, are adequate in all material respects for the
uses to which they are being put, and are not in need of maintenance or repairs,
except for ordinary, routine maintenance and repairs that are immaterial in
amount. Except as set forth in Part 3.6 of the Disclosure Letter, the Purchased
Assets are sufficient for Buyer to effect the continued conduct of Business
after the Closing in substantially the same manner as conducted prior to the
Closing.
3.7. AT&T Account. Other than the services provided by the Company
and YAR to AT&T under the terms of the AT&T Account, neither Leap, YAR nor the
Company provide any multi-cultural marketing and communications services to
AT&T.
3.8. Work in Progress. All work-in-progress of the Company existing
as of the Closing, whether or not reflected in the Balance Sheet, shall become
the property of Buyer and shall be performed, billed and collected by Buyer
after the Closing. Buyer shall be entitled to receive all profits and shall
suffer all losses derived from the work-inprogress, less the reasonable charges
for goods and services provided by the Company prior to the Closing Date to
perform any such work-in-progress.
3.9. No Undisclosed Liabilities. Except as set forth in Part 3.9 of
the Disclosure Letter, the Company has no liabilities or obligations of any kind
or nature (whether absolute, accrued, contingent, or otherwise) after the
Closing in connection with the transactions contemplated hereunder, other than
(i) liabilities or obligations reflected or reserved against in the Balance
Sheet, (ii) current liabilities for trade payables incurred in the Ordinary
Course of Business since the date of the Balance Sheet and (iii) obligations
under executory contracts that are set forth in the Disclosure Letter or that
are not required to be so set forth which are to be performed after the date
hereof in the Ordinary Course of Business, none of which liabilities or
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obligations with respect to (i), (ii) and (iii) above result directly or
indirectly from a breach of contract (other than failure to obtain consents for
the Assigned Contracts), breach of warranty, tort, infringement or lawsuit.
3.10. Taxes.
(a) For the purposes of this Agreement, "Tax" or "Taxes" refers
to any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts income, profits, sales,
use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) The Company has timely filed all federal, state, local and
foreign returns, estimates, information statements and reports ("Returns")
relating to Taxes required to be filed by the Company. With respect to all Taxes
imposed on the Company for which the Company is or could be liable, whether to
taxing authorities or to other persons or entities (as, for example, under tax
allocation agreements), with respect to all taxable periods or portions of
periods ending on or before the Closing Date, all applicable laws and agreements
have been fully complied with, and all such Taxes required to be paid by the
Company to taxing authorities or others on or before the date hereof have been
paid.
(c) The Company as of the Closing Date will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(d) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
the Company. The Company has not executed or requested any waiver of any statute
of limitations on or extending the period for the assessment or collection of
any Tax.
(e) Neither the Company nor Leap has been notified of any
request for an audit or other examination from the IRS. The Sellers will
indemnify and hold Buyer harmless as provided in Section 6.2 hereof from any
adverse action taken by the IRS as a result any audit in respect of any period
prior to Closing.
(f) The Company has no liability for unpaid federal, state,
local or foreign Taxes which have not been accrued for or reserved on the
Balance Sheet, whether asserted or unasserted, contingent or otherwise. There
are no liens for Taxes on the assets of the Company other than Taxes not yet due
and payable.
(g) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
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(h) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible to the
Company pursuant to Sections 280G, 404 or 162 of the Code.
(i) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(j) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(k) The Company is not a party to or bound by any tax indemnity,
tax sharing or tax allocation agreements.
(l) (Reserved)
(m) None of the assets of the Company is property that the
Company is required to treat as being owned by any other person pursuant to the
"safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(n) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a) of the
Code.
(o) The Company has not agreed to make nor is it required to
make before the Closing Date any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise.
(p) The Company has not participated in and will not participate
in an international boycott within the meaning of Section 999 of the Code.
(q) The Company does not have and has never had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
(r) Except as set forth in Part 3.10(r) of the Disclosure
Letter, the Company is not a party to any joint venture, partnership, or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes.
(s) Since its formation, the Company has been a valid "C"
corporation under the Internal Revenue Code.
3.11. No Material Adverse Change. Except as set forth in Part 3.11
of the Disclosure Letter, since November 1, 1997, there has not been any
material adverse change in the business, operations, properties, assets, the
client relations of the Company or condition of the Company or any event,
condition, or contingency that, to the knowledge of the Sellers, is likely
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to result in such a material adverse change, and to the knowledge of the
Sellers, no such material adverse change is likely to occur as a result of the
consummation of the Contemplated Transactions.
3.12. Employee Benefits.
(a) The Sellers acknowledges that Buyer is not adopting any
employee benefit plan or any other similarly described plan of Company, Leap or
YAR, and except as is listed in Part 3.12(a) of the Disclosure Letter or as
could not result in the Buyer having any material liability, none of the Sellers
nor any current or former Plan Affiliate of any of the Sellers has at any time
maintained, sponsored, adopted, made contributions to, obligated itself or had
any liability with respect to: any "employee pension benefit plan" (as such term
is defined in Section 3(2) of ERISA); any "employee welfare benefit plan" (as
such term is defined in Section 3(1) of ERISA); any collective bargaining
agreement, personnel policy (including vacation time (other than any accrued
vacation pay specifically assumed by Buyer), holiday pay, service awards, bonus
programs (other than any employee bonus payments in respect of 1998 specifically
assumed by Buyer), moving expense reimbursement programs and sick leave) or
material fringe benefit; any severance agreement or plan or any medical, life or
disability benefit; any excess benefit plan, bonus or incentive plan (including
stock options, restricted stock, stock bonus or deferred bonus plans), top hat
plan or deferred compensation plan, salary reduction agreement, change-of-
control agreement, employment agreement, consulting agreement; or any other
benefit plan, policy, program, arrangement, agreement or contract, with respect
to any employee, former employee, director, independent contractor, or any
beneficiary or dependent thereof (all such plans, policies, programs,
arrangements, agreements and contracts, including but not limited to those that
are set forth in Part 3.12(a) of the Disclosure Letter, are referred to in this
Agreement as "Scheduled Plans"). Neither the Company, YAR nor Leap provides its
employees with a "matching" grant with respect to any of the Scheduled Plans.
(b) The Company has delivered to Buyer a complete and accurate
copy, as of the Closing, of each written Scheduled Plan, together with a copy of
financial statements, actuarial reports and Form 5500 Annual Reports (including
required schedules), if any, for the three (3) most recent plan years, the most
recent IRS determination letter or IRS recognition of exemption; any other
letter, ruling or notice issued by any Governmental Authority with respect to
each such plan which may result in material liability, a copy of each trust
agreement, insurance contract or other funding vehicle, if any, with respect to
each such plan, the most recent PBGC Form 1 with respect to each such plan, if
any, the current summary plan description or summary of material modifications
with respect to each such plan, and a copy or description of each other general
explanation or written or oral communication which describes any material term
of any such plan that has not previously been disclosed to Buyer pursuant to
this Section or as could not result in a liability to the Buyer.
(c) Each Scheduled Plan (i) has been and currently complies in
form and in operation in all material respects with the applicable requirements
of ERISA and the Code, and any other Legal Requirements; (ii) has been and is
operated and administered in material compliance with its terms (except as
otherwise required by law); and (iii) where
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appropriate, has received a favorable determination letter or recognition of
exemption from the Internal Revenue Service.
(d) With respect to each Scheduled Plan, there are no claims or
other Proceedings pending or threatened with respect to the assets thereof
(other than routine claims for benefits), and to the Leap's knowledge, there are
no facts which could reasonably be expected to give rise to any liability, claim
or other Proceeding against any Scheduled Plan, any fiduciary or plan
administrator or other person dealing with any Scheduled Plan or the assets of
any such plan.
(e) With respect to each Company Employee Benefit Plan, to the
Leap's knowledge no person: (i) has entered into any "prohibited transaction,"
as such term is defined in ERISA or the Code; (ii) has breached a fiduciary
obligation or violated Sections 402, 403, 405, 503, 510 or 511 of ERISA; or
(iii) has any liability for any failure to act or comply in connection with the
administration or investment of the assets of such plans, or (iv) engaged in any
transaction or otherwise acted with respect to such plans in such a manner which
could subject Buyer, or any fiduciary or plan administrator or any other person
dealing with any such plan, to liability under Sections 409 or 502 of ERISA or
Sections 4972 or 4976 through 4980B of the Code.
(f) Neither the Company nor any current or former Company Plan
Affiliate has at any time participated in, made contributions to or had any
other liability with respect to any Scheduled Plan which is a "multi-employer
plan" as defined in Section 4001 of ERISA, a "multi-employer plan" within the
meaning of Section 3(37) of ERISA, a "multiple employer plan" within the meaning
of Section 413(c) of the Code or a "multiple employer welfare arrangement"
within the meaning of Section 3(40) of ERISA.
(g) Except as set forth in Part 3.12(a) of the Disclosure
Letter, neither the Company nor any current or former Company Plan Affiliate has
at any time maintained, contributed to or obligated itself or otherwise had any
liability with respect to any funded or unfunded employee welfare plan, whether
or not terminated, which provides medical, health, life insurance or other
welfare type benefits for current or future retirees or current or future former
employees, their spouses or dependents or any other persons (except for limited
continued medical benefit coverage for former employees, their spouses and other
dependents as required to be provided under Section 4980B of the Code and Part 6
of Subtitle B of Title I of ERISA and the accompanying proposed regulations or
state continuation coverage laws ("COBRA")).
(h) No Scheduled Plan has incurred an "accumulated funding
deficiency" as such term is defined in Section 302 of ERISA or Section 412 of
the Code, whether or not waived, or has posted or is required to provide
security under Code Section 401(a)(29) or Section 307 of ERISA; no event has
occurred which has or could result in the imposition of a lien under Code
Section 412 or Section 302 of ERISA, nor has any liability to the Pension
Benefit Guaranty Corporation (the "PBGC") (except for payment of premiums) been
incurred or reportable event within the meaning of Section 4043 of ERISA
occurred with respect to any such plan; and the PBGC has not threatened or taken
steps to institute the termination of any such plan.
