Stock Purchase and Option Agreement - Omnicom Group Inc. and THINK New Ideas Inc.
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STOCK PURCHASE AND OPTION AGREEMENT
by and between
OMNICOM GROUP INC.
and
THINK NEW IDEAS INC.
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Dated August 16, 1996
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STOCK PURCHASE AND OPTION AGREEMENT
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STOCK PURCHASE AND OPTION AGREEMENT (the "Agreement") dated August 16,
1996 by and between OMNICOM GROUP INC., a New York corporation (the
"Purchaser");and THINK NEW IDEAS INC., a Delaware corporation (the "Company").
WITNESSETH:
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WHEREAS, the Company desire to sell, and the Purchaser desires to
purchase, shares of the common stock, par value $0.0001 per share (the "Common
Stock") of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
ARTICLE I
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SALE OF COMMON STOCK
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Section 1.1 Sale of Common Stock. Subject to the terms and conditions
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herein stated, the Company hereby sells, assigns, transfers and delivers to the
Purchaser, and Purchaser hereby purchases from the Company, 714,000 shares of
Common Stock, subject to adjustment as provided in Section 2.1 below (the
"Purchased Stock").
ARTICLE II
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PURCHASE PRICE AND CLOSING
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Section 2.1 Purchase Price.
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2.1.1 Closing Price. In full consideration for the purchase by the
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Purchaser of the Purchased Stock, the purchase price per share of Common Stock
shall be $7 (the "Closing Price"), subject to adjustment as provided below.
2.1.2 Adjustments. Notwithstanding the provisions of Section 2.1.1.
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above,
(i) In the event that there shall not have occurred
prior to February 28, 1997 the closing of a firm commitment underwritten public
offering (an "Offering") pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act") covering the
offer and sale of
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Common Stock for the account of the Company to the public, the purchase
price per share of Common Stock shall be reduced to $6 per share; and
(ii) In the event that there shall not have occurred prior
to August 31, 1997 the closing of an Offering pursuant to an effective
registration statement under the Securities Act covering the offer and
sale of Common stock for the account of the Company to the public, the
purchase price per share of Common Stock shall be reduced to $4 per
share.
The Company shall not refund to the Purchaser any portion of the Closing Price
paid by the Purchaser in the event of any such reduction in the purchase price
per share of Common Stock. Rather, upon a reduction due under Section 2.1
(a)(i), the Company shall, on February 28, 1997, issue to the Purchaser a
certificate or certificates representing an additional 119,000 shares of Common
Stock; and upon a reduction due under Section 2.1(a)(ii), the Company shall, on
August 31, 1997, issue to the Purchaser a certificate or certificates
representing an additional 416,500 shares of Common Stock.
2.1.3 Recapitalization. If the Company shall change its issued Common
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Stock into an increased number of shares of Common Stock through a stock
dividend or split-up of shares, or into a decreased number of shares through a
combination of shares, then immediately after the record date for such change,
the number of shares of Purchased Stock (as such number may have been adjusted
pursuant to Section 2.1.2 above) shall be increased proportionately in the case
of such stock dividend or split-up, or decreased proportionately in the case of
such combination, and the purchase price of each such share of Common Stock
shall be adjusted appropriately
Section 2.2 Payment of the Purchase Price. Payment of the Purchase
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Price is being made in cash by the Purchaser to the Company by direct wire
transfer to the account of the Company as set forth on Exhibit A, as the Company
may otherwise direct.
Section 2.3 Closing. The Closing under this Agreement (the "Closing")
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is taking place simultaneously with the execution and delivery of this
Agreement, at the offices of Davis & Gilbert, 1740 Broadway, New York, New York
10019. Such date is herein referred to as the "Closing Date".
ARTICLE III
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REPRESENTATIONS OF THE COMPANY
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Section 3.1 Execution and Validity of Agreement. The Company has the
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full power and authority to enter into this Agreement and to perform its
obligations hereunder. The
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execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all required action on behalf of the Company and its stockholders. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the Purchaser, constitute
legal, valid and binding obligations of the Company enforceable against it in
accordance with its terms.
Section 3.2 Existence and Good Standing. The Company is duly organized
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and validly existing under the laws of the State of Delaware, with the full
corporate power and authority to own its property and to carry on its business
all as and in the places where such properties are now owned or operated or such
business is now being conducted. The Company is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions set forth
on Schedule 3.2, which are the only jurisdictions in which the ownership, use or
leasing of its assets and properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary, except for those
jurisdictions in which a failure by the Company to be qualified, licensed or
admitted and in good standing can in the aggregate be corrected without material
cost or expense by the Company.
Section 3.3 Capital Stock: Subsidiaries and Investments
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3.3.1 Capital Stock. The Company has an authorized capitalization
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consisting of 50,000,000 shares of Common Stock, of which 8,750,080 shares are
issued and outstanding, and no shares are held in the treasury of the Company;
and 5,000,000 shares of preferred stocks par value $0.0001 per share, none of
which are issued and outstanding. All such issued and outstanding shares have
been duly authorized and validly issued and are fully paid and nonassessable,
and have not been issued in violation of any preemptive rights of stockholders.
No other class of capital stock of the Company is authorized or outstanding.
Except as set forth on Schedule 3.3.1, there are no outstanding options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of the capital stock of the Company.
3.3.2 Purchased Stock. All shares of Purchased Stock issued at the
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Closing have been duly and validly authorized and issued, and are fully paid and
non-assessable shares of common stock of the Company, free of preemptive rights.
All additional shares of Purchased Stock which may be issued pursuant to the
provisions of Section 2.1 have been duly and validly authorized for issuance
and, when issued and delivered by the Company pursuant to Section 2.1, will be
validly issued, fully paid and non-assessable and free of preemptive rights.
3.3.3 Subsidiaries and Investments. Schedule 3.3.3 contains a true and
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complete list of all of the Company's subsidiaries (individually a "Subsidiary"
and collectively the "Subsidiaries"), together with the jurisdiction of
organization and capitalization of each such Subsidiary; except as set forth on
Schedule 3.3.3, the Company does not own any capital stock
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or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust, joint venture or other entity. Except as set
forth on Schedule 3.3.3, the Company owns of record and beneficially all of the
issued and outstanding shares of each Subsidiary, free and clear of all options,
claims, liens, pledges and restrictions of any kind and nature whatsoever. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with the full
corporate power and authority to own its property and to carry on its business
all as and in the places where such properties are now owned or operated or such
business is now being conducted. No Subsidiary is qualified to carry on business
in any jurisdiction other than the jurisdiction of incorporation, and neither
the character nor location of the properties owned or leased by any Subsidiary,
nor the nature of the business conducted by any Subsidiary, requires such
qualification in any jurisdiction. All of the outstanding shares of each
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable. There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase issuance or sale of any shares of the
capital stock of any Subsidiary.
Section 3.4 Financial Statements and No Material Changes. Schedule 3.4
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sets forth an unaudited consolidated balance sheet of the Company and its
subsidiaries as at June 30, 1996 (the "Balance Sheet") and the related unaudited
consolidated statements of operations, shareholders' equity (deficit) and cash
flow for the fiscal year then ended. Such financial statements, including the
footnotes thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently followed except as set forth on
Schedule 3.4.1. The Balance Sheet fairly presents the consolidated financial
condition of the Company and its Subsidiaries at the date thereof and fairly
presents all claims against and all debts and liabilities of the Company and its
Subsidiaries, fixed or contingent, as at the date thereof, required to be shown
thereon under GAAP, and the related statements of income, retained earnings and
cash flow fairly present the consolidated results of operations of the Company
and its Subsidiaries, retained earnings and the cash flow for the period
indicated. Since June 30, 1996 (the "Balance Sheet Date"), there has been no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations of the
Company and its Subsidiaries, taken as a whole.
Section 3.5 Books and Records. All accounts, books, ledgers and
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official and other records material to the business of the Company and its
Subsidiaries maintained by or on behalf of the Company and its Subsidiaries of
whatsoever kind have been properly and accurately kept and completed in all
material respects, and there are no material inaccuracies or discrepancies of
any kind contained or reflected therein. Neither the Company nor any Subsidiary
has any of its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent on or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under its exclusive ownership and possession.
