<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 2000
REGISTRATION NO. 333-31722
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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NOVO GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 94-3214072
(State or other jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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KELLY A. RODRIQUES
CHIEF EXECUTIVE OFFICER
NOVO GROUP, INC.
222 SUTTER STREET, 6TH FLOOR
SAN FRANCISCO, CALIFORNIA 94108
(415) 646-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Copies To:
<TABLE>
<S> <C>
RONALD H. STAR, ESQ. DAVID G. ODRICH, ESQ.
JOANNE BAL, ESQ. MICHAEL C. DORAN, ESQ.
SUE A. KRENEK, ESQ. PAUL L. SIEBEN, ESQ.
STACY A. PASKO, ESQ. ALICIA A. PERLA, ESQ.
HOWARD, RICE, NEMEROVSKI, CANADY, BROBECK, PHLEGER & HARRISON LLP
FALK & RABKIN, A PROFESSIONAL CORPORATION TWO EMBARCADERO PLACE
THREE EMBARCADERO CENTER, SUITE 700 2200 GENG ROAD
SAN FRANCISCO, CALIFORNIA 94111 PALO ALTO, CALIFORNIA 94303
(415) 434-1600 (650) 424-0160
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
[NOVO LOGO]
SHARES
NOVO GROUP, INC.
COMMON STOCK
$ PER SHARE
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We are selling shares of our common stock. The underwriters named in
this prospectus may purchase up to additional shares of common stock
to cover over-allotments.
This is an initial public offering of our shares of common stock. We
currently expect the initial public offering price to be between $ and
$ per share, and have applied to have the common stock included for
quotation on the Nasdaq National Market under the symbol "NOVO."
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INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Assumed public offering price: $ $
Underwriting discount: $ $
Proceeds to NOVO (before expenses): $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to the purchasers on or about
, 2000.
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SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
SG COWEN
FRIEDMAN BILLINGS RAMSEY
, 2000
<PAGE> 3
[INSIDE COVER OF PROSPECTUS]
RELATIONSHIP ARCHITECTS FOR E-BUSINESS(SM)
[GRAPHICS FROM CUSTOMER WEBSITES, INCLUDING CONTINENTAL AIRLINES, GLOSS.COM,
TOYOTA, PROCTER & GAMBLE, AVERY DENNISON, GENERAL MOTORS, LEVI STRAUSS, 3COM AND
MOTOROLA]
[GRAPHIC OF NOVO'S "RAPID CUSTOMER VALUE DEPLOYMENT" METHODOLOGY]
BRIEF DESCRIPTIONS OF NOVO'S SERVICE OFFERINGS
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Special Note Regarding Forward-Looking Statements........... 18
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Consolidated Financial Data........................ 22
Pro Forma Combined Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 32
Management.................................................. 44
Certain Transactions........................................ 53
Principal Stockholders...................................... 55
Description of Capital Stock................................ 57
Shares Eligible for Future Sale............................. 60
Underwriting................................................ 61
Legal Matters............................................... 63
Experts..................................................... 63
Where You Can Find More Information......................... 63
Index to Financial Statements............................... F-1
</TABLE>
Our corporate headquarters and business address is 222 Sutter Street, 6th
Floor, San Francisco, California 94108, and our telephone number is (415)
646-7000. Our website is www.novocorp.com. The information on our website does
not constitute part of this prospectus.
Unless otherwise indicated, all information in this prospectus:
- gives effect to the conversion of all of our outstanding shares of
preferred stock, Series A common stock, Series B common stock and Series
C common stock into shares of common stock upon the closing of this
offering;
- assumes no exercise of the underwriters' option to purchase an additional
shares of common stock; and
- gives effect to our reincorporation from California to Delaware, to
become effective prior to the closing of this offering.
Until , 2000, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to each dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to its unsold
allotments or subscriptions.
NOVO, Relationship Architects for e-Business, Economies of One and Rapid
Customer Value Deployment are trademarks or service marks of Novo Group, Inc.
This prospectus also contains trademarks and registered trademarks of other
companies.
3
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PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
"Risk Factors" and the consolidated financial statements and the related notes,
before deciding to invest in our common stock.
OUR COMPANY
NOVO is a leading professional services firm that architects and transforms
businesses to better compete in the digital economy. We offer our clients
innovative and integrated e-Business solutions that combine strategy,
technology, design and marketing services. Our e-Business solutions reflect our
belief that the Internet creates opportunities for businesses to more personally
and effectively serve their constituents, which include their customers,
suppliers, strategic partners, employees and stockholders. These solutions are
designed to foster long-term, personalized relationships between our clients and
their constituents. We refer to this personalized market dynamic as "Economies
of One(SM)."
We deliver our e-Business solutions using a methodology called "Rapid
Customer Value Deployment(SM)." This multi-disciplinary, collaborative approach
is designed to ensure that every facet of an engagement is aligned with our
client's overall e-Business objectives. Our methodology is marked by distinct
yet interdependent service offerings that are capable of taking an e-Business
solution from conception through development and deployment. These four service
offerings are:
- Business Strategy -- Our strategy teams work in partnership with our
clients to identify opportunities and plan the operations necessary to
achieve their e-Business objectives.
- Technology Application Development and Systems Integration -- Our
technology teams build and integrate new and existing hardware and
software with our clients' third-party applications, legacy systems and
business processes.
- Digital Design and User Experience -- Our award-winning design teams
create the components that shape the user experience in support of our
clients' e-Business objectives.
- Marketing Services -- Our marketing teams evaluate and develop programs
designed to acquire and retain customers, increase communication between
our clients and their constituents, and build and extend brands.
We focus on developing large-scale, long-term strategic relationships with
our clients. Our clients include a select group of Global 1000 and dot.com
companies, such as 3Com, Avery Dennison, Continental Airlines, E*Trade, General
Motors, Gloss.com, Motorola, Procter & Gamble and Toyota. We deliver our
services from offices in San Francisco, New York, Los Angeles and Detroit, and
we had approximately 190 full-time employees as of February 29, 2000.
OUR MARKET OPPORTUNITY
We believe the Internet is creating a new market dynamic. Customers now
have greater opportunities to customize the products and services they purchase
due to their increased access to timely information and their ability to respond
immediately and directly. In our view, customer satisfaction and loyalty have
become, and will continue to be, a key component to the success of a business.
As a result, the market for Internet services providers is expanding as
businesses seek to build and enhance their relationships with their
constituents. International Data Corporation, or IDC, estimates that the
worldwide market for Internet services will grow from $12.9 billion in 1999 to
over $78.6 billion by 2003, representing a compound annual growth rate of over
57%.
We believe that companies seeking to build businesses on the Internet are
best served by professional services firms that provide an integrated,
multidisciplinary approach and that establish accountability in their
engagements through specific business metrics designed to measure the success of
the initiative.
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OUR APPROACH
We consider ourselves "Relationship Architects for e-Business(SM)," meaning
that we create and enhance personalized relationships by designing and
implementing complete e-Business solutions. These relationships seek to build a
competitive advantage for our clients.
Our integrated approach focuses on generating customer value while
addressing the time-to-market challenges common to implementing e-Business
solutions. We utilize our methodology, Rapid Customer Value Deployment, to
efficiently serve our clients.
We differentiate ourselves through what we believe is a unique approach to
client accountability. We seek to include in our client arrangements a
predetermined set of metrics that permits our clients to measure results against
their business objectives. We proactively seek incentive compensation from our
clients tied to achieving those objectives. We afford our employees an
opportunity to participate in this incentive compensation. In this way, we align
the interests of our company and our individual employees with those of our
clients.
We are selective in accepting client engagements. We seek opportunities
that will lead to long-term relationships with clients who intend to capture the
competitive advantages provided by our integrated approach and solutions.
OUR STRATEGY
Our goal is to build and enhance our position as a leading provider of
e-Business solutions. Our strategy to achieve this goal is as follows:
- create and expand long-term relationships;
- strengthen NOVO brand;
- attract and retain highly qualified professionals;
- leverage and develop strategic alliances and relationships; and
- enhance skill sets and expand geographic presence.
OUR HISTORY
We were incorporated in California in 1994 and reincorporated in Delaware
in March 2000 as Novo Group, Inc. Our corporate headquarters and business
address is 222 Sutter Street, 6th Floor, San Francisco, California 94108, and
our telephone number is (415) 646-7000. Our website is www.novocorp.com. The
information on our website does not constitute part of this prospectus.
5
<PAGE> 7
THE OFFERING
Common stock offered by NOVO........ shares
Common stock to be outstanding after
the offering........................ shares(1)
Use of Proceeds..................... For working capital and general
corporate purposes, including marketing
expenses and the expansion of our
operations. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.............................. NOVO
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(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999 and
does not include the following:
- 1,600,000 shares of common stock reserved under our 1998 Novo Series B
Common Stock Incentive Plan, of which 1,360,929 shares are subject to
outstanding options at a weighted average exercise price of $1.36 per
share and 121,441 shares are reserved for future option grants;
- 4,100,000 shares of common stock reserved for issuance under our 1999
Novo Series A Common Stock Incentive Plan, of which 4,093,819 shares are
subject to outstanding options at a weighted average exercise price of
$2.25 per share; and
- 21,062 shares of common stock are reserved for future option grants. See
"Management -- Employee Benefit Plans."
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information as of December 31, 1999 and
for the years ended December 31, 1998 and 1997 are calculated from our audited
consolidated statements included in this prospectus.
You should read the following data with the more detailed information
contained in "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and the notes to the consolidated financial
statements, each included in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
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PRO FORMA
1997 1998 1999 1999(1)(2)
------- ------- ------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 3,835 $ 4,416 $13,735 $21,230
Gross profit........................................... 861 1,725 7,307 11,413
Loss from operations................................... (1,899) (635) (3,214) (9,713)
Net loss............................................... $(2,070) $ (703) $(1,840) (8,382)
======= ======= ======= =======
Basic and diluted net loss per share................... $ (0.31) $ (0.07) $ (0.11) $ (0.32)
======= ======= ======= =======
Basic and diluted weighted average shares
outstanding.......................................... 6,590 10,196 16,985 25,962
Pro forma basic and diluted net loss per share
(unaudited)(3)....................................... $ (0.10) $ (0.31)
======= =======
Pro forma basic and diluted weighted average shares
outstanding (unaudited).............................. 18,169 27,146
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
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ACTUAL AS ADJUSTED(4)
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(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,866
Working capital............................................. 10,157
Total assets................................................ 46,821
Total liabilities........................................... 8,044
Total stockholders' equity.................................. 38,777
</TABLE>
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(1) Reflects the acquisition of Blue Marble ACG, Ltd., including the
amortization of goodwill and other intangible assets, as if the acquisition
had occurred on January 1, 1999.
(2) Pro Forma basic and diluted net loss per share is computed using the
weighted average number of common shares outstanding, including common
shares issued in connection with the acquisition, as if these shares were
outstanding from January 1, 1999.
(3) Includes conversion of all outstanding shares of Series A preferred stock on
a one-for-one basis.
(4) Adjusted to reflect the sale of shares of common stock offered in
this offering at an assumed offering price of $ per share and after
deducting estimated underwriting discounts and commissions and offering
expenses payable by us and the application of our net proceeds from the
offering. See "Capitalization."
7
<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before making an investment decision.
If any of the following risks occur, our business, financial condition or
results of operations could be materially harmed. In that case, the trading
price of our common stock could decline and you could lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
FLUCTUATIONS IN OUR QUARTERLY REVENUE AND OPERATING RESULTS MAY AFFECT THE PRICE
OF OUR COMMON STOCK.
Fluctuations in our quarterly revenue could adversely affect the market
price of our common stock. Any shortfall in our revenue would have a direct
impact on our operating results for a particular quarter.
Our operating results may fluctuate significantly as a result of a variety
of factors, many of which are outside of our control. These factors include:
- changes in the level of demand for Internet professional services;
- changes in our operating expenses as we expand our operations;
- changes in the growth rate of Internet usage;
- unanticipated variations in resources needed to complete client
engagements;
- length of the sales cycle associated with our service offerings;
- unanticipated variations in the size, budget, number or progress toward
completion of our engagements;
- unanticipated termination or delay of a major engagement or a client's
decision not to proceed with an anticipated engagement;
- changes in pricing policies by us or by our competitors;
- costs of attracting and training skilled personnel;
- efficiency with which we utilize our employees, including our ability to
transition employees between engagements;
- integration of any businesses we may acquire; and
- general economic conditions.
THE LOSS OF ONE OR MORE SIGNIFICANT CLIENTS COULD HARM OUR BUSINESS.
We derive a significant portion of our revenue from large-scale engagements
for a limited number of clients. Most of these relationships are terminable by
the client without penalty on 30 days prior written notice. The loss of any
major client, if not replaced, could dramatically reduce our revenue. In 1999
our five largest clients were Procter & Gamble, Gloss.com, General Motors,
Toyota and Continental Airlines, which represented 21%, 16%, 12%, 10% and 7% of
our revenues, respectively, on a pro forma basis, as if we had acquired Blue
Marble ACG, Ltd. on January 1, 1999 rather than on the actual date of
acquisition, August 31, 1999. The loss of any of these clients, or a material
reduction in their use of our services, could seriously harm our business and
operating results.
WE HAVE A HISTORY OF LOSSES AND WE MAY INCUR SIGNIFICANT FUTURE LOSSES.
We incurred net losses of $2.1 million for the year ended December 31,
1997, $0.7 million for the year ended December 31, 1998 and $1.8 million for the
year ended December 31, 1999. As of December 31, 1999, we had an accumulated
deficit of $8.7 million. Since 1995, we have not achieved
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<PAGE> 10
annual profitability, and we may incur significant and increasing net losses in
the foreseeable future. We intend to continue to invest significantly to build
our infrastructure, hire employees, increase our sales and marketing, and expand
our geographic presence. As a result, we will need to generate significant
revenues to achieve and maintain profitability. We cannot assure you that any of
our business strategies will be successful, that significant revenues or
profitability will ever be achieved or that we will be able to sustain or
increase profitability on an ongoing basis. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
IF WE ARE UNABLE TO IDENTIFY, HIRE, TRAIN AND RETAIN HIGHLY QUALIFIED
PROFESSIONALS, OUR BUSINESS AND GROWTH COULD SUFFER.
Our future success depends in large part on our ability to retain, hire,
train and motivate qualified professionals. Skilled professionals in our market
are in short supply, and the competition for them is intense. As a result, we
may be unable to retain our qualified professionals to meet our existing
business needs. In addition, we may be unable to hire a sufficient number of
qualified professionals to meet our business plans. We may also have difficulty
attracting and hiring our desired number of qualified professionals after the
offering since some may perceive that the stock option component of their
compensation package is no longer as valuable. If we cannot retain, attract and
hire the necessary professionals, our ability to grow, complete existing
projects and bid for new projects could be harmed and our business, results of
operations and financial condition could suffer.
OUR BUSINESS WILL BE HARMED IF WE FAIL TO ATTRACT AND RETAIN KEY PROFESSIONALS.
We believe that our success will depend on the continued employment of our
senior management team and other key professionals. This dependence is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. If one or more
members of our senior management team or other key professionals were unable or
unwilling to continue in their present positions, our business could be
seriously harmed. In addition, if any of our key professionals join a competitor
or form a competing company, some of our clients might choose to use the
services of that competitor or those of a new company instead of our own.
Furthermore, some of our clients or other companies seeking to develop in-house
business capabilities may hire away some of our key professionals.
WE FACE POTENTIAL LIABILITY FOR DEFECTS OR ERRORS IN THE SERVICES WE OFFER.
Many of the services we offer are critical to the operations of our
clients' businesses, yet potentially vulnerable to computer viruses, security
breaches and other disruptions and failures. We cannot be certain that the
services we offer will be successful in preventing these or other problems. Any
defects or errors in our services could result in:
- claims against us;
- delayed or lost client revenue;
- adverse client reaction to us;
- negative publicity; or
- additional expenditures to correct the problem.
Our standard agreements limit our liability arising from our negligent
conduct and for other potential liabilities in rendering our services. In
addition, we carry comprehensive general liability insurance. However, these
contractual provisions may not protect us from liability for all damages. In
addition, all claims may not be adequately covered by insurance and may raise
our insurance costs. Liability claims brought against us could divert the
attention of management and key personnel, could be expensive to defend and may
result in adverse settlements and judgments.
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IF WE FAIL TO MEET OUR CLIENTS' EXPECTATIONS, OUR REPUTATION COULD BE DAMAGED
AND WE COULD HAVE DIFFICULTY ATTRACTING NEW BUSINESS.
Many of our projects are complex and critical to our clients. As a result,
if we are unable to meet a client's expectations, our reputation could be
damaged. This could adversely affect our ability to attract new business from
that client or others. If we fail to perform adequately on a project, we could
be subject to claims for economic damages.
OUR LIMITED OPERATING HISTORY MAKES EVALUATION OF OUR BUSINESS PROSPECTS
DIFFICULT.
We were formed in 1994. We have only a limited operating history on which
to base an evaluation of our business and prospects. Our business and prospects
must be considered in light of the risks, uncertainties, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets, such as
the market for Internet professional services. Due to our limited operating
history, we cannot forecast revenues or operating expenses based on our
historical results. If our revenues do not meet our projections, our net losses
will be even greater than we anticipate and our business, operating results and
financial condition may be harmed.
OUR LACK OF LONG-TERM CONTRACTS WITH OUR CLIENTS MAKES OUR REVENUE PREDICTION
DIFFICULT.
We generally are retained by our clients on a per-project basis, rather
than through long-term contracts. Our engagements vary greatly in size and
scope. Accordingly, our revenue can be difficult to predict. We incur costs
based on our expectations of the scope and nature of our engagements. Because
our operating expenses are relatively fixed, they cannot be reduced on short
notice to compensate for unanticipated changes in the number, size or scope of
our engagements in progress. Our failure to predict our revenue accurately may
cause the increase in our expenses to substantially outpace our revenue growth
and, as a result, our business, operating results and financial condition may be
materially harmed.
OUR RECENT ACQUISITION MAKES EVALUATING OUR BUSINESS DIFFICULT.
On August 31, 1999, we acquired Blue Marble, a New York-based Internet
professional services firm, from The MacManus Group, a global network of
advertising, marketing and communications companies that has since become a
subsidiary of BDM, Inc. Our historical results of operations do not give full
effect to Blue Marble's operations, and the unaudited pro forma financial
information included in this prospectus is based in part on the separate
pre-acquisition financial reports of Blue Marble. Consequently, our historical
results of operations and pro forma financial information may not give you an
accurate indication of how our combined company will perform in the future.
A SINGLE STOCKHOLDER HAS A SIZABLE OWNERSHIP INTEREST IN OUR COMPANY AND CAN
EXERT SIGNIFICANT CONTROL OVER US.
Immediately following this offering, approximately % of the outstanding
shares of our common stock will be owned by MacManus and N.W. Ayer
Communications, Inc., a subsidiary of MacManus and BDM, Inc. In addition,
approximately % of the outstanding shares of our common stock will be owned by
employees of MacManus or its subsidiaries. This sizable ownership interest will
allow MacManus to substantially influence the election of our directors, the
appointment of new management and the approval of any other action requiring the
approval of our stockholders, including amending our certificate of
incorporation or bylaws and approving or defeating mergers or sales of all of
our assets. In addition, without the consent of MacManus, we could be prevented
from entering into transactions that could be beneficial to us. Also, third
parties could be discouraged from making a tender offer or bid to acquire our
company at a price per share that is above the price at which the common stock
trades. See "Principal Stockholders."
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OUR BUSINESS COULD SUFFER IF WE LOSE THE REFERRALS WE CURRENTLY RECEIVE FROM OUR
MAJOR STOCKHOLDER.
Our acquisition of Blue Marble brought us into contact with clients of
MacManus, and we continue to receive client referrals from companies affiliated
with MacManus' parent, BDM. Client referrals from BDM companies currently
account for approximately 55% of our revenue on a pro forma basis. BDM owns
Giant Step Productions LLC, an Internet professional services firm that competes
with us. If BDM chose to divert some or all of its referral clients to Giant
Step or other Internet professional services firms, our business, operating
results and financial condition would be seriously harmed.
WE MAY BE UNABLE TO SUCCESSFULLY MANAGE OUR GROWTH.
We expect to continue to rapidly expand our business. From January 1, 1997
through February 29, 2000, the number of our employees has grown from
approximately 20 to approximately 190 employees. The expansion of our business
and customer base has placed, and will continue to place, increased demands on
our management, operating systems, internal controls and financial and physical
resources. If not managed effectively, these increased demands may adversely
affect the services we provide to our existing clients. Consequently, in order
to manage our growth effectively, we may be required to increase expenditures to
expand, train and manage our employee base, improve our management, financial
and information systems and controls, or make other capital expenditures. Our
personnel, systems, procedures and controls may be inadequate to support our
future operations if our hiring does not keep pace with the growth of our
business operations. Any failure in our efforts to manage our growth efficiently
could adversely affect our business, operations and financial condition.
OUR BUSINESS OPPORTUNITIES MAY BE RESTRAINED BY CONFLICTS BETWEEN POTENTIAL
CLIENTS.
We have chosen in the past, and will likely choose in the future, not to
pursue certain potential opportunities because they would result in offering
similar services to direct or indirect competitors of existing clients.
Additionally, we risk alienating existing clients if we provide services to
competitors. These conflicts could cause our operating results to suffer because
they could jeopardize revenue generation from existing and potential clients. If
we agree not to perform services for a particular client's competitors and that
client's business performs poorly, we are unlikely to receive future revenue in
that particular market.
IF OUR CLIENTS DO NOT CONTINUE TO RETAIN OUR SERVICES, OUR BILLABLE
PROFESSIONALS MAY BE UNDERUTILIZED, WHICH COULD CAUSE OUR OPERATING EXPENSES TO
INCREASE.
Our clients or potential clients may choose not to retain or not to
continue to retain our services for a number of reasons, many of which may be
unrelated to our performance. For example, clients or potential clients in the
early stages of their development may be too financially constrained to afford
our services. Alternatively, for general business reasons, large clients who use
our services for multiple engagements or in stages may choose to cancel or delay
planned projects or may choose not to retain our services for additional stages
of a project. If clients defer, modify or cancel engagements or choose not to
retain our services for initial or additional phases of projects, we may be
unable to quickly divert our billable professionals to other engagements. Any
underutilization of our billable employees could reduce our revenue and
adversely affect our profitability, which would cause our operating expenses to
increase.
WE MAY BE SUBJECT TO LITIGATION IN CONNECTION WITH OUR HIRING OF NEW EMPLOYEES.
Some companies have adopted a strategy of suing or threatening to sue
former employees and their new employers. As we hire new employees from our
current or potential competitors or other companies, we may become a party to
one or more lawsuits involving the former employment of one or more of our
employees. Any future litigation against us or our employees, regardless of the
outcome, may result in substantial costs and expenses to us and may divert
management's attention away from the operation of our business.
11
<PAGE> 13
WE MAY HAVE LIABILITY FOR OPTIONS WE GRANTED IN VIOLATION OF STATE SECURITIES
LAWS.
We granted stock options to various persons between 1994 and 2000. In
certain cases, the options, and the shares of our common stock that are subject
to the options, were not qualified under or exempted from applicable state
securities laws. As a result, we may have potential liability to some or all of
the persons to whom the options were granted. In cases where the grant was made
in violation of state securities laws, the recipient of the options could have
the right to rescind their initial receipt of options (whether or not those
options became vested, were exercised or expired) or their purchase of shares
issued upon exercise of options, and recover the consideration provided in
exchange therefor. We are currently analyzing this matter and cannot, at this
time, ascertain the extent of our potential liability. The exercise prices of
the relevant options vary from $.00014 to $2.26 per share. If rescission was
obtained by all of the holders of relevant options and shares, we do not believe
that our potential liability would exceed $ in aggregate.
ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.
We have and may continue to acquire businesses or technologies. We may have
difficulty integrating the acquired businesses or technologies into our
business. Additionally, if we identify an appropriate acquisition candidate, we
may be unable to negotiate the terms of the acquisition successfully or finance
the acquisition. Issues relating to acquisitions may distract our management
from servicing existing clients. The costs of acquisitions or our failure to
manage acquisitions successfully could cause our quarterly operating results to
vary significantly. Furthermore, our stockholders would be diluted if we
financed the acquisitions by issuing equity or equity-related securities.
OUR FAILURE TO ACCURATELY PRICE FIXED-FEE CONTRACTS COULD HARM OUR
PROFITABILITY.
Although we generally invoice our clients for actual time spent and
materials used, approximately 10% of our revenues, on a pro forma basis, result
from engagements in which we have agreed to work for a fixed fee based on the
resources and time we estimate the engagement will require. For competitive and
other reasons, we may in the future increase the number of engagements that are
billed on a fixed-fee basis. If we miscalculate the resources and time necessary
to complete our fixed-fee engagements, we could experience cost overruns and
lose money on projects, thereby harming our profitability. Any such
miscalculations could harm our business, operating results and financial
condition.
OUR EQUITY INTERESTS IN OUR CLIENTS MAY CAUSE OUR HOLDINGS TO DECREASE IN VALUE.
From time to time, we have obtained equity interests in our clients as
compensation for achieving performance goals, and we are likely to do so in the
future. In general, these equity relationships are structured so our clients pay
for all of the costs related to their engagement in cash, and use equity
incentives in lieu of cash performance bonuses. Many of our clients' businesses,
however, are unproven and involve substantial risk. If these clients' businesses
do not succeed, our holdings will decrease in value, which could harm our
operating results and cause a substantial reduction in our assets.
WE MAY HAVE DIFFICULTY DEVELOPING BRAND RECOGNITION.
We believe that establishing and maintaining a good reputation and brand
recognition are critical to attracting and expanding our targeted client base as
well as to attracting and retaining qualified employees. Furthermore, as the
number of Internet professional service providers increases, we expect that such
brand recognition will become increasingly important. Promotion and enhancement
of our brand will depend largely on our success in continuing to provide high
quality services, which cannot be assured. If clients do not perceive our
services to be effective or of high quality, our brand name and reputation could
be harmed.
Additionally, we cannot assure you that any strategy we adopt to advertise
or promote our brand will be successful. If we are unable to design and
implement effective marketing campaigns or otherwise fail to
12
<PAGE> 14
promote and maintain our brand, our sales could decline. Our operating results
also may suffer if we incur excessive expenses in an attempt to promote and
maintain our brand without a corresponding increase in revenue.
POTENTIAL INTERNATIONAL OPERATIONS MAY BE EXPENSIVE AND MAY NOT SUCCEED.
We may decide to expand our operations internationally in the future by
opening international offices and hiring international management, strategic,
technical, design, sales, marketing and support personnel. We have limited
experience in marketing, selling and supporting our services in foreign
countries. Development of such skills may be more difficult or take longer than
we anticipate, especially due to language barriers, currency exchange risks and
the fact that the Internet infrastructure in foreign countries may be less
advanced than that of the United States. To date, we have not generated any
revenues from engagements with international clients.
We may be unable to successfully market, sell, deliver and support our
services internationally. In addition, international operations are subject to a
variety of additional risks that could seriously harm our financial condition
and operating results. These risks include:
- difficulties in collecting accounts receivable;
- the impact of recessions in economies outside the United States;
- longer payment cycles;
- fluctuations in currency exchange rates;
- fluctuations in the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use; and
- seasonal reductions in business activity in certain parts of the world.
If we attempt to expand our operations internationally but are
unsuccessful, our business may be harmed.
LACK OF APPROPRIATE CONTRACTS COULD IMPAIR OUR ABILITY TO COLLECT FEES, PROTECT
OUR INTELLECTUAL PROPERTY AND PROTECT OURSELVES FROM LIABILITY TO OTHERS.
Some of our business relationships are not governed by written contracts,
and in other situations, we perform work for customers on the basis of a limited
statement of work. In such cases, our ability to collect fees, protect our
intellectual property and protect ourselves from liability to others may be
impaired.
WE MAY BE UNABLE TO SATISFACTORILY FUND OUR WORKING CAPITAL REQUIREMENTS.
If our current funding becomes insufficient to support future operating
requirements, we will need to obtain additional funding either by drawing down
on our existing line of credit or by raising additional debt or equity from the
public or private capital markets. We cannot assure you that such additional
funding will be available on terms attractive to us, or at all. Failure by us to
raise additional funding when needed could harm our business, results of
operations and financial condition. If additional funds are raised through the
issuance of equity securities, the holdings of our stockholders would be
substantially diluted. Furthermore, such equity securities might have rights,
preferences or privileges senior to those of our common stock.
13
<PAGE> 15
RISKS RELATED TO OUR INDUSTRY
WE FACE INTENSE COMPETITION, WHICH COULD HARM OUR BUSINESS.
Our market is new, intensely competitive, highly fragmented and subject to
rapid technological change. We expect competition to intensify and increase over
time because there are no substantial barriers to entering the Internet
professional services market. We may lose projects to our competitors, which
could adversely affect our business, results of operations and financial
condition.
Our current and potential competitors include:
- Internet professional services firms;
- management consulting firms;
- advertising and direct marketing agencies;
- systems integrators and outsourcing firms;
- professional services groups of computer equipment companies; and
- online loyalty service providers; and
- internal information technology departments of current or potential
clients.
Many of our competitors have longer operating histories, greater name
recognition, larger established client bases, longer client relationships and
significantly greater financial, technical, personnel and marketing resources
than we do. Such competitors may be able to undertake more expensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to potential clients, employees and strategic partners. Further, our
competitors may develop Internet solutions that are equal or superior to our
services or that achieve greater market acceptance than our services. We have no
patented or other proprietary technology that would preclude or inhibit
competitors from duplicating our services. We must rely on the skills of our
personnel and the quality of our client service.
We expect that competition may increase as a result of industry
consolidation. In addition, many competitors have established cooperative
relationships to increase their ability to address the needs of prospective
clients. New competitors or newly created alliances among existing or potential
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, increased use of fixed-fee
pricing, reduced gross margins and loss of market share, any of which could harm
our business, results of operations and financial condition. We cannot assure
you that we will be able to compete successfully against existing or future
competitors. See "Business -- Competition."
OUR SUCCESS DEPENDS ON THE ACCEPTANCE AND CONTINUED OUTSOURCING OF INTERNET
SOLUTIONS.
Our future growth is dependent on our ability to provide professional
services that are accepted by our existing and future clients. Since we expect
to derive most of our revenues from providing Internet professional services,
our future success is highly dependent on the increased use of the Internet as a
communications and commercial medium. If this market fails to develop or
develops more slowly than expected, our business, results of operations and
financial condition could suffer. Our success also depends on our clients'
willingness to outsource the design, development and maintenance of their
Internet presence. If clients or potential clients choose to address these
issues internally, our business could suffer.
IF WE DO NOT ANTICIPATE AND RAPIDLY ADAPT TO TECHNOLOGICAL CHANGES, OUR SERVICES
MAY BECOME LESS COMPETITIVE AND OUR BUSINESS COULD SUFFER.
Our market is characterized by rapidly changing technologies, frequent
introductions of new products and services, and evolving industry standards. If
we cannot anticipate and rapidly adapt to these changes, our services could
become less competitive and our business could suffer. To achieve our goals, we
need to develop strategic business and Internet solutions that keep pace with
continuing changes in industry
14
<PAGE> 16
standards, information technology and client preferences. We may be unable, for
technological or other reasons, to develop and introduce new services or
enhancements of existing services in a timely manner or in response to changing
market conditions or client requirements. This would harm our business, results
of operations and financial condition.
OUR PERFORMANCE WILL DEPEND ON THE CONTINUED GROWTH OF THE INTERNET AND INTERNET
COMMERCE.
Our future success depends heavily on the overall continued growth and
acceptance of the Internet, including its use in electronic commerce. If
Internet usage or commerce does not continue to grow or grows more slowly than
expected, our business, operating results and financial condition will be
adversely affected. Customers and businesses may reject the Internet as a viable
medium for a number of reasons. These include potentially inadequate network
infrastructure, slow development of enabling technologies and insufficient
commercial support. Even if the required infrastructure, standards, procedures
or related products, services and facilities are developed, we may incur
substantial expenses adapting our solutions to changing or emerging
technologies. In addition, delays in the development or adoption of new
standards and procedures required to handle increased levels of Internet
activity, or increased government regulation, could cause the Internet to lose
its viability as a commercial medium. Any government regulation or taxing of the
Internet may result in adverse financial consequences for our business. For
example, it is possible that the United States or other jurisdictions could
enact laws restricting the collection and use of customer information over the
Internet. Any such restrictions could adversely affect the customer tracking
features or marketing services that we provide to our clients.
INCREASED GOVERNMENT REGULATION OF THE INTERNET COULD HARM OUR BUSINESS.
Increased regulation of the Internet could harm us by preventing our
clients from delivering products or services over the Internet, limiting the
information that can be gathered about our clients' customers, or slowing the
growth of the Internet. Congress has recently passed laws regulating online
content, copyright infringement, user privacy, taxation, access charges,
liability for third-party activities, and jurisdiction. Federal, state, local
and foreign governments may adopt new laws or regulations regarding user
privacy, taxation, website content, customer protection, or the pricing and
quality of goods and services offered over the Internet. It is not known how
courts will interpret existing and new laws relating to the Internet. Increased
regulation could subject us to liability for services we have provided in the
past, decrease the demand for our services in the future, increase our cost of
doing business, or otherwise harm our operating results and financial condition.
WE MAY FACE DIFFICULTIES PROTECTING AND ENFORCING OUR INTELLECTUAL PROPERTY
RIGHTS.
Our success and ability to compete are substantially dependent on our trade
secrets and other intellectual property, which we attempt to protect through a
combination of patent, copyright, trade secret and trademark laws as well as
confidentiality procedures and contractual provisions. However, any steps we
take to protect our intellectual property may be inadequate, time consuming and
expensive, and we cannot assure you that the steps taken by us will prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as do the laws of the
United States. In addition, we may infringe upon the intellectual property
rights of third parties, including third party rights in patents that have not
yet been issued. Any such infringement, or alleged infringement, could harm our
business, results of operations and financial condition.
RISKS RELATED TO THIS OFFERING
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. If no market develops, you may have difficulty
selling our common stock, which could reduce the price you receive for it.
15
<PAGE> 17
OUR STOCK PRICE MAY BE VOLATILE.
We negotiated and determined the initial public offering price with the
representatives of the underwriters based on several factors. This price may
vary from the market price of the common stock after this offering. The market
price of the common stock may fluctuate significantly in response to the
following factors, some of which are beyond our control:
- variations in quarterly operating results which differ from market
expectations;
- changes in financial estimates or ratings by securities analysts;
- changes in market valuations of Internet or professional services
companies;
- announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
- additions or departures of key professionals;
- sales of common stock or termination of stock transfer restrictions; and
- fluctuations in stock market price and volume, which are particularly
common among securities of Internet-related companies.
In addition, the Nasdaq National Market, where our shares will be listed,
has recently experienced extreme price and volume fluctuations. These
fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. The trading prices of many Internet-related
companies' stocks are at or near historical highs and these trading prices and
multiples are substantially above historical levels. These trading prices and
multiples may not be sustainable. These broad market and industry factors may
materially adversely affect the market price of our common stock, regardless of
our actual operating performance.
In the past, following periods of volatility in the market price of a
particular company's securities, stockholders have instituted securities Series
Action litigation against that company. Securities class action litigation may
result in substantial costs and a diversion of our resources and our
management's attention.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, you will incur immediate and substantial dilution. In addition, because
our success is heavily dependent on our ability to attract and retain talented
professionals, we have granted a significant number of stock options to
employees in the past and expect to do so in the future. Such grants or other
issuances may cause further dilution to you. See "Dilution."
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock after the
offering could adversely affect the market price of the common stock by
potentially introducing a large number of sellers of our common stock into a
market in which the common stock price is already volatile, thus reducing the
price of our common stock. In addition, the sale of these shares could impair
our ability to raise capital through the sale of additional equity securities.
On completion of this offering, we will have shares outstanding, or
shares if the underwriters' option to purchase an additional shares of
common stock is exercised in full, and shares subject to currently
exercisable options. The shares sold in this offering, or shares if
the underwriters' option is exercised in full, will be freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our affiliates, as that term is defined in Rule 144 under the
Securities Act. Approximately shares of common stock were issued and sold
by us in private transactions and are restricted shares. These shares are
eligible for public sale if registered under the Securities Act or sold in
accordance with Rules 144 or 701 under the Securities Act.
16
<PAGE> 18
All of our directors, executive officers, holders of 5% or more of our
shares of capital stock outstanding prior to this offering and other holders of
our shares have executed lock-up agreements in connection with this offering
that limit their ability to sell or otherwise dispose of shares of our common
stock for a period of at least 180 days after the date of this offering without
the prior written approval of Salomon Smith Barney. However, Salomon Smith
Barney may, in its sole discretion, at any time without notice, release all or
any portion of the shares subject to lock-up agreements. This period will expire
on , 2000. When the lock-up agreements expire, shares and
shares underlying currently exercisable options will become eligible for sale
subject to the applicable requirements of Rule 144. See "Shares Eligible for
Future Sale."
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD CONTROL
STOCKHOLDER VOTES AND OUR MANAGEMENT AND AFFAIRS.
As a result of our initial public offering, our executive officers,
directors and holders of 5% or more of our shares of capital stock outstanding
prior to this offering and their respective affiliates, in the aggregate, will
own up to approximately % of our outstanding common stock. As a result, they
may act together to control all matters submitted to stockholders for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of our assets). In addition, their large
ownership position could enable them to effectively control our management and
affairs. Accordingly, the concentration of ownership may delay or prevent a
change in control, impede a merger, consolidation, takeover or other business
combination, or discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us. This could reduce the market price
of our common stock. See "Management" and "Principal Stockholders."
OUR CHARTER DOCUMENTS AND DELAWARE LAW CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY
DECREASE THE VALUE OF YOUR SHARES.
Provisions of our certificate of incorporation, our bylaws and Delaware
law, including provisions for a staggered board of directors, the power of the
board to issue shares of preferred stock without stockholder approval and a
prohibition on stockholder action by written consent, could make it more
difficult for a third party to acquire control of us without the consent of our
board of directors, even if such a change were favored by our stockholders. This
may inhibit your ability to receive an acquisition premium for your shares. See
"Description of Capital Stock -- Anti-Takeover Provisions of Certificate of
Incorporation, Bylaws and Delaware Law."
THIS OFFERING'S NET PROCEEDS MAY BE ALLOCATED IN WAYS WITH WHICH YOU AND OTHER
STOCKHOLDERS MAY NOT AGREE.
We have not determined how the majority of the proceeds of this offering
will be spent. Our management may spend this offering's net proceeds in ways
with which you and our other stockholders may not agree. See "Use of Proceeds."
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<PAGE> 19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This registration statement contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outline under "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievement. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
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<PAGE> 20
USE OF PROCEEDS
Based on an assumed initial public offering price of $ per share, we
estimate that the net proceeds from the sale of the shares of our common
stock offered will be approximately $ million, after deducting estimated
underwriting discounts and commissions and offering expenses. If the
underwriters' option to purchase an additional shares of common stock is
exercised in full, we estimate that such net proceeds will be approximately
$ million. We intend to use the net proceeds of this offering for working
capital and general corporate purposes, including marketing and other expenses.
Although we may use a portion of the net proceeds to acquire businesses that are
complementary to ours, we have no current plans in this regard. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our unaudited capitalization as of December
31, 1999: (1) on an actual basis; (2) on a pro forma basis to reflect the
conversion of all of our outstanding shares of preferred stock and Series A,
Series B and Series C common stock into shares of common stock upon the closing
of this offering; and (3) as adjusted to reflect our receipt of the estimated
net proceeds from our sale of the shares of common stock in this offering
at an assumed offering price of $ per share (after deducting the estimated
underwriting discounts and commissions and offering expenses) and the
application of our proceeds from this offering:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 2,866 $ 2,866
Stockholders' equity:(1)
Convertible preferred stock, $.0001 par value, 40,000,000
shares authorized, 4,000,000 shares designated, 3,551,033
shares issued and outstanding............................. $10,000 --
Common stock, $.0001 par value, 260,000,000 shares
authorized:
Series A, 150,000,000 shares designated, 8,560,509 shares
issued and outstanding................................. 3,599
Series B, 20,000,000 shares designated, 3,838,485 shares
issued and outstanding................................. 3,388
Series C, 30,000,000 shares designated, 13,503,460 shares
issued and outstanding................................. 30,518
-------
Total common stock, 25,902,454 shares issued and
outstanding; (29,453,487 shares pro forma) and as
adjusted(2)............................................... 37,505 47,505
------- -------
Accumulated other comprehensive loss, net................... (65) (65)
Deferred stock compensation................................. (2) (2)
Accumulated deficit......................................... (8,661) (8,661)
------- -------
Total stockholders' equity........................ 38,777 38,777
------- -------
Total capitalization.............................. $38,777 $38,777
======= =======
</TABLE>
- ---------------
(1) Excludes 5,454,748 shares of common stock issuable upon exercise of options
outstanding on December 31, 1999, with a weighted average exercise price of
$1.69 per share and 142,503 shares of common stock reserved for issuance of
ungranted options under our option plans.
(2) Immediately upon the closing of this offering, all of our outstanding shares
of Series A preferred stock and Series A, Series B and Series C common stock
will convert into a single series of common stock.
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<PAGE> 22
DILUTION
Our actual net tangible book value as of December 31, 1999, was
approximately $11.2 million or $0.43 per share of common stock. Net tangible
book value per share is equal to our tangible assets less intangible assets and
total liabilities, divided by the number of shares of common stock outstanding.