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(i) Upon information and belief, the requirements of COBRA have
been satisfied in all material respects with respect to each Scheduled Plan.
(j) All contributions, payments, premiums, expenses,
reimbursements or accruals for all periods ending prior to or as of the Closing
for each Scheduled Plan (including periods from the first day of the then
current plan year to the Closing) shall have been made or accrued on the Company
financial statements, and each such plan otherwise neither has nor could have
any unfunded liability which is not reflected on the Company financial
statements which are required to be recorded in accordance with GAAP. Any
contribution made or accrued with respect to any Scheduled Plan is fully
deductible by the Company.
(k) Upon the termination of any plan subject to Title IV of
ERISA, the Company would not have any liability under Title IV of ERISA.
(l) Except as disclosed in Part 3.12(l) of the Disclosure Letter
or as specifically provided for in this Agreement, the consummation of the
transactions contemplated hereunder, either alone or in combination with
another, will not (i) entitle any employee or former employee of the Company to
any payment, (ii) increase the amount of compensation, stock incentive or other
benefit, or (iii) result in any "parachute payment" under section 280G of the
Code, whether or not such payment is considered to be reasonable compensation
for services rendered.
(m) As used in this Agreement, with respect to any person
("First Person") the term "Plan Affiliate" shall mean any other person or entity
with whom the First Person constitutes or has constituted all or part of a
controlled group, or which would be treated or has been treated with the First
Person as under common control or whose employees would be treated or have been
treated as employed by the First Person, under Section 414 of the Code and any
regulations, administrative rulings and case law interpreting the foregoing.
3.13. Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 3.13(a) of the Disclosure Letter
and to the best of the Sellers' knowledge:
(i) the Company is, and at all times has been, in
compliance in all material respects with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets;
(ii) no event has occurred or, to the knowledge of the
Sellers, circumstance exists that would reasonably be expected to constitute or
result in (with or without notice or lapse of time) a violation by the Company
of, or a failure on the part of the Company to comply with, any Legal
Requirement; and
(iii) the Company has not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding, and the Sellers are not aware of, any actual, alleged,
possible, or potential violation of,
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or failure to comply with, any Legal Requirement, or any obligation on the part
of the Company to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) Part 3.13(b) of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by the Company or
that otherwise relates to the Business, or to any of the assets owned or used by
the Company. Each Governmental Authorization listed or required to be listed in
Part 3.13(b) of the Disclosure Letter is valid and in full force and effect.
Except as set forth in Part 3.13(b) of the Disclosure Letter:
(i) the Company is, and at all times has been, in compliance
in all material respects with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part
3.13(b) of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may
(with or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Governmental Authorization listed or required to be listed in Part
3.13(b) of the Disclosure Letter, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Part 3.13(b) of the Disclosure Letter;
(iii) the Sellers have not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and
(iv) all applications required to have been filed for the
renewal of the Governmental Authorizations listed or required to be listed in
Part 3.13(b) of the Disclosure Letter have been duly filed on a timely basis
with the appropriate Governmental Bodies, and all other filings required to have
been made with respect to such Governmental Authorizations have been duly made
on a timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.13(b) of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its business in the manner
they currently conduct and operate such businesses and to permit the Company to
own and use its assets in the manner in which it currently owns and uses such
assets.
3.14. Legal Proceedings; Orders.
(a) Except as set forth in Part 3.14 of the Disclosure Letter,
there is no pending Proceeding:
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(i) that has been commenced by or against any of the Sellers
(relating to the Business) or that otherwise relates to or may affect the
Business, or any of the assets owned or used by the Company; or
(ii) that has been commenced by or against any of the
Sellers that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the knowledge of the Sellers, (1) no such Proceeding has been Threatened, and
(2) no event has occurred or circumstance exists that may give rise to or serve
as a reasonable basis for the commencement of any such Proceeding. The Company
has delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 3.14 of the Disclosure
Letter. The Proceedings listed in Part 3.14 of the Disclosure Letter will not
interfere in any material respect with, or result in costs, expenses or damages
exceeding $10,000, in the aggregate to, the Business, operations, assets,
condition, or prospects of the Company. Also listed in Part 3.14 of the
Disclosure Letter are all Proceedings commenced or, to the knowledge of the
Sellers, threatened by or against the Company since November 1, 1997, and a
description of the outcome thereof.
(b) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) there is no Order to which the Company, or any of the
assets owned or used by the Company, is subject;
(ii) no shareholder of the Company is subject to any Order
that relates to the business of, or any of the assets owned or used by the
Company; and
(iii) no officer, director, or to the knowledge of the
Sellers, no agent, or employee of the Company is subject to any Order that
prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of the
Company.
(c) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) the Company is, and at all times has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which the
Company, or any of the assets owned or used by the Company, is subject; and
(iii) the Sellers have not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential violation of, or
failure to comply with, any
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term or requirement of any Order to which the Company, or any of the assets
owned or used by the Company, is or has been subject.
3.15. Absence of Certain Changes and Events. Except as set forth in
Part 3.15 of the Disclosure Letter, since November 1, 1997, the Company has
conducted its business only in the Ordinary Course of Business.
3.16. Contracts; No Defaults.
(a) Part 3.16 of the Disclosure Letter contains a complete and
accurate list of all Applicable Contracts described in (i) through (xiv) below.
In addition, the Company has delivered to Buyer true and complete copies (or
forms thereof, where form agreements are used; provided that any and all
deviations or changes to the forms in any individual case are described in Part
3.16 of the Disclosure Letter), of all Applicable Contracts described in (i)
through (xiv) below.
(i) each Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in excess of
$10,000;
(ii) each Contract relating to the borrowing of money, the
guaranty of another Person's borrowing of money, or the creation of an
Encumbrance on the assets of the Company;
(iii) each Contract not in the Ordinary Course of Business
involving expenditures or receipts of the Company in excess of $10,000 or
providing for an express undertaking by the Company to be responsible for
consequential damages;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real property or personal property with a remaining commitment of
$10,000, in any one case;
(v) each licensing agreement (regardless of whether the
Company is licensor or licensee), maintenance or support agreement, escrow
agreement, or other Contract with respect to the use of any Intangible Property,
including agreements with current or former employees, consultants, and
contractors regarding the development, appropriation or the non-disclosure of
any Intangible Property of the Company;
(vi) each Contract with employees, officers, and directors,
and Contracts with any labor union or other employee representative of a group
of employees relating to wages, hours, and other conditions of employment, and
each agreement providing for the Company to indemnify any Person;
(vii) each Contract of which any of the Sellers has
knowledge and to which any employee, consultant, or contractor of the Company is
bound that in any manner purports to (A) restrict such employee's, consultant's,
or contractor's freedom to engage in any line of business or activity or to
compete with any other Person, or (B) assign to any other
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Person such employee's, consultant's, or contractor's rights to any copyright,
software, invention, improvement, or discovery;
(viii) each joint venture, partnership, and other Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
the Company with any other Person;
(ix) each Contract containing covenants that in any way
purport to restrict the Company's business activity or limit the freedom of the
Company to engage in any line of business to provide services to any Person or
to compete with any Person;
(x) each Contract providing for payments to or by any
Person based on sales, purchases, or profits, including distribution, reseller
and sales representative agreements, other than direct payments for goods by end
users of Company products;
(xi) each power of attorney that is currently effective and
outstanding;
(xii) each Contract for capital expenditures in excess of
$10,000;
(xiii) each written warranty, guaranty, and/or other similar
undertaking with respect to contractual performance extended by the Company; and
(xiv) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
The parties agree that (i) commitments to media and production expenses which
are fully reimbursable from clients and (ii) estimates or purchase orders given
in the Ordinary Course Of Business relating to the execution of projects, do not
have to be set forth on Part 3.16 of the Disclosure Letter.
(b) Except as set forth in Part 3.16 or Part 3.2 of the
Disclosure Letter, all of the Contracts listed or required to be listed in Part
3.16 of the Disclosure Letter are in full force and effect and are valid and
enforceable in accordance with their terms, and no event has occurred or
circumstance exists that would give the Company, or to the knowledge of the
Sellers, or any other Person the right (with or without notice or lapse of time)
to declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to commence an audit, cancel, terminate, modify, any such
Contract. Without giving effect to this Agreement and the transactions
contemplated hereby, immediately preceding the Closing, none of the Sellers has
caused a default to occur under any Contract material to the Business.
(c) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate amounts of $10,000 or more, paid or payable to
the Company under current or completed Contracts with any Person, and no such
Person has made written demand for such renegotiation.
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(d) In accordance with Article 2 of this Agreement, all of the
above listed and disclosed contracts and agreements will be assigned to Buyer.
In obtaining such assignments, the parties shall attempt, whenever possible, to
secure the complete release and discharge of the Sellers from the party
accepting the assignment, except as specifically provided in Section 2.2 (i)
herein.
3.17. Insurance. Part 3.17 of the Disclosure Letter contains a
complete and accurate list of all insurance policies (including "self-insurance"
programs) now maintained by the Company (the "Insurance Policies") and all
general liability policies maintained by the Company since November 1, 1997 with
respect to the Company's business or assets and all claims (other than usual and
customary claims for health care benefits) made under any such current or prior
insurance policies. The Insurance Policies are in full force and effect, the
Company is not in default under any Insurance Policy, and no claim for coverage
under any Insurance Policy has been denied. The Company covenants and agrees
that all of the Insurance Policies will be maintained by the Company in full
force and effect through and including the Closing Date. To the knowledge of the
Company and Leap, the Insurance Policies are reasonably prudent and adequate for
the operation of the Business.
3.18. Environmental Matters.
(a) The Company has never generated, transported, treated,
stored, disposed of or otherwise handled any Hazardous Materials (as defined
below) at any site, location or facility in connection with its business, its
assets or its leased premises ("Leased Premises") and no such Hazardous
Materials are present on, in or under the Leased Premises used in connection
with the operation of the Company's business, and to the knowledge of the
Sellers, such property does not contain (including without limitation,
containment by means of any underground storage tank) any Hazardous Materials in
violation of any applicable Environmental and Safety Requirement (as defined
below). To the knowledge of the Leap and the Company, there are no underground
storage tanks on the Leased Premises.