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Section 3.6 Tangible Personal Property: Encumbrances. The Company and
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each Subsidiary has good and valid title to, or enforceable leasehold interests
in or valid rights under contract to use all the properties and assets owned or
used by it (personal, tangible and intangible), including, without limitation
(a) all the properties and assets reflected in the Balance Sheet, and (b) all
the properties and assets purchased or otherwise contracted for by the Company
since the Balance Sheet Date (except for properties and assets reflected in the
Balance Sheet or acquired or otherwise contracted for since the Balance Sheet
Date that have been sold or otherwise disposed of in the ordinary course of
business), in each case free and clear of all mortgages, liens, security
interests, encumbrances, claims, charges and restrictions of any kind or
character (collectively, "Liens"), except for Liens set forth on Schedule 3.6.
The property, plant and equipment owned or otherwise contracted for by the
Company and the Subsidiaries are in a state of good maintenance and repair
(ordinary wear and tear excepted) and is adequate and suitable in all material
respects for the purposes for which they are presently being used.
Section 3.7 Real Property.
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3.7.1 Owned Real Property. Neither the Company nor any Subsidiary owns
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a freehold interest in any real property or any option or right of first refusal
or first offer to acquire real property.
3.7.2 Leased Real Property. Schedule 3.7.2 contains an accurate and
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complete list of all real property leases to which the Company or any Subsidiary
is a party (as lessee, lessor, sublessee or sublessor), including, without
limitation, leases which the Company or any Subsidiary has subleased or assigned
to a third party and as to which it remains liable. Each real property lease set
forth on Schedule 3.7.2 (or required to be set forth on Schedule 3.7.2) is
valid, binding and in full force and effect all rents and additional rents and
other sums, expenses and charges due on each such lease have been paid; and the
lessee has been in peaceable possession since the commencement of its original
possession under such lease and no waiver, indulgence or postponement of the
lessee's obligations thereunder has been granted by the lessor. Except as set
forth in Schedule 3.7.2, there exists no default or event of default by the
Company or any Subsidiary or to the best knowledge, information and belief of
the Company, by any other party to such real property lease, or occurrence,
condition or act (including the purchase of the Common Stock hereunder) which,
with the giving of notice, the lapse of time or the happening of any further
event or condition, would become a default or event of default by the Company or
any Subsidiary under such real property lease, and there are no outstanding
claims of breach or indemnification or notice of default or termination of any
real property lease. The real property leased by the Company and any
Subsidiaries are, in all material respects, in a state of good maintenance and
repair and is, in all material respects, adequate and suitable for the purposes
for which it is presently being used, and to the best knowledge, information and
belief of the Company, there are no material repair or restoration works likely
to be required in connection with any of the leased real properties. Except as
set forth on Schedule 3.7.2, the Company and each Subsidiary is in physical
possession and actual
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and exclusive occupation of the whole of each of its leased properties. No real
property lease is subject or subordinate to any superior lease or mortgage
except as set forth on Schedule 3.7.2. Neither the Company nor any Subsidiary
owes any brokerage commission with respect to any such real property leases.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
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complete list of the following agreements to which the Company or any Subsidiary
is a party: (a) all Plans (as such term is defined in Section 3.19), (b) any
personal property lease with a fixed annual rental of $25,000 or more, (c) any
contract relating to capital expenditures which involve payments of $25,000 or
more in any single or related transaction, (d) any loan or advance to, or
investment in, any other Person (as defined in Section 10.3) in an amount
exceeding $10,000 or any contract relating to the making of any such loan,
advance or investment, (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any other Person in an amount
exceeding $10,000 (other than the endorsement of negotiable instruments for
collection in the ordinary course of business), (f) any management service,
employment, consulting or any other similar type of contract, agreement or
document relating to services to be provided to the Company or any Subsidiary
which is not cancelable by the Company or such Subsidiary without penalty or
other financial obligation within 30 days, (g) any contract limiting its freedom
to engage in any line of business or to compete with any other Person, including
agreements limiting its ability to take on competitive accounts after the
termination thereof or limiting the ability of its affiliates to take on
competitive accounts during the term thereof, but excluding standard exclusivity
requirements in agreements with clients entered into in the ordinary course of
business, (h) any contract (not covered by another subsection of this Section
3.8) which involves $25,000 or more over the unexpired term thereof and is not
cancelable by the Company or a Subsidiary without penalty or other financial
obligation within 30 days, (i) any collective bargaining agreement, (j) any
contract with any of its officers or directors (including indemnification
agreements), (k) any secrecy or confidentiality agreement (other than standard
confidentiality agreements in computer software license agreements or agreements
with clients entered into in the ordinary course of business), (l) any licensing
or franchise agreement (other than license agreements for "off-the-shelf" third
party computer software not included within the Company's or the Subsidiaries'
products or services),(m) any agreement with a client which generates annual
revenues of $50,000 or more and (n) any joint venture agreement involving a
sharing of profits not covered by (a) through (m) above; provided, however, that
estimates or purchase orders given in the ordinary course of business relating
to the execution of projects, do not have to be set forth on Schedule 3.8. Each
contract set forth on Schedule 3.8 (or required to be set forth on Schedule 3.8)
is in full force and effect, and there exists no default or event of default by
the Company or any Subsidiary or to the best knowledge, information and belief
of the Company, by any other party, or occurrence, condition, or act (including
the purchase of the Common Stock hereunder) which, with the giving of notice,
the lapse of time or the happening of any other event or condition, would become
a default or event of default thereunder by the Company or any Subsidiary. There
are no outstanding claims of breach or indemnification or notice of default or
termination of any
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such contracts which have been asserted, or to the best knowledge, information
and belief of the Company, which may be asserted after the date hereof.
Section 3.9 Non-Contravention: Approvals and Consents.
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3.9.1 Non-Contravention. The execution, delivery and performance by
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the Company of its obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a)violate, conflict with or result
in the breach of any provision of the charter documents or by-laws of the
Company, or (b) result in the violation by the Company of any statute, law,
rule, regulation or ordinance (collectively, "Laws"), or any judgment, decree,
order, writ, permit or license (collectively, "Orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision (a "Governmental or Regulatory Authority"),
applicable to the Company or any of its assets or properties, except as would
not reasonably be expected to have a "Material Adverse Effect" (as defined
below), or (c) if the consents and notices set forth in Schedule 3.9.2 are
obtained or given, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under, or (except as
set forth in Schedule 3.9.2) require the Company to obtain any consent, approval
or action of, make any filing with or give any notice to, or result in or give
to any Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
lien upon any of the assets or properties of the Company, under any of the
terms, conditions or provisions of any note, bond, mortgage, security agreement,
indenture, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind (collectively, "Instruments") to
which the Company or any of its assets or properties is bound. For purposes of
this Agreement, "Material Adverse Effect" shall mean any material and adverse
effect on the financial condition, results of operations, assets, properties or
business of the Company and the Subsidiaries or the Purchaser, as applicable.
3.9.2 Approvals and Consents. Except as disclosed on Schedule 3.9.2,
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no consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any Instrument to which the Company
or any Subsidiary is a party or their respective assets or properties are bound,
for the execution and delivery of this Agreement by the Company, the performance
by the Company of its obligations hereunder or the consummation of the
transactions contemplated hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there
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is no action, suit, proceeding at law or in equity by any Person, or any
arbitration or any administrative or other proceeding by or before (or to the
best knowledge, information and belief of the Company, any investigation by) any
governmental or other instrumentality or agency, pending or, to the best
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knowledge, information and belief of the Company, threatened, against the
Company or any Subsidiary with respect to this Agreement or the transactions
contemplated hereby, or against or affecting the Company or any Subsidiary or
their respective properties or rights; and to he best knowledge, information
and belief of the Company, no acts, facts, circumstances, events or conditions
occurred or exist which are a basis for any such action, proceeding or
investigation. Neither the Company nor any Subsidiary is subject to any
judgment, order or decree entered in any lawsuit or proceeding.