After giving effect to the issuance and sale of the shares of common stock
offered by us and deducting underwriting discounts and commissions and estimated
offering expenses payable by us, our adjusted net tangible book value as of
December 31, 1999, would have been $ , or $ per share. This represents
an immediate increase in the net tangible book value of $ per share to the
existing stockholders and an immediate dilution of $ per share to the new
public investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of December 31, 1999... $ 0.43
Increase per share attributable to new public investors..... $
Pro forma net tangible book value per share after the
offering.................................................. $
Dilution per share to new investors......................... $
</TABLE>
The following table sets forth on a pro forma basis, as of December 31,
1999, upon completion of this offering, the differences between the existing
stockholders and the purchasers of shares of common stock in this offering
(before deducting underwriting discounts and commissions and estimated offering
expenses) with respect to the number of shares of common stock purchased from
us, the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 29,453,487 $47,505,000 $1.61
New stockholders...............
Total................ 100% 100%
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options to purchase common stock. As of December 31, 1999, there were
outstanding options to purchase an aggregate of 5,454,748 shares of common stock
at a weighted average price of $1.69 per share under our stock option plans. For
further details regarding these options, see Note 10 of notes to the
consolidated financial statements. To the extent any of these options are
exercised, there will be further dilution to new public investors. See
"Capitalization," "Management -- Director Compensation" and Note 10 of notes to
the consolidated financial statements.
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<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the years
ended December 31, 1997, 1998 and 1999, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1999, are derived from our consolidated
financial statements, which have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this prospectus. The results
of operations for the year ended December 31, 1999 are not necessarily
indicative of the results to be expected for future periods. The selected
consolidated financial data set forth is qualified in its entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this prospectus.
The selected consolidated financial data for the years ended December 31,
1995 and 1996 are derived from unaudited consolidated financial statements not
included in this prospectus. The unaudited financial statements have been
prepared by us on a basis consistent with our audited consolidated financial
statements and include, in the opinion of our management, all adjustments
consisting only of normal recurring adjustments necessary for a fair
presentation of our results of operations and financial position for those
years.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------------------------------------ DECEMBER 31,
1995 1996 1997 1998 1999 1999(1)(3)
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................ $ 1,597 $ 1,876 $ 3,835 $ 4,416 $13,735 $21,230
Cost of revenues................ 245 1,689 2,974 2,691 6,428 9,817
------- ------- ------- ------- ------- -------
Gross profit.................... 1,352 187 861 1,725 7,307 11,413
Operating expenses
Sales and marketing
expenses................... 30 139 546 382 926 926
General and administrative
expenses................... 1,107 2,636 2,214 1,978 6,137 9,826
Amortization of intangibles
and goodwill............... -- -- -- -- 3,458 10,374
------- ------- ------- ------- ------- -------
Total operating
expenses............ 1,137 2,775 2,760 2,360 10,521 21,126
------- ------- ------- ------- ------- -------
Loss from operations............ 215 (2,588) (1,899) (635) (3,214) (9,713)
Other (income) expense, net..... 1 -- 168 65 (271) (229)
Gain on sale of Internet service
provider business............. -- -- -- -- (1,126) (1,126)
------- ------- ------- ------- ------- -------
Income (loss) before income
taxes......................... 214 (2,588) (2,067) (700) (1,817) (8,358)
Income taxes.................... 71 (21) 3 3 23 24
------- ------- ------- ------- ------- -------
Net income (loss)............... $ 143 $(2,567) $(2,070) $ (703) $(1,840) $(8,382)
======= ======= ======= ======= ======= =======
Basic and diluted net income
(loss) per share.............. $ 0.05 $ (0.57) $ (0.31) $ (0.07) $ (0.11) $ (0.32)
======= ======= ======= ======= ======= =======
Basic weighted average shares
outstanding................... 2,629 4,490 6,590 10,196 16,985 25,962
Diluted weighted average shares
outstanding................... 2,879 4,490 6,590 10,196 16,985 25,962
Pro forma basic and diluted net
loss per share
(unaudited)(2)................ $ (0.10) $ (0.31)
======= =======
Pro forma basic and diluted
weighted average shares
outstanding (unaudited)....... 18,169 27,146
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................... $ -- $ 147 $ 41 $ 17 $ 2,866
Working capital............................. 1 (3,496) (5,084) (143) 10,157
Total assets................................ 484 1,050 1,517 1,425 46,821
Total liabilities........................... 333 3,768 5,624 682 8,044
Total stockholders' equity.................. 151 (2,718) (4,107) 743 38,777
</TABLE>
- ---------------
(1) Reflects the acquisition of Blue Marble, including amortization of goodwill
and other intangible assets, as if the acquisition had occurred on January
1, 1999.
(2) Includes conversion of all outstanding shares of Series A preferred stock.
(3) Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding, including common shares in connection
with the acquisition, as if these shares were outstanding from January 1,
1999.
23
<PAGE> 25
PRO FORMA COMBINED DATA
The following unaudited pro forma condensed combined statement of
operations reflect our acquisition of Blue Marble on August 31, 1999, as if the
acquisition had occurred on January 1, 1999. The Blue Marble acquisition was
accounted for using the purchase method of accounting, and the acquired assets
and liabilities of Blue Marble were recorded at their fair values. Accordingly,
the pro forma combined statement of operations has been prepared assuming the
following:
- The total purchase price, including acquisition costs of $98,000, is
$30.6 million. Acquisition costs and the preliminary determination of the
unallocated excess of acquisition costs over net assets acquired are set
forth below (in thousands):
<TABLE>
<S> <C>
Value of Blue Marble acquired in acquisition................ $30,518
Transaction costs........................................... 98
-------
Total acquisition cost...................................... 30,616
Total assets acquired....................................... (7,254)
Total liabilities assumed................................... 7,685
-------
Unallocated excess of acquisition cost over net assets $31,047
acquired..................................................
=======
</TABLE>
- Amortization of goodwill and other intangible assets totaling $10,374 for
the year ended December 31, 1999 has been reflected as a result of the
acquisition of Blue Marble.
- The pro forma diluted net loss per share for the year ended December 31,
1999 was computed using the weighted average number of common shares
outstanding, including common shares issued in conjunction with the
acquisition as if these shares were outstanding from January 1, 1999.
The pro forma statements of operations are not necessarily indicative of
what the actual financial results would have been had the acquisition taken
place on January 1, 1999 and do not purport to indicate the results of future
operations.
24
<PAGE> 26
NOVO GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
BLUE MARBLE ACG,
NOVO GROUP, INC. LTD PRO FORMA
YEAR ENDED EIGHT MONTHS ENDED PRO FORMA YEAR ENDED
DECEMBER 31, 1999 AUGUST 31, 1999 ADJUSTMENTS DECEMBER 31, 1999
----------------- ------------------ ----------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue............................ $13,735 $7,495 $ -- $21,230
Cost of revenue.................... 6,428 3,389 -- 9,817
------- ------ ------ -------
Gross profit....................... 7,307 4,106 -- 11,413
Operating expenses:
Sales and marketing expenses..... 926 -- -- 926
General and administrative
expenses...................... 6,137 3,689 -- 9,826
Amortization of goodwill and
other
intangibles................... 3,458 6,916 10,374
------- ------ ------ -------
Total operating expenses........... 10,521 3,689 21,126
Income (loss) from operations...... (3,214) 417 6,916 (9,713)
Other (income) expense............. (271) 42 -- (229)
Gain on sale of Internet service
provider......................... (1,126) -- -- (1,126)
------- ------ ------ -------
Net (loss) income before tax....... (1,817) 375 6,916 (8,358)
Income taxes....................... 23 1 -- 24
------- ------ ------ -------
Net (loss) income.................. $(1,840) $ 374 $6,916 $(8,382)
======= ====== ====== =======
Pro forma basic and diluted net
loss
per common share................. $ (0.32)
=======
Shares used in pro forma basic and
diluted net loss per common
share............................ 25,962
=======
</TABLE>
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto which appear elsewhere
in this prospectus. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those projected in the forward-looking statements. Factors that
could cause or contribute to differences include, but are not limited to, those
discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
OVERVIEW
Our revenues are derived from providing professional services to enable our
clients to better compete in the digital economy. We generally provide our
services on a time and materials basis, but also perform services using retainer
and fixed-fee agreements. Revenues pursuant to time and materials agreements are
generally recognized as services are provided. Revenues pursuant to retainer
agreements are generally billed and recognized on a monthly basis. Most of our
retainer agreements are for a term of six months, and include renewal clauses.
Our retainer agreements provide us with greater predictability of revenues and
to date have generally resulted in higher utilization for the core engagement
team. Revenues pursuant to fixed-fee contracts are generally recognized as
services are rendered on the percentage-of-completion method of accounting
(based on the ratio of costs incurred to total estimated costs). Revenues
exclude reimbursable expenses charged to and collected from clients. Provisions
for estimated losses on uncompleted contracts are made on a contract by contract
basis and are recognized in the period in which such losses become probable and
can be reasonably estimated. Unbilled fees and services on contracts are
comprised of costs plus fees on certain contracts in excess of contractual
billings on such contracts. Advanced billings and billings in excess of costs
are classified as deferred income. In the future, we expect that our revenues
will be driven primarily by the number and scope of our client engagements and
by the number of our billable professionals. Our revenues consist only of
services we have performed and do not include pass-through media and advertising
funds.
Because we often derive a significant portion of our revenues from
large-scale engagements for a limited number of clients, we expect that
significant customer concentration will continue for the foreseeable future. In
1999, on a pro forma basis, our five largest clients were Procter & Gamble,
Gloss.com, General Motors, Toyota and Continental Airlines, each of which
represented 21%, 16%, 12%, 10% and 7% of our revenues, respectively. To the
extent that any significant client reduces its use of our services or terminates
its relationship with us, our revenues could decline substantially. As a result,
the loss of any significant client could seriously harm our business and results
of operations.
Cost of revenues consists of direct costs associated with billable
professionals and contractors engaged in the delivery of our services. Expenses
in this category include wages and salaries, bonuses, payroll taxes, direct
employee benefits and outside contractor costs. Cost of revenues reflects
expenses of all billable professionals engaged in the delivery of our services
whether or not their time is billed to a client. We expect cost of revenues to
increase in absolute dollars as we increase our professional services headcount.
We hired 42 employees from January 1, 2000 to February 29, 2000. Gross profit
equals total revenues less cost of revenues. Our gross profit may be adversely
affected by increases in salary levels, inflation and decreases in employee
utilization. Multiple factors may affect employee utilization including rapid
growth and reductions in the number or size of projects in any period.
Sales and marketing expenses consist primarily of salaries, bonuses,
payroll taxes, employee benefits, travel expenses, and public relations and
marketing expenses associated with our sales and marketing efforts. We expect
these expenses to increase in absolute dollars as we expand our sales and
marketing efforts.
General and administrative expenses consist of administrative and executive
compensation and bonuses, payroll taxes, employee benefits, office expenses,
travel expenses, rent, recruiting costs, information technology expenses,
facility and equipment insurance, training and education expenses,
26
<PAGE> 28
professional fees and other expenses. Property, equipment and facility
improvements are depreciated over three to seven years and are included as
depreciation expense in this category. We expect general and administrative
expenses to increase in absolute dollars as we expand our recruiting efforts,
open new offices, expand information technology and incur additional costs
related to the growth of our business and operations.
In connection with our acquisition of Blue Marble ACG, Ltd., in August
1999, we recorded approximately $31.0 million of goodwill and other intangible
assets. We accounted for this transaction as a purchase. This amount, which
represents the excess of purchase price over net assets acquired, is being
amortized over three years and is shown as amortization of goodwill and other
intangible assets. The historical information represented in this section
includes the results of operations of Blue Marble since the date of its
acquisition.
In May 1998, we completed our merger with Ironlight Digital and accounted
for this transaction as a pooling of interests. The historical information
represented in this section includes the results of operations of Ironlight
Digital since its inception in July 1996.
A portion of our revenues from July 1996 to August 1999 was derived from
our Internet services provider unit. In 1999, we realized a gain of $1.1 million
from the sale of our Internet services provider unit to Rocky Mountain Internet,
Inc. in August, which we sold for approximately $1.3 million in stock. We owned
104,399 shares of Rocky Mountain Internet, Inc. common stock as of December 31,
1999. Certain restrictions on the sale of these shares are still in effect.
Other income includes interest income and realized gains from the sale of
securities.
To date, we have experienced success in expanding the size and scope of our
business by attracting new clients, hiring new professionals and expanding our
service offerings. We have added to our service offerings organically, through
licensing agreements and through the acquisitions of Ironlight Digital and Blue
Marble.
Our financial results may fluctuate from quarter to quarter based on a
number of factors including: the number, size and scope of our engagements,
changes in the demand for our services, the length of the sales cycle associated
with our services and the efficiency at which we utilize our billable
professionals. These fluctuations can result from the contractual terms and
degree of completion of such projects, any delay incurred in connection with
projects, employee utilization rates, the adequacy of provision for losses, the
accuracy of estimates of resources required to complete ongoing projects and
general economic conditions.
27
<PAGE> 29
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenues and selected statements of operations data as a
percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1998 1999 PRO FORMA
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ 100% 100% 100% 100%
--- --- --- ---
Cost of revenues................................ 78 61 47 46
--- --- --- ---
Gross profit.................................... 22 39 53 54
--- --- --- ---
Operating expenses:
Sales and marketing expenses.................. 14 9 7 4
General and administrative expenses........... 58 45 45 46
Amortization of intangibles and goodwill...... -- -- 25 49
--- --- --- ---
Total operating expenses.............. 72 53 77 99
--- --- --- ---
Loss from operations............................ (50) (14) (23) (46)
Other (income) expense, net..................... 4 1 (2) --
Gain on sale of Internet service provider
unit.......................................... -- -- (8) (5)
--- --- --- ---
Loss before income taxes........................ (54) (16) (13) (39)
Income taxes.................................... -- -- -- --
--- --- --- ---
Net loss........................................ (54)% (16)% (13)% (39)%
=== === === ===
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. In 1999, revenues increased $9.3 million or 211% to $13.7 million
from $4.4 million in 1998. This growth in revenues principally resulted from
increases in both the number of clients and the scope of engagements as well as
the acquisition of Blue Marble on August 31, 1999. Offsetting this increase was
a decrease in revenues from our Internet service provider unit, which we sold to
Rocky Mountain Internet, Inc. in August 1999. Excluding revenues from the
Internet service provider unit, revenues increased 248% to $13.2 million from
$3.8 million in 1998.
Cost of revenues. In 1999, cost of revenues increased $3.7 million or 139%
to $6.4 million from $2.7 million in 1998. The increase in cost of revenues was
primarily a result of increases in the number of billable professionals and the
costs directly associated with this growth, including increases in wages and
salaries, bonuses, payroll taxes, direct employee benefits and outside
contractors. We employed 111 billable professionals as of December 31, 1999, up
from 36 one year earlier.
Sales and marketing expenses. In 1999, sales and marketing expenses
increased $0.5 million or 142% to $0.9 million from $0.4 million in 1998. Sales
and marketing expenses increased primarily due to expenses related to the
addition of sales and marketing staff, increased public relations costs and
increased administrative costs associated with expanding our sales and marketing
efforts.
General and administrative expenses. In 1999, general and administrative
expenses increased $4.1 million or 210% to $6.1 million from $2.0 million in
1998. General and administrative expenses increased primarily due to expenses
related to the addition of administrative staff, increased recruiting costs, the
costs of leasing additional office space to support our growth and increased
information technology expenses.
Amortization of intangibles. In 1999, amortization of goodwill and other
intangibles was $3.5 million, compared to none in 1998. This increase is a
result of the goodwill we recorded when we acquired Blue Marble in August 1999.
28
<PAGE> 30
Other income. In 1999, net interest and other income was $0.3 million as
compared to net interest expense of $0.1 million in 1998.
Gain on sale of an asset. In August 1999, we realized a gain of $1.1
million from the sale of our Internet services provider unit to Rocky Mountain
Internet.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. In 1998, revenues increased $0.6 million or 15% to $4.4 million
from $3.8 million in 1997. This growth in revenues principally resulted from
increases in both the number of clients and the scope of engagements and an
increase in revenues from our Internet service provider unit, which we
subsequently sold to Rocky Mountain Internet in August 1999. In 1998, excluding
revenues from the Internet service provider unit, revenues increased 14% to $3.8
million from $3.3 million in 1997.
Cost of revenues. In 1998, cost of revenues decreased $0.3 million or 10%
to $2.7 million from $3.0 million in 1997. This decrease primarily resulted from
a reduction in the use of outside labor costs, lower employee benefits expenses
and a reduction in overlapping overhead expenses as a result of the acquisition
of Ironlight Digital.
Sales and marketing expenses. In 1998, sales and marketing expenses
decreased $0.1 million or 30% to $0.4 million from $0.5 million in 1997. This
decrease primarily resulted from a reduction of overlapping sales and marketing
efforts following the acquisition of Ironlight Digital.
General and administrative expenses. In 1998, general and administrative
expenses decreased $0.2 million or 11% to $2.0 million from $2.2 million in
1997. This decrease primarily resulted from a reduction in administrative
personnel and in redundant overhead costs following the acquisition of Ironlight
Digital.
Other income. In 1998, net interest expense decreased to $0.1 million from
$0.2 million in 1997, due to the conversion of promissory notes to equity.
29
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly results of
operations for the eight quarters ended December 31, 1999. In our opinion, this
unaudited information has been prepared on the same basis as the annual
consolidated financial statements and includes all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation for the
quarters presented. This information should be read in conjunction with the
Consolidated Financial Statements and accompanying notes. The operating results
for any quarter are not necessarily indicative of the operating results for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................. $ 771 $ 1,027 $ 1,235 $ 1,383 $ 1,695 $ 2,388 $ 3,304 $ 6,348
Costs of revenues........ 650 640 690 711 811 1,072 1,466 3,079
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............. 121 387 545 672 884 1,316 1,838 3,269
Operating expenses
Sales and marketing
expenses............ 135 98 90 59 115 250 209 352
General and
administrative
expenses............ 454 575 439 510 680 891 1,668 2,898
Amortization of
intangibles and
goodwill............ -- -- -- -- -- -- 864 2,594
------ ------- ------- ------- ------- ------- ------- -------
Total operating
expenses..... 589 673 529 569 795 1,141 2,741 5,844
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (468) (286) 16 103 89 175 (903) (2,575)
Other (income) expense,
net.................... 79 (14) -- -- (1) (3) (35) (232)
Gain on sale of Internet
service provider
unit................... -- -- -- -- -- -- (1,126) --
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income Taxes........... (547) (272) 16 103 90 178 258 (2,343)
Income taxes............. -- -- -- 3 -- -- -- 23
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ $ (547) $ (272) $ 16 $ 100 $ 90 $ 178 $ 258 $(2,366)
====== ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
share.................. $(0.07) $ (0.03) $ 0.00 $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ (0.09)
Basic weighted average
shares outstanding..... 7,330 10,270 11,217 11,914 12,434 12,507 17,002 25,898
Diluted income (loss) per
share.................. $(0.07) $ (0.03) $ 0.00 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ (0.09)
Diluted weighted average
shares outstanding..... 7,330 10,270 12,464 13,279 13,000 13,148 19,028 25,898
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations through operating cash
flows, strategic financings and investments from the founders and limited
outside investors.
Cash provided by operating activities was $2.4 million in 1999 as compared
to cash used in operating activities of $0.7 million in 1998 as compared to cash
used in operating activities of $1.9 million in 1997.
30
<PAGE> 32
Cash used in fiscal 1997 was primarily due to a net loss of $2.1 million,
increased accounts receivable and decreased accounts payable, partially offset
by depreciation and amortization, and stock-based compensation expense. Cash
used in 1998 was primarily due to a net loss of $0.7 million, decreased accounts
payable and accrued expenses, partially offset by depreciation and amortization,
and stock-based compensation expense. Cash provided by operations in 1999 was
primarily due to increased accounts receivable, and depreciation and
amortization, partially offset by a net loss of $1.8 million.
As of December 31, 1999, we had $12.4 million in cash, cash equivalents and
investments compared to $17,000 one year earlier. This change resulted from
increased operating cash flows and a $10.0 million investment from MacManus in
exchange for 3.6 million shares of our Series A preferred stock. MacManus has
since entered into a business combination with The Leo Group, Inc. and became a
wholly owned subsidiary of BDM, Inc.
We incurred capital expenditures of $0.5 million in 1999, $0.2 million in
1998 and $0.6 million in 1997. These expenditures were incurred primarily for
computer equipment, telecommunications equipment, furniture and fixtures, and
leasehold improvements to support our growth. We expect that our capital
expenditures will increase as we increase employee headcount and expand our
operations and technology capabilities.
We recently executed a new lease to expand our operations in San Francisco.
The lease term commenced in November 1999, and rent payments will commence in
March 2000, when we expect our leasehold improvements on the additional space to
be completed. We expect to incur significant expenditures in 2000 related to the
expansion of our San Francisco office. We believe that the proceeds of this
offering and funds that are available under our line of credit will be
sufficient to finance our working capital and capital expenditure requirements
for the next twelve months.
We currently have no outstanding borrowings under our lines of credit. We
have a line of credit totaling $2.5 million with Merrill Lynch Business
Financial Services, Inc. Borrowings under this line of credit bear interest at
an annual rate of 2.3% plus the 30-day Dealer Commercial Paper Rate. In addition
to our line of credit, we have a $7.5 million working capital facility with
Merrill Lynch. This account bears interest at an annual rate of 2.1% plus the
30-day Dealer Commercial Paper Rate.
MARKET RISK
To date, we have not utilized derivative financial instruments or
derivative commodity instruments. We do not expect to employ these or other
strategies to hedge market risk in the foreseeable future. We currently invest
our cash in money market funds and government and high-grade corporate bonds. We
believe these investments are subject to minimal credit and market risk.
31
<PAGE> 33
BUSINESS
COMPANY OVERVIEW
NOVO is a leading professional services firm that architects and transforms
businesses to better compete in the digital economy. We offer our clients
innovative and integrated e-Business solutions that combine strategy,
technology, design and marketing services. Our e-Business solutions reflect our
belief that the Internet creates opportunities for businesses to more personally
and effectively serve their constituents, which include their customers,
suppliers, strategic partners, employees and stockholders. These solutions are
designed to foster long-term, personalized relationships between our clients and
their constituents. We refer to this personalized market dynamic as "Economies
of One(SM)."
We deliver our e-Business solutions using a methodology called "Rapid
Customer Value Deployment(SM)." This multi-disciplinary, collaborative approach
is designed to ensure that every facet of an engagement is aligned with our
client's overall e-Business objectives. Our methodology is marked by distinct
yet interdependent service offerings that are capable of taking an e-Business
solution from conception through development and deployment. These four service
offerings are:
- Business Strategy -- Our strategy teams work in partnership with our
clients to identify opportunities and plan the operations necessary to
achieve their e-Business objectives.
- Technology Application Development and Systems Integration -- Our
technology teams build and integrate new and existing hardware and
software with our clients' third-party applications, legacy systems and
business processes.
- Digital Design and User Experience -- Our award-winning design teams
create the components that shape the user experience in support of our
clients' e-Business objectives.
- Marketing Services -- Our marketing teams evaluate and develop programs
designed to acquire and retain customers, increase communication between
our clients and their constituents, and build and extend brands.
We focus on developing large-scale, long-term strategic relationships with
our clients. Our clients include a select group of Global 1000 and dot.com
companies, such as 3Com, Avery Dennison, Continental Airlines, E*Trade, General
Motors, Gloss.com, Motorola, Procter & Gamble and Toyota. We deliver our
services from offices in San Francisco, New York, Los Angeles and Detroit, and
we had approximately 190 full-time employees as of February 29, 2000.
INDUSTRY BACKGROUND
We believe the Internet is creating a new market dynamic. Businesses and
their constituents can simultaneously exchange information, determine supply and
demand, negotiate price and process orders with improved efficiency and
personalization. Customers now have greater opportunities to customize the
products and services they purchase due to their increased access to timely
information and their ability to respond immediately and directly. As a result,
the balance of power between businesses and customers is shifting dramatically.
In our view, customer satisfaction and loyalty have become, and will continue to
be, a key component to the success of a business in this rapidly emerging
customer-driven economy.
Companies seeking to establish or strengthen relationships with their
constituents frequently lack the experience and internal capabilities necessary
to build and maintain e-Business solutions. As a result, the market for Internet
services is rapidly expanding. International Data Corporation estimates that the
worldwide market for Internet services will grow from $12.9 billion in 1999 to
over $78.6 billion by 2003, representing a compound annual growth rate of over
57%.
We believe that companies seeking to build businesses on the Internet are
best served by professional services firms that provide an integrated,
multidisciplinary approach and that establish accountability in their
engagements through specific business metrics designed to measure the success of
the initiative.
32
<PAGE> 34
THE NOVO APPROACH
We consider ourselves "Relationship Architects for e-Business(SM)," meaning
that we create and enhance personalized relationships by designing and
implementing complete e-Business solutions. These relationships seek to build a
competitive advantage for our clients.
Our integrated approach focuses on generating customer value while
addressing the time-to-market challenges common to implementing e-Businesses
solutions. We utilize our methodology, Rapid Customer Value Deployment, to
efficiently serve our clients.
We differentiate ourselves through what we believe is a unique approach to
client accountability. We seek to include in our client arrangements a
predetermined set of metrics that permits our clients to measure results against
their business objectives. We proactively seek incentive compensation from our
clients tied to achieving those objectives. We afford our employees an
opportunity to participate in this incentive compensation. In this way, we align
the interests of our company and our individual employees with those of our
clients.
We are selective in accepting client engagements. We seek opportunities
that will lead to long-term relationships with clients who intend to capture the
competitive advantages provided by our integrated approach and solutions.
GROWTH STRATEGY AND BUSINESS DEVELOPMENT
Our goal is to build and enhance our position as a leading provider of
e-Business solutions. Our strategy to achieve this goal is as follows:
Create and Expand Long-term Relationships
We develop long-term relationships involving large-scale engagements with
clients. We target clients that embrace our integrated, multidisciplinary
approach and our focus on achieving measurable results. We view these
relationships as partnerships in which we work closely with our clients as their
businesses evolve. We seek to create a relationship of trust and accountability
that is key to growing and sustaining long-term relationships. We intend to
expand our existing client relationships into more extensive engagements that
utilize a broader range of our service offerings. As part of this strategy, we
seek to identify opportunities to offer additional solutions to fully satisfy
our clients' needs. In addition, we aggressively target new clients through our
business development efforts.
Strengthen NOVO Brand
As Relationship Architects for e-Business, we strive to provide the highest
quality and most comprehensive services that will help to build our reputation
as a leading provider of e-Business solutions. We continue to promote our brand
to potential clients and employees as a symbol of innovation, collaboration,
meritocracy and opportunity. Our marketing and corporate communications teams
promote our brand through speaking engagements, company events, event
sponsorships, interviews and industry conferences. We receive additional
exposure from the numerous awards we have received.
Attract and Retain Highly Qualified Professionals
Attracting and retaining highly qualified professionals is essential to our
continued ability to provide sophisticated solutions for our clients. Our focus
on client satisfaction requires that we continue to retain highly motivated,
intelligent people of exceptional quality. We believe that the best way to
continue to attract and retain highly qualified professionals is to provide an
intellectually challenging work environment that fosters creativity and
opportunity for development. Our culture is a key differentiator in our ability
to retain quality professionals. Our environment promotes entrepreneurship,
provides recognition and rewards based on merit, and encourages knowledge
sharing through skills training and the professional development classes we
refer to collectively as NOVO University. Referrals from our existing employees
accounted for approximately 35% of our new hires for the six months ended
February 29, 2000. We expect that our
33
<PAGE> 35
talented professionals will continue to provide us with referrals to new
employees. We offer competitive compensation packages, including equity
participation through stock options for all of our professionals.
Leverage and Develop Strategic Alliances and Relationships
We develop strategic alliances and relationships that are designed to
generate new business opportunities and that permit us to offer clients new and
innovative capabilities. For example, we work closely with BDM, Inc., a global
network of advertising, marketing and communications companies and a stockholder
in our company, to develop new business opportunities that are aligned with our
strategic vision. In March 2000, we entered into a referral agreement with BDM.
Under this agreement, BDM will use its best efforts to refer clients that will
generate at least $30 million of total revenues for us during the three-year
period ending December 31, 2002. In 1999, on a pro forma basis, approximately
55% of our revenues came from clients that were originally referred to us
through our relationship with BDM. We seek to identify early technology trends
and work closely with providers of leading-edge technologies to offer our
clients advanced technology solutions. For example, we recently entered into a
strategic alliance with Akamai Technologies, an Internet content, streaming
media and applications company, to improve our ability to provide complex
content management solutions.
Enhance Skill Sets and Expand Geographic Presence
We intend to expand our skill sets, as well as our domestic and
international presence, to better serve our clients and to develop new market
opportunities. We believe that establishing an international presence would
enhance our competitive position and assist us in creating global solutions for
our clients. In conjunction with organic growth, we may evaluate acquisition
opportunities to provide services in new geographic markets and to expand our
core competencies and industry expertise.
SERVICE OFFERINGS AND METHODOLOGY
We provide fully integrated e-Business solutions to our clients to enhance
the development of their interactive relationships. Our fully integrated service
offerings are delivered by a team of strategy, technology, design and marketing
professionals. Each engagement has a project manager who coordinates and
oversees the team and has direct responsibility for the client relationship. The
following is a
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<PAGE> 36
description of our four service offerings, which are capable of taking an
e-Business solution from conception through development and deployment:
[GRAPHIC DEPICTION OF NOVO INTEGRATED SERVICE OFFERINGS]
Business Strategy. We provide strategic assessment and consulting services
to help our clients develop and expand their e-Business. We build a solid
foundation by working closely with our clients to analyze and understand their
businesses. Our approach is to focus on fundamental problem solving and action-
oriented recommendations. Our client deliverables include innovative,
relationship-based business models and operational solutions that are designed
to provide competitive advantages. Below is a sampling of services we offer:
- e-Business strategy and development consulting;
- business model/business plan evaluation and development;
- customer service and relationship management strategy; and
- organizational and human resources strategy.
Technology Application Development and Systems
Integration -- "Delivery." Our Delivery Group is the focal point in our
organization responsible for implementing our e-Business solutions. The Delivery
Group builds and integrates new and existing hardware and software with our
clients' third-party applications, legacy systems and business processes. Using
our technology expertise, we lead our clients through the planning and
implementation of large-scale e-Business solutions. Below is a sampling of
technology services we offer:
- technical architecture;
- database design and integration;
- network applications and services; and
- quality assurance and testing.
Digital Design and User Experience. We work closely with our clients to
understand their customers' needs and promote our clients' brands. We seek to
create compelling online experiences that are designed
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<PAGE> 37
to enable our clients to empower, educate and entertain their end users. Our
design teams have competencies in areas including interaction, content and
visual design. We seek to accomplish business and marketing objectives by
translating them into interactive experiences that deliver end-user value. Some
areas of our expertise include:
- creative concept and strategy;
- content design that defines the users' experience; and
- technical functionality to transform a creative concept into a reality.
Marketing Services. We develop and evaluate programs that support our
clients' ability to acquire and retain customers as well as increase
communication between our clients and their constituents. We coordinate our
activity with our clients' existing marketing initiatives. We create and deploy
strategic branding programs, as well as research and media distribution methods.
Some of the services we offer include:
- competitive analysis and benchmarking;
- online media planning, buying, tracking and analysis;
- brand strategy and development; and
- development of programs for digital customer relationship management.
[GRAPHIC DEPICTION OF DEVELOPMENT]
We adhere to our five-stage methodology, Rapid Customer Value Deployment,
to manage the complex process of implementation in a timely manner. The Rapid
Customer Value Deployment graphic above illustrates our approach for integrating
and deploying our four service offerings of business strategy, technology
application development and systems integration, digital design and user
experience, and marketing services. Our methodology is designed to rapidly
create and measure end-user value and allow us to provide iterative feedback and
continuous modification. Additionally, we utilize our intranet to capture and
leverage the knowledge and experience gained from our client engagements and to
develop best practices to improve efficiency of implementation and delivery.
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<PAGE> 38
CLIENTS, MARKETING AND SALES
We market our services primarily to Global 1000 and dot.com companies. We
seek to establish deep, long-term relationships with our clients. We work with a
majority of our clients to develop or supplement their e-Business capabilities.
For 1999, on a pro forma basis, approximately 67% of our revenues were provided
from our five largest clients. During this period, our four largest clients were
General Motors, Gloss.com, Procter & Gamble and Toyota, each of which accounted
for more than 10% of our revenues.
Set forth below is a list of our top 15 revenue-generating clients for
1999:
3Com
Avery Dennison
Capital One
Continental Airlines
Digital Chef
E*Trade
Ernst & Young
General Motors
Gloss.com
Levi Strauss
Media One
Michaels Stores
Motorola
Procter & Gamble
Toyota
Our sales and marketing program focuses on increasing our visibility,
strengthening our brand and generating new business opportunities. To accomplish
these objectives, we utilize a team approach that combines professionals
dedicated solely to our Business Development group with our senior management
team. The Business Development group targets potential clients through
referrals, direct prospecting, direct marketing and other marketing techniques.
Our senior management team promotes our services through speaking engagements
and industry conference participation.
After we initiate an engagement, our project managers work to enhance our
client relationships and to develop follow-on business. Our project managers are
responsible for overseeing engagements and for expanding our client
relationships by leveraging our full service offerings. We also rely on our
strong reputation and proven results to retain our existing clients and develop
new relationships. Many of our existing clients recommend our services, which
results in new business opportunities. In addition to client referrals, we
generate referrals through our strategic alliances and vendor relationships.
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CLIENT CASE STUDIES
Each of the case studies that follow demonstrates our ability to deliver
our four service offerings:
CONTINENTAL AIRLINES
www.continental.com
Relationship: Our relationship began on a per project basis in November of
1997. As an indication of Continental's satisfaction, the size and scope of our
relationship has continued to expand. We are Continental Airlines' Interactive
Agency of Record.
<TABLE>
<S> <C>
[GRAPHIC DEPICTION OF TWO SCREEN SHOTS]
</TABLE>
Business Objectives: To build and sustain Continental's online business.
Specific initiatives included:
- developing new distribution channel;
- providing measurable value to both business and customer traveler
segments; and
- meeting strict return on investment, or ROI, requirements established by
Continental.
Solution: Architect Continental's online presence in order to increase
purchases. We increased customer ease-of-use and integrated the site with other
marketing vehicles.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGY TECHNOLOGY DESIGN MARKETING
<S> <C> <C> <C>
Created research Integrated heavy Completed website Developed annual
strategy to identify information-based redesign for online marketing
specific needs of website with existing ease-of-use. programs that
target segments. booking engine. Encouraged purchase consisted of media
ease by placing planning and buying,
transaction tools at e-mail marketing and
front of website. research benchmarks.
</TABLE>
- --------------------------------------------------------------------------------
Success: The Continental website has been recognized throughout the travel
and airline industries as a leading example of website design and engineering.
- grew database of customers to over 1 million.
- won 1999 CASIE Award for Best Services Site.
- ranked #1 airline site by Forrester Power Rankings.
- online ticket sales experienced double digit growth after website launch.
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<PAGE> 40
GLOSS.COM
www.gloss.com
Relationship: Gloss.com approached NOVO in the spring of 1999 to help them
build a health and beauty website and gain brand recognition. Like most
e-Business initiatives, Gloss.com had the challenge of building a successful
brand online in a limited amount of time.
[GRAPHIC DEPICTION OF TWO SCREEN SHOTS]
Business Objectives: To create a unique online beauty and shopping
destination that could compete with traditional high-end retail offerings and
make it easy for customers to:
- create their own interactive and personalized shopping experience and to
purchase high-quality cosmetics;
- ask the advice of beauty experts and exchange product views with other
customers; and
- develop loyalty purchase programs.
Solution: We successfully developed an interactive shopping experience that
is designed to enable Gloss.com to attract and retain customers by fulfilling
their orders in a personal, efficient and timely manner.
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGY TECHNOLOGY DESIGN MARKETING
<S> <C> <C> <C>
Provided initial Managed and implemented Developed Gloss.com Developed Gloss.com
consulting services and full integration website identity, brand and identity,
set the strategic agenda inventory and customer including brand including brand
purchase system. Built templates specific to logo.
web store, and integrated different website
it with Blue Martini and areas.
Weblogic software.
</TABLE>
- --------------------------------------------------------------------------------
Success: Gloss.com provides customers with the type of one-to-one service
experienced at most traditional beauty product counters, with the convenience of
an online experience.
- introduced Gloss.com into the marketplace with over 1,000 products,
original editorial features and compelling visual treatment.
- developed and implemented a full e-commerce solution in under four
months, in time for the holiday shopping season.
- experienced no website down time during the holiday season, which proved
to be a distinguishing factor when compared to other e-commerce websites.
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<PAGE> 41
PROCTER & GAMBLE(TM)
www.crest.pg.com
Relationship: We began our relationship with Procter & Gamble, or P&G, in
mid-1997 and have developed e-Business solutions for as many as 12 different
brands including Pampers, Charmin, Vicks, Scope, Crest, Always, Dawn, Swiffer,
Folgers, Puffs, Thermacare and Sunny Delight. Currently, our e-Business
solutions are focused on five brands: Pampers, Folgers, Scope, Crest and Vicks.
We continue to assist P&G in its online marketing efforts that we designed to
provide value to its customers and increase sales. Below is a recent example of
a solution designed and built for P&G.
<TABLE>
<S> <C>
[GRAPHIC DEPICTION OF TWO SCREEN SHOTS] LOGO
</TABLE>
Business Objectives: To leverage the power of the Internet as a platform to
extend Crest's First Grade Program in a fun and informative way that enables
children to learn about the importance of oral hygiene. Specific initiatives
included:
- providing an interactive environment for children to learn proper oral
hygiene habits;
- creating valuable interactive experience that children and parents come
back to; and
- improving and enhancing Crest's Internet presence and brand value.
Solution: We developed a fun and easy-to-use learning module called Sparkle
City that contemporizes the characters from the Crest Kids First Grade program.
The module utilizes Flash technology and streaming audio and video as a way to
bring the oral hygiene lessons to life. We also developed a registration tool
that tracks and allows individual game players to continue to play the module
where they left off.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGY TECHNOLOGY DESIGN MARKETING
<S> <C> <C> <C>
Defined a strategy for Utilized Flash Transformed oral Promoted brand value
translating existing multimedia application health care into a fun for Crest website
national in-school to create an way for users to learn visitors. Provided
learning program into interactive learning through an interactive parents and children
an effective web-based adventure featuring game structure, reward with an educational
experience. full animation and system and recognition experience.
streaming audio. of return visitors.
</TABLE>
- --------------------------------------------------------------------------------
Success: We have received numerous awards for our work.
- Scope: HealthCare Copy Award -- People's Choice.
- Scope: 1998 CASIE Winner (Send A Kiss).
- Pampers: 1998 CASIE Finalist (Monster Baby).
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<PAGE> 42
- Pampers: Paper Copy Award -- Best Interactive.
- Vicks.com: 1999 CyberLion Finalist -- Best website.
- Vicks.com: 1999 London International Advertising Awards Finalist -- Best
website.
- Always: 1999 London International Ad Awards Finalist -- Best website.
- Always: Paper Copy Award -- Best Interactive.
TOYOTA MOTOR SALES, USA
www.toyota.com
Relationship: We have served as the Toyota Interactive Agency of Record
since 1995. Toyota's desire to lead the industry for the long term makes its
e-Business strategy and deployment critical to support far-reaching business
objectives.
<TABLE>
<S> <C>
[TOYOTA GRAPHIC] [TOYOTA GRAPHIC]
</TABLE>
Business Objectives: To transform website visitors into vehicle buyers by
providing customers with a rich experience, easy-to-access information and the
tools necessary to facilitate the purchase of a vehicle at a preferred
dealership. Specific initiatives included:
- allowing customers to configure and price a vehicle of their choice;
- sending customer information to dealership of choice and allowing
customers to apply for credit online; and
- developing customer tracking and data management systems and customer
service efforts.
Solutions: We architected an integrated online customer experience that
emulated a successful retail cycle utilizing Toyota's complete service
offerings.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGY TECHNOLOGY DESIGN MARKETING
<S> <C> <C> <C>
Defined business, Developed database - Developed original Created customized
technical and driven web creative design and tracking and analysis
functional applications, and content for website. solutions to
requirements. defined and executed Facilitated customer determine
Facilitated cross- legacy integration engagement and buying effectiveness of
organizational using WebObjects, process. e-Business
planning with entire Oracle8 and XML data initiatives, online
Toyota web team. exchange. advertising and
promotions.
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE> 43
Success: Toyota's website has been ranked as one of the most well regarded
websites in the automotive industry.
- Shop@Toyota is the pricing lead generator for Toyota.
- Shop@Toyota receives an estimated 1.5 million visitors per month.
- Automotive Marketing Consultants, Inc. has ranked Shop@Toyota among the
top three automotive websites every year since 1996.
- customer's have the ability to apply for credit and obtain online
approval within 48 hours.
COMPETITION
Our market is new, intensely competitive, highly fragmented, subject to
rapid technological change and has grown dramatically in recent years due to the
increasing use of the Internet by businesses. Our ability to compete effectively
depends on many factors, both within and beyond our control. We believe that the
principal factors upon which we will compete for clients include:
- quality of service;
- strategic, technical, creative design, and marketing expertise;
- breadth and integration of service offerings;
- strength and depth of existing client relationships;
- reputation and brand recognition;
- price;
- value provided; and
- project management capabilities.
We currently compete, or anticipate competing, with companies that offer
strategic consulting, creative design, information technology, marketing,
advertising and online loyalty services, as well as the internally developed
capabilities of current and potential clients. Our current competitors include:
- Internet professional services firms, such as Agency.com, Diamond
Technology Partners, iXL Enterprises, Proxicom, Razorfish, Scient,
USWeb/CKS, Sapient and Viant;
- management consulting firms, such as Bain & Company, Booz Allen &
Hamilton, Boston Consulting Group and McKinsey & Company;
- advertising and direct marketing agencies, such as Ogilvy One and
Wunderman Cato Johnson;
- systems integrators, such as Andersen Consulting, Computer Science
Corporation, Electronic Data Systems, Perot Systems and the consulting
arms of the "Big Five" accounting firms;
- the professional services groups of computer equipment companies, such as
Hewlett Packard and IBM Global Services; and
- internal information technology departments of current and potential
clients.