(b) The Company (i) is in compliance, in all material respects,
with all applicable Environmental and Safety Requirements, and (ii) except as
set forth on Part 3.13 (a) of the Disclosure Letter, possesses all required
permits, licenses, certifications and approvals and has filed all notices or
applications required thereby or pertaining thereto which are material to the
operation of the Business.
(c) Except as set forth in Part 3.13(c) of the Disclosure
Letter, neither Leap nor the Company has ever been subject to, or received any
notice (written or oral) of, any private, administrative or judicial inquiry,
investigation, order or action, or any notice (written or oral) of any intended
or threatened private, administrative, or judicial inquiry, investigation, order
or action relating to the presence or alleged presence of Hazardous Materials
in, under or upon the Leased Premises, and, to the knowledge of Leap and the
Company, there is no reasonable basis for any such inquiry, investigation,
order, action or notice; and there are no pending or, to the knowledge of Leap
and the Company, threatened investigations, actions, orders or proceedings (or
notices of potential investigations, actions, orders or proceedings) from any
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governmental agency or any other entity regarding any matter relating to
Environmental and Safety Requirements.
(d) To the knowledge of the Company and Leap, no facts, events
or conditions with respect to the past or present operations or facilities of
the Company exist which could reasonably be expected to interfere with or
prevent continued compliance with, or could give rise to any common law or
statutory liability or otherwise form the basis of any claim, action, suit,
proceedings, hearing or investigation against or involving the Company, its
assets or properties or the Leased Premises under any Environmental and Safety
Requirement or related common law theories based on any such fact, event or
circumstance, including, without limitation, liability for investigation costs,
cleanup costs, personal injury or property damage.
(e) For purposes of this Agreement, "Environmental and Safety
Requirements" means all federal, state and local statutes, laws, rules,
regulations, codes, ordinances, orders, standards, permits, licenses, actions,
policies and requirements (including consent decrees, judicial decisions and
administrative orders) relating to protection, preservation or conservation of
the environment and public or worker health and safety, all as amended,
hereafter amended or re-authorized. For purposes of this Agreement, "Hazardous
Materials" means (i) hazardous substances, as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq.;
(ii) hazardous wastes as defined by the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq.; (iii) petroleum, including without limitation, crude oil
or any fraction thereof which is liquid at standard conditions of temperature
and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute);
(iv) any radioactive material, including, without limitation, any source,
special nuclear, or by-product material as defined in 42 U.S.C. 2011 et seq.;
(v) asbestos in any form or condition; (vi) polychlorinated biphenyls; and (vii)
any other material, substance or waste to which liability or standards of
conduct may be imposed under any Environmental and Safety Requirements.
3.19. Employees. Part 3.19 of the Disclosure Letter contains a
complete and accurate list of the following information for each employee of the
Company, including each employee on leave of absence or layoff status: name; job
title; current compensation paid or payable (and any change in compensation
since November 1, 1997 for employees with an annual salary in excess of
$50,000); vacation accrued; and service credited for purposes of vesting and
eligibility to participate under YAR's 401(k) Plan and Leap's Employee Stock
Purchase Plan, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Scheduled Plans, or any
other employee benefit plan. To the knowledge of Leap and the Company (without
inquiry), no former or current employee or current or former officer or director
of the Company is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, non-competition, or proprietary
rights agreement, between such employee or officer or director and any other
Person ("Proprietary Rights Agreement") that in any way adversely affected,
affects, or will affect (i) the performance of his duties as an employee or
officer or director of the Company or the Buyer, or (ii) the ability of the
Company or the Buyer to conduct its business including any Proprietary Rights
Agreement with the Company by any such employee or director. None of the Sellers
has any reason to believe (without inquiry) that any director, officer, or other
employee of the Company intends to terminate his or her
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employment with the Company (or refuse employment with the Buyer, as the case
may be), as a result of the Contemplated Transaction or otherwise.
3.20. Labor Disputes; Compliance. Except as set forth in Part 3.20
of the Disclosure Letter, the Company has never been a party to any collective
bargaining or other labor Contract. There has never been, there is not presently
pending or existing, and to the knowledge of Leap and the Company, there is not
threatened, any strike, slowdown, picketing, work stoppage, labor arbitration,
or proceeding in respect of the grievance of any employee, application or
complaint filed by an employee or union with the National Labor Relations Board
or any comparable Governmental Body, organizational activity, or other labor
dispute against or affecting the Company (including without limitation the
Screen Actors Guild or AFTRA), and no application for certification of a
collective bargaining agent is pending or, to the knowledge of Leap and the
Company, is threatened. No event has occurred or, to the knowledge of Leap and
the Company, circumstance exists that could provide any reasonable basis for any
work stoppage or other labor dispute. There is no lockout of any employees by
the Company, and no such action is contemplated by the Company. The Company has
complied in all material respects with all Legal Requirements, and except as set
forth in Part 3.20 of the Disclosure Letter, there is no allegation, charge or
complaint or Proceeding pending or, to the knowledge of Leap and the Company
(without inquiry), threatened against the Company or any of its officers,
directors or employees, relating to employment, equal employment opportunity,
discrimination, harassment, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing, and neither Leap nor the Company has
knowledge of any reasonable basis for any such allegation, charge, complaint, or
Proceeding.
3.21. Intangible Property.
(a) Part 3.21(a) of the Disclosure Letter sets forth a true,
correct and complete list of each patent, trademark, trade name, service mark,
brand mark, brand name, industrial design and copyright owned or used in
business by the Company (except for "off the shelf" computer software licenses
purchased at retail by the Company), as well as all registrations thereof and
pending applications therefor, and each license or other contract relating
thereto (collectively with any other intellectual property owned or used in the
business by the Company, and all of the goodwill associated therewith, the
"Intangible Property") and indicates, with respect to each item of Intangible
Property listed thereon, the owner thereof and, if applicable, the name of the
licensor and licensee thereof and the terms of such license or other contract
relating thereto. Except as set forth in Part 3.21(a) of the Disclosure Letter,
each of the foregoing items of Intangible Property are owned free and clear of
any and all Encumbrances and the Company has not received any notice to the
effect that any other entity has any claim of ownership with respect thereto.
Except as set forth in Part 3.21(a) of the Disclosure Letter, to the knowledge
of the Sellers, the use of the Intangible Property, or any other intellectual
property owned or licensed by another Person which is used by the Company in
connection with the Business, does not conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual property right,
patent, trademark, trade name, service mark, brand mark, brand name, computer
program, industrial design, copyright or any pending application therefor of any
other
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person or entity. Except as set forth in Part 3.21(a) of the Disclosure Letter,
no claims have been made, and the Company has not received any notice, nor does
the Sellers have any knowledge of any reasonable basis for any claims, that any
of the Intangible Property is invalid, conflicts with the asserted rights of
other entities, or has been used or enforced (or has failed to be used or
enforced) in a manner that would result in the abandonment, cancellation or
unenforceability of any item of the Intangible Property. The term Intangible
Property shall not include any intellectual property provided to the Company by
a client of the Company which intellectual property is owned or licensed by such
client and used by the Company in the Ordinary Course of Business pursuant to
such client's request in the course of rendering services to such client (i.e.
use of a client's tradename or trademark).
(b) To the knowledge of the Sellers, the Company possesses all
Intangible Property material to the Business, including, without limitation, all
know-how, formulae and other proprietary and trade rights and trade secrets,
necessary for the conduct of the Business as now conducted. Except as set forth
in Part 3.21(b) of the Disclosure Letter, neither the Company nor YAR has taken
or failed to take any action that would result in the forfeiture or
relinquishment of any such Intangible Property used in the conduct of the
Business as now conducted.
3.22. Certain Payments. None of the Sellers or directors of the
Sellers, or to the knowledge of the Sellers, any officer, agent, or employee of
the Company or any other Person associated with or acting for or on behalf of
the Company, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of the Company or
any Person affiliated with the Company, or (iv) in violation of any Legal
Requirements, or (b) established or maintained any fund or asset that has not
been recorded in the books and records of the Company.
3.23. (Reserved).
3.24. Disclosure. To the knowledge of the Sellers, no representation
or warranty of the Sellers in this Agreement and no statement in the Disclosure
Letter omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
3.25. Relationships with Related Persons. Except as set forth in
Part 3.25 of the Disclosure Schedule, none of the Sellers, and to the knowledge
of the Sellers, any other Related Person of the Company has any interest in any
property (whether real, personal, or mixed and whether tangible or intangible)
used in or pertaining to the Business. Except as set forth in Part 3.25 of the
Disclosure Schedule, none of the Sellers, nor any other Related Person of the
Company owns, of record or as a beneficial owner, an equity interest or any
other financial or profit interest in any Person that has (i) had business
dealings or a material financial interest in any transaction with the Company,
or (ii) engaged in competition with the Company with respect to any line of
products or services of the Company (other than the business currently conducted
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by YAR) (a "Competing Business") in any market presently served by such the
Company except for less than one percent of the outstanding capital stock of any
Competing Business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth in Part 3.16 of the Disclosure
Letter, none of the Sellers or, to the knowledge of the Sellers, any other
Related Person of the Company is a party to any Contract with, or has any claim
or right against, the Company. All money owed by the Company to Related Persons
(other than for salary) are for bona fide debts.
3.26. Client Relationships. Set forth in Part 3.26 of the Disclosure
Letter is a true and complete list of the Company's top ten (10) client accounts
for the period since November 1, 1997, measured by gross revenues (the "Major
Customers"), and the key Company employees which manage the account, including
the account manager and the creative team assigned to each such account. Except
as set forth in Part 3.26 of the Disclosure Letter, in the period since November
1, 1997, no Major Customer has canceled or otherwise terminated, or, to the
knowledge of the Sellers, threatened to cancel or otherwise terminate, its
relationship with the Company, or reduced, or threatened to reduce, its business
with the Company or conducted an audit of the Company. Except with respect to
the AT&T Account, neither Leap nor the Company has received any written or oral
notice and has no knowledge that any Major Customer intends to cancel, audit or
otherwise modify its relationship with Company (and, after the Closing, the
Buyer) on account of the Contemplated Transactions or otherwise.