Section 3.11 Taxes. The Company and each of its Subsidiaries have
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timely filed, or caused to be filed, taking into account any valid extensions of
due dates, completely and accurately, all federal, state, local and foreign tax
or information returns (including estimated tax returns) required under the
statutes, rules or regulations of such jurisdictions to be filed by the Company
and each Subsidiary with respect to income, franchise, capital stock, employees'
income withholding, back-up withholding, withholding on payments to foreign
persons, social security, unemployment, disability, real property, personal
property, sales, use, excise, transfer and other taxes (including interest,
penalties or additions to tax in respect of the foregoing) whether disputed or
not (all of the foregoing collectively referred to as "Taxes"). All Taxes shown
on said returns to be due and all additional assessments received prior to he
Balance Sheet Date have been paid or are being contested in good faith, in which
case such contested assessments are set forth on Schedule 3.11. The amount set
up as an accrual for Taxes on the Balance Sheet is sufficient for the payment of
all unpaid Taxes of the Company and each Subsidiary, whether or not disputed,
for all periods ended on and prior to the Balance Sheet Date. Since the Balance
Sheet Date, neither the Company nor any Subsidiary has incurred any liabilities
for Taxes other than in the ordinary course of business. The Company has
delivered to the Purchaser correct and complete copies of all federal and state
income tax returns filed with respect to the Company and each Subsidiary for all
taxable periods beginning on or after January 1, 1992. None of the federal,
state or local tax returns of the Company or any Subsidiary has ever been
audited by the Internal Revenue Service or any other governmental authority. No
examination of any return of the Company or any Subsidiary is currently in
progress, and neither the Company nor any Subsidiary has received notice of any
proposed audit or examination. No deficiency in the payment of Taxes by the
Company or any Subsidiary for any period has been asserted in writing by any
taxing authority and remains unsettled at the date of this Agreement. Neither
the Company nor any Subsidiary has made any agreement, waiver or other
arrangement providing for an extension of time with respect to the assessment or
collection of any tax against it or filed a consent with the Internal Revenue
Service pursuant to Section 341 (f)(2) of the Internal Revenue Code of 1986, as
amended (the "Code") or with any other governmental agency to any similar effect
or made an election under Section 338 of the Code. Neither the Company nor any
Subsidiary has been a member of an affiliated group filing consolidated federal
income tax returns (other than the group of which the Company is the common
parent) nor have any of them been included in any combined, consolidated or
unitary state or local income tax return. Neither the Company nor any Subsidiary
is a party to any tax allocation or tax sharing agreement nor do any of them
have any contractual obligation to indemnify any other person with respect to
Taxes. Neither the
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Company nor any Subsidiary will be required as a result of a change in
accounting method for any period ending on or before the Closing Date to include
any adjustment under (S)481 of the Code (or any similar provision of state,
local or foreign income tax law) in income for any period ending after the
Closing Date. Each of the Subsidiaries listed on Schedule 3.11 elected to be
taxed as and "S corporation" within the meaning of Section 1361 of the Code for
federal purposes and for the purposes of the respective states listed on such
Schedule. Such elections remained in full force and effect for the periods
specified in Schedule 3.11.
Section 3.12 Liabilities. Except as set forth in the Balance Sheet or
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referred to in the footnotes thereto, the Company and the Subsidiaries so not
have any outstanding claims, liabilities or indebtedness of any nature
whatsoever (collectively in this Section 3.12, "Liabilities"), whether accrued,
absolute or contingent, determined or undetermined, asserted or unasserted, and
whether due or to become due, other than (i) Liabilities specifically disclosed
in any Schedule hereto; (ii) Liabilities under contracts, purchase orders and
other agreements, arrangements and commitments of the type required to be
disclosed by the Company on any Schedule and so disclosed or which because of
the dollar amount or other qualifications are not required to be listed on such
Schedule; (iii) Liabilities incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date not involving
borrowings by the Company or any Subsidiary and (iv) liabilities which are fully
covered by insurance maintained by the Company or any Subsidiary. Schedule 3.8
sets forth a list of all current arrangements of the Company and the
Subsidiaries for borrowed money and all outstanding balances as of the date
hereof. Neither the Company nor any Subsidiary is in default in respect of the
terms or conditions of any borrowings.
Section 3.13 Insurance. The Company and the Subsidiaries maintain insurance
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of types and in amounts customary for business in similar situations. Neither
the Company nor any Subsidiary has received any notice of cancellation or
non-renewal of any such policy or binder. Except as set forth on Schedule 3.13,
within the last two years neither the Company nor any Subsidiary has filed for
any claims exceeding $25,000 against any of its insurance policies, exclusive of
automobile policies.
Section 3.14 Intellectual Properties. Schedule 3.14 hereto contain an
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accurate and complete list of all Intellectual Property (as defined below) owned
by the Company and the Subsidiaries and all agreements under which any Person
has granted a license under any Intellectual Property to the Company or any
Subsidiary (other than license agreements for "off the shelf" third party
computer software not included within their products or services). The Company
and the Subsidiaries have all right, title and interest in, a valid and binding
license to use, or have the requisite permission and authority to use all
Intellectual Property used in the conduct of their business. Except as set forth
on Schedule 3.14, no claim or infringement or misappropriation of Intellectual
Property is or has been pending or, to the best knowledge, information and
belief of the Company, threatened against the Company or any Subsidiary and, to
the best knowledge, information and belief of the Company, neither the Company
nor any Subsidiary is infringing or misappropriating any Intellectual Property
of any Person. Neither
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the Company nor any Subsidiary has expressly granted any license, franchise or
permit in effect on the date hereof to any Person to use any of the trade names
or any of the trademarks owned by it. The term "Intellectual Property" means
patents and patent rights, trademarks and trademark rights, service marks and
service mark rights, service names and service name rights, copyright and
copyright rights, trade secrets and trade secret rights, rights of privacy and
publicity and other proprietary intellectual property and personal rights and
all pending and all pending applications for and registrations of any of the
foregoing.
Section 3.15 Compliance with Laws: Licenses and Permits.
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3.15.1 Compliance. The Company and the Subsidiaries are, and their
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respective businesses have been conducted, in compliance with all applicable
Laws and Orders, except in each case where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect, including without
limitation, (a) all Laws and Orders promulgated by the Federal Trade Commission
or any other Governmental or Regulatory Authority; (b) all environmental
Laws and Orders; and (c) all Laws and Orders relating to labor, civil rights,
and occupational safety and health laws, worker's compensation, employment and
wages, hours and vacations, or pay equity. Neither the Company nor any
Subsidiary has been charged with, or, to the best information, knowledge and
belief of the Company threatened with or under any investigation with respect
to, any charge concerning any violation of any Laws or Orders.
3.15.2 Licenses. The Company and the Subsidiaries have all licenses and
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permits and other governmental certificates, authorizations and approvals
(collectively "Licenses") required by a Governmental or Regulatory Authority for
the operation of their respective businesses and the use of their respective
properties as presently operated or used, except where the failure to have such
Licenses would not reasonably be expected to have a Material Adverse Effect. All
of the Licenses are in full force and effect and no action or claim is pending,
nor to the best knowledge, information and belief of the Company is threatened,
to revoke or terminate any of such Licenses or declare any such License invalid
in any material respect.
Section 3.16 Client Relations. Schedule 3.16 sets forth for the Company
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and the Subsidiaries (a) the clients as at June 30, 1996 and that had generated
fees to the Company and the Subsidiaries in excess of $50,000 for the fiscal
year then ended, together with the commissions and fees from each client and
from all clients (in the aggregate) for the fiscal year ended June 30, 1996 and
(b) the clients projected to be the twenty largest clients (measured by
commissions and fees) based on the Company's current 1997 profit plan for the
fiscal year ending June 30, 1997, together with the estimated commissions and
fees for each such client and all clients (in the aggregate) for such fiscal
year. The Company does not warrant that the projected revenues set forth on
Schedule 3.16 will prove to be accurate; provided, however, it does represent
that they were made in good faith and upon a reasonable basis. Except as set
forth in Schedule 3.16, no client of the Company (a) has advised the Company in
writing that it is terminating or considering terminating the handling of its
business by the Company or any Subsidiary, as a whole or in respect of any
particular project or service
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or (b) is planning to reduce its future spending with the Company or the
applicable Subsidiary in any material manner, and to the best knowledge,
information and belief of the Company (without making any inquiry of any
clients), no client has orally advised the Company of any of the foregoing
events.
Section 3.17 Accounts Receivable; Work-in-Process: Accounts Payable. The
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amount of all work-in-process, accounts receivable, unbilled invoices (including
without limitation unbilled invoices for services and out-of-pocket expenses)
and other debts due or recorded in the records and books of account of the
Company and the Subsidiaries as being due to the Company or any Subsidiary and
reflected on the Balance Sheet will be good and collectible in full (less the
amount of any provision, reserve or similar adjustment therefor reflected on the
Balance Sheet). There has been no material change since the Balance Sheet Date
in the amount of the work-in-process, accounts receivable or other debts due to
the Company or any Subsidiary or the reserves with respect thereto, or accounts
payable of the Company and the Subsidiaries, in each case other than in the
ordinary course of business.