All of these groups are competitors to us in one or more of our service
offerings. In addition, it is not uncommon for any or all of these competitors
to partner with other vendors to fill resource or technical needs. Because of
relatively low barriers to entry, we also expect other competitors to enter the
market. As a result, we expect competition to persist and intensify in the
future.
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PEOPLE AND CULTURE
As of February 29, 2000, we employed approximately 190 people. Of these,
approximately 70% were billable professionals. None of our employees is
represented by a labor union, and we believe our employee relations are
excellent. We have not experienced any work stoppages.
Our culture is one of constant learning, growth and excitement. Our work
environment and open office space are very conducive to collaboration and
knowledge sharing. We believe that the best way to continue to attract and
retain highly qualified personnel is to provide an intellectually challenging
work environment that fosters creativity and opportunity for development.
Employees have described our environment as an entrepreneurial meritocracy that
encourages knowledge sharing. Additionally, we offer formal professional
development classes through our NOVO University.
FACILITIES
Our headquarters are located in a leased facility in San Francisco,
California consisting of 34,585 square feet of office space. Our lease expires
in April 2005. In addition, we lease 19,272 square feet in New York City, under
a lease that expires in February 2001. We lease a small amount of space in Los
Angeles, California and Detroit, Michigan. Our current facilities will not be
sufficient to meet our anticipated growth. We cannot assure you that we will be
able to secure additional office space needed to satisfy our projected growth.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation resulting from the
conduct of our business. We are not currently party to any material legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kelly A. Rodriques........................ 36 Chairman, Chief Executive Officer and
Director
Harry Schlough............................ 41 President, Chief Operating Officer and
Director
Kimberley Hardmeyer Vogel................. 32 Chief Financial Officer
Diana Wilson Todd......................... 38 Executive Vice President, Delivery
Andrew Sievers............................ 34 Vice President, General Manager, NY
George Johnson, Jr. ...................... 30 Vice President, Creative
Jeff Lupinacci............................ 30 Vice President, Finance
Charles Marcus............................ 28 Vice President, Business Development
Megan O'Connor............................ 29 Vice President, Co-Director of Marketing
Harry S. Paynter.......................... 41 Vice President, Co-Director of Marketing
Erica Pearson............................. 31 Vice President, Human Resources
Derrick Palmer............................ 45 Director of Strategy
Richard Marcus(1)......................... 61 Director
Roy J. Bostock(1)......................... 59 Director
Craig D. Brown(1)......................... 48 Director
</TABLE>
- -------------------------
(1) Member of compensation committee
(2) Member of audit committee
(3) Member of nominating committee
KELLY A. RODRIQUES founded our predecessor company, Novo MediaGroup, Inc.,
in 1994 and merged it with Ironlight Digital in 1998. In August 1999, we
acquired Blue Marble ACG, Ltd. Mr. Rodriques has been Chairman and Chief
Executive Officer since our inception. Prior to founding Novo MediaGroup, Mr.
Rodriques served as the Director of Marketing for Ogilvy & Mather's interactive
group, where he established the international agency's first efforts in research
and digital brand consulting. He holds a B.S. from California State University
at Fresno.
HARRY SCHLOUGH has served as our President and Chief Operating Officer
since May 1999. Prior to joining us, Mr. Schlough was President of HWS
Consulting Corp., an information technology consulting firm, from January 1996
to April 1999, working with clients such as our predecessor, Novo MediaGroup,
Inc. From July 1991 to December 1995, Mr. Schlough served as Senior Vice
President for Strategy and Marketing at SHL Systemhouse, Inc., where he was a
member of the company's global executive operating committee. Prior to that
time, Mr. Schlough held various positions, most recently Senior Manager, with
Andersen Consulting. Mr. Schlough holds a B.A. from Northwestern University. He
is a member of our board of directors.
KIMBERLEY HARDMEYER VOGEL has served as our Chief Financial Officer since
February 1999, and served as our Director of Finance from September 1998 to
April 1999. From 1995 to 1998, Ms. Vogel served as a Vice President and Senior
Equity Research Analyst at NationsBanc Montgomery Securities, focusing at
various times on multimedia and Internet technology, media and communications,
and the computer services and electronic commerce industries. Ms. Vogel is a
Certified Public Accountant in the State of California and served at KPMG LLP
from 1989 to 1992 as a Senior Accountant. She holds a B.S. from Saint Mary's
College and an M.B.A. from Harvard University Graduate School of Business
Administration.
DIANA WILSON TODD has served as our Executive Vice President, Delivery
since October 1999. From April 1999 to October 1999, Ms. Todd was Chairman of
Geyser Technology, Inc., focusing on consulting services for the electronic
trading and international securities technology industries. From April 1998 to
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<PAGE> 46
April 1999, she was Senior Vice President and Chief Information Officer of
International Securities Exchange, LLC, where she oversaw the development and
implementation of the technology strategy for an electronic options exchange.
From November 1993 to February 1998, Ms. Todd served as Director of Technology
for Merrill Lynch Japan Inc. Ms. Todd holds a B.S. from Brigham Young
University.
ANDREW SIEVERS has served as our Vice President and General Manager, New
York since November 1999. From October 1997 to November 1999, Mr. Sievers was an
Asia Regional Director for Saatchi & Saatchi's Tokyo office, where he managed
integrated marketing operations for large multinational clients such as Toyota
and Lexus. From July 1996 to September 1997, Mr. Sievers served as Senior
Partner and Director of Marketing for Cow Interactive, an interactive design
consulting firm. From October 1995 to June 1996, he was a Management Supervisor
at Wieden & Kennedy Advertising, where he supervised development of traditional
and interactive marketing initiatives for clients such as Microsoft and the
Microsoft Network. From 1989 to September 1995, Mr. Sievers held a variety of
domestic and international positions at Saatchi & Saatchi Worldwide, most
recently serving as the Director of Interactive Technologies for the Los Angeles
Office. Mr. Sievers has a B.A. from the University of California at Santa
Barbara.
JEFF LUPINACCI has served as our Vice President, Finance since February
2000 and was our Finance Director from September 1999 to February 2000. From May
1999 to August 1999, Mr. Lupinacci was the Finance Director at Blue Marble ACG,
Ltd. From July 1996 to May 1999, Mr. Lupinacci held a variety of positions at
Koch Industries, Inc., most recently as a Director of the Mergers and
Acquisitions Group, and also as a Director of the Venture Capital and Private
Equity Group. From September 1991 to June 1996, Mr. Lupinacci worked at the
Chase Manhattan Bank, most recently as an Assistant Vice President. Mr.
Lupinacci holds a B.A. from Providence College.
GEORGE JOHNSON, JR. has served as our Vice President, Creative since
December 1999. From September 1998 to December 1999, Mr. Johnson served as our
Director of Creative Services. From August 1997 to September 1998, Mr. Johnson
served as the Creative Director of Automatic, NY, where he managed the creative
team and worked with clients such as Blue Cross/Blue Shield, Fisher-Price, and
Cellular One. Mr. Johnson served as an Art Director at Oven Digital from April
1996 to August 1997 and at Crowley Webb and Associates from November 1994 to
April 1996. Mr. Johnson holds a B.A. from Hamilton College and an M.A. from Yale
University.
CHARLES MARCUS has served as our Vice President, Business Development since
December 1999. From July 1998 to December 1999, Mr. Marcus served as our
Director of Business Development. From June 1996 to June 1998, Mr. Marcus was a
Market Development Manager at CNET, Inc., where he focused on sales and
marketing strategies. From December 1995 to April 1996, Mr. Marcus was an
independent contractor at XcelleNet, where he worked in software product
development. From April 1995 to December 1995, Mr. Marcus was an Associate at
Fillmore Mercantile, a private equity group, where he helped manage its
investments in Internet technologies. Mr. Marcus holds a B.S. from Harvard
College. Mr. Marcus's father, Richard Marcus, serves on our board of directors.
MEGAN O'CONNOR has served as a Vice President and Co-Director of Marketing
since December 1999 and was a Group Account Director from September to December
1999. Prior to joining us, Ms. O'Connor worked at Blue Marble ACG, Ltd., where
she served as a Group Account Director from April 1998 until August 1999. From
March 1996 until March 1998, Ms. O'Connor worked at THINK new ideas, Inc. as an
Account Executive and then an Account Supervisor. From May 1995 to April 1996,
Ms. O'Connor was an Account Executive at Yoyodyne Entertainment. From December
1993 to May 1995, she served as a Marketing Assistant at Seth Godin Productions.
Ms. O'Connor holds a B.A. from Lafayette College.
HARRY S. PAYNTER has served as a Vice President and Co-Director of
Marketing since December 1999 and was a Group Account Director from September to
December 1999. From February to August 1999, Mr. Paynter served as a Group
Account Director of Blue Marble ACG, Ltd. From December 1993 to January 1999,
Mr. Paynter held a variety of positions at Messner Vetere Berger McNamee
Schmeterer Euro RSCG, including Account Supervisor for Volvo of North America
from September 1996 to February
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1999 and for MCI, Inc. from December 1993 to September 1996. Mr. Paynter holds a
B.A. from Bellarmine College.
ERICA PEARSON has served as our Vice President, Human Resources since
December 1999 and was our Director of Human Resources from June 1999 to December
1999. From 1992 to June 1999, Ms. Pearson held a variety of human resources
positions at NationsBanc Montgomery Securities, including, most recently,
Recruiting Coordinator from December 1994 to July 1997, Associate Director of
Staffing from July 1997 to August 1997, Associate Director of Human Resources
from August 1997 to January 1998, and Vice President of East Coast Human
Resources from January 1998 to June 1999. Ms. Pearson holds a B.A. from the
University of California at San Diego.
DERRICK PALMER has served as our Director of Strategy since November 1998.
From January 1997 to November 1998, Mr. Palmer served as a Director of Cambridge
Management Consulting, the management consulting division of Cambridge
Technology Partners, where he worked on Internet and e-Commerce initiatives.
From June 1993 to January 1997, Mr. Palmer was a Director of IdeaScope
Associates, a management consulting firm. Mr. Palmer holds a B.A. from the
University of York and an M.A. in marketing management from the University of
Lancaster.
RICHARD MARCUS has served on our board of directors since December 1999.
Mr. Marcus has been a Senior Advisor to the Peter J. Solomon Company, an
independent investment banking firm, since 1997. From 1996 to 1997, Mr. Marcus
was a partner in the Intersolve Group, a management services company that he
founded. From 1995 to 1996, he was Chief Executive Officer of the Plaid Clothing
Group. Mr. Marcus has more than 35 years of experience in the marketing and
retailing field, 27 of which were spent at Neiman Marcus, where he was Chief
Executive Officer from 1979 to 1988. Mr. Marcus holds a B.A. from Harvard
College and is a graduate of the Advanced Management Program at Harvard
University's Graduate School of Business Administration. Mr. Marcus is a
director of the Zales Corporation, Michaels Stores, Fashionmall.com, and several
private companies. Mr. Marcus's son, Charles Marcus, is our Vice President,
Business Development.
ROY BOSTOCK has served on our board of directors since September 1999. Mr.
Bostock has been Chairman of BDM, Inc. since it was formed in February 2000
through the business combination of The MacManus Group with The Leo Group. Prior
to the formation of BDM, Mr. Bostock served as Chairman and Chief Executive of
MacManus, a position he held since 1990. Prior to then, Mr. Bostock held various
positions at D'Arcy Masius Benton & Bowles, Inc. and its predecessor, Benton &
Bowles. Mr. Bostock serves on the boards of BDM, Inc. and the Fuqua School of
Business at Duke University and serves as a trustee or director of several
business and charitable groups.
CRAIG BROWN has served on our board of directors since September 1999. Mr.
Brown has been President and Chief Operating Officer of BDM, Inc. since its
formation in February 2000. Prior to the formation of BDM, Mr. Brown served as
Vice Chairman, Chief Operating Officer and Chief Financial Officer of The
MacManus Group, a position he held since 1996. Prior to his appointment, Mr.
Brown held a variety of positions at D'Arcy Masius Benton & Bowles and its
predecessor, D'Arcy MacManus Masius. Mr. Brown serves on the boards of BDM, Inc.
and the Eli Broad School of Business at Michigan State University.
BOARD COMMITTEES
The Board of Directors has a compensation committee, an audit committee and
a nominating committee.
Compensation Committee. The compensation committee reviews and approves the
salary, stock option, benefits and other compensation of our Chief Executive
Officer and our Chief Operating Officer. The current members of the compensation
committee are Richard Marcus, Roy Bostock, and Craig Brown.
Audit Committee. The audit committee, among other things, makes
recommendations to the board of directors concerning the engagement of
independent public accountants, monitors and reviews the quality
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<PAGE> 48
and activities of our internal audit functions, and monitors the results of our
operating and internal controls as reported by management and the independent
public accountants. We currently have three vacancies on the audit committee.
Nominating Committee. The nominating committee screens and nominates
candidates for election to our board. We currently have no members on the
nominating committee.
STAGGERED BOARD OF DIRECTORS
The members of our board of directors are elected to three year terms. They
are divided into three classes. Harry Schlough is a Class One Director and will
next stand for election in 2001. Richard Marcus and Kelly Rodriques are Class
Two Directors and will next stand for election in 2002. Roy Bostock and Craig
Brown and Class Three Directors and will next stand for election in 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or the compensation committee
of any other company, nor has any such interlocking relationship existed in the
past. None of the members of our compensation committee is currently, or has
been at any time since our formation, one of our officers or employees.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; and
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws further provide that we must indemnify our directors and
executive officers and may indemnify our other officers and employees and agents
to the fullest extent permitted by Delaware law. We currently maintain liability
insurance for our officers and directors.
Prior to the closing of this offering, we intend to enter into
indemnification agreements with each of our current directors and officers to
give such directors and officers additional contractual assurances regarding the
scope of the indemnification set forth in our certificate of incorporation and
bylaws and to provide additional procedural protections. At present, there is no
pending litigation or proceeding involving any of our directors, officers,
employees or agents as to which indemnification is being sought. We are not
aware of any pending or threatened litigation or proceeding that might result in
a claim for indemnification.
DIRECTOR COMPENSATION
One of our directors, Richard Marcus, will be compensated for his service
on our board with a semi-annual grant of 2,000 stock options and a grant of an
additional 1,500 stock options for each quarterly board meeting he attends, all
of which will be fully vested on the date of the grant. None of our other
directors receives specific compensation for his service as a director or for
his service on any committee of the board of directors, but all directors are
eligible to receive discretionary option grants or stock issuances under our
stock option plans. We may, in the future, adopt a compensation plan for
non-employee members of our board of directors. We reimburse members of the
board of directors for their out-of-pocket expenses associated with their board
participation.
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<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1999, all
compensation of the Chief Executive Officer and each of our four other most
highly compensated executive officers who earned more than $100,000 in 1999 and
were serving as executive officers at the end of 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME PRINCIPAL POSITION SALARY BONUS(1) OPTIONS
- ---- ------------------ -------- -------- ------------
<S> <C> <C> <C> <C>
Kelly A. Rodriques... Chairman and Chief Executive $164,653 $56,250 1,210,000
Officer
Harry Schlough....... President and Chief Operating 105,692 29,342 1,000,000
Officer
Kimberley Chief Financial Officer 114,465 42,500 550,000
Hardmeyer..........
Vogel
Daniel Jones......... Senior Vice President, Information 94,673 50,000 --
Technology
Derrick Palmer....... Director of Strategy $ 87,125 $48,750 --
</TABLE>
- ------------
(1) Reflects bonus amounts based on 1999 performance but paid in 2000. Beginning
in December 1999, the employment agreements for Mr. Rodriques, Mr. Schlough
and Ms. Vogel provide for a performance bonus of up to 50% of base pay. See
"Management -- Employment Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth each grant of stock options to our Chief
Executive Officer and each of our four other most highly compensated executive
officers for the year ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES PRICE PER TERM(3)
OPTIONS IN FISCAL SHARE EXPIRATION -----------------------
NAME GRANTED (#) YEAR(1) (2) DATE 5% 10%
- ---- ----------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kelly A. Rodriques........ 100,000(4) 1.20% $1.40 4/29/09 $109,760 $140,085
1,100,000(5) 13.24 2.26 11/15/09 $ 0 $ 0
10,000(4) 0.12 2.26 11/23/09 $ 0 $ 0
Harry Schlough............ 200,000(6) 2.41 1.40 5/15/09 $219,520 $280,170
800,000(5) 9.63 2.26 11/15/09 $ 0 $ 0
Kimberley Hardmeyer
Vogel................... 50,000(4) 0.60 1.40 5/15/09 $ 63,814 $ 70,042
500,000(7) 6.02 2.26 11/15/09 $ 0 $ 0
Daniel Jones.............. -- -- -- -- -- --
Derrick Palmer............ -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on a total of 8,310,695 option shares granted to our employees,
directors and consultants under our 1999 Novo Series A Common Stock
Incentive Plan during fiscal 1999.
(2) The exercise price per share of each option was equal to the fair market
value of our common stock on the date of grant as determined by our board of
directors. The exercise price may be paid via cashless exercise, in cash, or
in shares of our common stock valued at the full market value of the common
stock on the exercise date.
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<PAGE> 50
(3) The potential realizable value is calculated based on the term of the option
at the time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and
does not represent our prediction of our stock price performance. The
potential realizable value at 5% and 10% annual appreciation is calculated
by assuming that the fair market value on the date of grant appreciates at
the indicated rate compounded annually for the entire term of the option and
that the option is exercised at the exercise price and sold on the last day
of its term for the appreciated price.
(4) These options were fully vested on date of grant.
(5) These options vest in 36 equal monthly installments over a three-year period
beginning November 15, 1999.
(6) These options vest as follows: 1/4 of the shares of our common stock
underlying each option vests at the first anniversary of the option vesting
date, and 1/36 of the remainder of the shares vests each month thereafter.
The optionee is fully vested on the fourth anniversary of the vesting
commencement date. The options are subject to accelerated vesting under
certain circumstances.
(7) Fifty percent of these options vested on November 15, 1999. The remaining
50% vest in 36 equal monthly installments over a three-year period beginning
November 15, 1999.
FISCAL YEAR END-OPTION VALUES
The following table sets forth, for our Chief Executive Officer and each of
our four other most highly compensated executive officers, the number and value
of securities underlying options that were held by each executive officer as of
December 31, 1999. No options were exercised by our executive officers in 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, AT DECEMBER 31,
1999 1999(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kelly A. Rodriques......................... 140,555 1,069,445 $362,694 $2,416,946
Harry Schlough............................. 22,222 978,000 49,720 2,209,778
Kimberley Hardmeyer Vogel.................. 394,944 275,056 892,573 621,627
Daniel Jones...............................
Derrick Palmer............................. 51,833 29,167 $117,143 $ 65,917
</TABLE>
- -------------------------
(1) Based on a fair market value of our common stock at the end of 1999 of $2.26
per share.
EMPLOYMENT AGREEMENTS
Effective December 21, 1999, we entered into an agreement to employ Kelly
A. Rodriques as our Chief Executive Officer. The agreement provides that Mr.
Rodriques is entitled to receive a base salary of $260,000 per year and will be
eligible to receive an annual performance bonus of up to 50% of his base salary
based upon his and our performance.The goals for 2000 have not yet been
established. In addition, Mr. Rodriques was granted options to purchase an
additional 1,100,000 shares of our common stock.
Effective December 21, 1999, we entered into an agreement to employ Harry
Schlough as our President and Chief Operating Officer. The agreement provides
that Mr. Schlough is entitled to receive a base salary of $220,000 per year and
will be eligible to receive an annual performance bonus of up to 50% of his base
salary based upon his and our performance. We anticipate that the annual bonus
will be a minimum of fifty percent of Mr. Schlough's base salary if we and Mr.
Schlough achieve performance goals to be established by our board of directors.
The goals for 2000 have not yet been established. In addition, Mr. Schlough was
granted an option to acquire an additional 800,000 shares of our common stock.
Effective December 21, 1999, we entered into an agreement to employ
Kimberley Hardmeyer Vogel as our Chief Financial Officer. The agreement entitles
Ms. Vogel to a base salary of $210,000 per year and
49
<PAGE> 51
makes her eligible to receive an annual performance bonus of up to 50% of her
base salary based upon her and our performance, as determined by the standards
applied to all of our officers. The goals for 2000 have not yet been
established. In addition, Ms. Vogel was granted options to purchase an
additional 500,000 shares of our common stock.
In September 1999, we entered into an agreement to employ Diana Wilson Todd
as our Executive Vice President, Delivery. The agreement entitles Ms. Wilson
Todd to a base salary of $160,000 per year and makes her eligible to receive a
25% annual performance bonus based upon our performance. In addition, Ms. Wilson
Todd was granted an option to acquire an additional 320,000 shares of our common
stock.
In September 1999, we entered into an agreement to employ Andrew Sievers as
our Vice President and General Manager of our New York operations. The agreement
entitles Mr. Sievers to receive a base salary of $150,000 per year and makes him
eligible to receive a 25% annual performance bonus based upon our performance
and uniform standards applied to all of our vice presidents. The goals for 2000
have not yet been established. In addition, Mr. Sievers was granted an option to
acquire an additional 100,000 shares of our common stock, and he received cost
reimbursements of $10,000 and a signing bonus of $40,000.
Under the terms of all of these employment agreements, either party may
terminate the employment agreement for any reason upon written notice. If we
terminate for cause or the employee voluntarily resigns employment, that
employee will receive salary, benefits and bonus earned through the date of
termination and health benefits for an additional 24 months.
If terminated without cause, Mr. Rodriques, Mr. Schlough and Ms. Vogel, in
addition to the terms set forth above:
- will receive a severance payment equal to 12 months' salary; and
- will vest in any stock options which would have vested within the
12-month period following termination.
If terminated without cause, Mr. Sievers and Ms. Wilson Todd will receive a
severance payment equal to 6 months' salary.
These employment agreements also will terminate upon the death or permanent
disability of the employee. If the termination is due to death or permanent
disability, the employee or that employee's estate will be entitled to salary
and bonuses earned through the date of termination and a severance payment. Mr.
Rodriques, Mr. Schlough and Ms. Vogel will receive a severance payment equal to
12 months' salary and Ms. Wilson Todd and Mr. Sievers will receive a severance
payment equal to 6 months' salary.
Mr. Rodriques, Mr. Schlough and Ms. Vogel are entitled to full acceleration
of the vesting provisions governing any of their stock or options to purchase
stock if we enter into a merger or consolidation or sell, transfer or otherwise
dispose of all or substantially all of our assets.
EMPLOYEE BENEFIT PLANS
1999 Novo Series A Common Stock Incentive Plan
Our 1999 Novo Series A Common Stock Incentive Plan was approved by the
board in June 1999 and approved by the stockholders in August 1999. The plan
allows us to:
- grant incentive stock options;
- grant non-qualified stock options; and
- grant any other security whose value derives from the value of our common
stock.
50
<PAGE> 52
More specifically, the plan authorizes the issuance of an aggregate of 7,500,000
shares of common stock. Grants under the plan may be made to employees,
non-employee directors and consultants who contribute to our management, growth
and profitability.
A committee of the board of directors or, if no such committee is formed,
the board of directors, administers the plan, which includes determining the
participants in the plan, the number of shares of common stock to be covered by
each option, and the terms and conditions of options, amending the terms of
options subject to certain limitations, and interpreting the terms of the plan.
Under the plan, the exercise price of vested options may be delivered to us by
check, cash, a promissory note in a form acceptable to the board or board
committee, a surrender of shares, or any other instrument acceptable to the
board or board committee.
If we merge or consolidate, sell all or substantially all of our assets, or
engage in a reverse merger in which existing option awards will not be assumed
by the successor corporation, any unexercised options will terminate and we will
repurchase any restricted stock at the original exercise price paid per share.
1998 Novo Series B Common Stock Incentive Plan
Our 1998 Novo Series B Common Stock Incentive Plan was adopted by the board
in June 1998 and approved by the stockholders in June 1999. The plan allows us
to:
- grant incentive stock options;
- grant non-qualified stock options; and
- grant any other security whose value derives from the value of our common
stock.
More specifically, the plan authorizes the issuance of an aggregate of 1,600,000
shares of common stock. Grants under the plan may be made to employees,
non-employee directors and consultants who contribute to our management, growth
and profitability.
A committee of the board of directors or, if no such committee is formed,
the board of directors, administers the plan, which includes determining the
participants in the plan, the number of shares of common stock to be covered by
each option, and the terms and conditions of options, amending the terms of
options subject to certain limitations, and interpreting the terms of the plan.
Under the plan, the exercise price of vested options may be delivered to us by
check, cash, a promissory note in a form acceptable to the board or board
committee, a surrender of shares, or any other instrument acceptable to the
board or board committee.
If we merge or consolidate, sell all or substantially all of our assets, or
engage in a reverse merger in which existing option awards will not be assumed
by the successor corporation, any unexercised options, other than any held by
Kelly Rodriques, Harry Schlough or Kimberley Vogel, will terminate and we will
repurchase any restricted stock at the original exercise price paid per share.
No more stock will be issued under the 1998 Novo Series B Stock Incentive
Plan.
Ironlight Digital Corporation 1997 Stock Incentive Plan
In 1998, we acquired Ironlight Digital Corporation. In connection with that
acquisition, we assumed the Ironlight Digital Corporation 1997 Stock Incentive
Plan. As assumed by us, that plan covers:
- the issuance of shares of common stock;
- the grant of incentive stock options;
- the grant of non-qualified stock options; and
- the grant of any other security whose value derives from the value of
common stock.
51
<PAGE> 53
The plan authorizes the issuance of an aggregate of approximately 55,904
shares of our common stock. Since the acquisition of Ironlight, we have not
authorized any new awards under the plan and do not anticipate doing so.
401(k) Plan
In 1998, we established a defined contribution plan authorized under
Section 401(k) of the Internal Revenue Code. The plan covers all full-time
employees. Pursuant to the 401(k) plan, employees may elect to reduce their
current compensation by the lesser of 25%, decreased by amounts contributed in
the form of matching contribution, if any, of eligible compensation, or $10,500,
the statutorily prescribed annual limit in 2000, and have the amount of
reduction contributed to the 401(k) plan. The 401(k) plan is intended to qualify
under Section 401(a) of the Internal Revenue Code so that contributions by
employees to the 401(k) plan, and income earned on plan contributions, are not
taxable to employees until withdrawn, and so that we can deduct the
contributions by employees when made. We may make matching or additional
contributions to the 401(k) plan, in amounts to be determined annually by the
board. We did not contribute to the 401(k) plan in 1998 or 1999.
52
<PAGE> 54
CERTAIN TRANSACTIONS
In September 1999, we redeemed 326,551 shares of our Series A common stock
held by Kelly Rodriques, our chairman and chief executive officer, at a
per-share price of $2.26.
On August 26, 1998, we issued a convertible promissory note to Mr.
Rodriques in the principal amount of $50,000, with an interest rate of 8% per
year. On November 26, 1998, Mr. Rodriques converted the note into 44,602 shares
of our Series A common stock.
On January 16, 1998 we issued a promissory note to Mr. Rodriques in the
principal amount of $0.2 million, with an interest rate of 8% per year. On April
5, 1998, the note was cancelled in exchange for our authorizing Mr. Rodriques to
exercise 386,000 shares of Series A common stock at a purchase price of $0.50
per share.
In March 2000, we entered into a referral agreement with BDM, the parent
company of our largest shareholder. Under this agreement, BDM will use its best
efforts to refer clients that will generate at least $30 million of total
revenues for us during the three-year period ending December 31, 2002. If these
referral revenues do not meet this threshold, BDM will pay us 15% of the
difference between $30 million and the revenues generated. BDM has the right to
terminate the agreement if it ceases to have two representatives on our board
under certain circumstances. Immediately prior to this offering, approximately
65.08% of the outstanding shares of our capital stock is owned by The MacManus
Group and N.W. Ayer Communications, Inc., subsidiaries of BDM, Inc., along with
certain employees of MacManus and its affiliates.
On August 31, 1999, we acquired all of the outstanding stock of Blue Marble
ACG, Ltd. from The MacManus Group, Inc., our major shareholder, in exchange for
13,503,460 shares of our Series C common stock and 3,551,033 shares of our
Series A preferred stock. We received additional consideration of $10.0 million
for our Series A preferred stock. The aggregate fair value of the acquisition
was approximately $30.6 million (including acquisition costs of $0.1 million).
In connection with our acquisition of Blue Marble, N.W. Ayer
Communications, Inc., a subsidiary of The MacManus Group, acquired 13,503,460 of
our shares of common stock. In January 2000, N.W. Ayer sold 4,225,000 of its
shares to certain employees of MacManus and its affiliates.
We lease facilities from MacManus. For the year ended December 31,1999, we
paid $0.5 million in rent to MacManus. MacManus also performs management
services for us. For the year ended December 31, 1999, we paid $0.4 million
related to these services.
On May 1, 1999, we issued 100,000 shares to Harry Schlough, our President
and Chief Operating Officer, as a hiring bonus. The $0.1 million fair value of
these shares was recognized as compensation expense for the year ended December
31, 1999.
On August 28, 1996 and September 27, 1996, respectively, we issued
convertible promissory notes in the aggregate principal amount of $0.2 million,
with an interest rate of 8% per year, to Harry Schlough. On June 30, 1997 and
February 25, 1998, we issued Mr. Schlough an aggregate of 183,251 shares of
Series A common stock in connection with the conversion of the promissory notes.
On February 29, 2000, in exchange for a cash loan, Kimberly Hardmeyer
Vogel, our Chief Financial Officer, issued us a partial recourse secured
promissory note in the principal amount of $0.1 million, with an interest rate
at or equal to the applicable federal rate.
On September 28, 1998, we issued 231,928 shares of Series A common stock to
one of the founders of Ironlight Digital for $0.3 million.
On August 31, 1998, we issued 231,928 shares of Series A common stock to
Anthony Westreich, a significant shareholder of ours, for $0.3 million.
As of May 14, 1998, we issued to Stanley Westreich, the father of Anthony
Westreich, 1,577,209 shares of our Series B common stock in exchange for a
promissory note owed him by Ironlight Digital Corporation. Three persons,
including, Anthony Westreich, each hold the right to purchase up to
53
<PAGE> 55
277,058 shares from Stanley Westreich. On January 19, 1999, Stanley Westreich
sold 746,034 shares of Series B common stock to Anthony Westreich.
From March 20, 1998 to August 26, 1998, we issued convertible promissory
notes in the aggregate principal amount of $0.4 million, with an interest rate
of 8% per year, to Anthony Westreich. From November 21, 1998 to December 16,
1998, Mr. Westreich converted the notes and accrued interest into 361,627 shares
of our Series A common stock.
From February 11, 1998 to July 31, 1998, Ironlight Digital issued
convertible promissory notes in the aggregate principal amount of $2 million,
with an interest rate of 8% per year, to Anthony Westreich. We assumed these
promissory notes in connection with our merger with Ironlight Digital. From
November 30, 1998 to December 13, 1998, Mr. Westreich converted the notes and
accrued interest into 200,594 shares of our Series A common stock.
On May 14, 1998, we issued 1,579,303 and 3,670,850 shares of Series A and
Series B common stock, respectively, to Ironlight Digital shareholders in
exchange for all outstanding common stock of Ironlight Digital. One of the
recipients of the Series A common stock transferred some of these shares as
follows: 17,419 shares were transferred to Anthony Westreich on August 31, 1998
for approximately $20,000 and 50,000 shares were transferred to Kelly Rodriques
on December 15, 1998 for $57,000.
Prior to the closing of this offering, we intend to enter into
indemnification agreements with each of our executive officers and directors.
Such agreements may require us, among other things, to indemnify our officers
and directors (other than for liabilities arising from willful misconduct of a
culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. See
"Management -- Indemnification of Directors and Executive Officers and
Limitations of Liability."
54
<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our capital stock as of December 31, 1999 and the sale of common
stock offered hereby. The information is provided with respect to:
- each person who is known to us to own beneficially more than 5% of the
outstanding shares of our capital stock;
- each of our directors;
- our Chief Executive Officer and each of our four other most highly
compensated executive officers for the year ended December 31, 1999;
- each of our executive officers; and
- all of our directors and executive officers as a group.
Except as otherwise indicated by footnote, and subject to community
property laws where applicable, the named person has sole voting and investment
power with respect to all of the shares of capital stock shown as beneficially
owned. An asterisk indicates beneficial ownership of less than 1% of the capital
stock outstanding.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(1)
-------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PRIOR TO OFFERING AFTER OFFERING(2)
- ------------------------------------ ---------------- ----------------- -----------------
<S> <C> <C> <C>
Kelly A. Rodriques.................... 2,304,664 7.77%
Harry Schlough........................ 349,917 1.19% *
Kimberley H. Vogel.................... 416,332 1.41% *
Diana Wilson Todd..................... 0 * *
Andrew Sievers........................ 0 * *
George Johnson, Jr.................... 2,031 * *
Jeff Lupinacci........................ 0 * *
Charles Marcus........................ 3,489 * *
Megan O'Connor........................ 0 * *
Harry Paynter......................... 0 * *
Erica Pearson......................... 0 * *
Dan Jones............................. 200,894 * *
Derrick Palmer........................ 54,732 * *
Richard Marcus........................ 0 * *
Roy Bostock(3)........................ 17,054,493 57.9% *
Craig Brown(3)........................ 17,054,493 57.9% *
All executive officers and directors
as a group (15 persons).............
The MacManus Group(3)................. 17,054,493 57.9
1675 Broadway
New York, NY 10019
Anthony Westreich(4).................. 5,709,000 19.66%
58 Hill Street
Mill Valley, CA 94941
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the securities. We have 29,453,487 shares of capital stock
outstanding. Shares of common stock subject to options, warrants or other
rights to purchase which are currently exercisable or are exercisable within
60 days after December 31, 1999 are deemed outstanding for purposes of
computing the percentage ownership of the persons holding such options,
warrants or other rights, but are not deemed outstanding for
55
<PAGE> 57
purposes of computing the percentage ownership of any other person. The address
of each of the directors and executive officers named in the table is c/o Novo
Group, Inc., 222 Sutter Street, 6th Floor, San Francisco, California 94108.
(2) The percentages shown assume that the underwriters' option to purchase up to
an additional shares of common stock is not exercised.
(3) Includes 13,503,460 shares held by N.W. Ayer Communications, Inc., a
subsidiary of The MacManus Group, and 3,551,033 shares held by MacManus.
Messrs. Bostock and Brown are directors and officers of MacManus. Messrs.
Bostock and Brown have disclaimed beneficial ownership of all shares held by
MacManus and N.W. Ayer.
(4) Includes an option to purchase 277,058 shares currently held by Stanley
Westreich.
56
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 260 million shares of common
stock, $0.0001 par value, and 40 million shares of preferred stock, $0.0001 par
value. As of December 31, 1999, 25,902,456 shares of common stock were issued
and outstanding, and 3,551,033 shares of preferred stock were issued and
outstanding. As of December 31, 1999, we had 85 stockholders.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation to be effective after the closing of this
offering, our bylaws and the provisions of applicable Delaware law.
COMMON STOCK
Each holder of our common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders.
Subject to the preferences to which holders of any shares of preferred
stock issued may be entitled, holders of our common stock are entitled to
receive ratably dividends and other distributions, if any, that our board of
directors may, from time to time, declare out of funds legally available
therefor. We have not declared any dividends to date. In the event of our
liquidation, dissolution or winding up, holders of common stock would be
entitled to share in any of our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights, nor are there any redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of the common stock are subject to, and may be
adversely affected by, the rights of the holders of any shares of preferred
stock that we may designate in the future.
PREFERRED STOCK
The board of directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time, to fix or alter the
rights, preferences and privileges, including voting rights, conversion rights,
dividend rights, redemption privileges and liquidation preferences of any wholly
unissued series of preferred stock. The rights of the holders of the common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any such preferred stock that may be issued in the future. Issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding voting stock. We have
no present plans to issue any shares of preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws
We have adopted provisions in our amended and restated certificate of
incorporation and in our amended and restated bylaws that do the following:
- eliminate the right of stockholders to call a special meeting of
stockholders or bring matters before a special meeting of stockholders;
- require stockholders to give us advance notice of intent to nominate
directors or bring matters before an annual meeting of stockholders;
- eliminate the ability of stockholders to take action by written consent;
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<PAGE> 59
- stagger the terms of our board of directors into three classes so that
only one-third of the directors are elected each year, and effectively
provide that directors may not be removed from office other than for
cause;
- provide that vacancies on the board of directors resulting from increases
in the size of the board of directors or from death, resignation,
retirement or removal may only be filled by the board of directors; and
- permit the board of directors to create one or more series of preferred
stock and to issue the preferred shares once the shares have been
designated.
These provisions could adversely affect the rights of the holders of our
common stock by delaying, deferring or preventing a change in control. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of our board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control. These provisions are designed
to reduce our vulnerability to an unsolicited acquisition proposal and to
discourage certain tactics that may be used in proxy fights. However, these
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. These provisions also may have the effect of preventing
changes in our management.
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a publicly held Delaware
corporation from engaging in any "business combination" with any "interested
stockholder" for a period of three years following the date that the stockholder
became an interested stockholder, unless:
- prior to the date the stockholder became interested, the board of
directors approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced; and
- on or subsequent to the date the stockholder became interested, the
business combination is approved by our board of directors and authorized
at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of our
assets involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by us of any of our stock to the interested
stockholder;
- any transaction involving us that has the effect of increasing the
proportionate share of the stock of any class or series beneficially
owned by the interested stockholder; and
- the receipt by the "interested stockholder" of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
58
<PAGE> 60
In general, Section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of our outstanding voting stock and any
entity or person affiliated with or controlling or controlled by such entity or
person.
REGISTRATION RIGHTS
The MacManus Group, which holds, in the aggregate, % of the
outstanding shares of our capital stock after the offering will be entitled to
demand registration rights with respect to the registration of our shares under
the Securities Act of 1933, as amended. In addition, in the event that we
propose to register any of our securities under the Securities Act, these
holders are entitled to receive notice of such registration and, subject to
certain limitations, include their shares therein. Under the terms of our
Investors' Rights Agreement dated August 31, 1999, we are not required to effect
more than three demand registrations. The registration rights expire on the
earlier of fifth anniversary of the date on which our registration statement is
declared effective by the Securities and Exchange Commission or, as to a
specific holder, the date as of which all of that holder's shares can be sold
within a three-month period under Rule 144.
At any time after we become eligible to file a registration statement on
Form S-3, these stockholders may require us to file an unlimited number of
registration statements on Form S-3 with respect to their shares of common
stock, provided that we are not required to effect more than one registration
statement in any 12-month period.
Each of the foregoing registration rights is subject to certain conditions
and limitations, among them the right of the underwriters in any underwritten
offering to limit the number of shares of common stock held by stockholders with
registration rights to be included in registration statement. We are generally
required to bear all expenses associated with the registration statements,
except underwriting discounts and commissions, as well as to indemnify the
holders of such registration rights, subject to certain limitations.
NASDAQ NATIONAL MARKET LISTING
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "NOVO."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is
.
59
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering (assuming no exercise of the underwriters'
overallotment option), we will have shares of common stock, assuming
no exercise of options or warrants. Of these shares, the shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by our
affiliates, as that term is defined under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 described below.
LOCK-UP AGREEMENTS
Approximately of our shares, or %, of common stock upon
completion of this offering are restricted from re-sale pursuant to lock-up
agreements or similar arrangements under which the holders of such shares have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
Salomon Smith Barney Inc. Beginning 180 days after the date of this prospectus,
or earlier with the consent of Salomon Smith Barney Inc., these restricted
shares will become available for sale in the public market, subject to certain
limitations of Rule 144 of the Securities Act.
SALES OF RESTRICTED SHARES
Approximately 24,047,526 shares of common stock are deemed restricted
shares under Rule 144. In general, under Rule 144 of the Securities Act as
currently in effect, beginning 90 days after this offering, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year, including a person who may be deemed an affiliate, is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then-outstanding shares of our common stock
(approximately shares after giving effect to this offering) and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Sales under Rule 144 of the
Securities Act are subject to certain restrictions relating to manner of sale,
notice and the availability of current public information about us. A person who
is not our affiliate at any time during the 90 days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
such shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act prior to effecting a transfer of such shares.
OPTIONS
As of December 31, 1999, options to purchase a total of shares of
common stock pursuant to the 1998 NOVO Series B common stock Incentive Plan were
exercisable, as were options to purchase a total of shares of common
stock pursuant to the 1999 NOVO Series A common stock Incentive Plan. An
additional 121,441 shares of common stock were reserved as of December 31, 1999
for future option grants or direct issuances under the 1998 NOVO Series B common
stock Incentive Plan, as were 21,062 shares of common stock under the 1999 NOVO
Series A common stock Incentive Plan. See "Management -- Stock Plan" and Note 10
of notes to Consolidated Financial Statements.
60
<PAGE> 62
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc. ..................................
Bear, Stearns & Co. Inc. ...................................
SG Cowen Securities Corporation.............................
Friedman, Billings, Ramsey & Co., Inc. .....................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Bear, Stearns & Co.
Inc., SG Cowen Securities Corporation and Friedman, Billings, Ramsey & Co., Inc.
are acting as representatives, propose to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share on sales to certain other dealers. If all of the shares are not sold at
the initial offering price, the representatives may change the public offering
price and the other selling terms. The representatives have advised us that the
underwriters do not intend to confirm any sales to any accounts over which they
exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent such
option is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
Our officers and directors and certain other stockholders have agreed that,
for a period of 180 days from the date of this prospectus, they will not,
without the prior written consent of Salomon Smith Barney Inc., dispose of or
hedge any shares of our common stock or any securities convertible into or
exchangeable for our common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lockup agreements
at any time without notice.