3.27. Suppliers. Set forth in Part 3.27 of the Disclosure Letter is
an accurate and complete list of the top ten (10) Company's vendors (by dollar
volume of sales) during the period since November 1, 1997. No vendor has
canceled or otherwise terminated, modified or, to the Sellers' knowledge,
threatened to cancel or otherwise terminate, or to modify, its relationship with
the Business on account of the Contemplated Transactions or otherwise.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers as follows:
4.1. Organization and Good Standing. Buyer is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of Delaware.
4.2. Authority; No Conflict.
(a) This Agreement constitutes, and at the Closing the Escrow
Agreement will constitute, the legal, valid, and binding obligation of Buyer,
enforceable against it in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, moratorium, reorganization, or similar
laws affecting creditor's rights generally and by general equitable principles
(whether considered in a proceeding at equity or at law) and implied covenants
of good faith and fair dealing. Buyer has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and Buyer's Closing
Documents and to perform its obligations under this Agreement and Buyer's
Closing Documents.
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(b) The execution and delivery of this Agreement and the Buyer's
Closing Documents by Buyer and the consummation of the transactions contemplated
hereby have been duly authorized by all required corporate action on behalf of
Buyer.
4.3. Certain Proceedings. There is no pending Proceeding that has
been commenced against Buyer that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's knowledge, no such proceeding has been
threatened.
5. ADDITIONAL AGREEMENTS
5.1. Noncompetition and Nondisclosure.
(a) (i) Each of the Sellers acknowledges that (A) the Company
is one of the limited number of Persons who are intimately familiar with the
Business; (B) the Company has grown and developed the Business and (C) the
Business is currently conducted throughout the world.
(ii) Accordingly, the Sellers jointly and severally
covenant and agree that the Sellers will not compete with the Business, for a
period of thirty-six (36) successive months following the Closing (the "Term").
As used herein, the term "Compete with the Business" shall mean to directly or
indirectly: (A) (1) solicit any Person who is a customer of the Company (which
customers will become customers of the Buyer upon the Closing) immediately
preceding the Closing or during the three-month period preceding the Closing
(which customers are set forth on Schedule 5.1(a)(ii)), for the purpose of
marketing, selling or providing to any such customer any multicultural marketing
or communications services, (2) provide to any such customer any multicultural
marketing or communications services or (3) otherwise seek to influence or alter
any such customer's multicultural marketing or communications services
relationship with Buyer, (B) (1) solicit AT&T, any of AT&T's subsidiaries or
successors, or any of Buyer's Key Corporate Accounts (which Key Corporate
Accounts are set forth on Schedule 5.1(a)(ii)) for the purpose of marketing,
selling or providing to any such Person any multicultural marketing or
communications services, (2) provide to AT&T, any of AT&T's subsidiaries or
successors, or any of Buyer's Key Corporate Accounts any multicultural marketing
or communications services or (3) otherwise seek to influence or alter such
Person's multicultural marketing or communications services relationship with
the Buyer, (C) employ or engage, recruit or solicit for employment or
engagement, any person who is employed by the Company immediately prior to the
Closing and who becomes an employee of Buyer, or any subsidiary or affiliate of
Buyer, in connection with the consummation of the transactions contemplated by
this Agreement, during the Term or otherwise seek to influence or alter any such
employee's relationship with Buyer or its affiliates, or (D) recruit or solicit
for employment or engagement, any person who is or becomes employed or engaged
by the Buyer or any of its affiliates during the Term or during the three-month
period preceding the Term or otherwise seek to influence or alter any such
employee's relationship with the Buyer or its affiliates.
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(iii) The Sellers jointly and severally covenant and agree
that Sellers will not, for a period of six (6) months from the Closing, provide
multicultural marketing or communications services to any significant competitor
of AT&T (or any significant competitor of AT&T's subsidiaries or successors) or
to any of such competitor's subsidiaries or successors.
(iv) The Sellers jointly and severally covenant and agree to
enforce, at Sellers' expense, all existing non-competition agreements (including
the non-competition agreements arising as a result of this Agreement) with all
senior executives of such Sellers or any of their subsidiaries; provided that
such covenant not apply with respect to Yuri Radzievsky and Anna Radzievsky in
the event that they are no longer employed by Leap or any affiliate thereof.
(v) The Sellers jointly and severally covenant and agree to
provide in any agreement for sale or transfer or assignment and assumption of
Sellers or any subsidiary of Sellers, or of any of the assets or business of
Sellers or any of their subsidiaries, that any successor to such Seller or any
of its subsidiaries or any transferee of any business of such Seller or of any
such subsidiary shall be bound by the covenants contained in this Section 5.1
and Sellers covenant and agree that they shall enforce the covenants contained
in this Section 5.1 at Sellers' expense; provided that such covenant not apply
with respect to Yuri Radzievsky and Anna Radzievsky in the event that they are
no longer employed by Leap or any affiliate thereof.
(a) Each of the Sellers acknowledges that the foregoing
restrictions placed upon it are necessary and reasonable in scope and duration
to adequately protect the Buyer's interests, the goodwill of Buyer and the
Business (including the goodwill purchased by Buyer hereunder), and are a
material inducement to Buyer to execute, deliver and perform its obligations
arising under or pursuant to the transactions contemplated by this Agreement or
the Transaction Documents.
(b) All memoranda, notes, lists, records and other documents or
papers (and all copies thereof) relating to the Business, including such items
stored in computer memories, or microfiche or by any other means, made or
compiled by or on behalf of any of the Sellers, and copies of records made by or
made available to any of the Sellers relating to the Business, are and shall be
Buyer's property and shall be delivered to Buyer at Closing or upon Buyer's
subsequent request. Notwithstanding the foregoing, Sellers may retain copies of
such memoranda, notes, lists, records and other documents or papers as is
reasonably necessary for Sellers to comply with their respective financial and
tax reporting obligations.
(c) Nothing in this Section 5.1 shall prevent Leap or YAR from
conducting a multicultural marketing and communications business so long as they
are not in breach of their respective obligations to Buyer pursuant to this
Section 5.1.
(d) Rights and Remedies Upon Breach. Upon a breach, or threatened
breach, of any of the provisions of Sections 5.1(a) (the "Restrictive
Covenants"), Buyer shall have the right and remedy to have the Restrictive
Covenants specifically enforced by any court of competent jurisdiction, without
the necessity of posting a bond, it being agreed that any breach or
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threatened breach of the Restrictive Covenants would cause irreparable injury to
Buyer and that money damages would not provide an adequate remedy to Buyer.
Buyer shall also have any other rights and remedies available to Buyer under law
or in equity.
(e) Severability of Covenants. The parties hereto acknowledge and
agree that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects and are necessary for the
protection of legitimate, protectible interests acquired by Buyer hereunder.
(f) In the event that it is determined in an appropriate forum
that Buyer has breached a material term or condition of this Agreement or any
other agreement entered into with any of the Sellers contemporaneously with this
transaction, then such Seller shall be permitted to seek any other relief that
an arbitrator may deem necessary, just or proper.
5.2. Allocation of Purchase Price. Within 30 days after the Closing,
Leap and Buyer will, in good faith, agree to an allocation of the Purchase Price
in accordance with Section 1060 of the Code. For this purpose, the parties
hereto agree that the fair market value of, and the Purchase Price allocable to,
the tangible personal property of the Company is equal to the book value of such
property net of depreciation as reflected on the Balance Sheet, appropriately
adjusted to reflect changes since the Balance Sheet Date. Notwithstanding the
foregoing, the parties hereto agree that $750,000 of the Purchase Price shall be
allocated to the Noncompetition Agreement entered into by Leap pursuant to
Section 5.1 hereof. The parties further agree that the Purchase Price will be
allocated first to the current assets and the tangible assets to the extent of
the aggregate value thereof, and thereafter to goodwill, the Restrictive
Covenants or other intangible assets. The Company and Buyer will report the
allocation of the Purchase Price in a manner entirely consistent with such
agreement in all tax returns and forms (including without limitation, Form 8594
filed with Buyer's and the Company's respective federal income tax returns for
the taxable year that includes the Closing Date) and in the course of any tax
audit, tax review or tax litigation relating thereto. The Company and Buyer
shall cooperate with each other to prepare the Forms 8594 in the manner required
by this Section 5.2. The Company and Buyer shall each deliver to the other a
copy of the Form 8594 it files with its respective federal income tax return.
5.3. Change of Names. At the Closing, or as soon as practicable
thereafter, Leap and the Company covenant and agree to take all steps as Buyer
shall request to change the corporate name of the Company and the names of any
entities owned or controlled by any Seller that include "One World
Communications", "Kang & Lee" or any variants thereof, as a part of such name.
Leap and the Company covenant and agree promptly thereafter to file all
documents necessary to effect such change of name with the appropriate Persons
and Governmental Bodies.
5.4. Agreements Regarding Employees After Closing. Buyer shall offer
employment to the employees of the Business whose names appear on Schedule 5.4
hereto, effective as of the Closing Date, on such terms and conditions as shall
be determined by Buyer in its sole discretion. In the event any employee of the
Business fails to accept the employment offered by Buyer, all liabilities
associated with the termination of any such employee's employment with the
Sellers (including, without limitation, severance benefits) shall be borne by
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the Company, YAR or Leap, as appropriate, and shall not be assumed by Buyer.
Notwithstanding anything to the contrary contained herein, in no event will the
terms of this Section 5.4 (i) deem any employee of the Sellers to be a third
party beneficiary hereunder, (ii) create an employment contract between Buyer
and/or any of its affiliates and any employees any of the Sellers (including the
employees whose names appear on Exhibit 5.4 hereto) or (iii) require or obligate
Buyer to keep any person in its employ for any period of time under any specific
terms.