Section 3.18 Employment Relations. (a) Neither the Company nor any
--------------------
Subsidiary is engaged in any unfair labor practice; (b) no unfair labor practice
complaint against the Company or any Subsidiary is pending before any
Governmental or Regulatory Authority; (c) there is no organized labor strike,
dispute, slowdown or stoppage actually pending or to the best knowledge,
information and belief of the Company threatened against or involving the
Company or any Subsidiary; (d) there are no labor unions representing or, to the
best knowledge, information and belief of the Company, attempting to represent
the employees of the Company or any Subsidiary; (e) no claim or grievance nor
any arbitration proceeding arising out of or under any collective bargaining
agreement is pending and to the best knowledge, information and belief of the
Company, no such claim or grievance has been threatened; (f) no collective
bargaining agreement is currently being negotiated by the Company or any
Subsidiary; and (g) neither the Company nor any Subsidiary has experienced any
work stoppage or similar organized labor dispute during the last three years.
There is no legal action, suit, proceeding or claim pending or, to the best
knowledge, information and belief of the Company, threatened between the Company
or any Subsidiary and any of their respective employees, former employees,
agents, former agents, job applicants or any association or group of any of
their employees, except as set forth on Schedule 3.10.
Section 3.19 Employee Benefit Matter.
-----------------------
3.19.1 List of Plans. Schedule 3.8 to this Agreement lists all employee
-------------
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all termination,
severance or other contracts or agreements, whether formal or informal,
whether or not set forth in writing, whether covering one person or more than
one
11
<PAGE>
person, and whether or not subject to any of the provisions of ERISA, which are
maintained, contributed to or sponsored by the Company and the Subsidiaries for
the benefit of any employee (each item so listed on Schedule 3.8 being referred
to herein individually, as a "Plan" and collectively, as the "Plans"). The
Company has delivered to the Purchaser a complete and accurate copy (where
applicable) of (i) each written Plan and descriptions of any unwritten Plan
(including all amendments thereto whether or not such amendments are currently
effective), (ii) each summary plan description and summary of material
modifications relating to a Plan, (iii) each trust agreement or other funding
arrangement with respect to each Plan, including insurance contracts, (iv) the
most recently filed IRS 5500 relating to each Plan and (v) the most recently
received IRS determination letter for each Plan and (vi) the most recently
prepared actuarial reports and the three most recently prepared financial
statements, if applicable, in connection with each Plan. Except as set forth on
Schedule 3.19.1, neither the Company nor any Subsidiary has made any commitment,
whether legally enforceable or not, (i) to create or cause to exist any other
employee benefit plan, program or arrangement or (ii) to modify, change or
terminate any Plan.
3.19.2 Severance. Except as set forth on Schedule 3.19.2, none of the
---------
Plans, or any employment agreement or other contract to which the Company or any
Subsidiary is a party or bound, provides for the payment of or obligates the
Company or any Subsidiary to pay separation, severance, termination or similar-
type benefits to any Person or obligates the Company or any Subsidiary to pay
separation, severance, termination or similar-type benefits solely as a result
of any transaction contemplated by this Agreement or as a result of a "change in
control," within the meaning of such term under section 280G of the Code.
3.19.3 Multi-Employer Plans. Neither the Company, any Subsidiary, nor any
--------------------
ERISA Affiliate (as herein defined) has maintained, contributed to or
participated in a multi-employer plan (within the meaning of Section 3(37) or
4001(a)(3) of ERISA or a multiple employer plan subject to Section 4063 and 4064
of ERISA) nor has any obligations or liabilities, including withdrawal or
successor liabilities, regarding any such plan. As used herein, the term "ERISA
Affiliate" means any Person that, together with the Company or any Subsidiary,
is considered a "single employer" pursuant to Section 4001(b) of ERISA.
3.19.4 Welfare Benefit Plans. Schedule 3.8 sets forth a complete and
---------------------
accurate list of each Plan which provides or promises retiree medical,
disability or life insurance benefits to any current or former employee, officer
or director of the Company or any Subsidiary. Except as set forth on Schedule
3.19.4, the Company or a Subsidiary has expressly reserved the right, in all
Plan documents relating to welfare benefits provided to employees, former
employees, officers, directors and other participants and beneficiaries, to
amend, modify or terminate at any time the Plans which provide for welfare
benefits.
3.19.5 Administrative Compliance. Each Plan is now and has been operated
-------------------------
in all material respects in accordance with the requirements of all applicable
law, including, without limitation, ERISA and the Code, and the regulations and
authorities published
12
<PAGE>
thereunder. The Company and the Subsidiaries performed all material obligations
required to be performed by them under, are not in any respect in default under
or in violation of, and the Company has no knowledge of any default or violation
by any party to, and Plan. Except as set forth on Schedule 3.10, no legal
action, suit, audit, investigation or claim is pending or to the best knowledge,
information and belief of the Company threatened, with respect to any Plan
(other than claims for benefits in the ordinary course) and; to the best
knowledge, information and belief of the Company, and except as set forth on
Schedule 3.19.5, no fact, event or condition exists that would be reasonably
likely to provide a legal basis for any such action, suit, audit, investigation
or claim. All reports, disclosures, notices and filings with respect to such
Plans required to be made to employees, participants, beneficiaries, alternate
payees and government agencies have been timely made or an extension has been
timely obtained.
3.19.6 Tax Qualification. Except as set forth on Schedule 3.19.6, each
-----------------
Plan which is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and to the
best knowledge, information and belief of the Company, no fact or event has
occurred or condition exists since the date of such determination letter from
the IRS which would be reasonably likely to adversely affect the qualified
status of any such Plan or the exempt status of any such trust.
3.19.7 Funding Excise Taxes. Except as set forth on Schedule 3.19.7,
--------------------
there has been no prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) with respect to any Plan subject to ERISA.
Neither the Company nor any Subsidiary has incurred any liability for any excise
tax arising under Sections 4971, 4972, 4975, 4976, 4977, 4978, 4978B, 4979, 4980
or 4980B of the Code or any civil penalty arising under Sections 502(i) or
502(1) of ERISA, and, to the best knowledge, information and belief of the
Company, no fact, event or condition exists which could give rise to any such
liability. Neither the Company, any Subsidiary nor any ERISA Affiliate has
incurred any liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums to the Pension Benefit Guaranty
Corporation ("PBGC"), or contributions to a Plan, in either case arising in the
ordinary course), including, without limitation, any liability in connection
with the termination of any employee benefit plan subject to Title IV of ERISA
(a "Title IV Plan"); and, to the best knowledge, information and belief of the
Company no fact, event or condition exists which could give rise to any such
liability. None of the assets of the Company, any Subsidiary or any ERISA
Affiliate is the subject of any Lien arising under Section 302(f) of ERISA or
Section 412(n) of the Code; neither the Company, any Subsidiary nor any ERISA
Affiliate has been required to post any security under Section 307 of ERISA or
Section 401(a) (29) of the Code; and to the best knowledge, information and
belief of the Company, no fact or event exists which could give rise to any such
Lien or requirement to post any such security.
13
<PAGE>
3.19.8 Tax Deductions. All contributions, premiums or payments required
--------------
to be made, paid or accrued with respect to any Plan have been made, paid or
accrued on or before their due dates, including extensions thereof. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any government entity and to the
best knowledge, information and belief of the Company, no fact or event exists
which could give rise to any such challenge or disallowance.
Section 3.20 Interests in Customers, Suppliers, Etc. Except as set forth
---------------------------------------
on Schedule 3.20, to best knowledge, information and belief of the Company
(without making any special inquiry of the Related Group, as hereinafter
defined), no officer, director, or employee of the Company or any Subsidiary,
any parent, brother, sister, child or spouse of any such officer, director or
employee (collectively, the "Related Group"), or any entity controlled by anyone
in the Related Group:
(i) owns, directly or indirectly, any interest in (excepting
less than 1% stock holdings for investment purposes in securities
of publicly held and traded companies), or received payments from,
or is an officer, director, employee or consultant of, any Person
which is, or is engaged in business as, a competitor, lessor,
lessee, supplier, distributor, sales agent, customer or client of
the Company or any Subsidiary;
(ii) owns, directly or indirectly (other than through the
ownership of stock or other securities of the Company), in whole or
in part, any tangible or intangible property (including but not
limited to Intellectual Property) that the Company or any
Subsidiary uses in the conduct of business; or
(iii) has any cause of action or other claim whatsoever
against, or owes any amount to, the Company or any Subsidiary,
except as set forth on Schedule 3.20 or for claims in the ordinary
course of business such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and
agreements existing on the date hereof.