The underwriters have reserved for sale, at the initial public offering
price, up to 10% of our common shares for customers, directors, employees and
other persons associated with us who have expressed an interest in purchasing
common shares in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, current financial condition, future prospects, markets, the economic
conditions in and future prospects for the industry in which we compete, our
management, and currently prevailing general conditions in the equity securities
markets, including current market valuations of publicly traded companies
considered comparable to us. We cannot assure you, however, that the prices at
which the shares will sell in the
61
<PAGE> 63
public market after this offering will not be lower than the price at which they
are sold by the underwriters or that an active trading market in the common
stock will develop and continue after this offering.
We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "NOVO."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY NOVO
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of common stock in the open
market after the distribution has been completed in order to cover syndicate
short positions. Stabilizing transactions consist of certain bids or purchases
of common stock made for the purpose of preventing or retarding a decline in the
market price of the common stock while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the common stock on the Nasdaq National Market, prior to the pricing and
completion of this offering. Passive market making consists of displaying bids
on the Nasdaq National Market no higher than the bid prices of independent
market makers and making purchases at prices no higher than those independent
bids and effected in response to order flow. Net purchases by a passive market
maker on each day are limited to a specific percentage of the passive market
maker's average daily trading volume in the common stock during a specified
period and must be discontinued when such limit is reached. Passive market
making may cause the price of the common stock to be higher than the price that
otherwise would exist in the open market in the absence of such transactions. If
passive market making is commenced, it may be discontinued at any time.
We estimate that our portion of the total expenses of this offering will be
$ .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.
62
<PAGE> 64
LEGAL MATTERS
The validity of the shares of common stock being offered will be passed
upon for us by Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional
Corporation, San Francisco, California, which has acted as our counsel in
connection with this offering. Certain legal matters in connection with this
offering will be passed upon by Brobeck, Phleger & Harrison LLP, Palo Alto,
California.
EXPERTS
The consolidated financial statements of Novo Group, Inc. included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Blue Marble Advanced Communications Group, LTD.
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement on Form S-1 with respect to this offering
of common stock with the Securities and Exchange Commission. This prospectus,
which forms a part of the registration statement, does not contain all of the
information set forth in the registration statement. For further information
with respect to us and our common stock, reference is made to the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the registration statement, and each such statement is qualified in all
respects by such reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and, in accordance therewith, we file reports and other
information with the Securities and Exchange Commission. Copies of the
registration statement as well as our reports and other information we file with
the Securities and Exchange Commission may be examined without charge at the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the registration
statement and our publicly filed reports can be obtained from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of certain prescribed fees. Please
call the Securities and Exchange commission at 1-800-SEC-0330 for more
information about the operation of the public reference rooms. Our filings are
also available to the public at the Securities and Exchange Commission's website
at http://www.sec.gov.
63
<PAGE> 65
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NOVO GROUP, INC.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to the Consolidated Financial Statements.............. F-7
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
Independent Auditors' Report................................ F-19
Balance Sheets.............................................. F-20
Statements of Operations.................................... F-21
Statements of Stockholders' Deficit......................... F-22
Statements of Cash Flows.................................... F-23
Notes to the Financial Statements........................... F-24
</TABLE>
F-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Novo Group, Inc.
We have audited the accompanying consolidated balance sheets of Novo Group,
Inc. and subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Novo Group, Inc. and its
subsidiary as of December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------------
San Francisco, California
March 3, 2000
F-2
<PAGE> 67
NOVO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY AS OF
----------------- DECEMBER 31,
1998 1999 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17 $ 2,866
Investments............................................... -- 9,543
Accounts receivable, net of allowance for doubtful
accounts of $20 and $533 in 1998 and 1999,
respectively........................................... 509 5,182
Unbilled accounts receivable.............................. -- 373
Other..................................................... 13 237
------- -------
Total current assets.............................. 539 18,201
Property and equipment, net................................. 862 892
Goodwill and other intangible assets, net................... -- 27,589
Other assets................................................ 24 139
------- -------
Total assets...................................... $ 1,425 $46,821
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 430 $ 1,359
Accrued compensation and benefits......................... 16 496
Advances from MacManus Group.............................. -- 3,145
Customer advances......................................... -- 1,614
Deferred revenue.......................................... -- 1,301
Other..................................................... 236 129
------- -------
Total current liabilities......................... 682 8,044
------- -------
Commitments and contingencies (Note 9)
Stockholders' equity:
Convertible preferred stock, $0.0001 par value, 40,000,000
shares authorized -- Series A, 4,000,000 shares
designated; 3,551,033 shares issued and outstanding in
1999 (none pro forma) (aggregate liquidation preference
$10,000)............................................... -- 10,000 $ --
Common stock, $0.0001 par value, 260,000,000 shares
authorized: Series A, 150,000,000 shares designated;
8,628,059 and 8,560,509 shares issued and outstanding
in 1998 and 1999, respectively (29,453,487 shares pro
forma)................................................. 3,501 3,599 47,505
Series B, 20,000,000 shares designated; 3,701,451 and
3,838,485 shares issued and outstanding in 1998 and
1999, respectively (none pro forma).................... 3,238 3,388 --
Series C, 30,000,000 shares designated; 13,503,460 shares
issued and outstanding in 1999 (none pro forma)........ -- 30,518 --
Deferred stock compensation............................... (52) (2) (2)
Accumulated other comprehensive loss, net................. -- (65) (65)
Accumulated deficit....................................... (5,944) (8,661) (8,661)
------- ------- -------
Total stockholders' equity........................ 743 38,777 $38,777
----- ----- -----
-----
Total liabilities and stockholders' equity........ $ 1,425 $46,821
======= =======
</TABLE>
See notes to the consolidated financial statements.
F-3
<PAGE> 68
NOVO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenue..................................................... $ 3,835 $ 4,416 $13,735
Cost of revenue............................................. 2,974 2,691 6,428
------- ------- -------
Gross profit................................................ 861 1,725 7,307
------- ------- -------
Operating expenses:
Sales and marketing expenses.............................. 546 382 926
General and administrative expenses....................... 2,214 1,978 6,137
Amortization of goodwill and other intangibles............ -- -- 3,458
------- ------- -------
Total operating expenses.......................... 2,760 2,360 10,521
------- ------- -------
Loss from operations........................................ (1,899) (635) (3,214)
Other expense (income), net................................. 168 65 (271)
Gain on sale of internet service provider business.......... -- -- (1,126)
------- ------- -------
Loss before income taxes.................................... (2,067) (700) (1,817)
Income taxes................................................ 3 3 23
------- ------- -------
Net loss.................................................... (2,070) (703) (1,840)
Unrealized loss on investments.............................. -- -- (65)
------- ------- -------
Comprehensive loss.......................................... $(2,070) $ (703) $(1,905)
======= ======= =======
Basic and diluted net loss per common share................. $ (0.31) $ (0.07) $ (0.11)
======= ======= =======
Shares used in basic and diluted net loss per common
share..................................................... 6,590 10,196 16,985
======= ======= =======
Unaudited pro forma basic and diluted net loss per common
share (Note 1)............................................ $ (0.10)
=======
Unaudited shares used in pro forma basic and diluted net
loss per common share (Note 1)............................ 18,169
=======
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 69
NOVO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- --------------------------------------------------------------
SERIES A SERIES A SERIES B SERIES C
------------------- ------------------ ------------------ --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- --------- ------ --------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997........ -- $ -- 4,235,621 $ 526 2,093,640 $ -- -- $ --
Issuance of common stock for 95,956 48
cash...........................
Issuance of common stock upon 221,321 292
conversion of promissory
notes..........................
Exercise of common stock 200,000 100
options........................
Compensatory stock 219
arrangements...................
Amortization of deferred stock
compensation...................
Net loss.........................
--------- ------- --------- ------ --------- ------ ---------- -------
Balances, December 31, 1997...... -- -- 4,752,898 1,185 2,093,640 -- -- --
Issuance of common stock for 82,413 12
services.......................
Issuance of common stock upon 1,155,000 1,379 1,577,209 3,223
conversion of promissory
notes..........................
Exercise of common stock options 2,462,748 360 30,602 15
and warrants...................
Common stock issued in repayment 175,000 257
of debt........................
Compensatory stock 308
arrangements...................
Amortization of deferred stock
compensation...................
Net loss.........................
--------- ------- --------- ------ --------- ------ ---------- -------
Balances, December 31, 1998...... -- -- 8,628,059 3,501 3,701,451 3,238 -- --
Issuance of preferred stock for 3,551,033 10,000
cash...........................
Exercise of common stock options 331,003 162 58,811 10
and warrants...................
Common stock repurchased......... (398,553) (64) (21,777) --
Common stock issued for Blue 13,503,460 30,518
Marble
acquisition....................
Compensatory stock 100,000 140
arrangements...................
Unrealized loss on securities....
Amortization of deferred stock
compensation...................
Net loss.........................
--------- ------- --------- ------ --------- ------ ---------- -------
Balances, December 31, 1999...... 3,551,033 $10,000 8,560,509 $3,599 3,838,485 $3,388 13,503,460 $30,518
========= ======= ========= ====== ========= ====== ========== =======
<CAPTION>
ACCUMULATED
OTHER
DEFERRED COMPREHENSIVE ACCUMULATED
COMPENSATION LOSS DEFICIT TOTAL
------------ ------------- ----------- -------
<S> <C> <C> <C> <C>
Balances, January 1, 1997........ $ (73) $ -- $(3,171) $(2,718)
Issuance of common stock for 48
cash...........................
Issuance of common stock upon 292
conversion of promissory
notes..........................
Exercise of common stock 100
options........................
Compensatory stock (139) 80
arrangements...................
Amortization of deferred stock 161 161
compensation...................
Net loss......................... (2,070) (2,070)
----- ---- ------- -------
Balances, December 31, 1997...... (51) -- (5,241) (4,107)
Issuance of common stock for 12
services.......................
Issuance of common stock upon 4,602
conversion of promissory
notes..........................
Exercise of common stock options 375
and warrants...................
Common stock issued in repayment 257
of debt........................
Compensatory stock (30) 278
arrangements...................
Amortization of deferred stock 29 29
compensation...................
Net loss......................... (703) (703)
----- ---- ------- -------
Balances, December 31, 1998...... (52) -- (5,944) 743
Issuance of preferred stock for 10,000
cash...........................
Exercise of common stock options 172
and warrants...................
Common stock repurchased......... (877) (941)
Common stock issued for Blue 30,518
Marble
acquisition....................
Compensatory stock 140
arrangements...................
Unrealized loss on securities.... (65) (65)
Amortization of deferred stock 50 50
compensation...................
Net loss......................... (1,840) (1,840)
----- ---- ------- -------
Balances, December 31, 1999...... $ (2) $(65) $(8,661) $38,777
===== ==== ======= =======
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE> 70
NOVO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------ --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,070) $ (703) $ (1,840)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization.......................... 296 246 3,712
Stock based compensation expense....................... 240 307 190
Common stock issued for services....................... -- 57 --
Gain on sale of investments............................ -- -- (73)
Provision for doubtful accounts........................ 20 -- 513
Gain on sale of internet service provider business..... -- -- (1,126)
Common stock issued for interest....................... -- 271 --
Changes in assets and liabilities:
Accounts receivable.................................. (361) (43) 1,286
Unbilled accounts receivable......................... -- -- 399
Other current assets................................. (32) 19 (238)
Other assets......................................... 87 25 (111)
Accounts payable..................................... (189) (202) 175
Accrued compensation and benefits.................... -- (454) 301
Advances from MacManus Group......................... -- -- (1,210)
Customer advances.................................... -- -- (559)
Deferred income...................................... -- -- 912
Other current liabilities............................ 157 (250) 73
------- ------ --------
Net cash (used in) provided by operating
activities...................................... (1,852) (727) 2,404
------- ------ --------
Cash flows used in investing activities:
Purchases of investments.................................. -- -- (8,873)
Sales of investments...................................... -- -- 664
Purchases of property and equipment....................... (583) (179) (484)
Acquisition of Blue Marble, net of cash acquired.......... -- -- (93)
------- ------ --------
Net cash used in investing activities............. (583) (179) (8,786)
------- ------ --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 148 137 172
Proceeds from issuance of preferred stock................. -- -- 10,000
Proceeds from issuance of convertible promissory notes.... 2,181 865 --
Principal payments on notes payable....................... -- (120) --
Cash paid for common stock repurchased.................... -- -- (941)
------- ------ --------
Net cash provided by financing activities......... 2,329 882 9,231
------- ------ --------
Net (decrease) increase in cash and cash equivalents........ (106) (24) 2,849
Cash and cash equivalents, beginning of year................ 147 41 17
------- ------ --------
Cash and cash equivalents, end of year...................... $ 41 $ 17 $ 2,866
======= ====== ========
Supplemental disclosures of cash flow information --
Cash paid for interest.................................... $ -- $ 57 $ --
======= ====== ========
Noncash financing and investing activities:
Issuance of common stock for notes payable................ $ 292 $4,523 $ --
======= ====== ========
Unrealized loss on investments............................ $ -- $ -- $ 65
======= ====== ========
Series C common stock issued for Blue Marble
acquisition............................................ $ -- $ -- $ 30,518
======= ====== ========
Investments received from sale of internet service
provider business...................................... $ -- $ -- $ 1,327
======= ====== ========
</TABLE>
See notes to the consolidated financial statements.
F-6
<PAGE> 71
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Novo Group, Inc. and subsidiary, formerly Novo MediaGroup,
Inc., ("Novo" or the "Company") provide digital commerce solutions in the
growing internet professional services industry. Novo works with clients to
architect, design, engineer and deploy businesses online.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary.
Inter-company accounts and transactions are eliminated.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash equivalents consisted of money market funds and highly liquid
investments with maturities of three months or less at the time of acquisition.
Investments -- The Company's investments in certain debt and equity
securities are categorized as available for sale securities as defined by
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
Accounts Receivable -- To reduce credit risk with respect to accounts
receivable, the Company performs ongoing evaluations of customers' financial
conditions and maintains allowances for potential credit losses. The Company
maintains an allowance for uncollectible accounts receivable based on expected
collectibility of specific accounts receivable.
Property and Equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Amortization
on leasehold improvements is calculated using the straight-line method over the
estimated useful lives of the improvements or the remaining life of the lease,
whichever is shorter.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment and software........................... 3-5 years
Furniture, fixtures and office equipment.................. 3-7 years
Leasehold improvements.................................... 5 years
</TABLE>
Intangible Assets -- Intangible assets are related to the Blue Marble
acquisition as described in Note 2. Amortization is recorded on the
straight-line basis over a period of three years.
Customer Advances -- Customer advances represent prepayments for purchased
media.
Revenue Recognition -- The Company derives its revenues from service
agreements. Revenues pursuant to time and materials contracts are generally
recognized as services are performed. Revenues pursuant to fixed-fee contracts
are generally recognized as services are rendered on the percentage-of-
completion method of accounting (based on the ratio of costs incurred to total
estimated costs). Revenues exclude reimbursable expenses charged to and
collected from clients.
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such losses
become probable and can be reasonably estimated. Unbilled fees and services on
contracts are comprised of costs plus fees on certain contracts in excess of
F-7
<PAGE> 72
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
contractual billings on such contracts. Advanced billings and billings in excess
of costs plus fees are classified as deferred revenue.
Concentration of Credit Risk -- Financial instruments, which potentially
subject the Company to concentration of credit risk, consist primarily of cash,
cash equivalents, investments and accounts receivable. The Company's cash
equivalents generally consist of money market funds with financial institutions.
Fair Value of Financial Instruments -- The carrying amounts of certain of
the Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and other liabilities, approximate fair
value as of December 31, 1997, 1998 and 1999 because of the relatively short
maturity of these instruments.
Advertising Expense -- All costs related to marketing and advertising the
Company's services are charged to operations in the periods incurred.
Income Taxes -- Deferred tax liabilities are recognized for future taxable
amounts, and deferred tax assets are recognized for future deductions, net of a
valuation allowance to reduce net deferred tax assets to amounts that are more
likely than not to be realized.
Stock-Based Compensation -- The Company accounts for its employee stock
option plan in accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no
compensation is recognized for employee stock options granted with exercise
prices greater than or equal to the fair value of the underlying common stock at
date of grant. If the exercise price is less than the market value at the date
of grant, the difference is recognized as deferred compensation expense which is
amortized over the vesting period of the options. The Company accounts for stock
options issued to non-employees in accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation and Emerging Issues Task Force Issue No. 96-18 under the fair value
based method.
Impairment of Long-Lived Assets -- The Company evaluates its long-lived
assets and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets.
Loss per Common Share -- Basic loss per common share excludes dilution and
is computed by dividing loss attributable to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted loss per
common share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. Common share equivalents are excluded from the computation in loss
periods as their effect would be antidilutive.
Unaudited Pro Forma Net Loss per Common Share -- Pro forma basic and
diluted loss per common share is computed by dividing loss attributable to
common stockholders by the weighted average number of common shares outstanding
for the period and the weighted average number of common shares resulting from
the assumed conversion of outstanding shares of Series A preferred stock.
Unaudited Pro forma Stockholders' Equity -- The unaudited pro forma balance
sheet presents the Company's balance sheet as if the following had occurred at
December 31, 1999: (i) the conversion of
F-8
<PAGE> 73
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
each share of Series B and C common stock to one share of Series A common stock
and (ii) the conversion of each share of preferred stock to one share of Series
A common stock upon the closing of the initial public offering contemplated by
the Company. Estimated proceeds from the common shares to be issued as a result
of such initial public offering are excluded.
Comprehensive Income -- During fiscal 1998, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income, which requires an enterprise to report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources. For fiscal 1997 and 1998, comprehensive loss was equal to the Company's
net loss.
Recently Issued Accounting Standard -- In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133, as amended, is effective for fiscal
years beginning after June 15, 2000. Although the Company has not fully assessed
the implications of SFAS No. 133, the Company does not believe adoption of this
statement will have a material impact on its consolidated financial position or
results of operations.
Reclassifications -- Certain reclassifications have been made to the 1998
financial statement presentation to conform to the 1999 presentation.
2. BUSINESS ACQUISITIONS AND DIVESTITURES
On May 14, 1998, the Company acquired Ironlight Digital, Inc. ("Ironlight")
in a merger transaction pursuant to an Agreement and Plan of Merger. Under the
Agreement, the Company issued 1,579,303 and 3,670,850 shares of its Series A
voting and Series B non-voting common stock, respectively, in exchange for all
outstanding common stock of Ironlight, and all Ironlight stock option rights
were converted into rights of the Company's common stock using the common stock
exchange ratio of 697.8803 to 1. The merger has been accounted for as a pooling
of interests and, accordingly, the financial statements have been restated to
reflect the combined operations of the two companies. Included in the statement
of operations are revenues of $1,578 and $693 and net loss of $1,223 and $302 of
Ironlight for fiscal 1997 and the period from January 1, 1998 to May 14, 1998,
respectively.
On August 31, 1999, the Company acquired Blue Marble Advanced
Communications Group, Ltd. ("Blue Marble"), an internet professional services
firm, by issuing approximately 13,503,460 shares of its Series C common stock
with an aggregate fair value of approximately $30,616 (including acquisition
costs of $98), in exchange for all the outstanding stock of Blue Marble. The
transaction was accounted for as a purchase.
Acquisition costs and the preliminary determination of the unallocated
excess of acquisition costs over net assets acquired are set forth below (in
thousands):
<TABLE>
<S> <C>
Value of Blue Marble acquired in acquisition.............. $30,518
Transaction costs......................................... 98
-------
Total acquisition cost.................................... 30,616
Total assets acquired..................................... (7,254)
Total liabilities assumed................................. 7,685
-------
Unallocated excess of acquisition cost over net assets
acquired................................................ $31,047
=======
</TABLE>
F-9
<PAGE> 74
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
Intangible assets include current employee base, customer base and goodwill
and will be amortized over their estimated useful lives of three years.
The operating results of Blue Marble have been included in the consolidated
statements of operations since the date of acquisition.
The following pro forma results of operations reflect the combined results
of the Company and Blue Marble for the fiscal years ended December 31, 1998 and
1999 and have been prepared as though the entities had been combined as of
January 1, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- -------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 10,561 $21,230
Net loss.................................................... $(10,889) $(8,382)
Basic and diluted net loss per common share................. $ (0.46) $ (0.32)
Shares used in computing net loss per share................. 23,699 25,962
</TABLE>
On August 31, 1999, the Company sold its internet service provider business
to Rocky Mountain Internet (RMI) for 174,000 shares of RMI common stock valued
at $1,327. The Company recorded a gain of $1,126 on this transaction. This
business had revenues of $506 in 1997, $626 in 1998 and $555 through August 31,
1999.
3. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 and 1999 consists of (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Computer equipment and software............................. $1,016 $1,092
Furniture, fixtures and office equipment.................... 260 298
Leasehold improvements...................................... 75 79
------ ------
Total............................................. 1,351 1,469
Accumulated depreciation.................................... (489) (577)
------ ------
Net............................................... $ 862 $ 892
====== ======
</TABLE>
4. INVESTMENTS
Available-for-sale securities consist of the following at December 31, 1999
(in thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED GAIN ON LOSS ON FAIR
COST INVESTMENTS INVESTMENTS VALUE
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Government securities...................... $5,306 $-- $ (73) $5,233
Corporate bonds............................ 3,506 -- (64) 3,442
Rocky Mountain Internet, Inc. common
stock.................................... 796 72 -- 868
------ --- ----- ------
Total............................ $9,608 $72 $(137) $9,543
====== === ===== ======
</TABLE>
The Company owns 104,399 shares of Rocky Mountain Internet, Inc. ("RMI")
common stock as of December 31, 1999. The Company is restricted from selling
43,500 and 60,899 shares until February 28, 2000 and August 31, 2000,
respectively. According to the agreement, the Company is protected from
F-10
<PAGE> 75
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
fluctuations in the price of the stock during the period of the sales
restriction. RMI will issue additional shares to the Company at the end of the
restriction period to compensate the Company for any decrease in the stock
price. The Company will return shares to RMI equal to 94% of any increase in the
RMI stock price above $8.37 per share during the period.
The contractual maturities of available-for-sale debt securities at
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
One to two years............................................ $1,445 $1,437
Two to five years........................................... 3,037 2,993
More than five years........................................ 4,330 4,245
------ ------
Total............................................. $8,812 $8,675
====== ======
</TABLE>
5. ALLOWANCES FOR DOUBTFUL ACCOUNTS
Allowances for doubtful accounts are estimated and established based on
historical experience and specific circumstances of each customer. Additions to
the allowance are charged to general and administrative expenses. Accounts
receivable are written off against the allowance for doubtful accounts when an
account is deemed uncollectible. Recoveries on accounts receivable previously
charged off as uncollectible are credited to the allowance for doubtful
accounts. Changes in the allowance for doubtful accounts were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Beginning balance........................................... $-- $20 $ 20
Additions................................................... 20 -- 514
Writeoffs................................................... -- -- (1)
--- --- ----
Balance, end of period...................................... $20 $20 $533
=== === ====
</TABLE>
6. LINE OF CREDIT
The Company has a revolving line of credit arrangement with a bank that
enables the Company to borrow against substantially all of the tangible assets
of the Company up to a total of $2,500. As of December 31, 1999, the Company had
no amounts outstanding under the revolving line of credit. The credit
arrangement contains certain financial covenants and restrictions as to various
matters, including a fixed charge coverage ratio. The credit facility bears
interest at the 30-day dealer commercial paper rate as published in the "Wall
Street Journal" plus 2.3% (7.9% as of December 31, 1999) and expires on June 30,
2000.
The Company also has a working capital facility of $7,500 with a bank. As
of December 31, 1999, the Company had no amounts outstanding under this
facility. The facility contains certain financial covenants and restrictions as
to various matters, including a fixed charge coverage ratio and maintenance of a
minimum cash balance with the bank. The credit facility bears interest at the
30-day dealer commercial paper rate as published in the "Wall Street Journal"
plus 2.1% (7.7% as of December 31, 1999) and expires on December 31, 2000.
F-11
<PAGE> 76
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
7. EMPLOYEE 401(K) SAVINGS PLAN
In 1998, the Company established a defined contribution plan authorized
under Section 401(k) of the Internal Revenue Code. The plan covers all full-time
employees. The 401(k) plan allows eligible employees to make contributions up to
a specified annual maximum contribution, as defined. Under the 401(k) Plan, the
Company may, but is not obligated to, match a portion of the employee
contributions up to a defined maximum. The Company did not contribute to the
401(k) plan in 1998 and 1999.
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Current:
Federal................................................... $ 3 $ 16
State..................................................... -- 7
------- -------
Total current............................................... 3 23
Deferred tax assets:
Net operating loss carryforwards.......................... 2,004 1,860
Other..................................................... -- 4
Difference in book and tax basis in fixed assets.......... -- 216
Allowance for bad debts................................... -- 34
Deferred tax liabilities:
Other..................................................... (20) --
Accrual to cash adjustment................................ -- (412)
Accrued interest.......................................... -- (77)
------- -------
Total net deferred tax assets before valuation allowance.... 1,984 1,625
Valuation allowance......................................... (1,984) (1,625)
------- -------
Net deferred tax assets..................................... -- --
------- -------
Total provision................................... $ 3 $ 23
======= =======
</TABLE>
A valuation allowance against deferred tax assets is provided when it is
more likely than not that some portion of the deferred tax asset will not be
realized. The Company established a 100% valuation allowance at December 31,
1998 and December 31, 1999 due to the uncertainty of realizing future tax
benefits from its net operating loss carryforwards and other deferred tax
assets.
At December 31, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $4,400 and $3,800,
respectively. These carryforwards begin to expire in 2011 for federal and 2001
for state purposes.
Internal Revenue Code Section 382 places a limitation (the "Section 382
Limitation") on the amount of taxable income which can be offset by net
operating loss ("NOL") carryforwards after a change in control (generally
greater than 50% change in ownership) of a loss corporation. California has
similar rules. Generally, after a control change, a loss corporation cannot
deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these
"change in ownership" provisions, utilization of the NOL and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods.
F-12
<PAGE> 77
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities and certain equipment. Future minimum net
lease payments under noncancelable operating leases as of December 31, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING OPERATING
DECEMBER 31, LEASES
------------ ---------
<S> <C>
2000....................................................... $2,675
2001....................................................... 1,907
2002....................................................... 1,521
2003....................................................... 1,502
2004....................................................... 1,547
Thereafter................................................. 254
------
Total............................................ $9,406
======
</TABLE>
The Company leases office space under various operating leases. Total rent
expense associated with these leases for the years ended 1997, 1998 and 1999 was
$354, $277 and $692, respectively.
Litigation
The Company is subject to legal proceedings and claims in the ordinary
course of business. The Company currently is not aware of any legal proceedings
or claims that it believes will have a material adverse effect on its
consolidated financial condition, results of operations or cash flow.
10. STOCKHOLDERS' EQUITY
Common Stock Reserved For Future Issuance
The following shares of common stock have been reserved for future issuance
as of December 31, 1999:
<TABLE>
<S> <C>
Conversion of Series A preferred stock.................... 3,551,033
Options issued and outstanding 1994 Plan.................. 14,881
Options issued and outstanding 1998 Series B Plan......... 1,360,929
Options issued and outstanding 1999 Series A Plan......... 4,078,938
Options available under the Stock Option Plan............. 142,503
---------
Total........................................... 9,148,284
=========
</TABLE>
Common Stock
The Company is authorized to issue three classes of common stock, Series A,
B and C. Holders of each series of common stock are entitled to receive
dividends if and when dividends are declared and paid. The holders of common
stock are entitled to participate ratably based on the number of shares owned in
all distributions in the event of a liquidation, dissolution or winding up of
the Company.
Holders of Series A and Series C common stock are entitled to one vote per
share on all matters to be voted on by the stockholders of the Company. If
certain voting conditions are met, Series A common stockholders have one
additional voting right with respect to a change of corporate name or
headquarters location. Series B common stock does not have voting rights.
F-13
<PAGE> 78
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
Each share of Series B and C common stock automatically convert into an
equal number of shares of Series A common stock upon the closing of an initial
public offering with aggregate proceeds greater than $7,500 at not less than
$7.50 per share.
Convertible Preferred Stock
In fiscal 1999, 3,551,033 shares of Series A preferred stock were issued to
MacManus Group for $10,000.
Significant terms of the Series A convertible preferred stock are as
follows:
- At the option of the holder, each share of preferred stock is convertible
into one share of Series C common stock. Shares automatically convert
into Series A common stock upon the completion of a public offering with
aggregate proceeds greater than $7,500 at not less than $7.50 per share.
- Series A convertible preferred stockholders are entitled to noncumulative
cash dividends equal to the dividends, per common equivalent share,
declared on the Series A, B and C common stock when and if declared by
the Board of Directors.
- In the event of any liquidation of the Company (which includes the
acquisition of the Company by another entity), the holders of Series A
preferred stock have a liquidation preference over common stock of $2.82
per share plus all declared but unpaid dividends. The remaining assets of
the Company would then be distributed among the holders of the common
stock pro rata based on the number of shares held by each.
- The holders of each share of preferred stock shall have the rights to one
vote for each share of Series A or C common stock into which such
preferred stock could then be converted.
Options and Warrants Granted to Nonemployees
The Company has granted options and warrants to nonemployees for services
performed and to be performed after the date of grant. In connection with these
awards, the Company recognized $21, $23 and $36 in stock-based compensation
expense during fiscal 1997, 1998 and 1999, respectively.
As of December 31, 1999, 60,000 of these options with an exercise price of
$0.10 were unexercised.
Stock Option Plans
Under the Company's 1998 Series B and 1999 Series A stock option plans (the
"Plans"), 1,600,000 shares of Series B common stock and 4,100,000 shares of
Series A common stock have been reserved for the issuance of incentive stock
options (ISO), nonstatutory stock options (NSO), or the sale of common stock to
employees, officers, directors and consultants of the Company. These plans
replace the 1994 Plan. ISOs may be granted at the fair market value of the
common stock on the date of grant. NSOs may be granted at not less than 85% of
the fair market value of the common stock on the date of grant. Options granted
under the Plan generally vest 25% on the first anniversary of the grant date and
75% ratably over a period of three years commencing on the first anniversary of
the grant date. Stock options expire ten years from the date of grant.
F-14
<PAGE> 79
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
SERIES A SERIES B
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OUTSTANDING EXERCISE OUTSTANDING EXERCISE
OPTIONS PRICE OPTIONS PRICE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 (1,455,110 Series A shares
exercisable at a weighted average exercise price
of $0.07 and no Series B shares exercisable)..... 2,120,395 $0.17 56,528 $ --
Granted............................................ 1,312,043 0.06 94,214 --
Exercised.......................................... (200,000) 0.10 -- --
---------- ----- --------- -----
Balance, December 31, 1997 (2,845,034 Series A
shares exercisable at a weighted average exercise
price of $0.09 and 16,563 Series B shares
exercisable at a weighted average exercise price
of $0.0001)...................................... 3,232,438 0.13 150,742 --
Granted............................................ 90,136 0.51 500,004 1.09
Exercised.......................................... (2,400,244) 0.13 (30,602) 0.11
Canceled........................................... (439,474) 0.13 -- --
---------- ----- --------- -----
Balance, December 31, 1998 (328,837 Series A shares
exercisable at a weighted average exercise price
of $0.15 and 46,722 Series B shares exercisable
at a weighted average exercise price of
$0.0001)......................................... 482,856 0.20 620,144 0.87
Granted............................................ 4,078,938 2.26 1,011,125 1.44
Exercised.......................................... (60,687) 0.50 (58,811) 0.10
Canceled........................................... (407,288) 0.15 (211,529) 0.70
---------- ----- --------- -----
Balance, December 31, 1999......................... 4,093,819 $2.25 1,360,929 $1.36
========== ===== ========= =====
</TABLE>
The following table summarizes information as of December 31, 1999
concerning currently outstanding and exercisable Series A options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05 - $0.10........................... 400 5.42 $0.10 400 $0.10
$0.30 - $1.14........................... 14,481 7.19 0.49 9,466 0.48
$2.26................................... 4,078,938 9.89 2.26 488,820 2.26
--------- ----- ------- -----
4,093,819 $2.25 498,686 $2.22
========= ===== ======= =====
</TABLE>
F-15
<PAGE> 80
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes information as of December 31, 1999
concerning currently outstanding and exercisable Series B options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.00 - $1.14........................... 354,554 8.69 $1.10 110,824 $1.14
$1.40................................... 918,125 9.37 1.40 495,000 1.40
$1.92................................... 88,250 9.60 1.92 -- --
--------- ----- ------- -----
1,360,929 $1.36 605,824 $1.35
========= ===== ======= =====
</TABLE>
During the years ended December 31, 1997 and 1998 the Company granted
options to employees and directors with exercise price below fair market value
on the date of grant. The intrinsic values of these options of $69 and $19,
respectively, were recorded as deferred compensation and are being amortized
over the vesting term of the options. The expense recognized for the years ended
December 31, 1997, 1998 and 1999 was $139, $6 and $14, respectively. The
weighted average fair value at grant date was $0.10 and $0.75 and the weighted
average exercise price was $0.0001 and $0.50 for these options granted during
fiscal 1997 and 1998, respectively.
During fiscal 1997 and 1998, the Company forgave the exercise price of
options granted to certain employees and recorded compensation expense of $80
and $278, respectively. The Company recorded this expense at the fair market
value of the common stock issued.
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.
Statement of Financing Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), requires the disclosure of pro forma net
income had the Company adopted the fair value method. Under SFAS 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the Black-Scholes options pricing method with the following
weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Dividend yield.............................................. None None None
Risk free interest rate..................................... 6.0% 6.0% 5.4%
Expected term, in years..................................... 2.5 2.5 2.5
</TABLE>
The Company's calculations are based on a multiple option valuation
approach, and forfeitures are recognized as they occur. The weighted average
fair value per option as of the date of grant for options granted during 1997,
1998 and 1999 was $0.06, $0.15 and $0.26, respectively. If the computed values
of
F-16
<PAGE> 81
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
the Company's stock-based awards to employees had been amortized to expense over
the vesting period of the awards as specified under SFAS No. 123, net loss would
have been (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Loss attributable to common stockholders:
As reported............................................ $(2,070) $ (703) $(1,840)
Pro forma.............................................. $(2,116) $ (753) $(2,094)
Basic and diluted net loss per share:
As reported............................................ $ (0.31) $(0.07) $ (0.11)
Pro forma.............................................. $ (0.32) $(0.07) $ (0.12)
</TABLE>
11. NET LOSS PER SHARE
For the years ended December 31, 1997, 1998 and 1999, the Company had
securities outstanding which could potentially dilute basic earnings per share
in the future, but were excluded in the computation of diluted net loss per
share in the periods presented as their effect would have been antidilutive.
Such outstanding securities consist of the following at December 31, 1999:
3,551,033 shares of Series A preferred stock and options to purchase 5,454,748
shares of common stock.
12. RELATED PARTY TRANSACTIONS
During fiscal 1999, the Company issued 100,000 shares to an officer as a
hiring bonus. The $140 fair value of these shares was recognized as compensation
expense during fiscal 1999.
The Company leases facilities from the MacManus Group. During fiscal 1999,
$452 of rent expense was paid to MacManus. MacManus also performs certain
management services for the Company. During fiscal 1999, the Company expensed
$397 related to these services.
During fiscal 1998, two convertible promissory notes totaling $243 were
issued for cash to an employee of the Company. One note for $193 was cancelled
as payment of the exercise price of stock options. The second note was converted
into 44,602 shares of Series A common stock. These notes paid interest at a
fixed rate of 8% per annum.
During fiscal 1998, convertible promissory notes totaling $622 were issued
to an employee. These notes paid interest at a fixed rate of 8% per annum and
were converted into 562,221 shares of Series A common stock.
Prior to 1998 the Company issued convertible promissory notes totaling
$2,985 to a family member of an employee. These notes paid interest at a fixed
rate of 8% per annum. On March 31, 1998, these notes and accrued interest of
$238 were converted into 1,577,209 shares of Series B common stock.
On July 1, 1996, the Company granted a warrant to purchase 62,500 shares of
the Company's common stock at an exercise price of $0.80 to a family member of
an employee. The warrant was granted for advisory services rendered to the
Company. The warrant had a term of five years. The Company valued the warrant on
the date it was granted using the Black Scholes option pricing model. The
following assumptions were used in the model, volatility of 90.3%, and a
discount rate of 5.88%. The calculated value of the warrant was $268. This
amount was amortized as an expense over a 12-month period from the grant date.
On January 15, 1998, the individual exercised the warrant.
F-17
<PAGE> 82
NOVO GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
13. GEOGRAPHICAL INFORMATION AND MAJOR CUSTOMERS
For the purposes of conforming with generally accepted accounting
principles, all of the Company's services are considered part of a single
industry segment.
Three customers accounted for 18%, 13% and 12% of revenues in fiscal 1997.
One customer accounted for 41% of revenues in fiscal 1998. Four customers
accounted for 25%, 17%, 13%, and 12% of revenues in fiscal 1999.
At December 31, 1998, four customers accounted for 41%, 15%, 15% and 13% of
trade receivables. At December 31, 1999, four customers accounted for 29%, 27%,
10% and 10% of trade receivables.
During the years ended December 31, 1997, 1998 and 1999, the Company
generated substantially all of its revenues from customers domiciled in the
United States.
14. SUBSEQUENT EVENTS
On February 11, 2000, the Board of Directors approved, subject to
stockholder approval, the reincorporation of Novo in the State of Delaware and
the associated exchange of one share of common stock of Novo for every one share
of common stock of Novo's California predecessor. Such reincorporation and stock
exchange will become effective prior to the effective date of the initial public
offering contemplated by Novo.
On February 28, 2000, the Company accelerated the vesting of unvested
options upon the termination of an employee. The Company recognized the
intrinsic value of these options as of this date as compensation expense.
During the 1st quarter of 2000, the Company granted employees options to
purchase shares of common stock at an exercise price below the fair market
value. As a result of these option grants, the Company will record a reduction
of stockholder's equity for deferred stock compensation, computed as the
difference between the options' exercise price and the fair market value of the
Company's stock on the grant dates. The Company will amortize the deferred stock
compensation amount to compensation expense over the options' vesting terms.
F-18
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Blue Marble Advanced
Communications Group, LTD.:
We have audited the accompanying balance sheets of Blue Marble Advanced
Communications Group, LTD. as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Blue Marble Advanced Communications Group,
LTD. as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------------------------------
San Francisco, California
March 3, 2000
F-19
<PAGE> 84
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- AUGUST 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and equivalents...................................... $ -- $ 5 $ 5
Accounts receivable, net of allowance for doubtful
accounts of $40, $165 and $80, respectively............ 2,236 724 6,344
Unbilled accounts receivable.............................. 387 1,885 1,128
Prepaid expenses and other current assets................. 9 6 10
------- ------- ------
Total current assets.............................. 2,632 2,620 7,487
Property and equipment, net................................. 731 887 873
------- ------- ------
Total assets...................................... $ 3,363 $ 3,507 $8,360
======= ======= ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 423 $ 242 $ 794
Advances from MacManus Group.............................. 3,962 4,407 5,444
Customer advances......................................... 520 7 2,502
Deferred revenue.......................................... -- -- 388
Other..................................................... 10 22 29
------- ------- ------
Total current liabilities......................... 4,915 4,678 9,157
Commitments and contingencies (Note 4)
Stockholder's deficit:
Common stock, $0.01 par value, 1,000 shares authorized,
issued and outstanding in 1997, 1998 and 1999.......... -- -- --
Accumulated deficit....................................... (1,552) (1,171) (797)
------- ------- ------
Total stockholders' deficit....................... (1,552) (1,171) (797)
------- ------- ------
Total liabilities and stockholders' deficit....... $ 3,363 $ 3,507 $8,360
======= ======= ======
</TABLE>
See notes to financial statements.
F-20
<PAGE> 85
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
--------------- ----------------------------
1997 1998 1998 1999
------ ------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue........................................... $2,826 $6,145 $2,846 $7,495
Cost of revenue................................... 1,500 2,897 1,080 3,389
------ ------ ------ ------
Gross profit...................................... 1,326 3,248 1,766 4,106
Selling, general and administrative expenses...... 2,050 2,802 1,334 3,689
------ ------ ------ ------
(Loss) income from operations..................... (724) 446 432 417
Interest expense.................................. 36 57 42 42
------ ------ ------ ------
(Loss) income before income taxes................. (760) 389 390 375
Income taxes...................................... 1 8 5 1
------ ------ ------ ------
Net (loss) income....................... $ (761) $ 381 $ 385 $ 374
====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-21
<PAGE> 86
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
--------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997............................ 1,000 $-- $ (791) $ (791)
Net loss............................................. (761) (761)
----- --- ------- -------
Balances, December 31, 1997.......................... 1,000 -- (1,552) (1,552)
Net income........................................... 381 381
----- --- ------- -------
Balances, December 31, 1998.......................... 1,000 -- (1,171) (1,171)
Net income (unaudited)............................... 374 374
----- --- ------- -------
Balances, August 31, 1999 (unaudited)................ 1,000 $-- $ (797) $ (797)
===== === ======= =======
</TABLE>
See notes to financial statements.