5.5. Transfer Tax Compliance. The Company and Buyer shall comply
with Section 14.15 of the New York State Tax Law relating to the New York State
Real Property Transfer Tax and Chapter 21, Title 11 of the Administrative Code
of the City of New York relating the New York City Real Property Transfer Tax
and any similar taxes of other applicable jurisdictions (all such taxes
collectively, the "Transfer Taxes"). For such purposes, the Company and the
Buyer agree that the leasehold interests of the Company have no value and that
no portion of the Purchase Price is allocable thereto. At the Closing, the
Company shall deliver and cause to be filed all returns required to be filed in
connection with the Transfer Taxes. The Transfer Taxes and the costs and
expenses incurred by Buyer, or the Sellers as a result of a dispute with any
Governmental Body in connection with the Transfer Taxes, shall be the sole
responsibility of the Sellers.
5.6. Sales Tax Liability. Buyer and the Company shall use their
reasonable best efforts to obtain all necessary sales tax exemptions and take
all such other action as may be necessary or advisable to cause the transfer of
the Purchased Assets to Buyer not to be subject to sales tax. To the extent
that, despite all such actions, the transfer of any Purchased Assets to the
Buyer gives rise to sales tax liability or other transfer, purchase or
recordation documentary tax and fees (collectively, "Sales Taxes"), the Buyer
shall promptly pay such Sales Taxes to the appropriate tax authorities and any
costs and expenses incurred by Buyer, or any of the Sellers as a result of a
dispute with any Governmental Body in connection with the Sales Taxes, shall be
the sole responsibility of Buyer.
5.7. Successor Employer. Buyer agrees that it shall elect treatment
as a "successor employer" for withholding tax purposes with respect to the 1998
calendar year.
5.8. Non-Solicitation. The parties agree that the provisions of
paragraph 11 of the Letter of Intent shall remain in force until the Closing
Date.
6. INDEMNIFICATION; REMEDIES
6.1. Survival.
(a) The representations and warranties in this Agreement and any
other certificate or document delivered pursuant to this Agreement will survive
the Closing until the one year anniversary of the Closing Date (the "Sunset
Period"), except that (a) the representations and warranties in Sections 3.10,
3.12 and 3.24 will survive until all applicable statutes of limitation
(including extensions of such statutes) have elapsed, and (b) the
representations and warranties in Section 3.5 concerning title to the Purchased
Assets shall
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survive indefinitely. Notwithstanding the foregoing, a representation and
warranty shall continue in effect in the event a claim for breach thereof has
been made prior to the expiration of the Sunset Period and shall survive until
such claim is fully resolved. The right to indemnification, reimbursement, or
other remedy based on such representations and warranties will not be affected
by any investigation conducted by Buyer.
(b) Notwithstanding anything to the contrary set forth in this
Agreement but subject to the terms set forth in Section 6.1(d), none of the
Sellers shall be liable hereunder to a Buyer Indemnified Party as a result of
any misrepresentation or Breach of any representation or warranty contained in
this Agreement unless, and not until, the aggregate amount of all Losses
incurred by all Buyer Indemnified Parties (in the aggregate) as a result of any
such misrepresentations or Breaches under this Agreement exceeds $100,000 (the
"Basket Threshold"); in which case the Sellers shall only be liable for Losses
in excess of $100,000.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, but subject to the terms set forth in Section 6.1(d), following the
Closing, the aggregate liability of the Sellers to the Buyer Indemnified Parties
for breaches of the representations or warranties set forth herein shall not
exceed, in the aggregate, $7,800,000 less any reduction provided for in Section
1.4 (the "Cap").
(d) Each of the limitations set forth in subparagraphs (a), (b)
and (c) above (including, without limitation, the Sunset Period, the Cap and the
Basket Threshold) shall in no event apply to any Losses incurred by a Buyer
Indemnified Party which relate, directly or indirectly, to (i) any fraudulent
acts committed by any of the Sellers (including, without limitation, fraud in
connection with the Contemplated Transactions and any fraudulent acts by any
officer, director, employee, agent or shareholder of any of the Sellers), (ii)
any breach or misrepresentations of the representations and warranties contained
in Sections 3.10, 3.24 and Section 3.5 concerning title to the Purchased Assets,
(iii) an indemnification obligation under Sections 6.2(b) or 6.2(d), (iv) any
obligation of any of the Sellers (including any indemnification obligations)
(whenever arising) which arise as a result of services performed under, out of,
in connection with or pursuant to, the AT&T Account, for any period or time
prior to the Closing, or (v) the Sellers' obligations set forth in Section 9.1
below to pay for their own expenses in connection with the Contemplated
Transactions.
6.2. Indemnification of Buyer. From and after the Closing, the
Sellers jointly and severally, on behalf of themselves and any of their
respective successors and assigns, hereby agree to indemnify Buyer and their
subsidiaries, affiliates, shareholders, directors, partners, officers,
employees, agents, representatives and successors, permitted assigns of Buyer
and their respective affiliates (the "Buyer Indemnified Parties") and save and
hold them harmless from and against and pay on behalf of or reimburse the Buyer
Indemnified Parties as and when incurred for any and all liabilities, demands,
claims, actions, causes of action, assessments, losses, costs, damages,
deficiencies, taxes, fines or expenses (whether or not arising out of third
party claims), including, without limitation, interest, penalties, reasonable
attorneys' fees and all amounts paid in investigation, defense or settlement of
any of the foregoing (collectively, "Losses"), which any Buyer Indemnified Party
may suffer, sustain or become subject to, in
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connection with, incident to, resulting from or arising out of or in any way
relating to or by virtue of:
(a) any misrepresentation or breach of a representation or
warranty made herein by any of the Sellers;
(b) any nonfulfillment or breach of any covenant or agreement on
the part of any of the Sellers under this Agreement (including the Escrow
Agreement);
(c) any action, demand, proceeding, investigation, audit or
claim by any third party (including any Governmental Body) against or affecting
any Buyer Indemnified Party which, if successful, would give rise to or evidence
the existence of or relate to a misrepresentation or breach of any of the
representations, warranties, agreements or covenants of any of the Sellers set
forth in this Agreement; or
(d) any liability or obligation or any assertion against a Buyer
Indemnified Party, arising out of or relating, directly or indirectly, to any
Excluded Liability.
The rights of the Buyer Indemnified Parties to indemnification under part (b) or
(d) of this Section 6.2 shall apply notwithstanding that the matter in question
may be the subject of, excluded from or beyond the scope of any representation
or warranty of the Sellers in this Agreement.
6.3. Indemnification of the Sellers. Buyer on behalf of itself and
its successors and assigns, hereby agrees to indemnify the Sellers and their
respective directors, partners, officers, employees, agents, representatives,
successors and permitted assigns of the Company and its respective affiliates
(the "Company Indemnified Parties") and save and hold each of them harmless from
and against and pay on behalf of or reimburse the Company Indemnified Party as
and when incurred for any and all Losses which a Company Indemnified Party may
suffer, sustain or became subject to, in connection with, incident to resulting
from or arising out of or in any way relating to or by virtue of:
(a) any misrepresentation or breach of a representation or
warranty made herein by Buyer;
(b) any non-fulfillment or breach of any covenant or agreement
on the part of Buyer under this Agreement (including the Escrow Agreement);
(c) any action, demand, proceeding, investigation or claim by
any third party (including governmental agencies) against or affecting a Company
Indemnified Party which, if successful, would give rise to or evidence the
existence of or relate to a misrepresentation or breach of any of the
representations, warranties, agreements or covenants of Buyer set forth in this
Agreement; or
(d) any liability or obligation or any assertion against a
Company Indemnified Party arising out of Buyer's failure to pay, satisfy or
discharge the Assumed Liabilities.
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Notwithstanding anything to the contrary contained in this Agreement or in any
other document, certificate, agreement or otherwise, in the event an
indemnification obligation of any of the Sellers arises pursuant to this
Agreement, which is final and non-appealable, the Buyer's obligations to
indemnify a Company Indemnified Party hereunder (whether pursuant to
subparagraph (d) above or any other provision of this Section 6.3) shall not be
applicable and be deemed null and void with respect to such matters but only to
the extent that Buyer's obligation does not exceed the Sellers' indemnification
obligation hereunder.
The rights of the Company Indemnified Parties to indemnification under part (b)
or (d) of this Section 6.3 shall apply notwithstanding that the matter in
question may be the subject of, excluded from or beyond the scope of any
representation or warranty of the Buyer in this Agreement.
6.4. Indemnification Procedure for Third Party Claims. In the event
that subsequent to the Closing any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") asserts a claim for
indemnification or receives notice of the assertion of any claim or of the
commencement of any action or proceeding by any entity who is not a party to
this Agreement or an affiliate of a party to this Agreement (including, but not
limited to any domestic or foreign court or Governmental Body, federal, state or
local) (a "Third Party Claim") against such Indemnified Party, against which a
party to this Agreement is required to provide indemnification under this
Agreement (an "Indemnifying Party"), the Indemnified Party shall give written
notice together with a statement of any available information (other than
privileged information) regarding such claim to the Indemnifying Party within
thirty (30) business days after learning of such claim (or within such shorter
time as may be necessary to give the Indemnifying Party a reasonable opportunity
to respond to such claim). The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party (the "Defense Notice") within fifteen
days (15) after receipt from the Indemnified Party of notice of such claim,
which notice by the Indemnifying Party shall specify the counsel it will appoint
to defend such claim ("Defense Counsel"), to conduct at its expense the defense
against such claim in its own name, or if necessary in the name of the
Indemnified Party; provided, however, that the Indemnified Party shall have the
right to approve the Defense Counsel, which approval shall not be unreasonably
withheld or delayed, and in the event the Indemnifying Party and the Indemnified
Party cannot agree upon such counsel within ten (10) days after the Defense
Notice is provided, then the Indemnifying Party shall propose an alternate
Defense Counsel, which shall be subject again to the Indemnified Party's
approval which approval shall not be unreasonably withheld or delayed. If the
parties still fail to agree on the Defense Counsel, then, at such time, they
shall mutually agree in good faith on a procedure to determine the Defense
Counsel.
(a) In the event that the Indemnifying Party shall fail to give
the Defense Notice within said 15 day period, it shall be deemed to have elected
not to conduct the defense of the subject claim, and in such event the
Indemnified Party shall have the right to conduct the defense in good faith and
to compromise and settle the claim in good faith without prior consent of the
Indemnifying Party and the Indemnifying Party will be liable for all reasonable
costs, expenses, settlement amounts or other Losses paid or incurred in
connection therewith.