Section 3.21 Compensation of Employees. Schedule 3.21 is an accurate and
-------------------------
complete list showing (a) the names and positions of all employees and exclusive
consultants who are currently being compensated by the Company or any Subsidiary
at an annualized rate of $50,000 or more, together with a statement of the
current annual salary, the bonus compensation paid or payable with respect to
fiscal year 1996, and the material fringe benefits of such employees and
exclusive consultants not generally available to all employees of the Company or
the Subsidiaries, (b) all bonus compensation paid or payable (whether by
agreement, custom or understanding) to any employee of the Company or any
Subsidiary not listed in clause (a) above for services rendered during
calendar year 1996, and (c) the names of all retired employees, if any, of the
Company or any Subsidiary who are receiving or entitled to
14
<PAGE>
receive any healthcare of life insurance benefits or any payments from the
Company or any Subsidiary not covered by any pension plan to which the Company
or any Subsidiary is a party, their ages and current unfunded pension rate if
any. Except as set forth on Schedule 3.21, neither the Company nor any
Subsidiary has, because of past practices or previous commitments with respect
to its employees, established any rights on the part of any of its employees to
additional compensation with respect to any period after the Closing Date (other
than wage increases in the ordinary course of business). The present severance
and vacation policy of the Company and the Subsidiaries are set forth on
Schedule 3.21.
Section 3.22 No Changes Since the Balance Sheet Date. Since the
---------------------------------------
Balance Sheet Date except as specifically stated on Schedule 3.22 neither the
Company nor any Subsidiary has (i) incurred any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise), except in the
ordinary course of business and legal and accounting fees incurred in connection
with the Company's proposed public offering, (ii) permitted any of its assets to
be subjected to any lien, (iii) sold, transferred or otherwise disposed of any
assets except in the ordinary course of business, (iv) made any capital
expenditure or commitment therefor which individually or in the aggregate
exceeded $75,000, (v) declared or paid any dividends or made any distributions
on any shares of its capital, or redeemed, purchased or otherwise acquired any
shares of its capital stock or any option, warrant or other right to purchase or
acquire any such shares, (vi) made any bonus or profit sharing distribution
other than bonuses earned and accrued for calendar year 1995, (vii) increased or
prepaid its indebtedness for borrowed money, except current borrowings under
credit lines listed on Schedule 3.8 from banks in the ordinary course of
business or made any loan to any Person, (viii) written down the value of any
work-in-process, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
business, none of which individually or in the aggregate, is material to it (ix)
except as set forth on Schedule 3.21, granted any increase in the rate of wages,
salaries, bonuses or other remuneration of any employee who, whether as a result
of such increase or prior thereto, receives aggregate compensation from the
Company or any Subsidiary at an annual rate of $50,000 or more, or except in the
ordinary course of business to any other employees, (x) canceled or waived any
claims or rights of material value, (xi) made any change in any method of
accounting procedures, (xii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner and in the ordinary
course of its business, (xiii) amended or terminated any agreement which is
material to its business, (xiv) renewed, extended or modified any lease of real
property or except in the ordinary course of business any lease of personal
property, (xv) adopted, amended or terminated any Plan or (xvi) agreed, whether
or not in writing, to do any of the foregoing.
Section 3.23 Corporate Controls. Neither the Company, any Subsidiary,
------------------
nor, to the best knowledge, information and belief of the Company, any officer,
authorized agent, employee or any other Person while acting on behalf of the
Company or any Subsidiary, has, directly or indirectly: used any corporate fund
for unlawful contributions, gifts, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
15
<PAGE>
campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on its books or records; made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other payment of a
similar or comparable nature, to any Person, private or public, regardless of
form, whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained, and
neither the Company nor any Subsidiary has participated in any illegal boycott
or other similar illegal practices affecting any of its actual or potential
customers.
Section 3.24 Brokers. No broker, finder, agent or similar intermediary
-------
has acted on behalf of the Company or any Subsidiary in connection with this
Agreement or the transactions contemplated hereby, and no brokerage commissions,
finder's fees or similar fees or commissions are payable by the Company or any
Subsidiary in connection therewith based on any agreement, arrangement or
understanding with any of them.
Section 3.25 Copies of Documents. The Company has caused to be made
-------------------
available for inspection and copying by the Purchaser and its advisers, true,
complete and correct copies of all documents referred to in this Article III or
in any Schedule. Summaries of all material oral contracts contained in Schedule
3.8 are complete and accurate in all material respects.
Section 3.26 Disclosure. None of this Agreement (including the
----------
Schedules hereto) contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein order to make the
statements herein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
----------
REPRESENTATIONS OF THE PURCHASER
--------------------------------
The Purchaser represents, warrants and agrees to and with the Company as
follows:
Section 4.1 Existence and Good Standing. The Purchaser is a
---------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of New York, with full corporate power and authority to own its
property and to carry on its business all as and in the places where such
properties are now owned or operated or such business is now being conducted.
Section 4.2 Execution and Validity of Agreement. The Purchaser has the
-----------------------------------
full corporate power and authority to make, execute, deliver and perform this
Agreement and the transactions contemplated hereby. The execution and delivery
of this Agreement by the Purchaser and the consummation of the transactions
contemplated hereby have been duly
16
<PAGE>
authorized by all required corporate action on behalf of the Purchaser and this
Agreement has been duly and validly executed and delivered by the Purchaser and
assuming due authorization, execution and delivery by the Company constitutes a
legal, valid and binding obligation of it, enforceable against the Purchaser in
accordance with its terms.
Section 4.3 Non-Contravention: Approvals and Consents.
-----------------------------------------
4.3.1 Non-Contravention. The execution, delivery and performance by the
-----------------
Purchaser of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) violate, conflict with or result in the breach
of any provision of the charter documents or by-laws of the Purchaser, or (b)
result in the violation by the Purchaser of any Laws or Orders of any
Governmental or Regulatory Authority, applicable to the Purchaser or any of its
assets or properties, except as would not reasonably be expected to have a
Material Adverse Effect, or (c) conflict with, result in a violation or breach
of, constitute (with or without notice or lapse of time or both) a default
under, or require the Purchaser to obtain any consent, approval or action of,
make any filing with or give any notice to, or result in or give to any Person
any right of payment or reimbursement, termination, cancellation, modification
or acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Purchaser, under any of the terms, conditions
or provisions of any Instruments to which the Purchaser is a party or by which
the Purchaser or any of its assets or properties are bound.
4.3.2 Approvals and Consents. No consent, approval or action of, filing
----------------------
with or notice to any Governmental or Regulatory Authority or other public or
private third party is necessary or required under any of the terms, conditions
or provisions of any Law or Order of any Governmental or Regulatory Authority or
any Instrument to which the Purchaser is a party or by which the purchaser or
any of its assets or properties is bound for the execution and delivery of this
Agreement by the Purchaser, the performance by the Purchaser of its obligations
hereunder or the consummation of the transactions contemplated hereby.
Section 4.4 Brokers. No broker, finder, agent or similar intermediary has
-------
acted on behalf of the Purchaser or its affiliates in connection with this
Agreement or the transactions contemplated hereby, and no brokerage commissions,
finders' fees or similar fees or commissions are payable by the Purchaser or its
affiliates in connection therewith based on any agreement, arrangement or
understanding with any of them.
Section 4.5 Investment Intent. The Purchaser is acquiring the Purchased
-----------------
Stock for its own account, for investment and not with a view to the sale or
distribution thereof, nor with any present intention of distributing or selling
the same, and the Purchaser agrees that it shall not sell any shares of Common
Stock in violation of the Securities Act or the rules and regulations thereunder
then applicable. The Purchaser understands and agrees that the certificates
representing the shares of Common Stock acquired hereunder shall bear a legend
on
17
<PAGE>
the face thereof restricting transfer except in compliance with the Securities
Act and any applicable state securities laws.