F-22
<PAGE> 87
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
----------------- ----------------
1997 1998 1998 1999
------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income..................................... $ (761) $ 381 $ 385 $ 374
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 168 188 126 146
Provision for doubtful accounts.................... 40 125 -- --
Changes in assets and liabilities:
Accounts receivable.............................. (2,113) 1,387 1,178 (5,620)
Unbilled accounts receivable..................... (387) (1,498) (375) 757
Prepaid expenses and other current assets........ (9) 3 1 (4)
Accounts payable................................. 114 (181) (407) 552
Customer advances................................ 520 (513) (520) 2,495
Deferred revenue................................. -- -- 7 388
Other current liabilities........................ 6 12 8 8
------- ------- ------ -------
Net cash provided by (used in) operating
activities.................................. (2,422) (96) 403 (904)
------- ------- ------ -------
Cash flows from investing activities --
Purchase of equipment................................. (9) (344) (176) (132)
------- ------- ------ -------
Cash flows from financing activities --
Advances from MacManus Group.......................... 2,431 445 (222) 1,036
------- ------- ------ -------
Net increase in cash and equivalents.................... -- 5 5 --
Cash and equivalents, beginning of period............... -- -- -- 5
------- ------- ------ -------
Cash and equivalents, end of period..................... $ -- $ 5 $ 5 $ 5
======= ======= ====== =======
</TABLE>
See notes to financial statements.
F-23
<PAGE> 88
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE
PERIOD ENDED AUGUST 31, 1999 (UNAUDITED)
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Blue Marble Advanced Communications Group, Ltd.
("BlueMarble" or the "Company") is an interactive marketing agency that
primarily develops and evaluates online marketing campaigns.
The Company was acquired by and merged with Novo Group, Inc. ("Novo") when
Novo acquired all of the outstanding common stock of the Company. These
financial statements reflect the Company's position immediately prior to the
acquisition. Prior to the acquisition, Blue Marble was a wholly-owned subsidiary
of the MacManus Group.
Basis of Presentation -- The financial statements include general and
administrative expenses such as management fees, group life insurance costs and
compensation costs which have been allocated by the MacManus Group to the
Company based on volume of transactions and employee headcount. Management
believes that these allocations are reasonable and that such expenses would not
differ materially had the Company operated on a stand-alone basis for all
periods presented.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk -- Financial instruments that potentially
subject the Company to concentration of credit risk consist of trade
receivables. The Company does not require collateral or other security to
support accounts receivable and maintains reserves for potential credit losses.
Cash and Equivalents -- The Company considers all highly liquid investments
with an original maturity of ninety days or less to be cash equivalents.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to five years. Leasehold improvements are amortized over
the shorter of the lease term or the useful life of the improvement.
Customer Advances -- Customer advances represent prepayments for purchased
media.
Unaudited Interim Results -- The accompanying interim financial statements
as of August 31, 1998 and 1999 are unaudited. The unaudited interim financial
statements have been prepared on the same basis as the annual financial
statements and, in the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
Company's financial position as of August 31, 1998 and 1999 and results of
operations and cash flows for the eight months ended August 31, 1998 and 1999.
The financial data and other information disclosed in these notes to financial
statements related to these periods are unaudited. The results for the eight
months ended August 31, 1998 and 1999 are not necessarily indicative of the
results to be expected for the years ended December 31, 1998 and 1999.
Revenue Recognition -- The Company derives its revenues from service
agreements. Revenues pursuant to time and materials contracts are generally
recognized as services are performed. Revenues pursuant to fixed-fee contracts
are generally recognized as services are rendered on the percentage-of-
completion method of accounting (based on the ratio of costs incurred to total
estimated costs). Revenues exclude reimbursable expenses charged to and
collected from clients.
F-24
<PAGE> 89
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE
PERIOD ENDED AUGUST 31, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such losses
become probable and can be reasonably estimated. To date, such losses have been
insignificant. Unbilled fees and services on contracts are comprised of costs
plus fees on certain contracts in excess of contractual billings on such
contracts. Advanced billings and billings in excess of costs plus fees are
classified as deferred revenue.
Income Taxes -- Deferred tax liabilities are recognized for future taxable
amounts, and deferred tax assets are recognized for future deductions, net of a
valuation allowance to reduce net deferred tax assets to amounts that are more
likely than not to be realized.
Impairment of Long-Lived Assets -- The Company evaluates its long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
Recently Issued Accounting Standard -- Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. As amended
in June 1999 by SFAS No. 137, this statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company has not
yet evaluated the impact of this statement.
2. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
----- ------
<S> <C> <C>
Computers and software...................................... $ 34 $ 50
Furniture, fixtures and office equipment.................... 61 76
Leasehold improvements...................................... 824 1,137
----- ------
Total............................................. 919 1,263
Accumulated depreciation.................................... (188) (376)
----- ------
Net............................................... $ 731 $ 887
===== ======
</TABLE>
F-25
<PAGE> 90
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE
PERIOD ENDED AUGUST 31, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
3. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Current:
Federal................................................... $ -- $ 7
State..................................................... 1 1
----- -----
Total current............................................... 1 8
Deferred tax assets:
Net operating loss carryforwards.......................... 716 399
Difference in book and tax basis in fixed assets.......... 3 72
Accrued expenses and reserves............................. 28 100
Other..................................................... -- 12
----- -----
Total net deferred tax assets before valuation allowance.... 747 583
Valuation allowance......................................... (747) (583)
----- -----
Net deferred tax assets..................................... -- --
----- -----
Total provision................................... $ 1 $ 8
===== =====
</TABLE>
A valuation allowance against deferred tax assets is provided when it is
more likely than not that some portion of the deferred tax asset will not be
realized. The Company established a 100% valuation allowance at December 31,
1997 and December 31, 1998 due to the uncertainty of realizing future tax
benefits from its net operating loss carryforwards and other deferred tax
assets.
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $931 and $928,
respectively. These net operating loss carryforwards begin to expire in 2011 for
federal and 2001 for state purposes.
4. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities, computers and office equipment under
noncancelable operating leases. These leases expire on various dates through
2001. Minimum future lease payments under noncancelable operating leases as of
December 31, 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999........................................................ $159
2000........................................................ 157
2001........................................................ 50
----
Total minimum lease payments...................... $366
====
</TABLE>
Rent expense under the operating leases for the years ended December 31,
1997 and 1998 was $114 and $264, respectively.
F-26
<PAGE> 91
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP, LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE
PERIOD ENDED AUGUST 31, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
5. FINANCIAL SUPPORT FROM THE MACMANUS GROUP AND RELATED PARTY TRANSACTIONS
The Company used $2,431 and $440 of cash for operating and for investing
activities in 1997 and 1998, respectively. Accumulated deficit was $1,171 at
December 31, 1998. Prior to the acquisition of the Company by Novo, the Company
was substantially dependent on financing from the MacManus Group.
The MacManus Group financed the operations of the Company with intercompany
advances. The intercompany advances as of December 31, 1997 and 1998 were $3,962
and $4,407, respectively, and $5,444 (unaudited) as of August 31, 1999. The
Company paid interest on these balances of $36 and $57 during fiscal 1997 and
fiscal 1998, respectively, and $42 (unaudited) during the period ended August
31, 1999. The MacManus Group incurs certain expenses on behalf of the Company
and allocates these costs to the Company. During fiscal 1997, fiscal 1998 and
the eight months ended August 31, 1999, expenses totaling $246, $446 and $520,
(unaudited) respectively, were allocated to the Company.
The MacManus Group also provides certain management services to the
Company. The Company paid $157 and $277 for fiscal 1997 and fiscal 1998,
respectively, and $333 (unaudited) for the period ended August 31, 1999 related
to these services.
6. MAJOR CUSTOMERS AND GEOGRAPHIC DATA
Four customers accounted for 28%, 22%, 11% and 10%, respectively, of total
revenues in fiscal 1997. Three customers accounted for 22%, 13% and 12%,
respectively, of total revenues for fiscal 1998.
At December 31, 1997, four customers accounted for 25%, 14%, 13% and 12%,
respectively, of accounts receivable. At December 31, 1998, three customers
accounted for 42%, 12% and 10%, respectively, of accounts receivable.
During the years ended December 31, 1997 and 1998, the Company generated
all of its revenues from customers domiciled in the United States.
F-27
<PAGE> 92
[INSIDE BACK COVER OF PROSPECTUS]
<PAGE> 93
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
NOVO GROUP, INC.
COMMON STOCK
[LOGO]
------------
P R O S P E C T U S
, 2000
------------
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
SG COWEN
FRIEDMAN BILLINGS RAMSEY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the costs and expenses payable by us in
connection with the sale of the common stock we are offering, other than
underwriting commissions and discounts. All amounts, except the SEC registration
fee and the NASD filing fee, are estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
SEC registration fee........................................ $
NASD filing fee.............................................
NASDAQ National Market listing fee..........................
Blue Sky fees and expenses..................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer Agent and Registrar fees...........................
Miscellaneous expenses......................................
--------
Total............................................. $
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; and
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties. The amended and restated certificate of incorporation
also permits us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether Delaware law would permit indemnification.
Prior to the closing of this offering, we intend to enter into
indemnification agreements with each of our directors and officers. These
agreements, among other things, may require us to indemnify such directors and
officers for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by or in our right, arising out of such person's services
as a director or officer to us, any subsidiary of us or any other company or
enterprise to which the person provides services at our request.
The underwriting agreement (Exhibit 1.1) provides for indemnification by
our underwriters, our directors, our officers who sign the registration
statement, and our controlling persons for certain liabilities,
II-1
<PAGE> 95
including liabilities arising under the Securities Act, and affords certain
rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 30, 1997, we issued 73,767 shares of Series A common stock to
Insight Venture Management. The shares were issued upon the conversion of a
promissory note in the principal amount of $100,000.
On June 30, 1997 and February 25, 1998, we issued an aggregate of 144,731
shares of Series A common stock to Harry Schlough upon the conversion of
promissory notes in the aggregate principal amount of $200,000.
In 1997 we issued an aggregate of 98,780 shares of Series A common stock to
nine investors for an aggregate consideration of $54,329. The shares were issued
upon the conversion of notes issued pursuant to a loan agreement between us and
the investors.
On February 25, 1998, we issued 9,657 shares of Series A common stock to an
employee. The shares were issued upon conversion of a promissory note in the
principal amount of $13,000.
On April 15, 1998, we issued 7,413 shares of Series A common stock to
Sterling Payot as compensation for expenses in the amount of $4,077.15 incurred
on our behalf.
On April 15, 1998, we issued 261,905 shares of Series A common stock to
Excite, Inc. upon conversion of a promissory note in the principal amount of
$330,000.
On May 14, 1998, we issued an aggregate of 1,579,301 shares of Series A
common stock and an aggregate of 3,670,849 shares of Series B common stock to
shareholders of Ironlight Digital, Inc. in exchange for all outstanding shares
of common stock of Ironlight Digital.
On July 30, 1998, we issued 238,095 shares of Series A common stock to
Excite, Inc. upon the conversion of a promissory note in the principal amount of
$300,000.
On August 14, 1998 and August 25, 1998, we issued an aggregate of 5,363
shares of Series B common stock to two of our employees for an aggregate
consideration of $6,132.32. We repurchased these shares on November 3, 1999 for
$1.92 per share.
On August 31, 1998, we issued 231,928 shares of Series A common stock to
one of our founders for $265,198.07.
On September 25, 1998, we issued 6,000 shares of Series A common stock to
an employee for $3,000. We subsequently repurchased such shares on November 1,
1999 at a repurchase price of $1.92 per share.
On October 7, 1998 and December 10, 1998, we issued an aggregate of 6,867
shares of Series B common stock to two of our employees for an aggregate
consideration of $7,852.07. We repurchased these shares on October 29, 1999 for
$1.92 per share.
From November 21, 1998 to December 16, 1998, we issued an aggregate of
562,221 shares of Series A common stock to one of our founders. The shares were
issued upon conversion of promissory notes in the aggregate principal amount of
$621,820.66.
On November 26, 1998, we issued 44,602 shares of Series A common stock to
Kelly Rodriquez for $51,000.15. Such shares were issued upon conversion of a
promissory note to equity.
In 1998 we issued an aggregate of 237,500 shares of Series A common stock
to two investors for an aggregate consideration of $67,500.00.
On January 1, 1999, we issued 13,636 shares of Series A common stock to an
investor for $15,592.08.
II-2
<PAGE> 96
On January 4, 1999, we issued an aggregate of 9,547 of Series B common
stock to two employees for an aggregate consideration of $1.36. We repurchased
these shares on November 2 and November 3, 1999 for $1.92 per share.
On May 1, 1999, we issued 100,000 shares of Series B common stock to Harry
Schlough as a portion of his compensation package.
On August 31, 1999, we issued 13,503,460 shares of Series C common stock to
N.W. Ayer Communications, Inc. in connection with the acquisition of Blue Marble
ACG, Inc. In connection with the same acquisition, we also issued 3,551,033
shares of Series A preferred stock to The MacManus Group, Inc.
On September 1, 1999, we issued 204,414 shares of Series A common stock to
an investor, Sterling Payot, upon conversion of two warrants.
Since our inception, we have issued options to purchase 4,137,651 shares of
our Series A Common Stock and 1,484,554 shares of our Series B Common Stock to a
number of our employees, directors and consultants. As of February 29, 2000
options to purchase 1,865,875 shares of Series A Common Stock have been
exercised for an aggregate consideration of $341,754.05 and options to purchase
188,419 shares of Series B Common Stock have been exercised for an aggregate
consideration of $320,488.73.
The issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances of securities described above, were deemed exempt
from registration under the Securities Act in reliance upon Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to share certificates issued in such
transactions. All recipients had adequate access, through their relationship
with use, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Form of Stock Certificate.
5.1* Opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation, as to the validity of issuance
of the common stock registered hereby.
9.1 Voting Agreement between Registrant and The MacManus Group,
Inc.
10.1 Office Lease between Registrant and Maiden Interactive, as
amended.
10.2* Consulting and Development Agreement between Toyota Motor
Sales and Registrant.
10.3* Consulting and Development Agreement between Gloss.com, Inc.
and Registrant.
10.4* Agreement and Plan of Merger between Registrant, Novo Merger
Subsidiary, Inc. and Ironlight Digital Corporation.
10.5 Stock Purchase Agreement between The MacManus Group, Inc.
and Registrant.
10.6 Share Exchange Agreement among The MacManus Group, Inc.,
N.W. Ayer Communications, Inc. and Registrant.
10.7 Acknowledgement between The MacManus Group, Inc. and
Registrant.
</TABLE>
II-3
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.8 Novo MediaGroup, Inc. Investors' Rights Agreement.
10.9 Sublease Agreement between The MacManus Group, Inc. and Blue
Marble ACG, Inc.
10.10 Art Technology Group Dynamo Partner Program Agreement.
10.11* Alliance Partnering Agreement between Akamai Technologies,
Inc. and Registrant.
10.12 Financial Assets Security Agreement between Registrant and
Merrill Lynch.
10.13 WCMA Loan and Security Agreement between Registrant and
Merrill Lynch.
10.14* 1998 Novo Series B Common Stock Incentive Plan.
10.15* 1999 Novo Series A Common Stock Incentive Plan.
10.16* Executive Employment Agreement between Registrant and Kelly
A. Rodriques.
10.17* Executive Employment Agreement between Registrant and Harry
Schlough.
10.18* Executive Employment Agreement between Registrant and
Kimberley H. Vogel.
10.19 Executive Employment Agreement between Registrant and Diana
Wilson Todd.
10.20 Executive Employment Agreement between Registrant and Andrew
Sievers.
10.21* Letter agreement between Registrant and BDM, Inc.
10.22* Form of Indemnification Agreement between Registrant and its
officers and directors.
23.1* Consent of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be added by amendment.
(A) Financial Statement Schedules
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreements certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
our payment of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE> 98
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offerings of such securities at that time shall be
deemed to be the initial bona fide offerings thereof.
II-5
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act, we have had duly caused
this amendment no. 1 to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Francisco, State of
California, on the 8th day of March, 2000.
NOVO GROUP, INC.
By: /s/ KELLY A. RODRIQUES
----------------------------------
Kelly A. Rodriques
Chairman of the Board and
Chief Executive Officer
II-6
<PAGE> 100
Pursuant to the requirements of the Securities Act, this amendment no.1 to
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KELLY A. RODRIQUES Chairman of the Board, Chief March 8, 2000
- ----------------------------------------------------- Executive Officer and Director
Kelly A. Rodriques (Principal Executive Officer)
* Chief Financial Officer (Principal March 8, 2000
- ----------------------------------------------------- Financial and Accounting
Kimberley H. Vogel Officer)
* Director March 8, 2000
- -----------------------------------------------------
Harry Schlough
* Director March 8, 2000
- -----------------------------------------------------
Richard Marcus
* Director March 8, 2000
- -----------------------------------------------------
Roy Bostock
* Director March 8, 2000
- -----------------------------------------------------
Craig Brown
*By: /s/ KELLY A. RODRIQUES
- -----------------------------------------------------
Kelly A. Rodriques
Attorney-in-fact
</TABLE>
II-7
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Form of Stock Certificate.
5.1* Opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation, as to the validity of issuance
of the common stock registered hereby.
9.1 Voting Agreement between Registrant and The MacManus Group,
Inc.
10.1 Office Lease between Registrant and Maiden Interactive, as
amended.
10.2* Consulting and Development Agreement between Toyota Motor
Sales and Registrant.
10.3* Consulting and Development Agreement between Gloss.com, Inc.
and Registrant.
10.4* Agreement and Plan of Merger between Registrant, Novo Merger
Subsidiary, Inc. and Ironlight Digital Corporation.
10.5 Stock Purchase Agreement between The MacManus Group, Inc.
and Registrant.
10.6 Share Exchange Agreement among The MacManus Group, Inc.,
N.W. Ayer Communications, Inc. and Registrant.
10.7 Acknowledgement between The MacManus Group, Inc. and
Registrant.
10.8 Novo MediaGroup, Inc. Investors' Rights Agreement.
10.9 Sublease Agreement between The MacManus Group, Inc. and Blue
Marble ACG, Inc.
10.10 Art Technology Group Dynamo Partner Program Agreement.
10.11* Alliance Partnering Agreement between Akamai Technologies,
Inc. and Registrant.
10.12 Financial Assets Security Agreement between Registrant and
Merrill Lynch.
10.13 WCMA Loan and Security Agreement between Registrant and
Merrill Lynch.
10.14* 1998 Novo Series B Common Stock Incentive Plan.
10.15* 1999 Novo Series A Common Stock Incentive Plan.
10.16* Executive Employment Agreement between Registrant and Kelly
A. Rodriques.
10.17* Executive Employment Agreement between Registrant and Harry
Schlough.
10.18* Executive Employment Agreement between Registrant and
Kimberley H. Vogel.
10.19 Executive Employment Agreement between Registrant and Diana
Wilson Todd.
10.20 Executive Employment Agreement between Registrant and Andrew
Sievers.
10.21* Letter agreement between Registrant and BDM, Inc.
10.22* Form of Indemnification Agreement between Registrant and its
officers and directors.
23.1* Consent of Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be added by amendment.
<PAGE> 1
EXHIBIT 9.1
VOTING AGREEMENT
VOTING AGREEMENT OF NOVO MEDIAGROUP, INC.
THIS AGREEMENT, dated August 31, 1999, is among The MacManus Group, Inc.
and the shareholders listed on Exhibit A attached hereto (collectively
Shareholders; individually Shareholder) (the "Voting Agreement"). The
Shareholders are all shareholders of Novo MediaGroup, Inc. (Corporation).
WHEREAS, the Shareholders desire to enter into this Voting Agreement,
prepared in accordance with California Corporations Code section 706(a), for the
purpose of granting an irrevocable proxy to exercise specified voting rights of
shares of stock of Novo MediaGroup, Inc. to allow for the election of directors
and other matters as provided for herein.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
AGREEMENT
ARTICLE 1. SHARES SUBJECT TO AGREEMENT
1.01 SHARES SUBJECT TO THIS AGREEMENT. The undersigned Shareholders
agree that the number of shares of stock of the Corporation listed in Exhibit A
will be subject to the voting agreement and proxy granted in Section 2 as
applicable to such type of stock so held by such Shareholder. Exhibit A is made
a part of this Agreement by this reference.
ARTICLE 2. VOTING AGREEMENT AND GRANT OF PROXY
2.01. VOTING AGREEMENT AND GRANT OF PROXY.
(a) Series A Common Stock.
(I) With regard to the below listed 5 areas of interest (the
"Matters"), the Shareholders holding Series A Common Stock agree that they will
vote in favor of any proposals concerning the Matters as presented to the
Shareholders by the Board Committee to be established by the Board of Directors
comprised of the two directors to be elected solely by the Series A Common Stock
(the "Series A Common Committee"). The Matters are as follows:
1. Officer appointments, removals.
2. Employment bonus, hiring and retention matters (including grant
of options pursuant to such stock option plans, stock purchase
plans and other employee plans approved by the Board of
Directors); provided that the total amount of compensation items
are within the budget approved by the Board of Directors.
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<PAGE> 2
3. Banking/financial institution relationship approvals (i.e., the
identity and selection of the institutions providing loans,
credit lines, checking/savings and other money management
alternatives; provided the borrowing amounts and other
obligations are within the budget amounts approved by the Board
of Directors).
4. Initial public offering approval, IPO timing, underwriter
selection and deal pricing and all other reasonable authority to
take usual and customary actions directly related to the
offering and necessary to implement the offering.
5. Exercise of Right of First Offer rights to purchase shares held
by MacManus pursuant to the Investors' Rights Agreement.
In addition, the Shareholders holding Series A Common Stock agree that
they will vote their shares in favor of members of the Board of Directors which
support the creation of the Series A Common Committee to address the Matters and
that such Shareholders will vote against any members of the Directors, and to
the extent possible, support the removal of any such Directors via calling for
special elections or otherwise, which do not support the creation of the
Series A Common Committee with the powers over the Matters. In addition, the
holders of Series A Common Stock agree to vote their shares in favor of the
director selection proposed by the directors elected on a class basis by the
holders of Series A Common Stock, Series A Preferred Stock and the Series C
Common Stock.
Notwithstanding anything the contrary herein, it is agreed that any
decisions regarding the granting of options to members of the Series A Common
Committee, and the CEO of the Company (to the extent be is not on the Series A
Common Committee), shall require the consent of the Board of Directors,
including at least one member of the Board of Directors elected by the Series A
Preferred Stock and Series C Common Stock, voting as a single class.
(II) As further support for the voting agreement of the
Shareholders set forth in Article 2, 2.01(a)(I), on execution of this Voting
Agreement, the Shareholders holding Series A Common Stock agree to grant to the
members of the Board of Directors elected by the Series A Common Stock, an
irrevocable proxy to vote the Series A Common Stock shares held by such
Shareholders as follows:
IRREVOCABLE PROXY
The undersigned shareholders, holders of __ [specify number] shares of
Series A Common Stock of the Corporation, represented by the share
certificates listed in Exhibit A, by this Agreement revoke all proxies
dated before the date this Agreement is executed, and irrevocably
appoint the Series A Common Stock elected Board Members as proxies to
vote and otherwise represent the above shares for the following matters:
2
<PAGE> 3
(1) For the election of directors to be mutually agreed upon by the
Series A Common Stock, Series A Preferred Stock and Series C Common
Stock as provided for in Article III, D.4(b) of the Articles of
Incorporation of the Corporation.
(2) For the calling of a special election of shareholders, and to vote
at such special election or otherwise, for the purpose of removing such
directors which have voted against the creation, and maintenance, of
the Series A Common Committee with such powers over the Matters as
provided for in the Voting Agreement dated August 31, 1999 and for the
voting for replacement directors favorably inclined to the creation, and
maintenance, of the Series A Common Committee.
(3) For the sole and limited purpose of voting of such Series A Common
Stock upon such matters as brought before such Series A Common Stock by
the Series A Common Committee as described in the Voting Agreement dated
August 31, 1999 and otherwise for the purpose of voting on such matters
as may be brought by any other shareholder, third-party or as may be
required by applicable law with respect to matters that the Series A
Common Committee has authority to seek approval from the Series A Common
Stock.
The proxy holders named in this Agreement or any of them will represent
the undersigned for the purposes of determining a quorum at any
shareholders' meeting that they attend. However, their authority is
specifically limited to an affirmative vote or written consent to the
particular matters stated above.
(b) Series A Preferred Stock and Series C Common Stock.
(I) With regard to the Matters, the Shareholders holding Series A
Preferred Stock and Series C Common Stock agree that they will vote in favor of
any proposals concerning the Matters as presented to the Shareholders by the
Series A Common Committee. In addition, the Shareholders holding Series A
Preferred Stock and Series C Common Stock agree that they will vote their shares
in favor of members of the Board of Directors which support the creation of the
Series A Common Committee to address the Matters and that such Shareholders will
vote against any members of the Board of Directors, and to the extent possible,
support the removal of any such Directors via calling for special elections or
otherwise, which do not support the creation of the Series A Common Committee
with the powers over the Matters. In addition it is the intention of the Series
A Preferred Stock and Series C Common Stock to grant to its class elected
directors the right to vote the shares held by the Shareholders holding Series A
Preferred Stock and Series C Common Stock with respect to the election of the
director that is to be elected by the Series A Preferred Stock, Series A Common
Stock and Series C Common Stock, voting as a class. In addition, it is the
intention of the holders of the Series A Preferred Stock and Series C Common
Stock that the board members elected, on a class basis, by the Series A Common
Stock vote such shares as held by the holders of Series A Preferred Stock and
Series C Common Stock as necessary which exceed 51% of
3
<PAGE> 4
the voting stock of the Corporation, the type of such shares to be at the
election of the unanimous vote of such 2 Series A Common class elected
directors.
(II) As further support for the voting agreement of the
Shareholders set forth in Article 2, 2.01(b)(1), on execution of this Voting
Agreement, the Shareholders holding Series A Preferred stock and Series C Common
Stock agree to grant the following proxies:
(i) to the members of the Board of Directors elected by
the Series A Common Stock, an irrevocable proxy to vote the Series A Preferred
Stock and Series C Common Stock shares held by such Shareholders as follows:
IRREVOCABLE PROXY I
The undersigned shareholders, holders of ___ [specify number] shares of
Series A Preferred Stock (and any outstanding shares of Series C Common
Stock into which the Series A Preferred Stock may be converted) and
Series C Common Stock, of the Corporation, represented by the share
certificates listed in Exhibit A, by this Agreement revoke all proxies
dated before the execution date of this Agreement (except as described
in this Agreement), and irrevocably appoint the Directors elected by the
Series A Common Stock as proxies to vote and otherwise represent the
above shares for the following matters:
(1) For the calling of a special election of shareholders, and to vote
at such special election or otherwise, for the purpose of removing such
directors which have voted against the creation, and maintenance, of the
Series A Common Committee with such powers over the Matters as provided
for in the Voting Agreement dated August 31, 1999 and for the voting for
replacement directors favorably inclined to the creation, and
maintenance, of the Series A Common Committee as proposed to the Series
A Common Committee by the majority of the Series A Preferred Stock and
Series C Common Stock voting as a single class - which such proposed
director(s) shall not be any previously removed directors pursuant to
this proxy right.
(2) for the sole and limited purpose of voting upon such Matters as the
Series A Common Committee shall seek approval of from the Series A
Preferred Stock and Series C Common Stock as described in the Voting
Agreement dated August 31, 1999 and otherwise for the purpose of voting
on such matters as may be brought by any other shareholder, third-party
or as may be required by applicable law with respect to Matters that
the Series A Common Committee has authority to seek approval from the
Series A Preferred Stock and Series C Common Stock.
The proxy holders named in this Agreement or any of them will represent
the undersigned for the purposes of determining a quorum at any
shareholders' meeting
4
<PAGE> 5
that they attend. However, their authority is specifically limited to an
affirmative vote or written consent to the particular matters stated
above.
(ii) to the board members elected on a class basis by the Series
A Preferred Stock and Series C Common Stock the following proxy:
IRREVOCABLE PROXY 2
The undersigned shareholders, holders of ___ [specify number] shares of
Series A Preferred Stock (and any outstanding shares of Series C Common
Stock into which the Series A Preferred Stock may be converted) and
Series C Common Stock, of the Corporation, represented by the share
certificates listed in Exhibit A, by this Agreement revoke all proxies
dated before the execution date of this Agreement (except as described
in this Agreement), and irrevocably appoint the Directors elected by the
Series A Preferred Stock and Series C Common Stock as proxies to vote
and otherwise represent the above shares for the following matters:
(1) For the election of directors to be mutually agreed upon by the
Series A Common Stock, Series A Preferred Stock and Series C Common
Stock as provided for in Article III, D.4(b) of the Articles of
Incorporation of the Corporation.
The proxy holders named in this Agreement or any of them will represent
the undersigned for the purposes of determining a quorum at any
shareholders' meeting that they attend. However, their authority is
specifically limited to an affirmative vote or written consent to the
particular matters stated above.
(iii) to the Series A Common Stock Directors, for so long as
MacManus controlled or affiliated shareholders own 51%
or more of the outstanding voting stock of the
Corporation, the following proxy:
IRREVOCABLE PROXY 3
The undersigned shareholders, holders of ___ [specify number] shares of
Series A Preferred Stock (and any outstanding shares of Series C Common
Stock into which the Series A Preferred Stock may be converted) and
Series C Common Stock, of the Corporation, represented by the share
certificates fisted in Exhibit A, by this Agreement revoke all proxies
dated before the execution date of this Agreement (except as described
in this Agreement), and irrevocably appoint the Directors elected by the
Series A Common Stock as proxy (action to be taken on unanimous consent
of both such directors) to vote and otherwise represent the necessary
amount and type of the above shares as provided for herein for all
5
<PAGE> 6
matters to be presented to the shareholders where all of the
shareholders of the Corporation holding voting stock vote on a single
class basis, other than the matters set forth in the Voting Agreement as
addressed in Section 2.01(b), Proxy 1 and Proxy 2. For the purposes of
this proxy, the type of such shares subject to this proxy shall be first
taken from the Series C Common Stock, and if not sufficient, then from
the Series A Preferred Stock, and the number of such shares shall be
determined on the following basis:
"total shares of Series A Preferred Stock and Series C Common
Stock outstanding owned by MacManus controlled or affiliated
shareholders less 51% of the total voting stock outstanding"
The proxy holders named in this Agreement or any of them will represent
the undersigned for the purposes of determining a quorum at any
shareholders' meeting that they attend. However, their authority is
specifically limited to an affirmative vote or written consent to the
particular matters stated above.
ARTICLE 3. AGREEMENT ON VOTING FOR CERTAIN DIRECTORS
3.01. MUTUAL ELECTED DIRECTORS. With respect to those Directors which shall be
elected by the Series A Common Stock, the Series A Preferred Stock and Series C
Common Stock voting as a class, the parties hereto agree that such Directors
shall be voted upon as follows: the Series A Common Stock, voting as a class,
and the Series A Preferred Stock and the Series C Common Stock, voting as a
class, shall mutually approve any such directors. Such class based director
- -voting shall terminate on the IPO.
ARTICLE 4. TERMINATION OF AGREEMENT
4.01. TERMINATION OF AGREEMENT. This Agreement will terminate upon the sooner
of: (i) the closing of a sale and issuance of shares of Common Stock of the
Corporation pursuant to an effective registration statement under the Securities
Act of 1933, as amended, (ii) at the election of a majority of the Class A
Common Stock, (iii) the reduction of the Series A Preferred Stock and Series C
Common Stock, assuming all conversions of Series A Preferred Stock to Series C
Common Stock or otherwise, to less than 30% of the outstanding voting stock of
the Corporation or (iv) the reduction of the Series A Common Stock to less than
20% of the outstanding voting stock of the Corporation.
ARTICLE 5. MISCELLANEOUS PROVISIONS
5.01. NECESSARY ACT. All parties to this Agreement will perform any acts,
including executing any documents, that may be reasonably necessary to fully
carry out the provisions and intent of this Agreement.
6
<PAGE> 7
5.02. NOTICES. All notices, demands, requests, or other communication required
or permitted by this Agreement will be in writing and shall be deemed duly
served when personally delivered to the party or to an officer of agent of the
party, or when deposited in the United States mail, first-class postage prepaid,
addressed to the proxy holders at ____________ [address], or to a Shareholder at
the address appearing for him of her on the books and records of the
Corporation, or at any other address the party may designate by written notice
to the others.
5.03. REMEDIES. The parties will have all the remedies available to them for
breach of this Agreement by law or in equity. The parties further agree that in
addition to all other remedies available at law or in equity, the parties will
be entitled to specific performance of the obligations of each part to this
Agreement and immediate injunctive relief. The parties also agree and that if an
action is brought in equity to enforce a party's obligations, no part will
argue, as a defense, that there is an adequate remedy at law. In addition, in
the event that there is a dispute as to the Matters to be covered by the Series
A Common Committee, then the parties hereto agree that if such dispute cannot be
settled by the Board of Directors of the Corporation, then the parties hereto
agree to support the submission of such dispute to the American Arbitration
Association ("AAA") office nearest to San Francisco, California. The holders of
Series A Common Stock which are parties hereto, as a class, and the holders of
Series A Preferred Stock and Series C Common Stock which are parties hereto, as
a class, agree to mutually select approve one arbitrator from the AAA and that
arbitrator shall follow the normal arbitration procedures and rules for the AAA
and settle such dispute. Any such dispute much be resolved, resulting in a final
determination by the arbitrator, no later than 30 days from submission of final
oral or written arguments to the AAA, with only one set of written arguments,
being allowed per party.
5.04. ATTORNEYS' FEES. In the event of any litigation concerning this Agreement
between the parties to this Agreement or the parties to this Agreement and the
estate of the any deceased Beneficiary, the prevailing party will be entitled,
in addition to any other relief that may be granted, to reasonable attorney
fees.
5.05. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement will be binding on the
parties to the Agreement and on each of their heirs, executors, administrators,
and assigns.
5.06. SEVERABILITY. If any provision is unenforceable or invalid for any reason,
the remaining provision will be unaffected by such a holding.
5.07. GOVERNING LAW. This Agreement will be constructed according to and
governed by the laws of the state of California.
5.08. NON-CIRCUMVENTION. Neither party hereto will take any act or execute any
document to circumvent the purposes of this Agreement. In addition, the parties
hereto understand and agree that, notwithstanding this Agreement, nothing herein
is intended in
7
<PAGE> 8
any manner to undermine or alter any rights of the parties in the Investors'
Rights Agreement
5.09. ENTIRE AGREEMENT. This instrument and Exhibit A, hereto constitutes the
entire Voting Agreement of the Shareholders and correctly sets forth the rights,
duties, and obligations, or representations concerning the Agreement's subject
matter not expressly set forth in this Agreement are of no force or effect.
Executed on _______ [date], at ____________ [city], _______________[country],
California.
THE MACMANUS GROUP, INC.
/s/ KELLY RODRIQUES
- -------------------------------
Kelly Rodriques By: /s/ DAVID WINCLECHTER
-------------------------------
Name: David Winclechter
-----------------------------
Title: VP/Secretary
----------------------------
Address: 222 Sutter 6th Floor Address:
Facsimile: San Francisco Ca. 94108
Facsimile:
/s/ HARRY SCHLOUGH /s/ ANTHONY WESTREICH
- ------------------------------- -------------------------------
Harry Schlough Anthony Westreich
Address: 222 Sutter Street, Address:
Ste. 600
San Francisco, CA 94108
Facsimile: Facsimile:
N.W. AYER COMMUNICATIONS, INC.
By: /s/ DAVID WINCLECHTER
-------------------------------
Name: David Winclechter
-----------------------------
Title: VP/Secretary
----------------------------
Address:
Facsimile:
8
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EXHIBIT A
1. Kelly Rodriques - all Series A Common Stock Shares held by Mr. Rodriques
2. Harry Schlough - all Series A Common Sock held by Mr. Schlough
3. Anthony Westreich - all Series A Common Stock held by Mr. Westreich
4. The MacManus Group, Inc. - all Series A Preferred Stock and Series C
Common Stock held by MacManus
5. N.W. Ayer Communications, Inc. - all Series C Common Stock held by N.W.
Ayer Communications, Inc.
9
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EXHIBIT 10.1
222 SUTTER STREET
OFFICE LEASE
CONFIRMATION OF TERM OF LEASE
This confirmation of term of lease is made on August 8, 1996, between 222
SUTTER STREET PARTNERS, LTD., a California limited partnership ("Landlord") and
MAIDEN INTERACTIVE, a California corporation doing business as Ironlight
Digital ("Tenant"), who agree as follows:
1. Landlord and Tenant entered into a lease dated August 8, 1996 (the
"Lease"), in which Landlord leased to Tenant and Tenant leased from Landlord
the premises described in Section 1.14 ("Premises").
2. Under Section 3 of the Lease, Landlord and Tenant agree to confirm
the Commencement and Expiration Dates of the Term:
a. August 9, 1996 is the Commencement Date of the Lease.
b. August 8, 2001 is the Expiration Date of the Lease.
3. Tenant further confirms that:
a. It has accepted possession of the Premises as provided in the
Lease, and that the Premises at the time it accepted possession were in
satisfactory condition and in conformity with the provisions of the Lease in
all respects; and
b. Landlord has fulfilled all of its duties of an inducement
nature, including completion of the Tenant Improvements, if any.
LANDLORD: TENANT:
222 SUTTER STREET PARTNERS, LTD. MAIDEN INTERACTIVE
A California limited partnership a California corporation
By: G&E Investor Associates IV, By: /s/ [Signature Illegible]
Ltd., a California limited ---------------------------
partnership, its general partner Its: President
--------------------------
Date: 8/8/96
-------------------------
By: G&E Investor Properties I, By: /s/ [Signature Illegible]
Inc., its general partner ---------------------------
Its: Secretary
--------------------------
Date: 8/8/96
-------------------------
By: /s/ [Signature Illegible]
---------------------------
Its: VP
--------------------------
Date: 8/8/96
-------------------------
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222 SUTTER STREET
OFFICE LEASE
THIS LEASE is made and entered into this 8 day of August, 1996,
between 222 SUTTER STREET PARTNERS, LTD., a California limited partnership
("Landlord") and MAIDEN INTERACTIVE, a California corporation, doing business as
Ironlight Digital ("Tenant").
Landlord and Tenant hereby covenant and agree as follows:
1. Definitions. As used herein, the following terms shall have the following
meanings:
1.1 "Additional Rent" shall mean all obligations of Tenant hereunder other
than the obligation for payment of Basic Rent.
1.2 "Alterations" shall mean any alterations, additions, improvements,
changes or installation in or to the Premises other than Tenant
Improvements.
1.3 "Basic Lease Information" shall mean the respective information set
forth in the Basic Lease Information sheet which is attached to this Lease
and made a part hereof by reference.
1.4 "Basic Operating Cost" shall have the meaning given in Section 6.2
1.5 "Basic Operating Cost Adjustment" shall have the meaning given in
Section 6.2.
1.6 "Building" shall mean the real property known as 222 Sutter, San
Francisco, California together with the building constructed thereon and
all other improvements thereon or appurtenances thereto.
1.7 "Commencement Date" shall mean August 9, 1996.
1.8 "Common Areas" shall mean the areas on individual floors of the
Building devoted to non-exclusive uses such as corridors, fire vestibules,
elevator foyers, lobbies, electric and telephone closets, restrooms,
mechanical rooms, janitor closets and other similar facilities for the
benefit of all tenants (or invitees) on the particular floor and other
floors and shall also mean those areas of the Building devoted to
mechanical and service rooms servicing more than one floor or the Building
as a whole.
1.9 "Estimated Basic Operating Cost" for any calendar year shall mean
Landlord's estimate of Basic Operating Cost for
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such calendar year.
1.10 "Expiration Date" shall mean the date specified on the Basic Lease
Information sheet when the Term shall end unless sooner terminated pursuant to
the terms of this Lease.
1.11 "Fair Market Rent" shall mean the rate being charged for space of similar
type, age and location.
1.12 "Net Rentable Area" shall mean the area or areas of space within the
Building determined as follows: (i) Net Rentable Area on a single tenancy floor
is determined by measuring from the inside surface of the outer glass and
extensions of the plane thereof in non-glass areas to the inside surface of the
opposite outer glass and extensions of the plane thereof in non-glass areas and
shall include all areas within the outside walls, excluding vertical
penetrations such as building stairs, elevator shafts, flues, vents, stacks,
pipe shafts and vertical ducts; provided, however, vertical penetrations which
are for the specific use of Tenant, such as special stairs or elevators, shall
be included as Net Rentable Area; and (ii) Net Rentable Area for a partial
floor shall include all space within the demising walls (measured from the
midpoint of demising walls and in the case of exterior walls, measured as
defined in (i) above plus Tenant's Share of any Common Area. The Net Rentable
Area in the Premises has been calculated on the basis of the foregoing
definition and is hereby stipulated for all purposes hereof to be the amount
stated on the Basic Lease Information.
1.13 "Permitted Use" shall mean the specific use of the Premises set forth
in the Basic Lease Information.
1.14 "Premises" shall mean the cross-hatched floor area more particularly shown
on the Exhibit A floor plan attached hereto, containing the Net Rentable Area
specified in the Basic Lease Information.
1.15 "Project" shall mean 222 Sutter Street, San Francisco, California.
1.16 "Rent" shall mean Basic Rent plus all Additional Rent.
1.17 "Security Deposit" shall mean the amount specified in the Basic Lease
Information paid by Tenant to Landlord to be held pursuant to Section 7 hereof.
1.18 "Tenant Improvements" shall mean the improvement of the Premises to be
provided by Tenant in accordance with Exhibit B.
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1.19 "Tenant's Share" is specified in the Basic Lease Information and is
based on the percentage which the Net Rentable Area of the Premises bears
to ninety-five percent (95%) of the total Net Rentable Area of the Building
or to the total Net Rentable Area leased in the Building (if such total is
greater than ninety-five percent (95%) of the total Rentable Area).
1.20 "Term" shall mean a period commencing with the Commencement Date and
ending on the Expiration Date stated in the Basic Lease Information sheet.
1.21 Other Terms used in this Lease and in the Basic Lease Information
sheet shall have the meanings given them thereon and herein.
2. Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises for the Term and upon all the terms, conditions and
covenants of this Lease.
3. Term. Except as otherwise provided herein, the Term shall commence upon
the Commencement Date and shall continue in full force until the Expiration
Date set forth in the Basic Lease Information. On the Commencement Date,
Landlord and Tenant shall execute a Confirmation of Term of Lease in the form
attached as Exhibit D hereto.
4. Improvements and Acceptance. As promptly as practicable after the date of
execution of this Lease, Tenant shall undertake to complete the Tenant
Improvements in accordance with the provisions of Exhibit B. Tenant shall
accept possession of the Premises in their then existing "as is" condition, and
the taking of possession or use of the Premises by Tenant shall constitute and
establish that the Premises were at such time in satisfactory condition and in
conformity with the provisions of this Lease in all respects. The Confirmation
of Term of Lease to be executed pursuant to Section 3 above shall include
confirmation by the Tenant of the above. Tenant acknowledges that no
representations as to the repair of the Premises, nor promises to alter,
remodel or improve the Premises, other than those contained in Exhibit B, have
been made by Landlord.
5. Basic Rent, Additional Rent and Late Charges.
5.1 Tenant shall pay the Basic Rent for the Premises in the amount set
forth in the Basic Lease Information (subject to adjustment as set forth
herein). Basic Rent for the first month of the Term shall be paid by
Tenant upon execution of this Lease. Commencing with the first day of the
second calendar month of the first year of the Term, Tenant shall pay Rent
in equal monthly installments on or before the first day of each calendar
month during the Term in advance and without
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demand. If the Term commences on other than the first day of a month, then
Rent provided for such partial month shall be prorated and the prorated
installment shall be paid on the first day of the calendar month next
succeeding the Commencement Date. If the Term terminates on other than the
last day of a calendar month, then Rent provided for such partial month
shall be prorated and the prorated installment shall be paid on the first
day of such calendar month. In addition to said Basic Rent, Tenant agrees
to pay the Additional Rent as and when herein provided in this Lease. Rent
shall be payable to Landlord, without deduction or offset, in lawful money
of the United States of America at the address for Landlord set forth in
the Basic Lease Information, or to such other person or at such other place
as Landlord may from time to time designate in writing.
5.2 Tenant shall pay to Landlord all charges and other amounts whatsoever
as provided in this Lease as Additional Rent as and when due and payable
under the provisions of this Lease. Landlord shall have the same remedies
for Tenant's failure to pay any item of Additional Rent when due as for
failure to pay any installment of Basic Rent when due.
5.3 Tenant hereby acknowledges that late payment to Landlord of Basic Rent
or any item of Additional Rent will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any ground lease, underlying lease, mortgage or
trust deed covering the Building. Accordingly, if any installment of Basic
Rent or any payment of Additional Rent is not received by Landlord within
five (5) calendar days of its due date, Tenant shall pay Landlord a late
charge equal to five percent (5%) of such overdue amount. If during the
twelve (12) month period preceding any late payment of Basic Rent or
Additional Rent Tenant has incurred two or more late charges, the late
charge shall equal ten percent (10%) of the overdue amount, rather than
five percent (5%) of the overdue amount. The parties agree that such
charges represent a fair and reasonable estimate of the costs Landlord will
incur by reason of a late payment by Tenant. Acceptance of such late charge
by Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
its rights or remedies granted hereunder.
6. Tenant's Share of Increase in Basic Operating Cost.
6.1 In addition to the Basic Rent to be paid hereunder, Tenant shall pay
as Additional Rent, Tenant's Share of the increase in Basic Operating Cost
(as hereinafter defined) in
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the manner set forth below. The provisions for payment of the increase in
Basic Operating Cost by means of periodic payment of Tenant's Share of the
increase in Estimated Basic Operating Cost and the Basic Operating Cost
Adjustment are intended to pass on to Tenant and reimburse Landlord for
Tenant's Share of all increases in costs and expenses over 1997 described
in this Section 6 below.
6.2 For purposes of this Section, the following terms shall have the
meaning hereinafter set forth:
(a) "Basic Operating Cost" shall mean the total cost and expenses paid
or incurred by Landlord in connection with the management, operation,
maintenance and preservation of the Building, including without
limitation, (1) Taxes (as herein defined); (2) wages, salaries and
related expenses and benefits of all parties and individuals engaged
in the operation, management, maintenance and security of the
Building and the costs of an office in the Building; (3) supplies,
materials and equipment rental used in operation and maintenance of
the Building; (4) utilities, including without limitation water and
power, air conditioning, heating, lighting and ventilating the
Building; (5) all maintenance, janitorial and service agreements for
the Building and the equipment therein, including without limitation,
alarm service, window cleaning, elevator maintenance, sidewalks,
landscaping, Building exterior and service areas; (6) reasonable
management fees of all contractors engaged by Landlord or charged by
Landlord if Landlord performs management services in connection with
the Building; (7) reasonable legal and accounting services for the
Building; provided, however, that legal expense shall not include the
cost of negotiating leases, collecting rents, or legal costs incurred
in proceedings against any specific tenant; (8) all insurance
premiums and costs, including but not limited to, the premiums and
cost of fire, casualty and liability coverage and rental abatement
and earthquake insurance (if Landlord elects to provide such
coverage) applicable to the Building and Landlord's personal property
used in connection therewith; (9) repair, replacements and general
maintenance (except for repairs paid by proceeds of insurance or by
Tenant or other third parties, and alterations attributable solely to
tenants of the Building other than Tenant); (10) the cost of any
capital improvements made to the Building after completion of its
construction as a labor-saving device or to effect other economies in
the operation or maintenance of the Building, or made to the Building
after the date of this Lease, that are required under any
governmental law or regulation that was not applicable to the
Building at the
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time that permits for the construction thereof were obtained, such cost to be
amortized over such reasonable period as Landlord shall determine, together with
interest on the unamortized balance at the rate of ten percent (10%) per annum
or such higher rate as may have been paid by Landlord on funds borrowed for the
purpose of constructing such capital improvements; and (11) any other reasonable
expense incurred in managing, operating, maintaining and repairing the Building.
In the event that the Building is not 95% occupied during any Expense Year as
determined by Landlord, an adjustment shall be made in computing the Basic
Operating Cost for such Expense Year so that Basic Operating Cost shall be
computed as though the Building had been ninety-five percent (95%) occupied;
provided, however, that in no event shall Landlord be entitled to collect in
excess of ninety-five percent (95%) of the total Basic Operating Costs from all
of the Tenants in the Building including Tenant. All costs and expenses shall be
determined in accordance with generally accepted accounting principles which
shall be consistently applied. Basic Operating Cost shall not include specific
costs incurred for the account of, separately billed to and paid by specific
tenants.
(b) "Taxes" shall mean all taxes, assessments and charges levied upon or with
respect to the Building or any personal property of Landlord used in the
operation thereof, or Landlord's interest in the Building or such personal
property, including, but not limited to, all general real property taxes and
general and special assessments, charges, fees or assessments for transit, child
care, housing, police, fire of other governmental services or purported benefits
to the Building, service payments in lieu of taxes, and any tax, fee or excise
on the act of entering into this Lease or any other lease of space in the
Building, or on the use or occupancy of the Building or any part thereof, or on
the rent payable under any lease or in connection with the business or of
renting space in the Building, that are now or hereafter levied or assessed
against Landlord by the United States of America, the State of California, or
any political subdivision, public corporation, district or other political or
public entity, and shall also include any other tax, fee or other excise,
however described, that may be levied or assessed as a substitute for, or as an
addition to, in whole or in part, any other Taxes, whether or not now customary
or in the contemplation of the parties on the date of this Lease. Taxes shall
not include franchise, transfer, inheritance or capital stock taxes or income
taxes measured by the net income of Landlord from all sources, unless, due to a
change in the
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method of taxation, any of such taxes are levied or assessed against
Landlord as a substitute for, or as an addition to, in whole or in part,
any other tax that would otherwise constitute Taxes. Taxes shall also
include actual legal and consulting fees, costs and disbursements incurred
in connection with applications or proceedings to reasonably contest,
determine or reduce Taxes.
(c) "Expense Year" shall mean each twelve (12) consecutive month period
commencing January 1st of each year during the Term of this Lease, provided
that Landlord, upon notice to Tenant, may change the Expense Year from time
to time to any other twelve (12) consecutive month period and, in the event
of any such change, Tenant's Share of Basic Operating Cost shall be
equitably adjusted for the Expense Years involved in any such change.
(d) "Estimated Basic Operating Cost" for any particular Expense Year shall
mean Landlord's estimate of the Basic Operating Cost for such Expense Year.
(e) "Basic Operating Cost Adjustment" shall mean the difference between
Basic Operating Cost and Estimated Basic Operating Cost for any Expense
Year.
(f) "1997 Expense Year" shall mean the Expense Year beginning January 1,
1997 and ending December 31, 1997.
6.3 Tenant shall pay to Landlord as Additional Rent one-twelfth (1/12th) of
Tenant's Share of the increase in the Estimated Basic Operating Cost for each
Expense Year over the Basic Operating Cost during the 1997 Expense Year, on or
before the first day of each month, in advance, during the Term and commencing
with January 1, 1998, in an amount estimated by Landlord and billed by Landlord
to Tenant; provided that Landlord shall have the right initially to determine
monthly estimates and to revise such estimates from time to time. Within one
hundred twenty (120) calendar days after the end of each Expense Year after the
1997 Expense Year, or as soon thereafter as practicable, Landlord shall furnish
Tenant with a statement (herein called "Landlord's Expense Statement"), setting
forth in reasonable detail the Basic Operating Cost for such Expense Year, the
Basic Operating Cost for the 1997 Expense Year and Tenant's Share of the
increase in such Basic Operating Cost. If Tenant's share of the increase in
Basic Operating Cost for such Expense Year exceeds the increase in the Estimated
Basic Operating Cost paid by Tenant for such Expense Year, Tenant shall pay to
Landlord the difference between the amount paid by Tenant and the increase of
the Basic Operating Cost, for which Tenant is
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responsible, within fifteen (15) calendar days after the receipt of
Landlord's Expense Statement. If the total increase in the Estimated
Basic Operating Cost paid by Tenant for any such Expense Year shall
exceed Tenant's share of the increase in Basic Operating Cost for such
Expense Year, the excess paid by Tenant shall be credited against the
next installment of the increase in the Estimated Basic Operating Cost
due from Tenant to Landlord hereunder.
6.4 If the Expiration Date fixed for this Lease shall occur on a
date other than the end of an Expense Year, Tenant's Share of the
increase in Basic Operating cost for the Expense Year in which the
Expiration Date falls shall be in the proportion that the number of
calendar days from and including the first day of the Expense Year in
which the Expiration Date occurs to and including the Expiration Date
bears to 365. After Tenant's share of such increase in Basic Operating
Cost has been finally determined and Landlord's Expense Statement has
been furnished to Tenant pursuant to this Section and if there shall
have been an underpayment of Tenant's Share of the increase in Basic
Operating Cost, Tenant shall remit the amount of such underpayment to
Landlord within fifteen (15) calendar days of receipt of such statement,
and if there shall have been an overpayment, Landlord shall remit the
amount of any such overpayment, less any amounts then owed to Landlord
by Tenant under this Lease, to Tenant within fifteen (15) calendar days
of the issuance of such statement.
6.5 In the event that Tenant shall dispute the amount set forth in
Landlord's Expense Statement for any year, and provided that Tenant is
not then in default hereunder, Tenant shall have the right, not later
than thirty (30) calendar days following the receipt of such statement,
to cause Landlord's books and records with respect to Basic Operating
Cost for such year to be audited by certified public accountants
selected by Tenant and subject to Landlord's reasonable right of
approval. The Basic Operating Cost Adjustment shall be appropriately
adjusted on the basis of such audit. If such audit discloses a liability
for a refund in excess of ten percent (10%) of Tenant's Share of the
increase in Basic Operating Cost previously reported, the cost of such
audit shall be borne by Landlord; otherwise the cost of such audit shall
be paid by Tenant. If Tenant shall not request an audit in accordance
with the provisions of this Section 6.5 within twenty (20) calendar days
after receipt of Landlord's Expense Statement, such statement shall be
final and binding for all purposes hereof.
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7. Security Deposit and Letter of Credit.
7.1 Concurrently with the execution of this Lease, the Tenant has paid and
deposited with Landlord the sum set forth in the Basic Lease Information as
the Security Deposit for the full and faithful performance of every
provision of this Lease to be performed by Tenant. If Tenant defaults with
respect to any provision of this Lease, without waiving any of Landlord's
other rights and remedies, Landlord may use, apply or retain all or any
part of this Security Deposit for the payment of any Rent or any other sum
in default, the payment of any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason
of Tenant's default to the full extent permitted by law. If any portion of
said Security Deposit is so used or applied, Tenant shall within ten (10)
calendar days after written demand therefor deposit cash with Landlord in
an amount sufficient to restore the Security Deposit to its original amount
and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep this Security Deposit separate from
its general funds, and Tenant shall not be entitled to interest on such
deposit. If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the Security Deposit or any balance
thereof shall be returned to Tenant within fourteen (14) calendar days
after termination of this Lease but only after delivery of possession of
the entire Premises to Landlord and the performance by Tenant of all
obligations required hereunder.
7.2 Concurrently with the execution of this Lease, Tenant has deposited
with Landlord an unconditional, irrevocable letter of credit (the "Letter
of Credit") in the amount specified in the Basic Lease Information (the
"Letter of Credit Amount"). The Letter of Credit shall be in the form
attached as Exhibit F hereto and shall be issued by a bank selected by
Tenant and reasonably acceptable to Landlord. Tenant shall pay all
expenses, points, or fees incurred by Tenant in obtaining the Letter of
Credit. Tenant shall cause the Letter of Credit to be in effect during the
initial five-year Term of the Lease. Tenant may, from time to time, replace
any existing Letter of Credit with a new Letter of Credit if the new Letter
of Credit: (a) becomes effective at least thirty (30) days before
expiration of the Letter of Credit it replaces; (b) is in the required
amount; (c) is issued by a bank reasonably acceptable to Landlord; and (d)
otherwise complies with the requirements of this Section 7.2. Landlord
shall hold the Letter of Credit as security for the full and faithful
performance of every provision of this Lease to be performed by Tenant. If
Tenant defaults with respect to any provision of this Lease, without
waiving any of Landlord's other rights and remedies, Landlord
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may draw on that portion of the Letter of Credit necessary to pay any Rent
or any other sum in default, any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason
of Tenant's default to the full extent permitted by law. If Tenant fails to
renew or replace the letter of Credit at least thirty (30) days before its
expiration, Landlord may, without prejudice to any other remedy it has,
draw on all of the Letter of Credit. Any amount of the Letter of Credit
that is drawn on by Landlord but not applied by Landlord shall be held by
Landlord as a security deposit (the "Letter of Credit Security Deposit").
If Landlord draws on any portion of the Letter of Credit, Tenant shall
within ten (10) calendar days after written demand therefor either (a)
deposit cash with Landlord in an amount that, when added to the amount
remaining under the Letter of Credit and the amount of any Letter of Credit
Security Deposit, shall equal the Letter of Credit amount then required
under this Section 7.2, or (b) reinstate the Letter Credit to the Letter of
Credit amount then required under this Section 7.2. If Landlord applies any
portion of the Letter of Credit Security Deposit, Tenant shall, within ten
(10) calendar days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Letter of Credit Security
Deposit to the amount then required under this Section 7.2. Tenant's
failure to do so shall be a materially breach of this Lease. If Tenant
shall fully and faithfully perform every provision of this Lease to be
performed by it, the Letter of Credit or any balance thereof shall be
returned to Tenant within fourteen (14) calendar days after the earlier of
(i) the end of the initial five-year term of the Lease or (ii) termination
of this Lease but in such case only after delivery of possession of the
entire Premises to Landlord and the performance by Tenant of all
obligations required hereunder.
8. Use.
8.1 The Premises shall be used for the Permitted Use and no other use or
purpose. Tenant shall not do or permit to be done in or about the Premises,
nor bring or keep or permit to be brought or kept therein, anything which
is prohibited by or will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated, including but not limited to laws
governing hazardous or toxic substances, or which is prohibited by the
standard form of fire and extended coverage insurance policy, or will in
any way increase the existing rate of or affect any fire or other insurance
upon the Building or any of its contents, or cause a cancellation of any
insurance policy covering the Building or any part thereof or any of its
contents. Tenant shall not do or permit
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anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants of the Building,
or injure or annoy them, or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance, including but not limited to the
emanation of any objectionable or unpleasant odors, smoke, dust, gas,
noise or vibrations, in, on or about the Premises or commit or suffer to
be committed any waste in, on or about the Premises.
8.2 For purposes of this Section, the following terms shall have the
meaning hereinafter set forth:
(a) "Hazardous Materials" shall include all solid, liquid or
gaseous materials defined or regulated as wastes under any
federal statute or regulation or any state of local law,
regulation, ordinance and shall further include all other
substances defined or regulated as pollutants or as hazardous,
toxic, infectious, or radioactive substances under any federal
statute or regulation or any state or local law, regulation or
ordinance, all as amended from time to time.
(b) "Hazardous Materials Activities" shall mean the use,
generation, storage or disposal of Hazardous Materials on, under
or about, or the transportation of Hazardous Materials to or
from, the Premises or the Building.
8.3 Tenant shall not cause or permit any Hazardous Materials
Activities to be conducted on, under or about the Premises or the
Building except in compliance with all applicable federal, state and
local laws, regulations, ordinances and orders governing Hazardous
Materials or Hazardous Materials Activities, which compliance shall be
at Tenant's sole cost and expense. Additionally, Tenant shall not cause
or permit any Hazardous Materials to be disposed of on, under or about
the Premises or the Building without the prior written consent of
Landlord, which may be withheld for any reason and may be revoked at any
time.
8.4 Landlord shall not be liable to Tenant or to any other party for
any Hazardous Materials Activities conducted or permitted on, under or
about the Premises or the Building by Tenant or by Tenant's employees,
agents, contractors, licensees or invitees, and Tenant shall indemnify,
defend and hold Landlord harmless from any claims, damages, fines,
penalties, losses, judgments, costs and liabilities arising out of or
related to any Hazardous Materials Activities conducted or permitted on,
under or about the Premises or the Building by Tenant or by Tenant's
employees, agents, contractors, licensees or invitees, regardless of
whether
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Landlord shall have had notice of such Hazardous Materials Activities. The
provisions of this Section 8.4 shall survive the expiration or earlier
termination of this Lease.
8.5 At the expiration or earlier termination of this Lease, Tenant shall
remove from the Premises and the Building, at Tenant's sole cost and
expense, all Hazardous Materials which Tenant has stored or disposed of on,
under or about the Premises and Building.
9. Utilities and Services.
9.1 Subject to the provisions of this Lease and the Rules and Regulations
of the Building, Landlord shall furnish to the Premises (i) water at those
points of supply for general use by tenants in the Building, (ii)
electricity for Building Standard lighting, typewriters, computers, copy
machines, telecopiers and other office machines of similar low electrical
consumption, 24 hours a day, 7 days a week, (iii) heat and air conditioning
reasonably required for the comfortable occupation of the Premises and as
permitted by applicable law and governmental regulation, from 8:00 A.M. to
6:00 P.M., Monday through Friday, excluding holidays, or on other days
and/or at other times as requested by Tenant with 24 hour prior written
notice, (iv) elevator service, (v) lighting replacement (for Building
Standard lights), (vi) restroom supplies, and (vii) window washing with
reasonable frequency, all during the times and in the manner that such
services are customarily furnished in comparable office buildings in the
area; provided, however, that all electricity provided to the "Computer
Room" as shown on Exhibit A shall be separately metered (a separate meter
shall be installed as part of the Tenant Improvements) and paid for by
Tenant. Landlord shall be responsible for furnishing janitorial service on
the Premises at the times and days determined by Landlord. Landlord shall
not be in default hereunder or be liable for any damages directly or
indirectly resulting from, nor shall the Rent be abated, except as provided
below, by reason of the installation, use or interruption of use, of any
equipment in connection with the furnishing of any of the foregoing
services or the failure to furnish or the delay in furnishing any such
services when such failure or delay is caused by accident or any condition
beyond the control of Landlord or by the making of necessary repairs or
improvements to the Premises or the Building, or the limitation,
curtailment, rationing or restriction on use of water or electricity, gas
or any other form of energy or utility serving the Premises or the
Building. Landlord shall use reasonable efforts to remedy any interruption
in the furnishing of such services. However, when Tenant cannot conduct
normal business practice because of such interruption of service for a
period of more than ten (10) consecutive
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working days, rent shall be waived until such time that normal business
practice can once again commence.
9.2 Whenever heat generating machines or equipment or lighting other
than Building Standard lights are used in the Premises by Tenant which
affect the temperature otherwise maintained by the air conditioning
system, Landlord shall have the right to install supplementary air
conditioning units in the Premises, and the costs thereof shall be paid by
Tenant to Landlord upon billing by Landlord. Tenant also shall pay as
Additional Rent the cost of providing all heating or cooling energy to the
Premises in excess of that required for normal office use or during hours
requested by Tenant when heat or air conditioning is not otherwise
furnished by Landlord. If Tenant installs lighting requiring power in
excess of that required for normal office use in the Building or if Tenant
installs equipment requiring power in excess of 110 volts, Tenant shall
pay the cost of installing any additional risers, transformers, panels or
other facilities that may be necessary to furnish such excess power to the
Premises.
9.3 Notwithstanding any other provision hereof, in the event that any
law, ordinance or other governmental regulation now or hereafter in effect
shall impose a limit on the allocation to the Building or any utility or
other service, whether or not the same is to be supplied to the Premises
by Landlord under this Section, then Tenant shall not use or cause to be
consumed on the Premises, nor shall Landlord be required to provide to the
Premises hereunder, such utility or other service in an amount or in a
manner which would result in the violation by Landlord or Tenant of such
law, ordinance or regulation.
10. Alterations and Tenant's Property.
10.1 Tenant shall not make or suffer to be made any Alterations in or to
the Premises without first obtaining Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. All
permitted Alterations shall be done solely at Tenant's expense, in
accordance with all applicable laws, ordinances and regulations, and all
requirements of Landlord's and Tenant's insurance policies and only in
accordance with plans and specifications approved by Landlord, shall be
performed only by such contractors, mechanics or workmen as are approved
in writing by Landlord and shall be subject to such other conditions as
Landlord may reasonably require. All such Alterations shall become the
property of Landlord and shall be surrendered with the Premises, as a part
thereof at the end of the Term hereof or upon earlier vacating of the
Premises, provided that Landlord may by written notice to Tenant, given
at the time consent to the Alterations is given, require Tenant to remove
all
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Alterations. If Tenant does not obtain Landlord's prior written consent to
any Alterations for which such consent is required, Landlord may by written
notice to Tenant, given thirty (30) calendar days following the expiration
or termination of this Lease, require Tenant to remove such Alterations.
Tenant shall upon demand by Landlord, at Tenant's sole cost and expense and
with all due diligence, remove all Alterations made by or for the account
of Tenant, as designated by Landlord to be removed, and Tenant shall with
all due diligence, at its sole cost and expense, repair and restore the
Premises to their original condition.
10.2 All articles of personal property and all business and trade
fixtures, equipment and furniture owned by Tenant or installed by Tenant at
its expense in the Premises shall be and remain the property of the Tenant
(herein "Tenant's Property"). Tenant shall remove all Tenant's Property, at
its sole cost and expense, prior to the expiration of the Term or earlier
vacating of the Premises. Tenant shall repair any damage to the Premises or
the Building caused by the bringing in or the removal of Tenant's Property.
11. Liens. Tenant shall keep the Premises and Building free from, and defend
and hold harmless Landlord from, any and all liens or claims arising out of any
work performed, materials furnished or obligations incurred by or for the
account of Tenant. Landlord shall have the right to post and keep posted on the
Premises any notices that may be provided by law or which Landlord deems proper
for the protection of Landlord, the Premises and the Building from such liens or
claims. Prior to the commencement of any permitted work of alteration, addition
or improvement to the Premises, Tenant shall give Landlord at least ten (10)
working days prior written notice of the proposed commencement of such work.
12. Maintenance and Repairs.
12.1 Tenant agrees and shall, at its own cost and expense, take good care
of the Premises and maintain said Premises in good condition and repair,
ordinary wear and tear excepted. In addition, Tenant shall be responsible
for and reimburse Landlord for all repairs and replacements to the
Premises, the Building or any Common Area, structural or otherwise, which
are necessitated or result from the acts, omissions or negligence of Tenant
or any person or entity claiming through or under Tenant, or any of their
servants, employees, contractors, agents, visitors, or the occupancy of the
Premises by Tenant or any such person or entity.
12.2 Subject to the foregoing paragraph and the provisions of this Lease
as to damage or destruction, Landlord shall repair and maintain the roof,
exterior walls and Common Areas of the Building and the plumbing, heating,
ventilating and electrical
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systems serving the Premises. Tenant shall immediately give Landlord
written notice of a need for repairs or maintenance, after which Landlord
shall have a reasonable opportunity to make such repairs or perform such
maintenance. Landlord's liability for any failure to make repairs or to
perform any maintenance for which Landlord is responsible under any of the
provisions of this Lease shall be limited to the cost of such repairs or
maintenance, unless or to the extent Tenant suffers damages as a result of
the same caused by Landlord's gross negligence or willful misconduct.
Except as otherwise set forth in the last sentence of Section 9.1, there
shall be no abatement of Rent and no liability of Landlord by reason of any
injury to or interference with Tenant's business arising from the making of
any repairs, alterations or improvements in fixtures, appurtenances and
equipment therein; provided, however, that in making such repairs,
alterations or improvements, Landlord shall interfere as little as
reasonably practicable with the conduct of Tenant's business in the
Premises, notwithstanding Section 9.1 herein. As a material inducement to
Landlord entering into this Lease, Tenant waives and releases its right to
make repairs other than in the event of an emergency at Landlord's expense
under any applicable statute, law, regulation or ordinance now or hereafter
in effect.
13. Access to Premises. Upon reasonable notice to Tenant except in the event
of an emergency, Landlord reserves and shall at all times have the right to
enter the Premises to inspect same, to supply any service to be provided by
Landlord to Tenant hereunder, to show the Premises to prospective purchasers,
mortgagees or to post notices of nonresponsibility, and to alter, improve or
repair the Premises and portions of the Building, and may for that purpose
erect, use and maintain scaffolding, pipes, conduits and other necessary
structures in and through the Premises where required by the character of the
work performed, or for any other purpose Landlord may deem necessary; provided,
however, that any such access by Landlord shall not unreasonably interfere with
the business of Tenant. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy for quiet enjoyment of the Premises or any other loss occasioned
thereby, other than any rent abatement as provided in Section 9.1 of this Lease.
For each of the aforesaid purposes, Landlord shall at all times have and retain
a key with which to unlock all doors in, upon and about the Premises, excluding
Tenant's vaults and safes, or special security areas (designated in advance),
and Landlord shall have the right to use any and all means that Landlord may
deem necessary or proper to open said doors in an emergency, in order to obtain
entry to any portion of the Premises, and any entry to the Premises or portions
thereof obtained by Landlord by any of said means, or otherwise, shall not under
any circumstances be construed or deemed to be
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forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Tenant shall not be entitled to any abatement of Rent by reason of the
exercise by Landlord of such right of entry. Landlord shall also have the right
at any time, without same constituting an actual or constructive eviction and
without incurring any liability to Tenant therefor, to change the arrangement
and/or location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets and other public parts or Common Areas of the
Building.
14. Damage or Destruction.
14.1 If the Premises or the Building are damaged by any casualty insured
against by Landlord to an extent not exceeding twenty-five percent (25%)
of the then replacement value thereof and if the damage is such that
repairs can, in Landlord's opinion, be made within one hundred eighty
(180) calendar days after notice to Landlord of the occurrence of such
damage and Landlord will receive insurance proceeds sufficient to cover
the costs of such repairs, Landlord shall commence and diligently proceed
with the repair of such damage and this Lease shall continue in full force
and effect.
14.2 If the Premises or the Building are damaged by any casualty not
insured against by Landlord, or if such damage exceeds twenty-five percent
(25%) of the then replacement value thereof, or if such repairs cannot, in
Landlord's reasonable opinion, be made within such one hundred eighty
(180) calendar day period Landlord may, at its option, make such repairs
within a reasonable time and in such event this Lease shall continue in
effect. However, Tenant may, at its option, decide to cancel this Lease if
repairs are estimated to take or do take more than 180 calendar days or if
more than twenty-five percent (25%) of the Premises are destroyed such
that Tenant cannot reasonably operate its business. If Tenant does not
terminate this Lease, Landlord's election to make such repairs must be
evidenced by written notice to Tenant within thirty (30) calendar days
after notice to Landlord of the occurrence of the damage advising Tenant
whether or not Landlord will make such repairs. If Landlord does not so
elect to make such repairs under this paragraph, then either party may by
written notice to the other cancel this Lease as of the date of the
occurrence of such damage.
14.3 Notwithstanding anything to the contrary in this Section, Landlord
shall not have any obligation whatsoever to repair any damage resulting
from any casualty occurring during the last six (6) months of the Term of
this Lease, and Tenant has the right to terminate this Lease if Landlord
does not repair such damage.
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14.4 No damages, compensation or claim shall be payable by Landlord
for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Premises or any portion of
the Building. Landlord shall use its reasonable efforts to effect such
repair or restoration promptly in such manner as not to unreasonably
interfere with Tenant's use and occupancy. Landlord shall not be
required to carry insurance of any kind on Tenant's property and shall
not be obligated to repair any damage thereto or replace the same
except to the extent such damage was caused by Landlord's gross
negligence or willful misconduct. With respect to any damage which
Landlord is obligated to repair or elects to repair, Tenant, as a
material inducement to Landlord entering into this Lease, waives and
releases its rights under the provisions of California Civil Code
Sections 1941 and 1942.
14.5 During such periods of time that the Premises shall not be
tenantable as a result of the damage to the Premises or the Building,
the Rent shall abate proportionately based on the ratio that the
portion of the Premises which is not tenantable bears to the entire
Premises; provided, however, that there shall be no abatement of Rent
if the damage is due to the act or negligence of Tenant or any of its
employees, servants, agents, representatives, licensees, invitees, or
visitors and all such damage or destruction shall be repaired by
Tenant, at its sole expense (to the extent not covered by insurance;
provided, however, that if such damage or destruction results in an
increase in the insurance premium for the Building, such increase
shall be billed to Tenant), and as soon as practicable. For purposes
herein the term "tenantable" shall mean the state of the Premises in
which use and occupancy by Tenant, including reasonable access, are
reasonably available.
15. Indemnity.
15.1 Tenant agrees to defend, indemnify and hold harmless Landlord,
its agents and representatives, the lessor or lessors under all ground
and underlying leases, and the successors and assigns of such parties,
from and against any and all claims or liability for any injury, loss
or damage to any person or property occurring in or about the Premises
or the Building and from and against any and all costs, expenses and
liabilities (including without limitation court costs and attorneys'
fees) incurred in connection with or arising from (i) any act,
omission or negligence of Tenant or any person claiming through or
under Tenant, or its agents, servants, employees, contractors,
visitors, guests, invitees or licensees, (ii) the use or occupancy or
manner of use and occupancy of the Premises or the Building by Tenant
or any person claiming through or under Tenant, or (iii) any default
or failure by Tenant to observe or perform the terms and conditions of
this Lease.
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15.2 Landlord shall not be responsible or liable to Tenant, and Tenant
hereby waives any claims against Landlord, for any injury, loss or damage
to any person or property in or about the Premises or the Building arising
from or by any cause whatsoever, including without limitation any injury,
loss or damage resulting from theft, or caused by electrical, heating,
pluming, sewer or other systems in the Premises or Building, or water
leakage of any kind from the roof, walls, or other portion of the Building,
or the acts or omissions of any other tenant, or occupant of the Building
except such as is caused by reason of the gross negligence or willful acts
of Landlord, or its agents, servants or employees.
16. Tenant's Insurance.
16.1 Tenant shall, at all times during the Term hereof and at Tenant's sole
cost and expense, obtain, maintain and keep in full force and effect the
following insurance:
(a) Comprehensive General Liability Insurance insuring Tenant against
any liability arising out of the leasing, use, occupancy or
maintenance of the Premises and the roof area of the Building on which
Tenant's antennae are located, and all areas appurtenant thereto. Such
insurance shall be in the amount of $1,000,000.00 Combined Single
Limit for injury to, or death of one or more persons in an occurrence,
and for damage to tangible property (including loss of use) in an
occurrence. The policy shall insure the hazards of premises and
operations, independent contractors, contractual liability (covering
Tenant's indemnity hereunder) and shall name Landlord as an additional
insured and shall provide that the insurance maintained by Tenant is
primary insurance and not excess over, or contributory with, any other
insurance available to the Landlord.
(b) Worker's Compensation and Employer's Liability insurance (as
required by state law).
(c) Any other form or forms of insurance as Landlord or any ground
lessor or mortgagee of Landlord may reasonably require from time to
time in form, in amounts and for insurance risks against which a
prudent tenant would protect itself.
16.2 All insurance policies shall be written in a form satisfactory to
Landlord and shall be taken out with insurance companies holding a general
Policyholders Rating of "A" and a Financial Rating of "X" or better, as set
forth in the most current issue of Best's Insurance Guide. Tenant shall
deliver to Landlord prior to the time Tenant takes possession of the
premises for any reason, copies of policies or certificates
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evidencing the existence of the amounts and forms of coverage
satisfactory to Landlord. No such policy shall be cancelable, nor shall
the insurance provided under any such policy be reduced, except after
thirty (30) calendar days prior written notice to Landlord and the policy
shall so provide. Tenant shall, within ten (10) working days prior to the
expiration of such policies, furnish Landlord with renewals or "binders"
thereof, or Landlord may order such insurance and charge the cost thereof
to Tenant as Additional Rent.
17. Insurance Subrogation. Landlord and Tenant shall each obtain from their
respective insurers under all policies of fire and other property insurance now
or hereafter maintained by either of them at any time during the Term hereof
insuring or covering the Building or any portion thereof or operations therein a
waiver of all rights of subrogation which the insurer of the insured party might
have against the other party, provided such a waiver is available. The cost of
obtaining any such waiver shall be borne by the party who bears the cost of the
policy to which such a waiver is attached. Landlord and Tenant each shall
indemnify the other against any loss or expense, including attorney's fees,
resulting from the failure to obtain any such waiver, provided the same is
available.
18. Eminent Domain. If the whole of the Premises or so much thereof as to
render the balance unusable by Tenant shall be taken under power of eminent
domain, this Lease shall automatically terminate as of the date of such
condemnation, or as of the date possession is taken by the condemning
authority, whichever is earlier. No award for any partial or entire taking
shall be apportioned, and Tenant hereby assigns to Landlord any award which may
be made in such taking or condemnation, together with any and all rights of
Tenant now or hereafter arising in or to the same or any part thereof;
provided, however, that nothing contained herein shall be deemed to give
Landlord any interest in or to require Tenant to assign to Landlord any award
made to Tenant for the taking of personal property and fixtures belonging to
Tenant and/or for the interruption of, or damage to, Tenant's business and/or
for Tenant's separate moving expenses (to the extent such award for separate
moving expenses does not reduce any award made to Landlord). In the event of a
partial taking which does not result in a termination of this Lease, Rent shall
be abated in proportion to the part of the Premises so made unusable to Tenant.
No temporary taking of the Premises and/or Tenant's rights therein or under
this Lease shall terminate this Lease or give Tenant any right to any abatement
of Rent hereunder; any award made to Tenant by reason of any such temporary
taking shall belong entirely to Tenant and Landlord shall not be entitled to
share therein.
19. Assignment and Subletting.
19.1 Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge or
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otherwise transfer or hypothecate all or any part of the Premises or Tenant's
leasehold estate hereunder or permit the Premises to be occupied by anyone
other than Tenant or assign or sublet the Premises or any portion thereof
without Landlord's prior written consent in each instance, which consent shall
not be unreasonably withheld or delayed. Any sale or other transfer, including
by consolidation, merger or reorganization, of a majority of the voting stock
of Tenant, if Tenant is a corporation, or any sale or other transfer of a
majority of the partnership interests in Tenant, if Tenant is a partnership,
shall be deemed an assignment for purposes of this Section. Tenant may,
however, assign the Lease at any time, or sublease all of part of the Premises,
without Landlord's consent, to any entity which is the successor to Tenant by
consolidation, merger or reorganization, or which has acquired all or
substantially all of the assets of Tenant, or which is controlled directly or
indirectly by Tenant, or which controls, directly or indirectly, Tenant, or
which is under common control with Tenant, provided the financial condition of
such assignee or sublessee is equal to or better than that of Tenant and further
provided that no such sublease shall relieve Tenant of its obligations
hereunder. A party shall be deemed to "control" another party for purposes of
this Section 19.1 only if the first party owns more than fifty percent (50%) of
the voting stock or other beneficial interests of the second party.
19.2 If Tenant desires at any time to enter into an assignment or sublease of
the Premises, or any portion thereof, it shall make a written request for
consent of the Landlord at least thirty (30) calendar days prior to the
proposed assignment or sublease which request shall contain (a) the name of the
proposed assignee or subtenant, (b) the nature of the proposed assignee's or
subtenant's business to be carried out on the Premises, (c) the terms and
provisions of the proposed assignment or sublease, including proposed effective
date, and (d) such financial information as Landlord may request concerning the
proposed assignee or subtenant. Landlord shall then have a period of ten (10)
working days following receipt of such request within which to notify Tenant in
writing that Landlord either (i) elects to terminate the Lease as to the space
so affected as of the date so specified by Tenant in which event Tenant will be
relieved of all further obligations hereunder as to such space, or (ii) elects
to permit Tenant to assign or sublet such space to the assignee or subtenant
named in the request, or (iii) will not consent to the proposed assignment or
sublease. If Landlord should fail to notify Tenant in writing of its decision
within said 10-day period, Landlord shall be deemed to have elected option
(iii) above. Any net effective rent or other economic consideration realized by
Tenant under any such sublease or assignment in excess of the Rent payable
hereunder, after
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actual subletting and assignment costs, commissions, tenant improvements or
any costs incurred by Tenant subleasing space, shall be paid fifty percent
(50%) to Landlord and fifty percent (50%) to Tenant. Tenant's obligation to
pay over Landlord's portion of the consideration shall constitute an
obligation for Rent hereunder.
19.3 No consent by Landlord to any assignment or sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this
Lease. The consent by Landlord to any assignment or sublease shall not
relieve Tenant from the obligation to obtain Landlord's express written
consent to any other assignment or sublease. Any assignment or sublease
that is not in compliance with this Section shall be void and, at the
option of Landlord, shall constitute a default by Tenant under this Lease.
The acceptance of Rent by Landlord from a proposed assignee or subtenant
shall not constitute the consent to such assignment or sublease by
Landlord.
19.4 Each assignee, subtenant or other transferee to which consent has
been given by Landlord shall execute such documents in writing as shall be
satisfactory to Landlord. Each assignee or other transferee (other than a
subtenant) shall assume and be liable jointly and severally for all
obligations of Tenant under this Lease; provided, however, that the
assignee or other transferee shall be liable to Landlord for rent only in
the amount set forth in the assignment or transfer document.
19.5 In the event Tenant requests Landlord to consent to a proposed
assignment, subletting, or transfer, Tenant shall pay to Landlord, whether
or not such consent is ultimately given, Landlord's administrative fee in
connection with such request in the amount of $500.00 for each request for
consent per potential assignee, subtenant or transferee.
20. Defaults and Remedies.
20.1 The occurrence of any of the following events ("Event of Default")
shall constitute a material default and breach of this Lease by Tenant:
(a) The failure by Tenant to pay any Basic Rent or Additional Rent,
if not paid within three (3) days of the date when the same becomes
due and payable; or
(b) The failure by Tenant to pay any other sum when and as the same
becomes due and payable and such failure continues for more than ten
(10) calendar days; or
(c) Tenant's failure to cause to be released any mechanic's liens
recorded against the Premises for work
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ordered by Tenant within ten (10) calendar days after the date same
shall have been filed; or
(d) The failure by Tenant to observe or perform any provision of
this Lease to be observed or performed by Tenant, other than as
specified in (a)-(c) above, where such failure continues for thirty
(30) calendar days after the written notice thereof by Landlord to
Tenant; provided, however, that if the nature of such default is such
that the same cannot reasonably be cured within such thirty (30)
calendar day period, Tenant shall not be deemed to be in default if
Tenant shall within such period commence such cure and thereafter
diligently prosecute the same to completion; or
(e) The making by Tenant of any general assignment for the benefit
of creditors; the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case
of a petition filed against Tenant, the same is dismissed within
thirty (30) calendar days); the appointment of a trustee or receiver
to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) calendar days; or the
attachment, execution, or other judicial seizure of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in
this Lease, where such seizure is not discharged within thirty (30)
calendar days.
20.2 If an Event of Default shall occur, then in addition to any other
rights or remedies available to Landlord at law or in equity all of which
rights and remedies shall be cumulative, Landlord at any time thereafter
may give a written termination notice to Tenant, and on the date specified
in such notice (which shall be not less than three (3) calendar days after
the giving of such notice) Tenant's right to possession shall terminate
and this Lease shall terminate, unless on or before such date all arrears
of Rent and all other sums payable by Tenant under this Lease (together
with the late charges and interest provided for herein) and all costs and
expenses incurred by or on behalf of Landlord hereunder shall have been
paid by Tenant and all other breaches of this Lease by Tenant at the time
existing shall have been fully remedied to the satisfaction of Landlord.