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(b) In the event that the Indemnifying Party does deliver a
Defense Notice and thereby elects to conduct the defense of the subject claim,
the Indemnifying Party shall be entitled to have the exclusive control over said
defense settlement of the subject claim and the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as it may reasonably request, all at the expense of the Indemnifying Party, and
the Indemnified Party shall have the right at its expense to participate in the
defense assisted by counsel of its own choosing. In such an event, the
Indemnifying Party will not settle the subject claim without the prior written
consent of the Indemnified Party, which consent will not be unreasonably
withheld or delayed.
(c) Without the prior written consent of the Indemnified Party,
the Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result of
such settlement or cessation, (i) injunctive relief or specific performance
would be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other obligation on
the part of the Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder.
(d) If an Indemnified Party refuses to consent to a bona fide
offer of settlement which provides for a full release of the Buyer and its
affiliates and solely for a monetary payment which the Indemnifying Party wishes
to accept, the Indemnified Party may continue to pursue such matter, free of any
participation by the Indemnifying Party, at the sole expense of the Indemnified
Party. In such event, the obligation of the Indemnifying Party shall be limited
to the amount of the offer of settlement which the Indemnified Party refused to
accept plus the costs and expenses of the Indemnified Party incurred prior to
the date the Indemnifying Party notified the Indemnified Party of the offer of
settlement.
(e) Notwithstanding paragraph (b) above, the Indemnifying Party
shall not be entitled to control, but may participate in, and the Indemnified
Party shall be entitled to have sole control over, the defense or settlement of
any claim (i) that seeks a temporary restraining order, a preliminary or
permanent injunction or specific performance against the Indemnified Party, (ii)
to the extent such claim involves criminal allegations against the Indemnified
Party, (iii) that if unsuccessful, would set a precedent that would materially
interfere with, or have a material adverse effect on, the business or financial
condition of the Indemnified Party, or (iv) to the extent such claim imposes
liability on the part of the Indemnified Party for which the Indemnified Party
is not entitled to indemnification hereunder (including, without limitation, a
liability which may exceed the Cap). In such an event, the Indemnifying Party
will still have all of its obligations hereunder provided that the Indemnified
Party will not settle the subject claim without the prior written consent of the
Indemnifying Party, which consent will not be unreasonably withheld.
(f) Any final judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
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(g) A failure by an Indemnified Party to give timely, complete
or accurate notice as provided in this Section 6.4 will not affect the rights or
obligations of any party hereunder except and only to the extent that, as a
result of such failure, any party entitled to receive such notice was deprived
of its right to recover any payment under its applicable insurance coverage or
was otherwise directly and materially damaged as a result of such failure to
give timely notice.
6.5. Escrowed Amount; Right of Set-Off. In the event an
indemnification obligation of the Sellers arises under Section 6.2 above and
such indemnification obligation is not paid, in full, on demand, Buyer, on a
non-exclusive basis, shall be entitled to (i) first, remove such amounts owed
from escrow, pursuant to the Escrow Agreement, and (ii) second, set-off, on a
dollar for dollar basis, any amounts then owed by Buyer to any of the Sellers.
In the event (A) the Buyer exercises the right of set-off pursuant to (ii) above
and (B) an arbitrator issues a final, non-appealable order that Buyer
inappropriately exercised such right due to the failure of an indemnification
obligation to exist in connection with the exercise of such set-off right, Buyer
agrees to pay to the Company (x) the amount previously set off by Buyer pursuant
to (ii) above, and (y) interest on the amount set off, calculated at the Buyer's
then existing annual borrowing rate, for the period beginning on the date of
such set-off through and including the date of such payment.
6.6. Sole Remedy. The liability of each of the parties hereto with
respect to any matter set forth in Sections 6.2 or 6.3, as the case may be,
shall be limited by the terms and to the extent set forth in this Article VI,
and no party will have any claim, right or remedy under this Agreement following
the Closing except for indemnification as provided in this Article VI; provided,
however this Section 6.6 shall in no event apply to any equitable remedies
available to any party or liabilities related to any fraudulent claims.
6.7. Treatment. Any indemnity payments by an Indemnifying Party to
an Indemnified Party under this Article VI shall be treated by the parties as an
adjustment to the Purchase Price.
7. CLOSING CONDITIONS
7.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated hereby shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) There shall be no action, arbitration, suit or proceeding
pending or threatened by or on behalf of any Governmental Entity seeking to
enjoin or otherwise challenging the legality of the transactions contemplated by
this Agreement, and there shall not be any order, decree or injunction
restraining or prohibiting consummation of any of such transactions.
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7.2. Conditions to the Obligations of Sellers. The obligations of
Sellers to effect the Contemplated Transactions shall be further subject to the
fulfillment at or prior to the Closing Date of the following conditions, any one
or more of which may be waived by Sellers:
(a) Buyer shall have performed and complied in all material
respects with the agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing Date and the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at and as of the Closing Date (except as
otherwise contemplated by this Agreement) and the Seller shall have received
certificates to that effect signed by two executive officers of Buyer;
(b) The Company shall have received from Buyer the Buyer's
Closing Documents.
7.3. Conditions to the Obligations of Buyer. The obligations of Buyer
to effect the Contemplated Transactions shall be further subject to the
fulfillment at or prior to the Closing Date of the following conditions, any one
or more of which may be waived by Buyer:
(a) Each of the Sellers shall have performed and complied in all
material respects with the agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing Date and the
representations and warranties of Sellers set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at and as of the Closing Date (except as
otherwise contemplated by this Agreement), and Buyer shall have received
certificates from each of the Sellers to that effect signed on behalf of such
Seller by two executive officers of the Seller.
(b) The Company shall have obtained (i) all material permits,
authorizations, consents or approvals of any Governmental Entity required for
the effective transfer to Buyer of the Purchased Assets and the rights and
privileges relating thereto, (ii) all material consents or waivers from other
parties to licenses, franchises, permits, indentures, agreements and other
instruments that are required for the lawful consummation of the Contemplated
Transactions or are necessary in order for Buyer to conduct the Business,
substantially in the same manner as heretofore conducted.
(c) Buyer shall have obtained all material licenses, franchises,
permits, registrations, authorizations, consents or approvals of any
Governmental Entity that are necessary in order for Buyer to conduct the
Business, substantially in the same manner as heretofore conducted.
(d) The Sellers shall have delivered or caused to be delivered to
Buyer the Seller Closing Documents.
(e) (Reserved.)
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(f) Buyer and Eliot Kang shall have entered into a mutually
satisfactory employment agreement, to become effective upon consummation of the
Contemplated Transactions.
7.4. Certificates. Each of the parties hereto shall furnish to the
other party such certificates of such party's officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Article
VII as the other party may reasonably request.
8. DEFINITIONS.
8.1. Definitions. For purposes of this Agreement, the following terms
have the meanings specified:
"Applicable Contract" -- any Contract (a) under which the Company has
or may acquire any rights, (b) under which the Company has or may become subject
to any obligation or liability, or (c) by which the Company or any of the assets
owned or used by the Company is or may become bound.
"AT&T" -- AT&T Corp.
"AT&T Account" - collectively, (a) Advertising Agreement AD931000LD,
dated April 19, 1993, including Amendments No. 1- 6 thereto, between AT&T
Communications, Inc. Consumer Communications Services, Multi-Cultural Marketing
Communications, and YAR Communications, Inc., (b) Form of Advertising Agreement
No. LQ6248D, between AT&T Corp and YAR Communications Inc., a division of One
World Communications, Inc., (c) Form of Advertising Agreement LQ6247D, between
AT&T Corp. and Kang & Lee Advertising, Inc., a division of One World
Communications, Inc., and any amendments thereto; and (d) any other
multicultural marketing and communications services performed by Leap, the
Company or YAR for or on behalf of AT&T.
"Best Efforts" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Breach" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement will be deemed to have occurred
if there is or has been (a) any inaccuracy in or breach of, or any failure to
perform or comply with, such representation, warranty, covenant, obligation, or
other provision, or (b) any claim (by any Person) or other occurrence or
circumstance that is or was inconsistent with such representation, warranty,
covenant, obligation, or other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence, or circumstance.
"Buyer's Key Corporate Accounts" -- the corporate clients of Buyer as
of the Closing Date as set forth in Exhibit 8.1 of this Agreement.
"Closing Date" -- the date and time as of which the Closing actually
takes place.
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"Code" -- the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by
this Agreement, including:
(i) the Closing hereunder;
(ii) the sale of the Purchased Assets by the Company to
Buyer and the assumption, by Buyer, of the Assumed Liabilities;
(iii) the execution, delivery, and performance of the
Company's Closing Documents and Buyer's Closing Documents; and
(iv) the performance by Buyer and the Company of their
respective covenants and obligations under this Agreement.
"Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Disclosure Letter" -- the disclosure letter delivered by the Company
to Buyer concurrently with the execution and delivery of this Agreement.
"Encumbrance" -- any claim, lien, pledge, charge, security interest,
equitable interest, option, right of first refusal or preemptive right,
condition, or other restriction of any kind, including any restriction on use,
voting (in the case of any security), transfer, receipt of income, or exercise
of any other attribute of ownership.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as
amended, or any successor law.
"Facilities" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company (or any predecessor
Person) and any buildings, plants, or structures currently or formerly owned,
leased, or operated by the Company (or any predecessor Person).
"GAAP" -- generally accepted United States accounting principles,
consistently applied from year to year.
"Governmental Authorization" -- any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
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"Governmental Body" -- any:
(i) nation, state, county, city, town, village, district,
or other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign, or other
government;
(iii) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or
other entity and any court or other tribunal);
(iv) multi-national organization or body; or
(v) body exercising, or entitled or purporting to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"IRS" -- the United States Internal Revenue Service.