ARTICLE V
---------
ACTIONS AT CLOSING BY THE COMPANY
---------------------------------
Simultaneously herewith:
Section 5.1 Required Approvals, Notices and Consents. The Company shall
----------------------------------------
have obtained or given, at no expense to the Purchaser and there shall not have
been withdrawn or modified any notices, consents, approvals or other actions
listed on Schedule 3.9.2 hereof (including without limitation, obtaining all
consents, approvals and/or waivers required under the contracts listed on
Schedule 3.8 in order to permit the consummation of the transactions
contemplated by this Agreement without causing or resulting in a default, event
of default, acceleration event or termination event under any of such documents
and without entitling any party to any of such documents and without entitling
any party to any of such documents to exercise any other right or remedy adverse
to the interests of the Purchaser or the Company thereunder). Each such consent
or approval shall be in form reasonably satisfactory to counsel for the
Purchaser.
Section 5.2 Shareholder Agreement. The shareholders of the Company have
---------------------
executed and delivered a Shareholders Agreement, in the form of Exhibit B
hereto.
Section 5.3 Certified Resolutions. The Company is delivering to the
---------------------
Purchaser a copy of the resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement and the
transactions and other agreements contemplated hereby, certified to by the
Secretary of the Company.
Section 5.4 Accountants Letter. BDO Seidman LLP, independent certified
------------------
public accountants, shall have delivered a letter to the Purchaser as to the
status of their audit review of the Company's financial statements as at and for
the period ended June 30, 1996.
Section 5.5 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement and all documents incident
thereto were reasonably satisfactory in form and substance to the Purchaser and
its counsel, and the Purchaser received copies of all such documents and other
evidences as it or its counsel may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
18
<PAGE>
Section 5.6 Opinion of Counsel. The Purchaser shall have received the
------------------
opinion of De Martino Finkelstein Rosen & Virga, special counsel to the Company,
dated the Closing Date, substantially in the form and to the effect of Exhibit C
hereto.
ARTICLE VI
----------
ACTIONS AT CLOSING BY THE PURCHASER
-----------------------------------
Simultaneously herewith:
Section 6.1 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement, and all documents incident
thereto were reasonably satisfactory in form and substance to the Company and
its counsel and the Company received copies of all such documents and other
evidences as it or its counsel may reasonably request in order to establish the
consummation of such transaction and the taking of all proceedings in connection
therewith.
ARTICLE VII
-----------
OPTION STOCK
------------
Section 7.1 Grant of Option. The Company hereby grants to the Purchaser
---------------
the option (the "Option") to purchase additional shares of Common Stock of the
Company (the "Option Stock") in amounts calculated, and for a purchase price
determined, in accordance with Sections 7.2 and 7.3 hereof. The Option may be
exercised in whole or in part by written notice or notices given by the
Purchaser to the Company at any time prior to August 31, 1998 (each such notice,
an "Option Notice"). Each Option Notice shall specify the number of shares of
Common Stock as to which the Option is then being exercised.
Section 7.2 Purchase Price of Option Stock. The purchase price per share
------------------------------
of Option Stock (the "Option Price") shall be determined as follows:
(i) The base Option Price shall be $8 per share of Option
Stock;
(ii) In the event that there shall not have occurred prior to
February 28, 1997 the closing of an Offering pursuant to an effective
registration statement under the Securities Act covering the offer
and sale of Common Stock for the account of the Company to the
public, the Option Price shall be $6 per share of Option Stock; and
19
<PAGE>
(iii) In the event that there shall not have occurred prior
to August 31 1997 the closing of an Offering pursuant to an effective
registration statement under the Securities Act covering the offer and
sale of Common Stock for the account of the Company to the public, the
Option Price shall be $4 per share of Option Stock.
In the event that the Purchaser shall have exercised the Option in whole or in
part prior to either such specified date, then in the event of a reduction due
under Section 7.2(ii) and/or Section 7.2(iii), the Company shall not refund to
the Purchaser any portion of the purchase price theretofore paid by the
Purchaser. Rather, the Company shall issue to the Purchaser additional shares of
Common Stock on the applicable dates to reflect the applicable reduction.
Section 7.3 Number of Shares of Option Stock.
--------------------------------
The number of shares of Common Stock constituting the Option Stock
shall be calculated as follows:
(i) The base number of shares constituting the Option Stock
shall be 850,000;
(ii) In the event the Option Price is reduced pursuant to
Section 7.2(ii) above, the number of shares of Common Stock
constituting the Option Stock shall be 1,133,333; and
(iii) In the event the Option Price is reduced pursuant to
Section 7.2(iii) above, the number of shares of Common Stock
constituting the Option Stock shall be 1,700,000.
Section 7.4 Other Adjustments to Option Price and Option Stock. If the
--------------------------------------------------
Company shall change its issued Common Stock into an increased number of shares
of Common Stock through a stock dividend or split-up of shares, or into a
decreased number of shares through a combination of shares, then immediately
after the record date for such change, the number of shares of Common Stock then
subject to the Option shall be increased proportionately in the case of such
stock dividend or split-up, or decreased proportionately in the case of such
combination, and the purchase price of each such share of Common Stock shall be
adjusted appropriately.
Section 7.5 Representations and Warranties of the Company relating to the
-------------------------------------------------------------
Option Stock. The Company hereby represents, warrants, and agrees to and with
------------
the Purchaser as follows:
(a) The shares of Common Stock constituting the Option Stock have
been
20
<PAGE>
duly and validly authorized for issuance and, when issued and delivered by the
Company against payment therefor, will be validly issued and fully paid and
non-assessable and free of preemptive rights.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement, shall pay all
original issue taxes, if any, with respect to the issuance of shares of Common
Stock pursuant hereto and all other fees and expenses necessarily incurred by
the Company in connection therewith, and shall, from time to time, use its best
efforts to comply with all laws and regulations which, in the opinion of
counsel to the Purchaser, shall be applicable thereto.
Section 7.6 Closing of Purchase of Option Stock. A Closing for purchase
-----------------------------------
and sale of Option Stock under the provisions of this Article VII shall be held
at the offices of the Company within 30 days after the delivery of the related
Option Notice. At each such Closing, the Purchaser shall pay the applicable
purchase price, based upon the applicable Option Price and the number of shares
of Option Stock as to which the Option is then being exercised, by wire transfer
to the account of the Company as set forth on Exhibit A, or as the Company may
otherwise direct; and the Company shall issue and deliver to the Purchaser a
certificate or certificates representing the shares of Common Stock being
purchased.
ARTICLE VIII
------------
OTHER AGREEMENTS
----------------
Section 8.1 Standstill. The Purchaser hereby undertakes and agrees that
from the date hereof through August 31,1998, it shall not without the approval
of the Company's Board of Directors purchase any shares of capital stock of the
Company other than pursuant to this Agreement and the Shareholders agreement
attached as Exhibit B hereto.
21
<PAGE>
ARTICLE IX
----------
SURVIVAL; INDEMNITY
-------------------
Section 9.1 Survival. Notwithstanding any right of any party hereto
--------
fully to investigate the affairs of any other party, and notwithstanding any
knowledge of facts determined or determinable pursuant to such investigation or
right of investigation, each party hereto shall have the right to rely fully
upon the representations, warranties, covenants and agreements of the other
parties contained in this Agreement and the Schedules, if any, furnished by any
other party pursuant to this Agreement, or in any certificate delivered at the
Closing by any other party. Subject to the limitations set forth in Section 9.5,
the respective representations, warranties, covenants and agreements of the
Company and the Purchaser contained in this Agreement shall survive the Closing.