In the event that Landlord shall elect to terminate this Lease then
Landlord may recover from Tenant:
(a) The worth at the time of award of any unpaid rent which has been
earned at the time of such termination;
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plus
(b) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have
been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the unpaid
rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably
avoided; plus
(d) Any other amount reasonably necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform
his obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom; and
(e) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing, as may be permitted from time to time by
applicable law. As used in subsections 20.2(a) and (b) above, the
"worth at the time of award" shall be computed by allowing interest
at the rate of eighteen percent (18%) per annum or the maximum rate
permitted by law, whichever is lower. As used in subsection 20.2(c)
above, the "worth at the time of award" shall be computed by
discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%). The
term "rent" as used in this Section 20.2 shall be deemed to be and to
mean the Basic Rent and all other sums required to be paid by Tenant
pursuant to the terms of this Lease. All such sums, other than the
Basic Rent, shall be computed based on the amounts payable by Tenant
hereunder.
20.3 If an Event of Default shall occur, then if Landlord does not elect
to terminate this Lease as provided above, Landlord may from time to time,
without terminating this Lease, enforce all of its rights and remedies
under this Lease, including the right to recover all Rent as it becomes
due. In such event, Landlord shall have the right to re-enter and take
possession of the Premises and remove all persons and property therefrom,
which property may be stored by Landlord at a warehouse or elsewhere at
the risk, expense and for the account of Tenant. Acts of maintenance or
preservation or efforts to relet the Premises or the appointment of a
receiver upon the initiative of Landlord to protect Landlord's interest
under this Lease shall not constitute a termination of Tenant's right to
possession.
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21. Subordination. Without the necessity of any additional documents being
executed by Tenant for the purpose of effecting a subordination, Tenant agrees
that this Lease shall be subject and subordinate at all times to (i) all ground
leases or underlying leases that may now exist or hereafter be executed
affecting the Building, and (ii) the lien of any mortgages or deeds of trust in
any amount that may now exist or hereafter be placed on the Building, ground
leases or underlying leases, or Landlord's interest or estate therein, or
portion thereof and which is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate, or cause to be
subordinated, any such ground leases or underlying leases or any such liens to
this Lease. Notwithstanding such subordination, in the event that any ground
lease or underlying lease terminates for any reason or any mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant's right to possession of the premises shall not be disturbed if
Tenant shall not be then in default in the terms of the Lease, including the
payment of Rent, and Tenant shall attorn to the lessor under any ground lease or
underlying lease or to any purchaser of the Building or, shall at such lessor's
or purchaser's option, enter into a new lease for the balance of the Term upon
the same terms and conditions of this Lease. Tenant covenants and agrees to
execute and deliver, upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority or subordination of
this Lease with respect to any such ground leases or underlying leases or the
lien of any such mortgage or deed of trust. If Tenant fails to execute and
deliver any such documents within five (5) business days after receipt thereof,
Tenant irrevocably constitutes and appoints Landlord as Tenant's special
attorney-in-fact to execute and deliver any such documents. Tenant agrees not to
look to the lessor under any ground lease or underlying lease or the mortgagee
or beneficiary under any deed of trust, as mortgagee or beneficiary, mortgagee
in possession, or successor entitled to the Building, for accountability for the
Security Deposit, unless the Security Deposit has been received by such person
as security for Tenant's performance of this Lease.
22. Notices. Any bills, statements, notices, demands, requests or other
communications given or required to be given under this Lease shall be
effective only if rendered or given in writing, sent by registered or certified
mail or delivered personally to Tenant (i) at the Tenant's address set forth in
the Basic Lease Information, if sent prior to Tenant's taking possession of the
Premises, or (ii) at the Building if sent subsequent to Tenant's taking
possession of the Premises, or (iii) at any place where Tenant may be found if
sent subsequent to Tenant's vacating, deserting, abandoning or surrendering the
Premises, and to Landlord at Landlord's address set forth in the Basic Lease
Information, or to such other address as either Landlord or Tenant may
designate as its new address for such purpose by notice given to the other in
accordance with the provisions of this Section. Any such bill, statement,
notice,
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demand, request or other communication shall be deemed to have been rendered or
given two (2) calendar days after the date when it shall have been mailed as
provided in this Section if sent by registered or certified mail, or upon the
date personal delivery is made.
23. Waiver; Amendments.
23.1 No failure by Landlord to insist upon the strict performance of any
obligation of Tenant under this Lease or to exercise any right, power or
remedy consequent upon a breach thereof, no acceptance of full or partial
Rent during the continuance of any such breach, and no acceptance of the
keys to or possession of the Premises prior to the termination of the Term
by Landlord or its agent, shall constitute a waiver of any such breach or
of such term, covenant or condition or operate as a surrender of this
Lease. No payment by Tenant or receipt by Landlord of a lesser amount than
the aggregate of all Rent then due under this Lease shall be deemed to be
other than on account of the first items of such Rent then accruing or
becoming due, unless Landlord elects otherwise; and no endorsement or
statement on any check and no letter accompanying any check or other such
payment by Tenant shall constitute an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or to pursue any other legal
remedy.
23.2 Neither this Lease nor any term or provision hereof may be amended,
changed, waived, discharged or terminated orally, and no written
amendment, change, waiver, discharge or termination shall be effective
unless signed by the party against which the enforcement of the amendment,
change, waiver, discharge or termination is sought. No waiver of any
breach shall affect or alter this Lease, but each and every term, covenant
and condition of the Lease shall continue in full force and effect with
respect to any other existing or subsequent breach thereof.
24. Estoppel Certificate. Tenant, at any time and from time to time within ten
(10) calendar days after written request therefor by Landlord, will execute,
acknowledge and deliver to Landlord and, at Landlord's request, to any
purchaser, ground or underlying lessor or mortgagee of any part of the
Building, a certificate of Tenant stating: (a) that Tenant has accepted the
Premises (or, if Tenant has not done so, that Tenant has not accepted the
Premises and specifying the reasons therefor), (b) the Commencement and
Expiration Dates of this Lease, (c) that this Lease is unmodified and in full
force and effect (or, if there have been modifications, that same is in full
force and effect as modified and stating the modifications), (d) to the
best of Tenant's knowledge, whether or not there are then existing any defenses
against the enforcement of
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any of the obligations of Tenant under this Lease (and, if so, specifying same),
(e) to the best of Tenant's knowledge, whether or not there are then existing
any defaults by Landlord in the performance of its obligations under this Lease
(and, if so, specifying same), (f) the dates, if any, to which the Basic Rent
and Additional Rent and other charges under this Lease have been paid, and (g)
any other information that may reasonably be required by any of such persons. It
is intended that any such certificate of Tenant delivered pursuant to this
Section may be relied upon by Landlord and any purchaser, ground or underlying
lessor, or mortgagee of the Building. If Tenant fails to deliver such
certificate within the ten-day period, it shall be conclusively deemed to mean
that (a) Tenant has accepted the Premises, (b) the Commencement and Expiration
Dates of this Lease are as shown on the certificate, (c) this Lease is
unmodified and in full force and effect (or, if there have been modifications,
this Lease is in full force and effect as modified and the modifications are
those stated on the certificate), (d) there are no existing defenses against the
enforcement of any of the obligations of Tenant under this Lease, (e) there are
no existing defaults by Landlord in the performance of its obligations under
this Lease, and (f) there have been no advance payments of Basic Rent or
Additional Rent or other charges except as set forth in this Lease.
25. Rules and Regulations. Tenant shall faithfully observe and comply with the
Rules and Regulations attached to this Lease as Exhibit C and to all
modifications thereof and additions thereto from time to time put into effect by
Landlord and Landlord shall not be responsible for the nonperformance by any
other tenant or occupant of the Building of any of said rules and regulations;
provided, however, that Landlord shall use reasonable efforts to enforce the
rules and regulations against all tenants of the Building. In the event of an
express and direct conflict between the terms, covenants, agreements and
conditions of this Lease and the terms, covenants, agreements and conditions of
such Rules and Regulations, as modified and amended from time to time by
Landlord, this Lease shall control.
26. Interest. Any amount due to Landlord pursuant to the provisions of this
Lease, if not received by Landlord within five (5) calendar days of its due
date, shall bear interest from the date due until paid at the rate of twelve
percent (12%) per annum or the maximum rate permitted by law, whichever is
lower, provided that interest shall not be payable on late charges incurred by
Tenant. Payment of interest shall not excuse or cure any default hereunder by
Tenant.
27. Tax on Tenant's Personal Property. Prior to delinquency Tenant shall pay
all taxes levied or assessed upon Tenant's equipment, furniture, fixtures and
other personal property located in or about the Premises. If the assessed value
of Landlord's property is increased by the inclusion therein of a value placed
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upon Tenant's equipment, furniture, fixtures or other personal property, Tenant
shall pay to Landlord, upon written demand, the taxes so levied against
Landlord, or the proportion thereof resulting from said increase in assessment.
The portion of taxes payable by Tenant pursuant to this Section and by other
tenants of the Building pursuant to similar provisions of their leases shall be
excluded from Taxes for purposes of Section 6.2 hereof.
28. Authority. If Tenant is a corporation or a partnership, each of the
persons executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is a duly organized and existing entity, that Tenant has
full right and authority to enter into this Lease, and that each person signing
on behalf of Tenant is authorized to do so. Upon Landlord's request, Tenant
shall provide Landlord with certified copies of resolutions confirming the
foregoing covenants and warranties.
29. Brokers. Landlord and Tenant represent and warrant that they have no
agreement, contract or dealings regarding this Lease with any licensed real
estate broker except the brokers set forth in the Basic Lease Information. In
the event that any other broker or finder perfects a claim for commission for
finder's fee in connection with this Lease, the party through whom the broker
or finder makes its claim shall indemnify, hold harmless and defend the other
party from said claims and all costs and expenses, including actual attorneys'
fees, incurred by the other party in defending against the same.
30. Terms and Headings. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. The words used in the neuter
include the masculine and feminine. If there is more than one Tenant, the
obligations under this Lease imposed on Tenant shall be joint and several. The
captions preceding the sections of this Lease have been inserted solely as a
matter of convenience and such captions in no way define or limit the scope or
intent of any provision of this Lease.
31. Successors and Assigns. The terms, covenants and conditions contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and,
subject to the provisions of this Lease, their respective personal
representatives and successors and assigns; provided, however, upon the sale,
assignment or transfer by the Landlord named herein (or by any subsequent
landlord) of its interest in the Building, including any transfer by operation
of law, the Landlord (or subsequent landlord) shall be relieved from all
subsequent obligations or liabilities under this Lease, and all obligations
subsequent to such sale, assignment or transfer (but not any obligations or
liabilities that have accrued prior to the date of such sale, assignment or
transfer) shall be binding upon the grantee, assignee or other transferee of
such interest, and any such grantee, assignee or transferee, by accepting such
interest, shall be deemed to have assumed such subsequent obligations and
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liabilities.
32. Separability. If any provision of this Lease or the application thereof to
any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable,
shall not be affected thereby, and each provision of this Lease shall be valid
and be enforced to the full extent permitted by law.
33. Applicable Law. This Lease shall be governed by, construed and enforced in
accordance with the laws of the State of California.
34. Review by Landlord. The review, approval, inspection or examination by
Landlord of any item submitted by Tenant to be reviewed, approved, inspected or
examined by Landlord under the terms of this Lease or the exhibits attached
hereto shall not constitute the assumption of any responsibility by Landlord
for either the accuracy or sufficiency of any such item or the quality or
suitability of such item for its intended use. Any such review, approval,
inspection or examination by Landlord is for the sole purpose of protecting
Landlord's interests in the Building under this Lease, and no third parties,
including, without limitation, Tenant or any person or entity claiming through
or under Tenant, or the contractors, agents, servants, employees, visitors or
licensees of Tenant or any such person or entity shall have any rights against
Landlord.
35. Costs and Fees. In the event that either Landlord or Tenant fails to
perform any of its obligations under this Lease or in the event a dispute
arises concerning the meaning or interpretation of any provision of this Lease,
the defaulting party or the party not prevailing in such dispute, as the case
may be, shall pay any and all costs and expenses incurred by the other party in
enforcing or establishing its rights hereunder, including, without limitation,
court costs and attorney's fees.
36. Examination of Lease. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
37. Entire Agreement. This instrument, including the Exhibits hereto, which
are made a part of this Lease, contains the entire agreement between the
parties with respect to the Lease of the Premises and all prior negotiations and
agreements are merged herein. Neither Landlord nor Landlord's agents have made
any representations or warranties with respect to the Premises, the Building or
this Lease except as expressly set forth herein, and no rights, easements or
licenses are or shall be acquired by Tenant by
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implication or otherwise unless expressly set forth herein.
38. Surrender of Premises. Upon the expiration or sooner termination of the
Term, Tenant will quietly and peacefully surrender to Landlord the Premises in
the condition in which they are required to be kept and maintained as provided
in this Lease, ordinary wear and tear excepted. Tenant shall give written
notice to Landlord at least thirty (30) calendar days prior to vacating the
Premises and shall arrange to meet with Landlord for a joint inspection of the
Premises prior to vacating. In the event of Tenant's failure to give such
notice or to arrange such joint inspection, Landlord's inspection at or after
Tenant's vacating the Premises shall be conclusively deemed correct for
purposes of determining Tenant's responsibility for repairs and restoration.
39. Quiet Enjoyment. Upon Tenant paying the Rent and performing all of
Tenant's obligations under this Lease, Tenant may peacefully and quietly enjoy
the Premises during the Term as against all persons or entities lawfully
claiming by or through Landlord subject to the provisions of this Lease.
40. No Light, Air or View Easement. Tenant covenants and agrees that no
diminution of light, air or view by any structure that may hereafter be erected
(whether or not by Landlord) whether on the Project or on lands adjacent to the
Building shall entitle Tenant to any reduction of Rent under this Lease, result
in any liability of Landlord to Tenant, or in any way affect this Lease or
Tenant's obligation hereunder.
41. Holding Over. Any holding over after the expiration of the Term without
Landlord's consent shall constitute a default by Tenant and entitle Landlord
to reenter the Premises as provided in this Lease. Tenant shall pay to Landlord
for each day of such unauthorized hold-over one hundred fifty percent (150%) of
the daily Basic Monthly Rent in effect at the end of the Term, together with
all amounts payable as Additional Rent hereunder. All terms and conditions
herein specified so far as applicable shall apply during the hold-over period.
In the event of any holding over, Tenant shall also indemnify Landlord against
all claims for damages by any other tenant to whom Landlord may have leased all
or any part of the Premises covered hereby affective upon the termination of
this Lease. Landlord agrees to provide Tenant with notice that it has entered
into a lease for all or any part of the Premises within five (5) business days
of execution of such lease. No holding over by Tenant shall operate to extend
this Lease. The preceding provisions of this Section 41 shall not be construed
as consent for Tenant to hold over.
42. Changes in Building. Landlord reserves the right, without incurring any
liability to Tenant therefor, to make such changes in or to the Building and the
fixtures and equipment thereof, as well as in or to the street entrances, halls,
passages, elevators, stairways and other improvements thereof, as Landlord may
deem
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necessary or desirable; provided, however, that Landlord takes reasonable steps
to limit interference with Tenant's business. Landlord may adopt any name for
the Building and Landlord reserves the right to change the name and/or address
of the Building at any time, and Landlord agrees to give Tenant no less than
three (3) months written notice.
43. Time. Time is of the essence of this Lease.
44. Public Areas. Tenant shall have the nonexclusive right in common with
others to the use of entrances, lobbies, elevators, stairs and similar access
and service ways and public areas in and adjacent to the Building of which the
Premises are a part subject to such nondiscriminatory rules and regulations as
may be adopted by Landlord.
45. Recording. Tenant agrees that without the prior written consent of Landlord
it will not record this Lease or any memorandum thereof. Tenant further agrees
that at the request of Landlord it will execute, acknowledge and deliver to
Landlord a short form memorandum of this Lease for recording purposes.
46. Exhibits. The Exhibits and Addendum, if any, as specified in the Basic
Lease Information are attached to and made a part of this Lease by reference.
47. Signage. Landlord will provide a building standard directory strip for
Tenant at Landlord's expense. Any other signage for the benefit of Tenant will
be at Tenant's expense and requires the prior written approval of Landlord.
48. Roof Access. Tenant shall have access to the roof of the Building during
normal business hours except in the case of an emergency for the purpose of
installing, maintaining and repairing no more than five (5) transmission
antennae utilizing spread spectrum, laser, microwave and satellite technologies,
with a line of sight to 49 Geary Street; provided, however, that Tenant shall
not except in case of emergency have access to the roof unless accompanied by
the building engineer. Tenant shall also have access to a four inch (4") conduit
from the Premises to the roof of the Building to accommodate fiber optic,
coaxial and 100 Base T Ethernet runs to the transmission antennae. Tenant shall
also have access to AC power on the roof of the Building to support test
equipment and provide power for the transmission antennae; which power usage
shall be sub-metered and paid by Tenant. No antenna shall have a radius in
excess of four (4) feet. Tenant shall remove all antennae and cable installed by
Tenant at the end of the Term and restore the part of the roof of the Building
on which the antennae were located and the conduit to the condition in which
they were found on the Commencement Date.
IN WITNESS HEREOF, Landlord and Tenant have executed
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this Lease the day and year first above written.
LANDLORD: TENANT:
222 SUTTER STREET PARTNERS, LTD. MAIDEN INTERACTIVE
A California limited partnership a California corporation
By: G&E Investor Associates IV, By: /s/ [SIGNATURE ILLEGIBLE]
Ltd., a California limited --------------------------
partnership, its general partner Its: President
-------------------------
Date: 8/8/96
------------------------
By: G&E Investor Properties I, By: /s/ [SIGNATURE ILLEGIBLE]
Inc., its general partner --------------------------
Its: Secretary
-------------------------
By: /s/ [SIGNATURE ILLEGIBLE] Date: 8/8/96
-------------------------- ------------------------
Its: VP
-------------------------
Date: 8/7/96
------------------------
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[6th Floor]
Exhibit "A" (Premises)
<PAGE> 34
222 SUTTER STREET
OFFICE LEASE
EXHIBIT B
TENANT WORK LETTER
This Tenant Work Letter is made a part of that lease (the "Lease")
between 222 Sutter Street Partners, Ltd., a California Limited Partnership
("Landlord") and Maiden Interactive, a California corporation, doing business
as Interlight Digital ("Tenant") dated August 8, 1996 for approximately 14,122
square feet located on the sixth floor of the building commonly known as 222
Sutter Street, San Francisco, California (the "Premises").
1. On the Commencement Date, Landlord shall deliver to Tenant possession of
the Premises, and Tenant shall accept possession of the Premises in its then
existing "as is" condition. Tenant shall construct certain tenant improvements
which are to be permanently affixed to the Premises (hereinafter and in the
Lease referred to as "Tenant Improvements").
2. Tenant shall select and retain an architect to design, and a general
contractor to construct, the Tenant Improvements. The architect and the general
contractor, as well as all subcontractors, laborers, materialmen, and suppliers
used by Tenant (such subcontractors, laborers, materialmen and suppliers, and
the architect and general contractor to be known collectively as "Tenant's
Agents") must be approved in writing by Landlord, which approval shall not be
unreasonably withheld or delayed. Tenant shall prepare plans and specifications
for the Tenant Improvements and deliver a complete set of such plans and
specifications to Landlord. Landlord shall, within five (5) days of receipt of
such plans and specifications, either approve such plans, which approval shall
not be unreasonably withheld, or disapprove such plans and specify the changes
necessary in order to modify the plans to make them acceptable to Landlord. If
such plans are not approved, Landlord and Tenant shall negotiate in good faith
in an attempt to agree upon plans and specifications acceptable to both
parties. Upon approval by Landlord of plans and specifications, such plans and
specifications shall become the "Approved Plans and Specifications". Tenant may
submit the Approved Plans and Specifications to the City of San Francisco for
all applicable building permits. Tenant hereby agrees that Landlord is not
responsible for obtaining any building permit or certificate of occupancy for
the Premises and that obtaining the same shall be Tenant's responsibility;
provided, however, that Landlord shall cooperate with Tenant in executing
permit applications and performing other ministerial acts reasonably necessary
to enable Tenant to obtain any such permit or certificate of occupancy. No
changes, modifications or alterations in the Approved Plans and Specifications
may be made without the prior written consent of
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Landlord, which consent may not be unreasonably withheld.
3. The Tenant Improvements shall comply in all respects with the following:
(i) all state, federal, city or quasi-governmental laws, codes, ordinances and
regulations, as each may apply to the rulings of the controlling public
official, agent or other person, including all laws pertaining to handicapped
accessibility for the common area and the restroom facilities located on the
sixth floor of the Building; (ii) applicable standards of the American
Insurance Association (formerly the National Board of Fire Underwriters) and
the National Electrical Code; and (iii) building material manufacturer's
specifications. Tenant shall have no responsibility under this Lease for the
failure of any part of the Building (including specifically the elevator
system) which is not part of the Premises or the common area on the sixth
floor, to comply with any of the above.
4. Tenant shall cause the work to be constructed pursuant to the Approved
Plans and Specifications in a good and workmanlike manner, in compliance with
all laws, and free of defects. Landlord shall contribute towards the cost of
constructing the Tenant Improvements an amount (the "Improvement Allowance")
equal to a maximum of Two Hundred Eighty-Two Thousand Four Hundred Forty
Dollars ($282,440) which amount is Twenty Dollars ($20) per rentable square
foot. Such amount shall be payable as the Tenant Improvement work is completed
as follows:
A. Landlord shall make five (5) disbursements of the Improvement
Allowance, twenty percent ($56,488.00) within five (5) business days of
execution of the Lease, twenty-three and one-third percent ($65,902.67)
upon completion of twenty-five percent (25%) of the construction,
twenty-three and one-third percent ($65,902.67) after completion of fifty
percent (50%) of the construction, twenty-three and one-third percent
($65,902.66) upon completion of construction, and the remaining ten
percent ($28,244.00) upon receipt by Tenant of a final certificate of
occupancy for the Premises.
B. Tenant shall deliver to Landlord with the second and third requests
for disbursement of the Improvement Allowance invoices for an amount
equal to twenty-five percent (25%) of the total construction cost for the
second disbursement and fifty percent (50%) for the third disbursement
along with conditional lien releases from the contractors and
subcontractors to be paid pursuant to such draw request, final lien
releases with respect to payments made pursuant to any previous draw
request for which final lien releases have not previously been delivered,
and a certificate from Tenant's architect or general contractor stating
the percentage of construction which has been completed.
C. Upon receipt of such documents, Landlord shall have the
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opportunity, within five (5) days of receipt, to examine such work and determine
that it has been done in accordance with the Approved Plans and Specifications.
If Landlord determines that the work has been done in accordance with the
Approved Plans and Specifications, Landlord shall disburse the required funds
within five (5) business days of such determination.
D. If Landlord determines in its reasonable belief that all or any portion of
such work has not been completed in accordance with the Approved Plans and
Specifications, Landlord may withhold from the draw request that portion
relating to the work determined to not have been so property completed.
E. Upon completion of construction, Tenant shall deliver to Landlord final
lien releases for all work as well as evidence that a notice of completion has
been recorded and a request for the fourth disbursement of the Improvement
Allowance. Upon receipt of such documents, Landlord shall have the opportunity,
within five (5) days of receipt, to examine the completed work and determine
that it has been done in accordance with the Approved Plans and Specifications.
Upon making such determination, Landlord shall distribute the fourth
disbursement of the Improvement Allowance within five (5) business days of
making such determination.
F. Upon receipt by Tenant of a final certificate of occupancy for the
Premises, Tenant shall deliver to Landlord a copy of the final certificate of
occupancy and a request for disbursement of the remainder of the Improvement
Allowance. Within five (5) business days of receipt of such documents, Landlord
shall distribute the remainder of the Improvement Allowance.
G. The Improvement Allowance shall be disbursed by Landlord only for the
following items and costs: (i) payment of the fees of Tenant's Agents in
connection with the Tenant Improvements, (ii) payment of plan check, permit and
license fees relating to the construction of the Tenant Improvements, (iii) the
cost of construction of the Tenant Improvements, (iv) the cost of any changes to
the Plans and Specifications required by the applicable building code; (v) sales
and use taxes incurred in connection with the construction of the Tenant
Improvements, and (vi) all other costs incurred in connection with and directly
related to the construction of the Tenant Improvements.
H. The failure of Landlord to inspect the work shall not be deemed a waiver of
the right of Landlord to require such work for which Landlord has made payment
to be redone in accordance with the Approved Plans and Specifications and
otherwise in accordance with this Tenant Work Letter.
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I. In no event shall Landlord be obligated to provide Tenant with an amount
in excess of the amount of the Improvement Allowance to Tenant and Tenant
shall have the sole obligation to pay all costs and expenses incurred in
completing the Tenant Improvements in excess of such Improvement Allowance.
5. Notwithstanding any provision to the contrary contained in this Lease, if
an Event of Default has occurred at any time on or before the issuance of a
final certificate of occupancy for the Premises, then (i) in addition to all
other rights and remedies granted to Landlord pursuant to this Lease, Landlord
shall have the right to withhold payment of all or any portion of the
Improvement Allowance and/or Landlord may cause the contractor to cease the
construction of the Premises (in which case, Tenant shall be responsible for any
delay in the substantial completion of the Premises caused by such work
stoppage), and (ii) all other obligations of Landlord under the terms of this
Tenant Work Letter shall be forgiven until such time as such Event of Default is
cured pursuant to the terms of this Lease (in which case, Tenant shall be
responsible for any delay in the substantial completion of the Premises caused
by such inaction by Landlord).
6. Tenant's indemnity of Landlord as set forth in Section 15.1 of this Lease
shall also apply with respect to any and all costs, losses, damages, injuries
and liabilities related in any way to any act or omission of Tenant, or Tenant's
Agents, or anyone directly or indirectly employed by any of them, or in
connection with Tenant's non-payment of any amount arising out of the Tenant
Improvements and/or Tenant's disapproval of all or any portion of any request
for payment. Such indemnity by Tenant shall also apply with respect to any and
all costs, losses, damages, injuries and liabilities related in any way to
Landlord's performance of any ministerial acts reasonably necessary (i) to
permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to
obtain any building permit or certificate of occupancy for the Premises.
7. All of Tenant's Agents shall carry worker's compensation insurance covering
all of their respective employees, and shall also carry public liability
insurance, including property damage, all with limits, in form and with
companies as required to be carried by Tenant as set forth in Section 16 of this
Lease. Tenant shall carry "Builder's All Risk" insurance in an amount approved
by Landlord covering the construction of the Tenant Improvements, and such other
insurance as Landlord may require. Such insurance shall be in amounts and shall
include such extended coverage endorsements as may be reasonably required by
Landlord including, but not limited to, the requirement that all of Tenant's
Agents shall carry excess liability and Products and Completed Operation
Coverage Insurance.
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<PAGE> 38
222 SUTTER STREET
OFFICE LEASE
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, exits, passages, elevators, vestibules, stairways,
corridors or halls shall not be obstructed or used for any purpose other than
ingress and egress. The halls, passages, exits, entrances, elevators, stairways
and roof are not for the use of the general public, and Landlord shall in all
cases retain the right to control or prevent access thereto by all persons
whose presence in the judgment of Landlord shall be prejudicial to the safety,
character, reputation or interests of the Building and its Tenants, provided
that nothing herein contained shall be construed to prevent such access by
persons with whom the Tenant normally deals in the ordinary course of its
business unless such persons are engaged in illegal activities. No Tenant, or
employees, or invitees of any Tenant, shall go upon the roof of the Building
except as authorized by Landlord.
2. No curtains, blinds, drapes, shutters, shades or screens shall be attached
to or hung in, or used in connection with, any window or door of the Premises
other than approved by Landlord. Neither the interior nor exterior of any
windows shall be coated or otherwise sun screened without the express written
consent of Landlord. No articles shall be placed or kept on the window sills or
placed against the windows so as to be visible from the exterior of the
Building. The windows, glass and doors that reflect or admit light and air into
halls, passages or other common areas in the Building shall not be covered or
obstructed by Tenant.
3. No sign, placard, picture, name, advertisement or notice shall be
exhibited, painted or affixed by any Tenant on any part of the Premises or the
Building without the prior written consent of the Landlord. In the event of the
violation of the foregoing by any Tenant, Landlord may remove same without any
liability, and may charge the expense incurred in such removal to the Tenant
violating this rule. Interior signs on doors and the Building directory shall be
inscribed, painted or affixed for each Tenant by the Landlord at the expense of
such Tenant, and shall be of a size, color and style acceptable to the
Landlord. The Building directory will be provided exclusively for the display
of the name and location of Tenants only and Landlord reserves the right to
exclude any other names therefrom. Any changes or additions to the Building
directory by Landlord shall be at Tenant's expense. Nothing may be placed on
the exterior or corridor walls or corridor doors other than Landlord's standard
lettering.
4. The water and wash closets and other plumbing fixtures shall not be used
for any purpose other than those for which they were constructed, and no foreign
substances shall be thrown therein.
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<PAGE> 39
All damages resulting from any misuse of the fixtures by the Tenant, or any
employee, agent, visitor or invitee of Tenant, shall be repaired at the expense
of Tenant.
5. All contractors and technicians rendering any installation service to
Tenant shall be subject to Landlord's approval and supervision prior to
performing services. This applies to all work performed in the Building,
including, but not limited to, installation and location of telephone,
telegraph equipment, and electrical devices, as well as all installations
affecting floors, walls, woodwork, windows, ceilings, and any other physical
portion of the Building. No boring, cutting or stringing of wires or laying of
linoleum, tile, carpet or other similar floor coverings shall be permitted,
except with the prior written consent of the Landlord and as the Landlord may
direct. No Tenant shall attach any device or apparatus to the exterior walls or
the roof of the Building. No Tenant shall interfere with any radio, television
or electronic transmission or reception from or in the Building. No Tenant
shall place a load upon any floor of the Premises which exceeds the load per
square foot which such floor was designed to carry and which is allowed by law.
6. No bicycles, vehicles, birds or animals of any kind shall be brought in or
kept in or about the Premises.
7. No cooking shall be done or permitted by any Tenant on its Premises (except
that use by the Tenant of Underwriters' Laboratory approved equipment for the
preparation of employees' foods, coffee, tea, hot chocolate and similar
beverages for Tenants and their employees shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations).
8. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the Permitted Use of the
Premises. The Premises shall not be used for lodging or for any immoral or
illegal purposes.
9. No Tenant shall throw or sweep into the corridors, halls, elevator shafts or
stairways or bring or keep anything on the Premises which shall in any way
increase the rate of fire insurance on the Building. No Tenant shall obstruct or
interfere with the regulations of the Fire Department or the fire laws, or with
any insurance policy upon the Building, or any part thereof, or with any rules
and ordinances established by the Board of Health or other governmental
authority.
10. No Tenant or any of Tenant's servants, employees, agents, visitors or
licensees, shall at any time bring or keep upon the premises any inflammable,
combustible or explosive fluid, chemical or substance other than limited
quantities reasonably necessary for operation and maintenance of office
equipment.
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<PAGE> 40
11. No Tenant shall alter any lock or access device or install a new
additional lock or access device or any bolt or any door or window on its
Premises without the prior written consent of Landlord. If Landlord shall give
its consent, the Tenant shall in each case furnish Landlord with a key for any
such lock or device. Landlord will furnish Tenant with a reasonable number of
initial keys for entrance doors into the Premises, and may charge Tenant for
additional keys thereafter. All such keys shall remain the property of Landlord
and Tenant shall not make any duplicate keys, except those provided by
Landlord, and upon termination of its Lease Tenant shall return to Landlord all
keys to the Premises and toilet rooms and in the event of the loss of any keys
so furnished, such Tenant shall pay to the Landlord the cost of replacing the
same or of changing the locks or devices opened by such lost key if Landlord
shall deem it necessary to make such change.
12. Movement in or out of the Building of furniture, office equipment, or
other material which requires the use of elevators, stairways, or Building
entrance and lobby shall be restricted to hours and subject to rules
established by Landlord. All such movement shall be at Tenant's expense and
shall be under Landlord's supervision, and the use of any elevator for such
movements shall be restricted to the Building's freight elevators.
Prearrangements with Landlord shall be made regarding the time, method, and
routing of such movement, and Tenant shall assume all risks of damage and pay
the cost of repairing or providing compensation for damage to the Building, to
articles moved and injury to persons or public resulting from such moves.
Landlord shall not be liable for any acts or damages resulting from any such
activity.
13. No Tenant shall purchase or otherwise obtain for use in the Premises
janitorial, maintenance or other like services, except from persons authorized
by Landlord, and at hours and under regulations fixed by Landlord.
14. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
15. No Tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the Premises, unless otherwise agreed to
by Landlord in writing. Except with the written consent of Landlord, no person
or persons other than those approved by Landlord shall be permitted to enter
the Building for the purpose of cleaning the same. No Tenant shall cause any
unnecessary labor by reason of such Tenant's carelessness or indifference in
the preservation of good order and cleanliness. Janitor service will not be
furnished on nights when rooms are occupied after 9:30 p.m. unless, by
agreement in writing, service is extended to a later hour for specifically
designated rooms.
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<PAGE> 41
16. Landlord reserves the right to exclude from the Building between the hours
of 6:00 p.m. and 8:00 a.m. and at all hours of Saturdays, Sundays and holidays
all persons who are not Tenants but not including Tenant guests. Tenant shall
be responsible for all persons for whom it allows entry to the Building and
shall be liable to Landlord for all acts of such persons. Tenant shall comply
with all requirements necessary for the security of the Building, including the
use of service passes issued by Landlord for after hours movement of office
equipment/packages, and signing security register in Building lobby after
hours. Landlord shall in no case be liable for damages for error with regard to
admission of or exclusion from the Building of any person. In case of any mob,
riot, public excitement or other circumstance rendering such action advisable
in Landlord's opinion, Landlord reserves the right to prevent access to the
Building by closing the doors, or otherwise, for the safety of Tenants and
protection of the Building and property in the Building.
17. Each Tenant shall see that the doors of its Premises are closed and locked
and that all water faucets, water apparatus and utilities are shut off before
Tenant or Tenant's employees leave the Premises, so as to prevent waste or
damage, and for any default or carelessness in this regard Tenant shall make
good all injuries sustained by other Tenants or occupants of the Building or
Landlord.
18. All doors opening into public corridors or common areas shall be kept
closed at all times except when in use for ingress or egress.
19. The requirements of Tenants will be attended to only upon application to
the Office of the Building by an authorized individual.
20. Canvassing, soliciting, peddling and distribution of handbills or other
written materials in the Building are prohibited and each Tenant shall
cooperate to prevent the same.
21. All office equipment of any electrical or mechanical nature shall be
placed by Tenant in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise or annoyance.
22. No heat, air conditioning unit or other similar apparatus shall be
installed or used by any Tenant without the prior written consent of Landlord
which may be withheld or conditioned as Landlord may determine in its sole
discretion.
23. There shall not be used in any premises, or in the public halls of the
Building, either by any Tenant or others, any hand carts except those equipped
with rubber tires and side guards.
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<PAGE> 42
24. Landlord shall have the right, with no less than (3) three months notice
to Tenant, to change the name and address of the Building.
25. Tenants shall cooperate with Landlord to obtain maximum, effectiveness of
the heating and cooling system. Tenant shall not obstruct, alter, or in any way
impair the efficient operation of Landlord's heating, lighting, ventilating and
air conditioning system and shall not place any object or article on the
induction unit enclosure so as to interfere with air flow. Tenant shall not
tamper with or change the setting of any thermostats or temperature control
valves affecting the common areas of the Building.
26. All common areas and other public areas forming a part of the Building
shall be under the sole and absolute control of Landlord with the exclusive
right to regulate and control these areas. Tenant agrees to conform to the
rules and regulations that may be established from time to time by Landlord
for these areas.
27. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any
of the Rules and Regulations of the Building.
28. No vending machine of any description shall be installed, maintained or
operated upon the Premises without prior written consent of Landlord.
29. Landlord is not responsible to any Tenant for the non-observance or
violation of the rules and regulations by any other Tenant.
30. Except with the prior written consent of Landlord, no Tenant shall sell,
or permit the sale at retail, of newspapers, magazines, periodicals, theatre
tickets or any goods or merchandise to the general public in, on or about the
Building.
31. Each Tenant shall store all its trash and garbage within the interior of
its Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the City
of San Francisco without being in violation of any law or ordinance governing
such disposal.
32. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other Tenant or Tenants, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the Tenants of the Building.
-41-
<PAGE> 43
33. These Rules and Regulations are in addition to and shall not be construed
to in any way modify or amend in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building.
34. Landlord reserves the right to make such other rules and regulations as in
Landlord's judgment may from time to time be needed for the safety, care and
cleanliness of the Building and for the preservation of good order therein.
35. This is a non-smoking building.
-42-
<PAGE> 44
222 SUTTER STREET
OFFICE LEASE
EXHIBIT D
CONFIRMATION OF TERM OF LEASE
This confirmation of term of lease is made on , 1996,
-----------
between 222 SUTTER STREET PARTNERS, LTD., a California limited partnership
("Landlord") and MAIDEN INTERACTIVE, a California corporation doing business as
Interlight Digital ("Tenant"), who agree as follows:
1. Landlord and Tenant entered into a lease dated , 199_
-----------
(the "Lease"), in which Landlord leased to Tenant and Tenant leased from
Landlord the premises described in Section 1.14 ("Premises").
2. Under Section 3 of the Lease, Landlord and Tenant agree to
confirm the Commencement and Expiration Dates of the Term:
a. , 199_ is the Commencement Date of the Lease.
-----------
b. , 199_ is the Expiration Date of the Lease.
-----------
3. Tenant further confirms that:
a. It has accepted possession of the Premises as provided in
the Lease, and that the Premises at the time it accepted possession were in
satisfactory condition and in conformity with the provisions of the Lease in
all respects; and
b. Landlord has fulfilled all of its duties of an inducement
nature, including completion of the Tenant Improvements, if any.
LANDLORD: TENANT:
222 SUTTER STREET PARTNERS, LTD. MAIDEN INTERACTIVE
A California limited partnership a California corporation
By: G&E Investor Associates IV, By:
Ltd., -----------------------
its general partner Its:
-----------------------
Date:
----------------------
By: G&E Investor Properties I, By:
Ltd., a California limited -----------------------
partnership, its general partner Its:
-----------------------
Date:
----------------------
By:
-----------------------
Its:
-----------------------
Date:
----------------------
-43-
<PAGE> 45
222 SUTTER STREET
OFFICE LEASE
EXHIBIT E
OPTION TO EXTEND TERM
1. Option to Extend Term. Landlord grants Tenant one option to extend the
term ("Extension Option"), with respect to the entire Premises for five (5)
additional year(s) (the "Extension Term"). The Extension Option may be
exercised by Tenant upon notice to Landlord no later than one hundred eighty
(180) calendar days prior to the end of the initial Term hereunder.
2. Base Rent and Other Terms. If Tenant elects to exercise the Extension
Option, the Extension Term shall be upon and subject to all of the terms,
covenants, and conditions of this Lease, except as otherwise set forth below:
(a) The Base Rent applicable to the Premises shall be adjusted to
ninety-five percent (95%) of the Fair Market Rent for the Premises.
Within thirty (30) calendar days after receipt by Landlord of notice from
Tenant under Paragraph 1 of its exercise of the Extension Option,
Landlord shall notify Tenant of its determination of the Fair Market Rent
and of its Base Rent for the Extension Term. If Tenant disputes
Landlord's determination of the Fair Market Rent, Tenant shall give
notice thereof to Landlord within thirty (30) calendar days after receipt
of notice of Landlord's determination. Within fifteen (15) calendar days
after the date of Tenant's notice that it disputes Landlord's
determination of Fair Market Rent ("Tenant's Notice of Dispute"),
Landlord and Tenant shall meet and attempt in good faith to resolve the
dispute. If Landlord and Tenant are unable to agree on a determination of
Fair Market Rent within thirty (30) calendar days after the date of
Tenant's Notice of Dispute, Tenant may, within sixty (60) calendar days
after the date of Tenant's Notice of Dispute, notify Landlord that it
withdraws its exercise of the Extension Option. If Tenant fails to
withdraw its exercise of the Extension Option, Fair Market Rent and Basic
Rent for the Extension Term shall be the amounts initially determined by
Landlord.
(b) The Expiration Date shall be the expiration date of the Extension
Term.
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<PAGE> 46
222 SUTTER STREET
OFFICE LEASE
EXHIBIT F
FORM OF LETTER OF CREDIT
-45-
<PAGE> 47
[SIGNET BANK LETTERHEAD]
IRREVOCABLE STAND-BY LETTER OF CREDIT
IRREVOCABLE STANDBY LETTER OF CREDIT NO. S-64013
ISSUED IN BALTIMORE, MARYLAND on 08 AUG 1996
APPLICANT: BENEFICIARY:
IRONLIGHT DIGITAL 222 SUTTER STREET PARTNERS, LTD
1000 WILSON BLVD., STE. 800 1 MONTGOMERY ST., 9TH FLOOR
ARLINGTON, VIRGINIA 22209 SAN FRANCISCO, CALIFORNIA 94104
APPLICANT'S BANK:
SIGNET BANK
7 ST. PAUL STREET
BALTIMORE, MARYLAND 21202
ATTN: INTERNATIONAL DIVISION
AMOUNT: USD ***356,928.32 DATE AND PLACE OF EXPIRY:
THREE HUNDRED FIFTY SIX THOUSAND 31 JUL 2001
NINE HUNDRED TWENTY EIGHT AND BALTIMORE, MARYLAND
32/100 UNITED STATES DOLLARS
DEBIT AVAILABLE WITH:
SIGNET BANK
BALTIMORE, MARYLAND
BY: PAYMENT
AVAILABLE BY DRAFTS AT SIGHT DRAWN ON:
SIGNET BANK
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. S-64013 IN
YOUR FAVOR AVAILABLE BY YOUR DRAFT(S) AT SIGHT BEARING THE CLAUSE "DRAWN UNDER
SIGNET BANK, LETTER OF CREDIT NO S-64013 DATED AUGUST 7, 1996" WHEN ACCOMPANIED
BY THE FOLLOWING DOCUMENTS:
1. THIS ORIGINAL LETTER OF CREDIT AND ALL SUBSEQUENT AMENDMENTS; AND
2. THE BENEFICIARY'S WRITTEN STATEMENT, SIGNED BY AN "AUTHORIZED
REPRESENTATIVE", CERTIFYING THAT "THE AMOUNT OF THE DRAFT DRAWN HEREUNDER
REPRESENTS FUNDS DUE AND PAYABLE BECAUSE IRONLIGHT DIGITAL HAS FAILED TO COMPLY
WITH THE TERMS AND CONDITIONS OF A LEASE DATED AUGUST 1, 1996, BETWEEN
IRONLIGHT DIGITAL AND 222 SUTTER STREET PARTNERS, LTD."