"Kang & Lee Asset Purchase Agreement" -- the Asset Purchase Agreement,
dated as of November 1, 1997, by and among The Leap Group, Inc., One World
Communications, Inc., Kang & Lee Advertising, Inc., K&L West Advertising, Inc.
and Eliot Kang, as it may be amended or supplemented, together with any related
agreements.
"Knowledge" -- where any representation and warranty contained in this
Agreement is expressly qualified by reference to the best knowledge, information
and belief of the Sellers, such term shall be limited to the knowledge of Leap,
the Company or YAR, or their respective executive officers or such knowledge
that would have been discovered by such individuals after reasonable due inquiry
of Persons known to the Leap, the Company or YAR, or their respective executive
officers who may reasonably have knowledge of such matters.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
or other constitution, ordinance, regulation, code, statute, treaty, or other
law adopted, enacted, implemented, or promulgated by or under the authority of
any Governmental Body or by the eligible voters of any jurisdiction, and any
agreement, approval, consent, injunction, judgment, license, order, or permit by
or with any Governmental Body or to which the Company is a party or by which the
Company is bound.
"Letter of Intent" -- the Letter of Intent, dated as of July 28, 1998,
among Young & Rubicam Inc., The Leap Group, Inc., One World Communications, Inc.
and YAR Communications, Inc.
"Order" -- any award, injunction, judgment, order, ruling, subpoena,
or verdict or other decision entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
40
<PAGE>
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(i) such action is consistent with the past practices of
such Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(ii) such action is not required to be authorized by the
board of directors of such Person (or by any Person or group of Persons
exercising similar authority) and does not require any other separate or special
authorization of any nature; and
(iii) such action is similar in nature and magnitude to
actions customarily taken, without any separate or special authorization, in the
ordinary course of the normal day-to-day operations of other Persons that are in
the same line of business as such Person.
"Organizational Documents" -- (i) the articles or certificate of
incorporation and the bylaws of a corporation; (ii) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (iii) any amendment to any of the foregoing.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or other entity or
Governmental Body.
"Proceeding" -- any suit, litigation, arbitration, hearing, audit,
investigation, or other action (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Related Person" -- with respect to a particular individual:
(i) each other member of such individual's Family; and
(ii) any Person that is directly or indirectly controlled by
any one or more members of such individual's Family.
With respect to a specified Person other than an individual:
(i) any Person that, directly or indirectly, controls, is
controlled by, or is under common control with such specified Person; and
(ii) each Person that serves as a director, executive
officer, general partner, executor, or trustee of such specified Person (or in a
similar capacity);
For purposes of this definition, the "Family" of an individual includes (i) such
individual, (ii) the individual's spouse and former spouses, (iii) any lineal
ancestor or lineal descendant of the individual, or (iv) a trust for the benefit
of the foregoing. A Person will be deemed to control
41
<PAGE>
another Person, for purposes of this definition, if the first Person possesses,
directly or indirectly, the power to direct, or cause the direction of, the
management policies of the second Person, (x) through the ownership of voting
securities, (y) through common directors, trustees or officers, or (z) by
contract or otherwise.
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" -- the Securities Act of 1933, 15 U.S.C. 77a et seq.,
as amended, or any successor law.
"Threatened" -- a claim, proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exists, that would
lead a prudent Person to conclude that such a claim, proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"WARN" -- the Federal Worker Adjustment and Retraining Act.
9. GENERAL PROVISIONS
9.1. Expenses. The Sellers, on the one hand, and Buyer, on the other,
will each bear their own expenses (legal, accounting, broker or other expenses)
which may be incurred in connection with the Contemplated Transactions.
9.2. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given (a) when delivered by hand; (b) when sent by facsimile,
provided that a copy is mailed by U.S. certified mail, return receipt requested;
(c) three days after sent by Certified U.S. Mail, return receipt requested; or
(d) one day after deposit with a nationally recognized overnight delivery
service, in each case to the appropriate addresses and facsimile numbers set
forth below (or to such other addresses and facsimile numbers as a party may
designate by notice to the other parties):
Leap, the Company or YAR: with a copy to:
The Leap Group, Inc. Katten Muchin & Zavis
22 West Hubbard 525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693 Chicago, Illinois 60610
Attention: Secretary Attention: Margee Elias
Facsimile (312) 494-0119 Facsimile (312) 902-1061
42
<PAGE>
Buyer: with a copy to:
Young & Rubicam Inc. Cleary, Gottlieb, Steen & Hamilton
285 Madison Avenue One Liberty Plaza
New York, New York 10017 New York, New York 10006
Attention: General Counsel Attention: Victor I. Lewkow
Facsimile: (212) 210-5454 Facsimile: (212) 225-3999
9.3. Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things
including payment of funds due hereunder, all as the other party may reasonably
request for the purpose of carrying out the intent of the Contemplated
Transactions.
9.4. Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege.
9.5. Entire Agreement and Modification. This Agreement supersedes
all prior oral or written agreements between the parties with respect to its
subject matter and constitutes (along with the documents referred to in this
Agreement or required to effect the Contemplated Transactions) as a complete and
exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
9.6. Assignments, Successors, and No Third-Party Rights. None of the
parties may assign any of its rights under this Agreement without the prior
consent of the other parties except that Buyer may assign any of its rights
under this Agreement to any direct or indirect wholly-owned subsidiary provided
such assignment does not materially change the risks of this Agreement. Subject
to the preceding sentence, this Agreement will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted assigns
of the parties. Nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement.
9.7. Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
9.8. Section Headings, Construction. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or
43
<PAGE>
interpretation. All references to "Sections" refer to the corresponding Sections
of this Agreement. All words used in this Agreement will be construed to be of
such gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms. In
the event of any inconsistency between the statements in the body of this
Agreement and those in the Disclosure Letter (other than an exception expressly
set forth as such in the Disclosure Letter with respect to a specifically
identified representation or warranty), the statements in the body of this
Agreement will control.
9.9. Governing Law. This Agreement will be governed by and construed
under the laws of the State of New York without regard to conflicts of laws
principles.
9.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.11. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
9.12. Alternative Dispute Resolution.
(a) In the event that any dispute shall arise among the parties
hereto as to any matter or thing covered hereby or as to the meaning of this
Agreement, or to any state of facts which may arise, same shall be settled by
the agreement of the parties, or if they are unable to agree, same shall be
settled, upon written demand of any party hereto, by arbitration in the City of
New York, New York before a single arbitrator, selection of the arbitrator and
the conduct of the arbitration to be in accordance with the Commercial Rules for
Arbitration of the American Arbitration Association. Any award or decision
rendered shall be made by means of a written opinion explaining the arbitrator's
reasons for the award or decision, and the award or decision shall be final and
binding upon the parties hereto. The arbitrator may not amend or vary any
provision of this Agreement. Judgment upon the award or decision rendered by the
arbitrator may be entered in any court of competent jurisdiction. Whenever the
arbitrator determines that a defaulting party has acted in bad faith in
violation of their Duty of Fair Dealing, reasonable attorney's fees shall be
awarded to the non- defaulting party in addition to any other damages or relief
that the arbitrator may deem just and proper.
(b) Refusal of one party to arbitrate shall entitle any other
party hereto to specifically enforce this Agreement in a court of competent
jurisdiction, and as a result of said refusal to arbitrate, the remaining
parties shall be entitled to receive costs, reasonable attorney's fees and their
share of the arbitration fee, if any, on a pro-rata basis. Arbitration by the
parties shall take place at a time and place as may be agreed upon, but if no
agreement shall be reached, then at the offices of the Company's then regular
attorneys at a time selected by the arbitrator.
(c) If the arbitrator determines, in his or her absolute
discretion, that any party has (i) been in default hereof, (ii) instituted the
arbitration proceeding without reasonable cause, or (iii) has taken an action or
failed to take an action without reasonable cause
44
<PAGE>
which warranted the institution of the arbitration proceeding (each such party
"a Defaulting Party"), as the case may be, they shall have the right to award to
the party or parties injured by such unreasonable conduct an amount equal to the
reasonable attorney's fees and costs incurred by such injured party in such
proceedings, together with the actual cost of such arbitration proceeding
itself.
(d) If the Defaulting Party does not pay to the other party the
Arbitration Award within ten (10) days of written demand therefor, and the other
party shall institute suit in a court of competent jurisdiction to enforce said
decision, the Defaulting Party shall pay to the other party the reasonable
attorney's fees and court costs incurred in such action. Nothing in this Section
9.12 is intended to preclude any party hereto from seeking, in an action in a
court of competent jurisdiction, (i) specific performance of an obligation to
him of any other party hereto, or (ii) enforcement of his rights hereunder after
the entry of an Arbitration Award.
9.13. Publicity. The parties will consult with each other before
issuing any press release or otherwise making any public statement with respect
to the Contemplated Transactions and shall not issue any such press release or
make any such public statement prior to such consultations, except as may be
required by applicable law.
9.14. Termination. This Agreement may be terminated, and the
Contemplated Transactions abandoned, prior to the Closing as follows:
(a) by written consent of the parties;
(b) at the election of either Buyer or Sellers, if the Closing
Date shall not have occurred on or before October 31, 1998, provided that no
party shall be entitled to terminate this Agreement pursuant to this Section
9.14(b) if such party's failure to fulfill any obligation under this Agreement
has been the primary cause of, or has resulted in, the failure of the Closing to
occur on or before such date;
(c) by either Buyer or Sellers if the party desiring to terminate
is not in material breach of the Agreement and there has been a breach by the
other party of any representation or warranty contained in the Agreement which
would have, in the event of a breach by any Seller, a material adverse effect on
Buyer or, in the event of a breach by Buyer, a material adverse effect on
Sellers.
In the event that this Agreement shall be terminated pursuant to
this Section 9.14, all obligations of the parties hereto under this Agreement
shall terminate, and there shall be no liability of any party hereto to any
other party except that nothing herein will relieve any party from liability for
any breach of this Agreement.
45
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Asset Purchase
Agreement as of the date first written above.
THE LEAP GROUP, INC.
By: /s/ Frederick Smith
------------------------------------
ONE WORLD COMMUNICATIONS, INC.
By: /s/ Frederick Smith
------------------------------------
YAR COMMUNICATIONS, INC.