Section 9.2 Obligation of the Company to Indemnify. Subject to the
--------------------------------------
limitations contained in Section 9.5 the Company hereby agrees to indemnify the
Purchaser and its affiliates (individually a "Purchaser Indemnified Party" and
collectively, the "Purchaser Indemnified Parties") against, and to protect, save
and keep harmless the Purchaser Indemnified Parties from, and to assume
liability for, payments of all liabilities (including liabilities for Taxes),
obligations, losses, damages, penalties, claims, actions, suits, judgments,
settlements, out-of-pocket costs, expenses and disbursements (including
reasonable costs of investigation, and reasonable attorneys', accountants' and
expert witnesses' fees) of whatever kind and nature to the extent not covered by
insurance which the applicable Indemnified Parties (as defined below) will be
entitled to obtain the benefits of (collectively, "Losses"), that may be imposed
on or incurred by any Purchaser Indemnified Party or the Company (collectively,
the "Group") as a consequence of or in connection with (i) any inaccuracy or
breach of any representation or warranty contained in Article III hereof, or
(ii) any inaccuracy or breach of any representation or warranty contained in
Article VII hereof, or (iii) any breach of or failure by the Company to comply
with or perform any agreement or covenant by the Company contained in this
Agreement. The term "Losses" as used herein is not limited to matters asserted
by third parties against the Group but includes Losses incurred or sustained by
the Group in the absence of third party claims.
Section 9.3 Obligation of the Purchaser to Indemnify. Subject to the
----------------------------------------
limitations set forth in Section 9.5 hereof, the Purchaser hereby agrees to
indemnify the Company (collectively, the Purchaser Indemnified Parties and the
Company are referred to as the "Indemnified Parties") against, and to protect,
save and keep harmless the Company from and to assume liability for any and all
Losses that may be imposed on or incurred by the Company as a consequence of or
in connection with (i) any inaccuracy or breach of any representation or
warranty contained in Article IV hereof or (ii) any breach of or failure by the
Purchaser to comply with or perform any agreement or covenant by the Purchaser
contained in this Agreement.
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Section 9.4 Indemnification Procedures.
--------------------------
9.4.1 Notice of Asserted Liability. The Indemnified Party shall
----------------------------
promptly give notice (the "Claims Notice") to the party or parties required to
pay any amount in respect of Losses under Section 9.2 or 9.3 (collectively, the
"Indemnifying Party"), of any demand, claim or circumstances which in good faith
it believes gives rise, or with the lapse of time would or might give rise to a
claim or the commencement (or threatened commencement) of any action, proceeding
or investigation that may result in any Losses (an "Asserted Liability") without
regard to the limitations on indemnification set forth in Section 9.5 below. The
Claims Notice shall describe the Asserted Liability in reasonable detail, shall
indicate the amount (estimated, if necessary, and to the extent feasible) of the
Losses that have been or may by suffered by an Indemnified Party.
9.4.2 Defense of Asserted Liability. The Indemnifying Party may elect
-----------------------------
to compromise, settle or defend, at its own expense and by its own counsel (such
counsel to be reasonably satisfactory to the Indemnified Party), any Asserted
Liability. If the Indemnifying Party elects to compromise, settle or defend such
Asserted Liability, it shall within 30 days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnified Party in writing of its
intent to do so and the Indemnified Party shall cooperate, at the request and
expense of the Indemnifying Party, in the settlement or compromise of, or
defense against, such Asserted Liability. If the Indemnifying Party elects not
to compromise, settle or defend the Asserted Liability, or fails to notify the
Indemnified Party of its election as herein provided, the Indemnified Party may
pay, compromise, settle or defend such Asserted Liability at the expense of the
Indemnifying Party and the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such third party claim.
Notwithstanding the foregoing, the Indemnifying Party may not settle or
compromise any claim without the prior written consent of the Indemnified Party,
if such settlement or compromise does not include an unconditional release from
all liability without future obligation or prohibition on the part of the
Indemnified Party. If an Indemnified Party objects to a bona fide offer of
settlement which provides solely for a monetary payment and includes an
unconditional release from all liability without future obligation or
prohibition on the part of the Indemnified Party, which the Indemnifying Party
wishes to accept, the Indemnified Party may continue to pursue such matter, free
of any participation by the Indemnifying Party, at the expense of the
Indemnified Party. In such event, the obligation of the Indemnifying Party shall
be limited to the amount of the offer of settlement which the Indemnified Party
refused to accept plus the costs and expenses of the Indemnified Party incurred
prior to the date the Indemnifying Party notified the Indemnified Party of the
offer of settlement. The Indemnified Party shall have the right to employ its
own counsel in any case with respect to an Asserted Liability, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (a) the employment of such counsel shall have been authorized in writing
by the Indemnifying Party in connection with the defense of such action, (b)
such Indemnifying Party shall not have, as provided above, promptly employed
counsel reasonably satisfactory to such Indemnified Party to take charge of the
defense of such action, or (c) such Indemnified Party shall have
23
<PAGE>
reasonably concluded that there may be one or more legal defenses available to
it which are different from or additional to those available to such
Indemnifying Party, in any of which events such reasonable fees and expenses
shall be borne by the Indemnifying Party and the Indemnifying Party shall not
have the right to direct the defense of such action on behalf of the Indemnified
Party in respect of such different or additional defenses. If the Indemnifying
Party chooses to defend any claim, the Indemnified Party shall make available to
the Indemnifying Party any books, records or other documents within its control
that are necessary or appropriate for such defense. The parties hereto agree to
cooperate fully with one another in the defense, compromise or settlement of any
Asserted Liability.
9.4.3 Control by Purchaser. All decisions and determinations to be
made by the Purchaser and/or a Purchaser Indemnified Party under Article IX
shall be made by the Purchaser in the name of and on behalf of the Purchaser or
such other Purchaser Indemnified Party and all such decisions and determinations
shall be binding upon the parties hereto and such Purchaser Indemnified Party.
Section 9.5 Limitations on Indemnification.
------------------------------
9.5.1 Termination of Indemnification Obligations of the Company under
---------------------------------------------------------------
Section 9.2(i). The obligation of the Company to indemnify under clause (i) of
--------------
Section 9.2 hereof shall terminate on the earlier of (x) the closing of the
Company's first firm commitment underwritten public offering pursuant to an
effective registration statement filed under the Securities Act covering the
offering and sale of capital stock for the account of the Company to the public;
and (y) June 30, 1999 except (i) as to matters as to which the Purchaser
Indemnified Party has made a claim for indemnification or given a Claims Notice
under Section 9.4 hereof on or prior to such date and, (ii) with respect to any
claim for Losses pertaining to a misrepresentation or a breach of representation
or warranty under Section 3.11 or any other Section of Article III of this
Agreement relating to Taxes, and (iii) with respect to any claim for Losses
pertaining to a misrepresentation or a breach of representation and warranty
under Section 3.4 or Section 3.26 hereof. The obligation to indemnify referred
to in:
(a) the preceding clause (i) shall survive the expiration of
such period until such claims are finally resolved and any obligations with
respect thereto are fully satisfied; and
(b) the preceding clause (ii) shall terminate 60 days after the
expiration of the relevant federal, state or local statute of limitations,
except as to matters as to which any Indemnified Party has made a claim for
indemnification or given a Claims Notice under Section 9.4 on or prior to such
date, in which case the right to indemnification with respect thereto shall
survive the expiration of any such period until such claim is finally resolved
and any obligations with respect thereto are fully satisfied and
(c) the preceding clause (iii) shall terminate on June 30, 1999,
except as to matters as to which the Purchaser Indemnified Party has made a
claim for indemnification or
24
<PAGE>
given a Claims Notice under Section 9.4 hereof on or prior to such date, as to
which the obligation to indemnify shall survive the expiration of such period
until such claims are finally resolved and any obligations with respect thereto
are fully satisfied.
9.5.2 Termination of Indemnification Obligations of the Company under
---------------------------------------------------------------
Section 9.2(ii) The obligation of the Company to indemnify under clause (ii) of
---------------
Section 9.2 hereof shall terminate on the third anniversary of the respective
Closing(s) of the purchase and sale of Option Stock, except in each case as to
matters as to which the Purchaser Indemnified Party has made a claim for
indemnification or given a Claims Notice under Section 9.4 hereof on or prior to
such date, as to which the obligation to indemnify shall survive the expiration
of such period until such claims are finally resolved and any obligations with
respect thereto are fully satisfied.
9.5.3 Termination of Indemnification Obligations of the Purchaser. The
-----------------------------------------------------------
obligation of the Purchaser to indemnify under clause (i) of Section 9.3 hereof
shall terminate on June 30, 1999 except as to matters as to which the Company
has made a claim for indemnification or given a Claims Notice under Section 9.4
hereof on or prior to such date, in which case the right to indemnification with
respect thereto shall survive until the related claim for indemnification has
been finally resolved and any obligations with respect thereto are fully
satisfied.
ARTICLE X
---------
MISCELLANEOUS
-------------
Section 10.1 Expenses. The parties hereto shall pay all of their own
--------
expenses relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel and
financial advisers.
Section 10.2 Governing Law. The interpretation and construction of
-------------
this Agreement, and all matters relating hereto, shall be governed by the laws
of the State of New York without reference to its conflict of laws provisions.
Section 10.3 "Person" Defined. "Person" shall mean and include an
----------------
individual, a Company, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
Section 10.4 "Knowledge" Defined. Where any representation and
-------------------
warranty contained in this Agreement is expressly specified by reference to the
best knowledge, information and belief of the Company, such term shall be
limited to the actual knowledge of the executive officers of the Company and
unless otherwise stated, such knowledge that would have been discovered by all
such persons after reasonable inquiry.
25
<PAGE>
Section 10.5 "Affiliate" Defined. As used in this Agreement, an
-------------------
"affiliate" of any Person, shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with such Person.
Section 10.6 Captions. The Article and Section captions used herein
--------
are for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 10.7 Publicity. Subject to the provisions of the next
---------
sentence, no party to this Agreement shall issue any press release or other
public document or make any public statement relating to this Agreement or the
matters contained herein without obtaining the prior approval relating to this
Agreement or the matters contained herein without obtaining the prior approval
of the Purchaser and the Company. Notwithstanding the foregoing, the foregoing
provision shall not apply to the extent that the Purchaser or the Company is
required to make any announcement relating to or arising out of this Agreement
by virtue of the federal securities laws of the United States or the rules
and regulations promulgated thereunder or other rules of the New York Stock
Exchange or the National Association of Securities Dealers, or any announcement
by the Company or the Purchaser pursuant to applicable law or regulations.
Section 10.8 Notices. Unless otherwise provided herein, any notice,
-------
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand, (b) three days after the date of
deposit in the mails, postage prepaid, if mailed by certified or registered
mail, or (c) the next business day if sent by facsimile transmission (if receipt
is electronically confirmed) or by a prepaid overnight courier service, and in
each case at the respective addresses or numbers set forth below or such other
address or number as such party may have fixed by notice:
If to the Purchaser, addressed to:
Diversified Agency Services Group
Division of Omnicom Group, Inc.
437 Madison Avenue
New York, New York 10022
Attention: Chief Financial Officer
Fax: (212) 415-3530
with a copy to:
--------------
Davis & Gilbert
1740 Broadway
New York, New York 10019
Attention: Michael D. Ditzian, Esq.
Fax: (212) 468-4888
26
<PAGE>
If to the Company to its address set forth on Exhibit A:
with a copy to:
--------------
De Martino Finkelstein Rosen & Virga
Suite 400
1818 N Street, N.W.
Washington D.C. 20036-2492
Attention: Ralph V. De Martino, Esq.
Fax: (202) 659-1290
Section 10.9 Parties in Interest. This Agreement may not be transferred,
-------------------
assigned, pledged or hypothecated by any party hereto, other than by operation
of law, except that the Purchaser may assign or transfer the Purchased Stock
and/or Option to any company within its group of companies whose capital stock
is wholly owned, directly or indirectly, by it. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
Section 10.10 Severability. In the event any provision of this Agreement
------------
is found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
Section 10.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
Section 10.12 Entire Agreement. This Agreement, including the other
----------------
documents referred to herein and the Exhibits and Schedules hereto which form a
part hereof, contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and therein. This agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
Section 10.13 Amendments. This Agreement may not be amended, supplemented
----------
or modified orally, but only by an agreement in writing signed by the Purchaser
and the Company.
Section 10.14 Third Party Beneficiaries. Each party hereto intends that
-------------------------
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto and their respective
successors and assigns as permitted under Section 10.9.
Section 10.15 Jurisdiction. Any judicial proceeding brought against any
------------
of the parties to this Agreement on any dispute arising out of this Agreement or
any matter related hereto shall be brought in the courts of the State of New
York or in the United States District Court for the
27
<PAGE>
Southern District of New York, and, by execution and delivery of this Agreement,
each of the parties to this Agreement accepts for itself or himself the process
in any action or proceeding by the mailing of copies of such process to such
party at its address as set forth in Section 10.8, and irrevocably agrees to be
bound by any judgement rendered thereby in connection with this Agreement. Each
party hereto irrevocably waives to the fullest extent permitted by law any
objection that it or he may now or hereafter have to the laying of the venue of
any judicial proceeding brought in such courts and any claim that any such
judicial proceeding has been brought in an inconvenient forum. The foregoing
consent to jurisdiction shall not constitute general consent to service of
process in the State of New York for any purpose except as provided above and
shall not be deemed to confer rights on any person other than the respective
parties to this Agreement. EACH PARTY HERETO WAIVES TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING UNDER THIS AGREEMENT.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, on the
day and year first above written.
THINK NEW IDEAS INC.
By: /s/ Ron Bloom
----------------------------------
Name: Ron Bloom
Title: COO
OMNICOM GROUP INC.
By:
----------------------------------
Name:
Title:
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, on the
day and year first above written.
THINK NEW IDEAS INC.
By:
----------------------------------
Name:
Title:
OMNICOM GROUP INC.
By: /s/ Barry J. Wagner
----------------------------------
Name: Barry Wagner
Title: Secretary
THINK New Ideas, Inc.
45 West 36th Street
New York, New York 10018
September 23, 1996
Mr. Dale Adams
Chief Financial Officer
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Re: Amendment to Purchase Agreement (dated 8/16/96)
-----------------------------------------------
Dear Dale:
Reference is hereby made to that certain Stock Purchase and Option
Agreement dated as of August 16, 1996 (the "Purchase Agreement") between THINK
New Ideas, Inc. (the "Corporation") and Omnicom Group Inc. ("Omnicom"). This
letter is intended to confirm that, notwithstanding anything else to the
contrary set forth in the Purchase Agreement, the Corporation and Omnicom hereby
have agreed that in consideration of the issuance to Omnicom of 2,123,422
additional shares of Common Stock, par value $.0001 (the "Common Stock") by the
Corporation, the Purchase Agreement shall be amended such that Article VII of
the Stock Purchase Agreement relating to the Option (as defined therein) shall
be deleted therefrom in its entirety, all references elsewhere in the Purchase
Agreement to the Option shall be of no force or effect whatsoever and no shares
of Common Stock shall be deliverable thereunder. Except as otherwise expressly
modified hereby or require to effectuate the modification set forth herein, the
Purchase Agreement shall remain unchanged and shall continue in full force and
effect pursuant to the terms thereof.
It is expressly understood that the number of additional shares of
Common Stock issuable as consideration hereunder contemplates the effects of the
Corporation's proposed .496225157 for one reverse stock split which will give
Omnicom ownership of 22% of the Corporation's outstanding shares of Common
Stock. It is further understood that the Corporation my effect additional
reverse stock splits and that nothing set forth herein or in the Purchase
Agreement shall be construed to prohibit, restrict or otherwise limit the
Corporation's ability to effect such transactions.
In connection with execution hereof, the Corporation and Omnicom have
agreed that continuing effectiveness of this letter agreement and the amendments
and modifications referred to herein are conditioned upon the Corporation's
consummation of an underwritten public offering of no more than 3,000,000
shares of Common Stock(plus any overallotment option and convertible securities
issued to the underwriters thereof in connection therewith) for gross
<PAGE>
Mr. Dale Adams
September 23, 1996
Page 2
proceeds of no less than $15,000,000 (exclusive of any overallotment option and
convertible securities issued to the underwriters thereof in connection
therewith).
This letter agreement contains the entire agreement between the Corporation
and Omnicom with respect to the modification which is the subject hereof. This
letter agreement may not be amended, changed, modified or discharged, nor may
any provision hereof be waived, except by an instrument in writing executed by
or on behalf of the party against whom enforcement of any amendment, waiver,
change, modification or discharge is sought. No course of conduct or dealing
shall be construed to modify, amend or otherwise affect any of the provisions
hereof. Please confirm that Omnicom is in agreement with the foregoing, and that
the foregoing is in accordance with your understanding by signing and returning
this letter, which shall thereupon constitute a binding agreement.
Agreed to and accepted as of this
23rd day of September, 1996:
OMNICOM GROUP INC. THINK NEW IDEAS, INC.
By: By:
--------------------------- ---------------------------------------
Melvin Epstein, Chief Financial Officer
Its:
--------------------