By: /s/ Frederick Smith
------------------------------------
YOUNG & RUBICAM INC.
By: /s/ S. M. Blondy
------------------------------------
46
<PAGE>
Exhibit 99
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information should be read in
conjunction with the historical financial statements contained in the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1998 and the
Quarterly Reports on Form 10-Q as of April 30, 1998 and July 31, 1998. The
following pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred had the Asset Sale been consummated at the time and in
accordance with the assumptions set forth below, nor is it necessarily
indicative of future operating results or financial position.
Basis of Presentation
The unaudited pro forma balance sheet presents the consolidated financial
position of the Company assuming the Asset Sale had been consummated on July 31,
1998. The unaudited pro forma income statements for the fiscal year ended
January 31, 1998, and for the six months ended July 31, 1998, present the
consolidated results of operations of the Company assuming that the disposition
had been consummated as of February 1, 1997.
Pro Forma Adjustments
Balance Sheet
The following notes describe the historical and pro forma adjustments found on
the accompanying balance sheet.
(1) The amounts included in the One World and YAR AT&T column reflect the
assets and liabilities involved in the transaction, including accounts
receivable, work in progress, fixed assets, other current and non-current
assets, accounts payable and other current and non-current liabilities.
(2) The pro forma adjustments reflect the application of $5.3 million in
proceeds from the Asset Sale. $1.5 million of the purchase price was placed
in escrow and is not reflected in this pro forma adjustment as certain net
tangible asset provisions have not yet been finalized. Further, the Company
is in the process of finalizing certain acquisition related contingent
consideration payments with the former owner of One World's predecessor
based on One World's performance during the eleven months ended September
30, 1998. For these reasons, only $5.3 million of proceeds has been
considered. Of the net proceeds received, $1.9 million related to the One
World acquisition and YAR working capital financing and was immediately
retired upon closing of the Asset Sale. The remaining proceeds have been
invested in short-term certificates of deposit and will be used for future
general corporate purposes. Additionally, as a result of the Asset Sale,
the Company has allocated approximately $7.4 million of goodwill related to
the YAR AT&T account to this transaction. This represents management's
estimate at this time and could change upon the finalization of the
analysis. As a result of the Asset Sale, Management will also be assessing
the on-going cash flows of the remaining YAR business and its underlying
assets to determine whether there are any impairment losses to be
recognized.
<PAGE>
Income Statements
The following notes describe the historical and pro forma adjustments found on
the accompanying income statements.
(1) The amounts included in the One World and YAR AT&T column on the income
statements reflect the direct activity of the business, including the
revenue, direct expenses, and direct salaries, general and administrative
expenses of the business. No estimates of labor, general and administrative
expenses related to servicing the YAR AT&T account have been included as
these costs are generally indirect costs of servicing the client for pro
forma purposes. As such, the remaining Pro Forma Results for the Company
are presented for illustrative purposes only and are not necessarily
indicative of the operating results or financial position that would have
occurred as a result of the disposition of the AT&T account of YAR nor are
they necessarily indicative of future operating results or financial
position. Pretax income has been taxed using the Company's statutory rate.
(2) The pro forma adjustments reflect the reduction in interest expense as a
result of $1.9 million of the proceeds from the Asset Sale being used to
reduce the debt incurred in connection with the Company's acquisition of
One World and in providing short-term working capital for YAR.
Additionally, the $7.4 million in YAR AT&T goodwill allocated to this Asset
Sale has the effect of reducing amortization expense within general and
administrative expenses on the pro forma income statements. Pretax income
has been taxed using the Company's statutory rate.
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET AS OF JULY 31, 1998
<TABLE>
<CAPTION>
Less ONE WORLD
THE LEAP and the YAR Pro Forma PRO FORMA
ASSETS GROUP AT&T Account Adjustments RESULTS
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents 12,709,007 1,108,980 3,395,000 14,995,027
Accounts receivable (net of allowance
of $779,422) 4,776,109 1,092,669 3,683,440
Costs in excess of billings (net of
allowance of $10,374) 2,156,395 954,232 1,202,163
Prepaid expenses 309,190 5,535 303,655
Refundable income 320,000 320,000
Deferred income tax asset 530,000 530,000
---------- --------- ---------- ----------
Total current assets 20,800,701 3,161,416 3,395,000 21,034,285
Property and Equipment 6,721,625 351,659 6,369,966
Less accumulated depreciation (1,945,067) (68,023) (1,877,044)
---------- --------- ---------- ----------
Net property and equipment 4,776,558 283,636 0 4,492,922
Other Assets
Intangible assets 14,711,376 1,034,088 (7,385,736) 6,291,552
Deferred income tax asset 2,351,993 2,351,993
Other assets 985,819 985,819
---------- --------- ---------- ----------
Other assets 18,049,188 1,034,088 (7,385,736) 9,629,364
Total Assets 43,626,447 4,479,140 (3,990,736) 35,156,571
========== ========= ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma financial information
<PAGE>
<TABLE>
<CAPTION>
Less One World
THE LEAP & the YAR Pro Forma PRO FORMA
LIABILITIES AND STOCKHOLDERS' EQUITY GROUP AT&T Account Adjustments RESULTS
<S> <C> <C> <C> <C>
Current Liabilities
Accounts payable 3,169,312 1,723,031 1,446,281
Accrued expenses 693,562 122,729 570,833
Accrued restructuring 105,983 105,983
Billings in excess of costs 1,428,190 905,933 522,257
Notes payable 6,617,025 (1,885,000) 4,732,025
Current portion of long-term liabilities 366,843 366,843
---------- --------- ---------- ----------
Total current liabilities 12,380,915 2,751,693 (1,885,000) 7,744,222
Long-Term Liabilities
Capital lease obligations 235,937 235,937
---------- --------- ---------- ----------
Total Liabilities 12,616,852 2,751,693 (1,885,000) 7,980,159
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value; 100,000,000
shares authorized, 13,648,866 shares issued
and outstanding as of July 31, 1998 136,489 136,489
Additional paid in capital 35,680,845 35,680,845
Retained earnings (4,656,609) (3,833,183) (8,489,792)
less cost of 50,000 shares of treasury stock (151,130) (151,130)
---------- --------- ---------- ----------
Total Stockholders' Equity 31,009,595 0 (3,833,183) 27,176,412
Total Liabilities and Stockholders' Equity 43,626,447 2,751,693 (5,718,183) 35,156,571
========== ========= ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma financial information
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENT FOR THE SIX MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
Less One World
THE LEAP & the YAR Pro Forma Pro Forma
INCOME STATEMENT GROUP AT&T Account Adjustments Results
<S> <C> <C> <C> <C>
Revenues 19,366,006 9,107,631 10,258,375
Operating expenses:
Direct costs and related expenses 7,614,831 4,380,696 3,234,135
Salaries and related expenses 8,457,854 1,959,247(1) 6,498,607(1)
General and administrative expenses 4,161,910 867,347(1) (197,833) 3,096,730(1)
---------- --------- -------- ----------
Total operating expenses 20,234,595 7,207,290 (197,833) 12,829,472
Operating loss (868,589) 1,900,341 197,833 (2,571,097)
Gain on Sale of Building 1,154,588 1,154,588
Interest (expense) / incomes, net (119,051) (39,458) 48,700 (30,893)
---------- --------- -------- ----------
Income / (Loss) before income taxes 166,948 1,860,883 246,533 (1,447,402)
Income tax (expense) / benefit (78,068) (755,803) (98,613) 578,961
---------- --------- -------- ----------
Net income / (loss) 88,880 1,105,080 147,920 (868,441)
========== ========= ======== ==========
Net income / (loss) per share:
Basic $0.01 $0.08 $0.01 ($0.06)
========== ========= ======== ==========
Diluted $0.01 $0.08 $0.01 ($0.06)
========== ========= ======== ==========
</TABLE>
See accompanying notes to the unaudited pro forma financial information.
(1) The One World and YAR AT&T account column does not include YAR labor and
overhead expenses as these are considered for pro forma purposes as
indirect costs of servicing the AT&T account. As such, the Pro Forma
Results do not reflect reductions in these costs which may be made by
management as a result of the sale of the AT&T account.
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENT FOR THE YEAR ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
Less One World
THE LEAP & the YAR AT&T Pro Forma Pro Forma
INCOME STATEMENT GROUP Account(1) Adjustments Results
<S> <C> <C> <C> <C>
Revenues 30,660,039 11,910,292 18,749,747
Operating expenses:
Direct costs and related expenses 11,451,736 4,082,182 7,369,554
Salaries and related expenses 18,390,286 1,021,422(2) 17,368,864(2)
General and administrative expenses 10,208,238 503,044(2) (365,532) 9,339,662(2)
---------- ---------- -------- -----------
Total operating expenses 40,050,260 5,606,648 (365,532) 34,078,080
Operating loss (9,390,221) 6,303,644 365,532 (15,328,333)
Interest (expense) / incomes, net 269,024 (42,264) 97,395 408,683
---------- ---------- -------- -----------
Income / (Loss) before income taxes (9,121,197) 6,261,380 462,927 (14,919,650)
Income tax (expense) / benefit 3,510,365 (2,525,796) (185,171) 5,967,860
---------- ---------- -------- -----------
Net income / (loss) (5,610,832) 3,735,584 277,756 (8,951,790)
========== ========== ======== ===========
Net income / (loss) per share:
Basic ($0.41) $0.27 $0.02 ($0.66)
========== ========== ======== ===========
Diluted ($0.41) $0.27 $0.02 ($0.66)
========== ========== ======== ===========
</TABLE>
See accompanying notes to the unaudited pro forma financial information
(1) Includes three months of One World results from the effective acquisition
date, November 1, 1997, through the end of the fiscal year, January 31,
1998. Includes ten months of YAR results from the effective acquisition
date, April 1, 1997, through the end of the fiscal year, January 31, 1998.
(2) The One World and YAR AT&T account column does not include YAR labor and
overhead expenses as these are considered for pro forma purposes as
indirect costs of servicing the AT&T account. As such, the Pro Forma
Results do not reflect reductions in these costs which may be made by
management as a result of the sale of the AT&T account.