THIS LETTER OF CREDIT WILL DECREASE AUTOMATICALLY ACCORDING TO THE FOLLOWING
SCHEDULE:
DATE DECREASE AMOUNT LETTER OF CREDIT BALANCE
<PAGE> 48
IRREVOCABLE STAND-BY LETTER OF CREDIT
L/C #: S-64013
PAGE 2
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1/31/97 $35,692.86 $221,235.46
7/31/97 35,692.86 285,542.60
1/31/98 35,692.86 249,849.74
7/31/98 35,692.86 214,156.88
1/31/99 35,692.86 178,464.02
7/31/99 35,692.86 142,771.16
1/31/2000 35,692.86 107,078.30
7/31/2000 35,692.86 71,385.44
1/31/2001 35,692.86 35,692.58
7/31/2001 35,692.58 --0--- AT 5:00 P.M. EST
</TABLE>
WE HEREBY AGREE WITH YOU THAT ALL DRAFT(S) DRAWN UNDER AND IN COMPLIANCE WITH
THE TERMS OF THIS LETTER OF CREDIT WILL BE DULY HONORED UPON PRESENTATION TO
SIGNET BANK, 7 ST. PAUL STREET, BALTIMORE, MARYLAND, 21202, ATTN: INTERNATIONAL
DIVISION.
EXCEPT AS OTHERWISE SPECIFIED, THIS LETTER OF CREDIT IS SUBJECT TO THE "UNIFORM
CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS" (1992 REVISION), INTERNATIONAL
CHAMBER OF COMMERCE BROCHURE NO. 5Q0.
/s/ JoLYNN MARKIEWICZ
-----------------------------------
AUTHORIZED SIGNATURE
JoLynn Markiewicz
Assistant Vice President
<PAGE> 49
222 SUTTER STREET
OFFICE LEASE
BASIC LEASE INFORMATION
Lease Date: August 8, 1996
Landlord: 222 SUTTER STREET PARTNERS, LTD., A California
Limited Partnership
Landlord's Address: One Montgomery Street, 8th Floor
San Francisco, CA 94104
Tenant: MAIDEN INTERACTIVE, a California corporation doing
business as Ironlight Digital
Tenant's Address: 1704 Union Street
Contact: San Francisco, CA 94123
Telephone: Anthony Westreich
(415) 292-4400
section 1: Definitions
Section 2: Net Rentable Area of Premises; approximately 14,122
rentable square feet
Floor Level: 6th Floor
Section 3: Lease Term: 5 years
Commencement Date: August 9, 1996
Expiration Date: August 8, 2001
Section 4: Improvements and Acceptance
Section 5: Basic Rent: $9.50 per rentable sq. ft./yr. during
the first 8 months of the Term. $19.00 per rentable
sq. ft./yr. during the next 16 months of the Term,
$20.00 per rentable sq. ft./yr. during the next 24
months of the Term, and $21.00 per rentable sq.
ft./yr. during the last 12 months of the Term.
Section 6: Tenant's Share of the Increase in Basic Operating
Cost: 10.68%
Section 7: Security Deposit: $22,360
Letter of Credit Amount: $356,928.32, which amount,
if Tenant is not in default under this Lease, shall
be eliminated over a period of five years by
reducing the Letter of Credit amount on a
straight-line basis in ten equal semiannual
installments, beginning on the first day of the
seventh month of the Term and ending on the fifth
anniversary of the
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<PAGE> 50
Commencement Date. If, on the date of any scheduled
reduction, Tenant is in default under this Lease,
the Letter of Credit Amount shall not be reduced on
that date. If Tenant cures the default, the Letter
of Credit Amount shall be reduced on the date of
that cure as if the default had not occurred.
Section 8: Permitted Use: General office use.
Section 9: Utilities and Services
Section 10: Alterations and Tenant Property
Section 11: Liens
Section 12: Maintenance and Repairs
Section 13: Access to Premises
Section 14: Damage or Destruction
Section 15: Indemnity
Section 16: Tenant's Insurance
Section 17: Insurance Subrogation
Section 18: Eminent Domain
Section 19: Assignment and Subletting
Section 20: Defaults and Remedies
Section 21: Subordination
Section 22: Notices
Section 23: Waiver; Amendments
Section 24: Estoppel Certificate
Section 25: Rules and Regulations
Section 26: Interest
Section 27: Tax on Tenant's Personal Property
Section 28: Authority
Section 29: Brokers:
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<PAGE> 51
For Landlord, Grubb & Ellis Company
For Tenant, Stubbs, Collenette Associates
Section 30: Terms and Headings
Section 31: Successors and Assigns
Section 32: Separability
Section 33: Applicable Law
Section 34: Review by Landlord
Section 35: Costs and Fees
Section 36: Examination of Lease
Section 37: Entire Agreement
Section 38: Surrender of Premises
Section 39: Quiet Enjoyment
Section 40: No Light, Air or View Easement
Section 41: Holding Over
Section 42: Changes in Building
Section 43: Time
Section 44: Public Areas
Section 45: Recording
Section 46: Exhibits
Exhibit A - Floor Plan
Exhibit B - Tenant Work Letter
Exhibit C - Rules and Regulations
Exhibit D - Confirmation of Term of Lease
Exhibit E - Option to Extend Term
Section 47: Signage
Section 48: Roof Access
The Basic Lease Information and each reference in this lease to any Basic
Lease Information shall mean the respective information set forth above
and shall be construed to incorporate all of the terms provided under the
particular Lease section pertaining to such information. In the event of
any conflict between any Basic Lease Information and the particular Lease
section, the latter shall
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<PAGE> 52
CONTROL.
LANDLORD: TENANT:
222 SUTTER STREET PARTNERS, LTD. MAIDEN INTERACTIVE
A California limited partnership a California corporation
By: G&E Investor Associates IV, BY: /s/ [SIGNATURE ILLEGIBLE]
Ltd., a California limited -----------------------------------
partnership, its general partner Its: PRESIDENT
----------------------------------
Date: 8/8/96
---------------------------------
By: G&E Investor Properties I, BY: /s/ [SIGNATURE ILLEGIBLE]
Inc., its general partner -----------------------------------
Its: SECRETARY
----------------------------------
Date: 8/8/96
---------------------------------
BY: /s/ [SIGNATURE ILLEGIBLE]
---------------------------
Its: VP
--------------------------
Date: 8/8/96
-------------------------
-49-
<PAGE> 53
EXHIBIT 10.14
SECOND MODIFICATION AND AMENDMENT TO LEASE
THIS SECOND MODIFICATION AND AMENDMENT TO LEASE ("MODIFICATION NO. 2")
is made to be effective as of the __th day of November, 1999 ("EFFECTIVE DATE"),
by and between 222 SUTTER LIMITED PARTNERSHIP, a Delaware limited partnership
("LANDLORD"), and MAIDEN INTERACTIVE STUDIO CORP., a California corporation dba
NOVO INTERACTIVE ("TENANT").
RECITALS
A. Landlord (or its predecessor in interest) and Tenant (or its
predecessor in interest) have heretofore entered into that certain 222 Sutter
Street Office Lease Agreement dated August 8, 1996 (as first amended on
September 15, 1999) (together the "LEASE"), pursuant to which Tenant leased from
Landlord certain office space in Suite 600 on the sixth (6th) floor (the
"ORIGINAL PREMISES") plus certain additional office space in Suite 500 on the
fifth (5th) floor (the "FIRST EXPANSION SPACE") (which together contain a total
of 16,707 Net Rentable Area) (the Original Premises and the First Expansion
Space are hereinafter referred to as the "INITIAL EXPANSION PREMISES") in the
building ("BUILDING") located at 222 Sutter Street in the City and County of San
Francisco, State of California.
B. In accordance with the terms and conditions hereinafter set forth,
Landlord and Tenant have agreed to amend and modify the Lease to provide, among
other things, for the expansion of the Initial Expansion Premises to include
certain additional office space in Suite 450 on the fourth (4th) floor of the
Building and in Suite 500 on the fifth (5th) floor of the Building (the
"ADDITIONAL EXPANSION SPACE"), as the same is more particularly shown by the
cross-hatched on the "FLOOR PLAN" attached hereto as Exhibit "A" and
incorporated herein by reference.
C. Capitalized terms not defined herein shall have the same meaning as
in Lease.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the undersigned hereby agree as
follows:
1. Recitals. The foregoing Recitals are incorporated by reference as if
fully set forth herein.
1 November 22, 1999 (1:10pm)
<PAGE> 54
2. Modifications to Lease. The Lease is hereby modified and amended as
follows:
a. Section 1 - Definitions. The definitions set forth in Sections 1.7,
1.10, 1.12, 1.14, 1.18 and 1.20 of the Lease are each hereby deleted in their
entirety and replaced with the following new Sections 1.7, 1.10, 1.12, 1.14,
1.18 and 1.20:
1.7(a) "DATE OF TURNOVER OF POSSESSION" shall mean the date which is
five (5) calendar days following the date that Landlord delivers to Tenant a
written notice ("NOTICE OF TURNOVER OF POSSESSION") stating that (i) possession
of the Additional Expansion Space shall be delivered to Tenant on the Date of
Turnover of Possession, and (ii) as of said Date the Additional Expansion Space
shall be ready and available for Tenant's construction and installation of the
Fourth/Fifth Floor Tenant Improvements (as that term is defined in the
"FOURTH/FIFTH FLOOR TENANT IMPROVEMENT AGREEMENT" attached hereto as Exhibit "B"
and incorporated herein by reference). Tenant shall not conduct any business of
any kind from the Additional Expansion Space prior to the Date of Turnover of
Possession; however, Tenant shall have the opportunity to inspect the Premises
prior to the Date of Turnover of Possession. From and after the Date of Turnover
of Possession, Tenant shall be deemed to have accepted possession of the
Additional Expansion Space, the Additional Expansion Space shall become part of
the Premises, and except for payment of Base Rent for the Additional Expansion
Space (which shall commence on the Rent Start Date defined below), the
Additional Expansion Space shall be subject to each and every term and condition
of the Lease. Landlord will endeavor to cause the existing tenant in the
Additional Expansion Space to vacate the same on or about December 17, 1999, but
does not guarantee, represent or warrant that the same can or will be
accomplished by that date; however, Landlord does agree that it will deliver a
Notice of Turnover of Possession to Tenant within five (5) business days from
the date the existing tenant delivers possession of the Additional Expansion
Space to Landlord.
(i) Notwithstanding the foregoing, the Date of Turnover of
Possession shall be deemed not to have occurred if for any reason Landlord fails
to deliver actual possession of the Additional Expansion Space to Tenant on the
Date of Turnover of Possession scheduled in the Notice of Turnover of
Possession. In said event, the Date of Turnover of Possession shall be delayed
one (1) day for each one (1) day that Landlord delays in actually delivering
possession of the Additional Expansion Space to Tenant.
1.7(b) "RENT START DATE" shall mean the date which is the first to
occur of (i) one hundred twenty (120) calendar days following the Date of
Turnover of Possession, or (ii) the date the Fourth/Fifth Floor Improvements
have been "substantially completed" as that term is defined in paragraph 3 of
the Fourth/Fifth Floor Tenant Improvement Agreement.
1.10 "EXTENDED TERM EXPIRATION DATE" shall mean the date which is
sixty (60) calendar months from the Rent Start Date; provided, however if the
Rent Start Date is other than the first day of the month, then the sixty (60)
calendar month period shall actually commence on the first day of the month next
following the month in which the Rent
2 November 22, 1999 (1:10pm)
<PAGE> 55
Start Date occurs and shall expire on the last day of the sixtieth (60th)
calendar month thereafter.
1.12 From and after the Date of Turnover of Possession, the phrase
"NET RENTABLE AREA OF THE PREMISES" shall mean approximately thirty four
thousand five hundred eighty five (34,585) rentable square feet in the Premises
(inclusive of the Additional Expansion Space), consisting of approximately
thirteen thousand nine hundred sixty six (13,966) rentable square feet in Suite
600; approximately thirteen thousand nine hundred sixty six (13,966) rentable
square feet in Suite 500; and approximately six thousand six hundred sixty three
(6,653) rentable square feet in Suite 450, all of which Landlord and Tenant have
stipulated as the Net Rentable Area of the Premises, all in accordance with the
current BOMA standard. Tenant acknowledges the following: (i) prior to the Date
of Turnover of Possession, Tenant had the opportunity to measure the Premises
(including the Additional Expansion Space) and verify the accuracy of the
foregoing square footage number; and (b) the Net Rentable Area of the Premises
includes the usable area without deduction for columns or projections,
multiplied by an add-on load factor to reflect a share of certain areas, which
may include lobbies, corridors, mechanical, utility, janitorial, boiler and
service rooms and closets, restrooms and other public, common and service areas
of the Building, all in accordance with the current BOMA standard.
1.14 From and after the Date of Turnover of Possession, the term
"PREMISES" shall mean the cross-hatched floor area more particularly shown on
the Floor Plan (inclusive of the Additional Expansion Space). The Premises
contain the Net Rentable Area set forth in Section 1.12 above.
1.18 "FOURTH/FIFTH FLOOR TENANT IMPROVEMENTS" shall mean the
improvements to a portion of the fourth (4th) and the entire fifth (5th) floors
of the Building (consisting of the Initial Expansion Space and the Additional
Expansion Space) that Tenant shall construct and install pursuant to the
Fourth/Fifth Floor Tenant Improvement Agreement.
1.20 From and after the Date of Turnover of Possession, "TERM" shall
mean the period which commenced on the original Commencement Date of this Lease
and which shall expire on the Extended Term Expiration Date, unless earlier
terminated as herein provided.
b. Section 2 - Premises. Section 2 of the Lease is hereby amended by
adding the following new sentence to the end thereof:
"From and after the Date of Turnover of Possession, the Net Rentable
Area of the Premises (including the Additional Expansion Space) shall
be approximately thirty four thousand five hundred eighty five (34,585)
rentable square feet in the Premises (inclusive of the Additional
Expansion Space), consisting of approximately thirteen thousand nine
hundred sixty six (13,966) rentable square feet in Suite 600;
approximately thirteen thousand nine hundred sixty six (13,966)
rentable square feet in Suite 500; and approximately six thousand six
hundred sixty three (6,653) rentable square feet in Suite 450."
3 November 22, 1999 (1:10pm)
<PAGE> 56
c. Section 3 - Term. Section 3 of the Lease is hereby deleted in
its entirety and replaced with the following new Section 3:
"Section 3 - Term. The Term of this Lease commenced on the original
Commencement Date set forth in the original Lease and shall expire on
the Extended Term Expiration Date, unless earlier terminated as herein
provided. Each consecutive twelve (12) month period following the Rent
Start Date shall constitute a "LEASE YEAR". There are five (5) Lease
Years between the Rent Start Date and the Extended Term Expiration Date;
however, if the Rent Start Date is other than the first day of the
month, then the first Lease Year shall be extended to include the number
of days between the Rent Start Date and the end of the month in which
the Rent Start Date occurs."
d. Section 4 - Fourth/Fifth Floor Tenant Improvements. Section 4
of the Lease is hereby amended by adding the following new Section 4.1 to the
end thereof:
"4.1. Tenant shall complete the Fourth/Fifth Floor Tenant Improvements
in the condition required by and pursuant to the Fourth/Fifth Floor
Tenant Improvement Agreement. From and after the Date of Turnover of
Possession, Tenant shall accept possession of the Additional Expansion
Space in its then existing "AS IS" condition. By continuing in
possession of the Initial Expansion Premises and by accepting possession
of the Additional Expansion Space, Tenant acknowledges and agrees that
the same are in satisfactory condition and in conformity with the
provisions of this Lease in all respects. Tenant acknowledges and agrees
that no representations to the repair of the Premises, nor promises to
alter, remodel or improve the Premises have been made by Landlord,
except as otherwise specifically set forth in this Lease."
e. Section 5.1 - Basic Rent. Section 5.1 of the Lease is hereby
deleted in its entirety and replaced with the following new Section 5.1:
"5.1 - Basic Rent. Between the Effective Date hereof and the Rent Start
Date, Tenant shall continue to pay Basic Rent on the terms and
conditions set forth in the Lease. From and after the Rent Start Date,
Tenant shall pay the Basic Rent for the Premises (inclusive of the
Initial Expansion Premises and the Additional Expansion Space) in the
amount set forth in this Section 5.1 (subject to adjustment as provided
in Section 6) in equal monthly installments on or before the first (1st)
day of each calendar month during the Term, in advance, without demand,
offset, credit or deduction. From and after the Rent Start Date, "BASIC
RENT" shall mean One Hundred Fifteen Thousand Eighty Two and 01/100
Dollars ($115,082.01) per month for the first Lease Year. Commencing on
the first (1st) day of the second (2nd) Lease Year and on the first
(1st) day of each Lease Year thereafter during the Term, Basic Rent
shall be increased to the amounts set forth below:
4 November 22, 1999 (1:10pm)
<PAGE> 57
<TABLE>
Lease Year Following Rent Start Date Monthly Basic Rent
------------------------------------ ------------------
<S> <C>
Second Lease Year: $118,534.47
Third Lease Year: $122,090.50
Fourth Lease Year: $125,753.22
Fifth Lease Year: $129,525.82
</TABLE>
5.1.1. On the Effective Date of this Modification No. 2, Tenant
shall pay to Landlord the amount of One Hundred Fifteen Thousand Eighty
Two and 01/100 Dollars ($115,082.01), which amount shall be applied to
payment of Basic Rent for the first full month of the first Lease Year
following the Rent Start Date.
5.1.2. In addition to the foregoing, if the actual Rent Start Date
is other than the first (1st) day of the month, then on the actual Rent
Start Date Tenant shall pay Landlord that amount which is equal to Three
Thousand Eight Hundred Thirty Six and 07/100 Dollars ($3,836.07)
multiplied by the number of calendar days between the actual Rent Start
Date and the end of the month in which the actual Rent Start Date
occurred."
f. Section 6.Y - Tenant's Share of Increases in Basic Operating Costs.
Effective as of the Rent Start Date, Section 6.1 of the Lease shall be deleted
in its entirety and replaced with the following new Section 6.1:
"6.1 From and after December 31, 2000, Tenant shall pay Landlord (in
addition to the Basic Rent) Tenant's Share of the increase in Basic
Operating Costs and Taxes over the Basic Operating Costs and Taxes paid,
incurred or attributable to the Base Expense Year, as Additional Rent,
in the manner set forth below. The provisions for payment of the
increase in Basic Operating Costs and Taxes by means of periodic payment
of Tenant's Share of the Increase in Estimated Basic Operating Costs and
Taxes and the Basic Operating Cost and Tax Adjustment are intended to
pass on to Tenant and reimburse Landlord for Tenant's Share of all
increases in Basic Operating Costs and Taxes over the Base Expense Year.
6.1.1. From and after the Rent Start Date, the Expense Year for
purposes of calculating increases in Basic Operating Costs and Taxes
shall be calendar year 2000 (the "BASE EXPENSE YEAR").
6.1.2. Landlord and Tenant agree that the Net Rentable Area of the
Building is approximately 132,228 rentable square feet, all in
accordance with the current BOMA standard. From and after the Rent Start
Date, Tenant's Share of Increases in Basic Operating Costs and Taxes
shall be twenty six and sixteen hundredths percent (26.16%)."
g. Section 6.2(c) - Expense Year. Effective as of the Rent Start Date,
Section 6.2(c) of the Lease shall be deleted in its entirety and replaced with
the following new Section 6.2(c):
5 November 22, 1999 (1:10pm)
<PAGE> 58
"(c) "Expense YEAR" shall mean each twelve (12) consecutive month
period commencing January 1st of each year during the Term of this
Lease."
h. Section 6.2(d) - Estimated Basic Operating Costs. Effective
as of the Rent Start Date, Section 6.2(d) of the Lease shall be deleted in its
entirety and replaced with the following new Section 6.2(d):
"(d) "ESTIMATED BASIC OPERATING COSTS AND TAXES" for any
particular Expense Year shall mean Landlord's estimated Basic Operating
Costs and Taxes for such Expense Year."
i. Section 6.2(e) - Basic Operating Cost and Tax Adjustment.
Effective as of the Rent Start Date, Section 6.2(e) of the Lease shall be
deleted in its entirety and replaced with the following new Section 6.2(e):
"(e) "BASIC OPERATING COST AND TAX ADJUSTMENT" shall mean the
difference between Basic Operating Costs and Taxes and Estimated Basic
Operating Costs and Taxes for any Expense Year."
j. Section 6.2(f) - Base Expense Year. Effective as of the Rent
Start Date, Section 6.2(f) of the Lease shall be deleted in its entirety and
replaced with the following new Section 6.2(f):
"(f) From and after the Rent Start Date, the Expense Year for
purposes of calculating increases in Basic Operating Costs and Taxes
shall be calendar year 2000 (the "BASE EXPENSE YEAR").
k. Section 8.1.1 - Use of Internal Staircase. The following new
Section 8.1.1 is hereby added to the Lease:
"8.1.1. On condition that Tenant first constructs and installs,
at its sole cost and expense, a key-pad security system providing
security to the fifth (5th) and sixth (6th) floor portions of the
Premises (which security system must be approved in writing by Landlord,
said approval not to be unreasonably or untimely withheld), Tenant is
hereby granted the non-exclusive right to use in common with others the
internal staircase between the fifth (5th) and sixth (6th) to facilitate
travel for its employees between said floors, and for no other purpose."
l. Section 29 - Brokers. The first sentence in Section 29 of the
Lease is hereby deleted and replaced with the following new sentence:
"Landlord and Tenant represent and warrant that (except as described in
the next sentence) they have no agreement, contract or dealings
regarding the Lease with any license real estate broker except Grubb &
Ellis Company and Madison Marquette Retail Services, Inc. both of which
are acting as agent for Landlord and Tenant and both of which will be
reimbursed by Landlord."
6 November 22, 1999 (1:10pm)
<PAGE> 59
m. Exhibit E - Option To Extend Term. The Option to Extend Term set
forth in Exhibit "E" to the Lease is terminated, canceled and shall have no
further force as of the Effective Date of this Modification No. 2.
n. Modification No. 1 to Lease. From and after the Rent Start Date,
Modification No. 1 to Lease, executed by Landlord and Tenant on September 15,
1999, shall cease to have any continuing effect and Tenant's rights, duties and
obligations with respect to the Initial Expansion Space and the Additional
Expansion Space shall be pursuant to the Lease as modified by this Modification
No. 2.
3. Agreement to Lease Premises and Pay Basic Monthly Rent, Additional
Rent and Other Charges. Between the Effective Date hereof and the Rent Start
Date, Tenant shall continue to lease the Premises and pay Basic Rent, Additional
Rent and Other Charges on the terms and conditions required by the Lease. From
and after the Rent Start Date, Tenant agrees to and shall lease from Landlord,
and Landlord hereby agrees to and shall, lease the Premises (inclusive of the
Additional Expansion Space) to Tenant for the period up to and including the
Extended Term Expiration Date, on the terms and conditions set forth in the
Lease as amended and modified by this Modification No. 2. From and after the
Rent Start Date, during each and every month of each Lease Year thereafter,
Tenant agrees to and shall pay Landlord the monthly Basic Rent set forth in this
Modification No. 2; and from and after December 31, 2000, Tenant agrees to and
shall pay Tenant's Share of Increases in Basic Operating Costs and Taxes over
the Basic Operating Costs and Taxes paid or incurred by Landlord during the Base
Expense Year.
4. Landlord's Obligations. At Landlord's cost and expense, but which
cost and expense shall be included in Basic Operating Costs:
a. Landlord shall be responsible for placing and keeping the
Building and all Building systems located outside the Premises (including,
without limitation, fire, safety, security and elevators) in compliance with all
governmental regulations, codes, rules, laws, including environmental laws and
the Americans with Disabilities Act.
b. Not later than May 31, 2000, Landlord shall replace the component
systems (i.e., the relays, switches, motors and electrical devices but not the
elevator cars or doors) servicing the three (3) passenger elevators in the
Building.
5. Whole Agreement. This Modification No. 2 sets forth the entire
agreement between the parties with respect to the matters set forth herein.
There have been no additional oral or written representations or agreements
concerning the subject matter of this Modification No. 2. As amended herein, the
Lease between the parties shall remain in full force and effect. In case of any
inconsistency between the provisions of the Lease and this Modification No. 2,
the latter provisions shall govern and control. Under no circumstances shall
this Modification No.2 be deemed to grant any right to Tenant to further expand
the Premises or extend the term.
7 November 22, 1999 (1:10pm)
<PAGE> 60
6. Not An Offer. Submission of this Modification No. 2 by Landlord to
Tenant is not an offer to enter this Modification No. 2, but a solicitation for
such an offer from Tenant. Landlord shall not be bound by this Modification No.
2 until Landlord has executed and delivered the same to Tenant.
IN WITNESS WHEREOF, the Landlord and Tenant have duly executed this
Modification No. 2 as of the date set forth below, in San Francisco, California.
Notwithstanding the actual date of execution, this Modification No. 2 shall for
all purposes be deemed effective as of the Effective Date first above written.
LANDLORD TENANT
- -------- ------
222 SUTTER LIMITED PARTNERSHIP, MAIDEN INTERACTIVE STUDIO CORP.,
a Delaware limited partnership, a California corporation dba
NOVO INTERACTIVE
By: MRP DEVELOPMENT 222 SUTTER,
INC., a Delaware corporation, as
general partner
By: /s/ KIM VOGEL
----------------------------
Name:
---------------------------
By: Title:
--------------------------------- -------------------------
Name:
-------------------------------
Title:
------------------------------
By:
----------------------------
Name:
---------------------------
Date: Date:
------------------------------- -------------------------
8 November 22, 1999 (1:10pm)
<PAGE> 61
EXHIBIT "A" TO MODIFICATION NO. 2
FLOOR PLAN FOR PREMISES (INCLUDING THE ADDITIONAL
EXPANSION SPACE)
TO BE ATTACHED
1 November 22, 1999 (1:10pm)
<PAGE> 62
EXHIBIT "B" TO MODIFICATION NO. 2
FOURTH/FIFTH FLOOR TENANT IMPROVEMENT AGREEMENT
[TENANT PERFORMS WORK]
[ALLOWANCE]
This FOURTH/FIFTH FLOOR TENANT IMPROVEMENT AGREEMENT ("WORK LETTER") is
executed simultaneously with that certain SECOND MODIFICATION AND AMENDMENT TO
LEASE ("MODIFICATION No. 2") dated November , 1999 ("EFFECTIVE DATE"), by and
between 222 SUTTER LIMITED PARTNERSHIP, a Delaware limited partnership
("LANDLORD"), and MAIDEN INTERACTIVE STUDIO CORP., a California corporation dba
NOVO INTERACTIVE ("TENANT"). This Modification No. 2 modifies and amends that
certain 222 Sutter Street office Lease dated August 8, 1996 (as first amended on
September 15, 1999) by and between Landlord and Tenant for certain space in the
building ("BUILDING") located at 222 Sutter Street in the City and County of San
Francisco, California. This Work Letter pertains to a portion of the fourth
(4th) floor and the entire fifth (5th) floor ("4TH & 5TH FLOOR SPACE") in the
Building. Capitalized terms used herein, unless otherwise defined in this Work
Letter, shall have the respective meanings ascribed to them in the Lease and or
Modification No. 2, as appropriate.
For and in consideration of the agreements set forth in the Lease and in
Modification No. 2, Landlord and Tenant hereby agree as follows:
1. TENANT'S INITIAL PLANS; THE WORK. Tenant shall perform certain
leasehold improvement work in the 4th & 5th Floor Space in substantial
accordance with the plan or plans (collectively, the "INITIAL PLAN") prepared by
Lundberg Design dated and last revised , a copy or copies of which
is/are attached hereto as Schedule "1". Such work, as shown in the Initial Plan
and as more fully detailed in the Working Drawings (as defined and described in
Paragraph 2 below), shall be hereinafter referred to as the "FOURTH/FIFTH FLOOR
TENANT IMPROVEMENTS". Prior to commencing the Fourth/Fifth Floor Tenant
Improvements, Tenant shall furnish Landlord with working drawings, ("WORKING
DRAWINGS") consistent with the Initial Plan. All plans, drawings, specifications
and other details describing the Fourth/Fifth Floor Tenant Improvements which
have been or are hereafter furnished by or on behalf of Tenant shall be subject
to Landlord's approval, which approval shall not be unreasonably withheld,
conditioned or delayed. Landlord shall not be deemed to have acted unreasonably
if it withholds its approval of any plans, specifications, drawings or other
details or of any Additional Fourth/Fifth Floor Tenant Improvements (as defined
in Paragraph 7 below) because, in Landlord's reasonable opinion, the work, as
described in any such item, or the Additional Fourth/Fifth Floor Tenant
Improvements, as the case may be: (a) is likely to adversely affect Building
systems, the structure of the Building or the safety of the Building and/or
their occupants; (b) might impair Landlord's ability to furnish services to
Tenant or other tenants in the Building; (c) would violate any governmental
laws, rules or ordinances (or interpretations thereof); (d) contains or uses
hazardous or toxic materials or substances (except as customarily used or
contained in similar
1 November 22, 1999 (1:10pm)
<PAGE> 63
work); (e) would in Landlord's reasonable opinion adversely affect the exterior
appearance of the Building; (f) adversely affects another tenant's premises in
the Building; or (g) is prohibited by any ground lease affecting the Building or
any mortgage, trust deed or other instrument encumbering the Building. The
foregoing reasons, however, shall not be the only reasons for which Landlord may
withhold its approval, whether or not such other reasons are similar or
dissimilar to the foregoing. The approval by Landlord of the Fourth/Fifth Floor
Tenant Improvements or the Initial Plan or any other plans, drawings,
specifications or other items associated with the Fourth/Fifth Floor Tenant
Improvements shall not constitute any warranty by Landlord to Tenant of the
adequacy of the design for Tenant's intended use of the 4th & 5th Floor Space.
2. PERFORMANCE OF THE FOURTH/FIFTH FLOOR TENANT IMPROVEMENTS: ALLOWANCE.
Tenant and Tenant's contractors (who are approved by Landlord in advance) shall
perform the work of installing and constructing the Fourth/Fifth Floor Tenant
Improvements. Landlord shall pay for a portion of the cost thereof (the "COST OF
THE FOURTH/FIFTH FLOOR TENANT IMPROVEMENTS") in an amount not to exceed Four
Hundred Twelve Thousand Three Hundred Eighty and no/l00 dollars ($412,380.00)
(such amount being $20.00 per square foot of Net Rentable Area of the 4th & 5th
Floor Space which is to be improved, as described in the Working Drawings) (the
"ALLOWANCE"), and Tenant shall pay for the entire Cost of the Fourth/Fifth Floor
Tenant Improvements in excess of the Allowance. Tenant shall not be entitled to
any credit, abatement or payment from Landlord in the event that the amount of
the Allowance specified above exceeds the Cost of the Fourth/Fifth Floor Tenant
Improvements. For purposes of this Agreement, the term "COST OF THE FOURTH/FIFTH
FLOOR TENANT IMPROVEMENTS" shall mean and include any and all costs and expenses
of the Fourth/Fifth Floor Tenant Improvements, including, without limitation,
the cost of the Working Drawings and of all labor (including overtime) and
materials constituting the Fourth/Fifth Floor Tenant Improvements, plus a fee
equal to three percent (3%) of the Cost of the Fourth/Fifth Floor Tenant
Improvements for Landlord's administration, overhead and field supervision
associated therewith.
3. SUBSTANTIAL COMPLETION. The Work shall be deemed to be "substantially
completed" for all purposes under this Work Letter and the Lease if and when (a)
Landlord, Tenant and Landlord's architect have conducted a final walk-through
physical inspection of the 4th & 5th Floor Space and have agreed in good faith
on any "punchlist" items that remain to be completed, and (b) Tenant's architect
issues a written certificate to Landlord and Tenant, certifying that the
Fourth/Fifth Floor Tenant Improvements has been substantially completed (i.e.,
completed except for the referenced "punchlist" items agreed in good faith by
the parties) in substantial compliance with the Working Drawings.
4. PAYMENT OF ALLOWANCE. Landlord shall pay the Allowance to Tenant (or
upon the written instruction of Tenant, directly to Tenant's general contractor
or Tenant's architect) in four (4) installments: the first, second and third
installments shall each be in that amount which is equal to thirty percent
(30%) of the Allowance; and the fourth installment shall be in that amount which
is equal to ten (10%) of the Allowance.
2 November 22, 1999 (1:10pm)
<PAGE> 64
(a) The first installment of thirty percent (30%) of the Allowance
will be due and payable by Landlord within ten (10) business days of the date
which is the last of:
(i) The date Tenant's architect issues and delivers to Landlord
a certificate to the effect that approximately one-third (1/3) of the
Fourth/Fifth Floor Tenant Improvements have been completed in a good and
workmanlike fashion in accordance with the Working Drawings.
(ii) The date Tenant delivers to Landlord fully executed
Conditional Lien Releases Upon Receipt of Payment from Tenant's general
contractor and each subcontractor working on the Fourth/Fifth Floor Tenant
Improvements.
(b) The second installment of thirty percent (30%) of the Allowance
will be due and payable by Landlord within ten (10) business days of the date
which is the last to occur of:
(i) The date Tenant's architect issues and delivers to Landlord
a certificate to the effect that approximately two-thirds (2/3's) of the
Fourth/Fifth Floor Tenant Improvements have been completed in a good and
workmanlike fashion in accordance with the Working Drawings.
(ii) The date Tenant delivers to Landlord fully executed
Conditional Lien Releases Upon Receipt of Payment from Tenant's general
contractor and each subcontractor working on the Fourth/Fifth Floor Tenant
Improvements.
(c) The third installment of thirty percent (30%) of the Allowance
will be due and payable by Landlord within ten (10) business days of the date
which is the last to occur of:
(i) The date Landlord, Tenant and Landlord's architect have
completed a final walk-through physical inspection of the 4th & 5th Floor Space
and have agreed in good faith on any "punchlist' items that remain to be
completed.
(ii) The date Tenant's architect delivers to Landlord a written
certificate that the Fourth/Fifth Floor Tenant Improvements have been
substantially completed.
(iii) The date Tenant delivers to Landlord fully executed
Conditional Lien Releases Upon Receipt of Payment from Tenant's general
contractor and each subcontractor working on the Fourth/Fifth Floor Tenant
Improvements.
(d) The fourth installment of ten percent (10%) of the Allowance
will be due and payable by Landlord within ten (10) business days from the date
which is the last to occur of:
(i) The date Tenant's architect issues and delivers a written
certificate to Landlord certifying that the Fourth/Fifth Floor Tenant
Improvements have been
3 November 22, 1999 (1:10pm)
<PAGE> 65
finally completed (i.e., all "punchlist items" have been completed, all
certificates of occupancy have been issued by all governmental agencies
asserting jurisdiction over the Building and the Fourth/Fifth Floor Tenant
Improvements) in compliance with the Initial Plan and the Working Drawings
(hereinafter, the "DATE OF FINAL COMPLETION");
(ii) The date which is thirty-five (35) calendar days following
the Date of Final Completion.
(iii) The date Tenant delivers to Landlord fully executed
Unconditional Lien Releases Upon Receipt of Final Payment from Tenant's general
contract and each subcontractor working on the Fourth/Fifth Floor Tenant
Improvements.
5. TENANT ACCESS. Landlord shall grant Tenant access to the 4th & 5th
Floor Space on the Extended Term Commencement Date, or if said space is vacant
prior to the Extended Term Commencement Date then prior to said Date (at
Landlord's discretion), to allow Tenant to construct and install the
Fourth/Fifth Floor Tenant Improvements in the 4th & 5th Floor Space. Tenant's
access to the 5th Floor Premises shall be subject to the following conditions:
(a) Tenant shall deliver to Landlord each of the following items,
all in form and substance reasonably acceptable to Landlord: (i) a detailed
description of and schedule for the construction and installation of the
Fourth/Fifth Floor Tenant Improvements; (ii) the names and addresses of all
contractors, subcontractors and material suppliers and all other representatives
of Tenant who or which will be entering the 4th & 5th Floor Space on behalf of
Tenant to perform the Fourth/Fifth Floor Tenant Improvements or will be
supplying materials for such work, and the approximate number of individuals,
itemized by trade, who will be present in the 4th & 5th Floor Space; (iii)
copies of all contracts, subcontracts and material purchase orders pertaining to
Fourth/Fifth Floor Tenant Improvements; (iv) copies of all plans and
specifications pertaining to the Fourth/Fifth Floor Tenant Improvements; (v)
copies of all licenses and permits required in connection with the performance
of the Fourth/Fifth Floor Tenant Improvements; (vi) certificates of insurance
(in amounts satisfactory to Landlord and with the parties identified in, or
required by, the Lease named as additional insureds) and instruments of
indemnification against all claims, costs, expenses, damages and liabilities
which may arise in connection with the Fourth/Fifth Floor Tenant Improvements;
and (vii) assurances of the ability of Tenant to pay for all of the Fourth/Fifth
Floor Tenant Improvements and/or a letter of credit or other security deemed
appropriate by Landlord securing Tenant's lien-free completion of the
Fourth/Fifth Floor Tenant Improvements.
(b) Such access by Tenant and its representatives shall be subject
to scheduling approved by Landlord.
(c) Tenant's employees, agents, contractors, workmen, mechanics,
suppliers and invitees shall work in harmony and not interfere with Landlord's
work in common areas of the Building, or the general operation of the Building.
If at any time any such person representing Tenant shall cause or threaten to
cause such disharmony or interference, including labor disharmony, and Tenant
fails to immediately institute and maintain such
4 November 22, 1999 (1:10pm)
<PAGE> 66
corrective actions as directed by Landlord, then Landlord may remove said person
or persons from the Building.
(d) Any such entry into and occupancy of the 4th & 5th Floor Space
prior to the Extended Term Commencement Date by Tenant or any person or entity
working for or on behalf of Tenant shall be deemed to be subject to all of the
terms, covenants, conditions and provisions of the Lease and excluding only the
covenant to pay Basic Rent. Landlord shall not be liable for any injury, loss or
damage which may occur to any of the Fourth/Fifth Floor Tenant Improvements made
in or about the 4th & 5th Floor Space or to property placed therein prior to the
Extended Term Commencement Date, the same being at Tenant's sole risk and
liability. Tenant shall be liable to Landlord for any damage to the 4th & 5th
Floor Space or to any portion of the Fourth/Fifth Floor Tenant Improvements
caused by Tenant or any of Tenant's employees, agents, contractors, workmen or
suppliers. In the event that the performance of the Fourth/Fifth Floor Tenant
Improvements Tenant's causes extra costs to Landlord or requires the use of
elevators during hours other than 8:00 a.m. to 6:00 p.m. on Monday through
Friday (excluding holidays) or of other Building services, Tenant shall
reimburse Landlord for such extra cost and/or shall pay Landlord for such
elevator service or other Building services at Landlord's standard rates then in
effect.
6. LEASE PROVISIONS. The terms and provisions of the Lease, Insofar as
they are applicable to this Fourth/Fifth Floor Tenant Improvements Letter, are
hereby incorporated herein by reference.
7. MISCELLANEOUS.
(a) This Fourth/Fifth Floor Tenant Improvements Letter shall be
governed by the laws of the State of California.
(b) This Fourth/Fifth Floor Tenant Improvements Letter may not be
amended except by a written instrument signed by the party or parties to be
bound thereby.
(c) Any person signing this Fourth/Fifth Floor Tenant Improvements
Letter on behalf of Tenant warrants and represents he/she has authority to sign
and deliver this Fourth/Fifth Floor Tenant Improvements Letter and bind Tenant.
(d) Notices under this Fourth/Fifth Floor Tenant Improvements Letter
shall be given in the same manner as under the Lease.
(e) The headings set forth herein are for convenience only.
(f) This Fourth/Fifth Floor Tenant Improvements Letter sets forth
the entire agreement of Tenant and Landlord regarding the Fourth/Fifth Floor
Tenant Improvements.
(g) In the event that the final Working Drawings are included as
part of the Initial Plan attached hereto, or in the event Tenant performs the
Fourth/Fifth Floor Tenant Improvements without the necessity of preparing
Working Drawings, then whenever the term
5 November 22, 1999 (1:10pm)
<PAGE> 67
Working Drawings is used in this Fifth Floor Tenant Improvement Letter, such
term shall be deemed to refer to the Initial Plan and all supplemental plans and
specifications approved by Landlord.
8. EXCULPATION OF LANDLORD AND MADISON MARQUETTE RETAIL SERVICES, INC.
Notwithstanding anything to the contrary contained in this Fourth/Fifth Floor
Tenant Improvements Letter, it is expressly understood and agreed by and between
the parties hereto that:
(a) The recourse of Tenant or its successors or assigns against
Landlord with respect to the alleged breach by or on the part of Landlord of any
representation, warranty, covenant, undertaking or agreement contained in this
Fourth/Fifth Floor Tenant Improvements Letter (collectively, "LANDLORD'S
FOURTH/FIFTH FLOOR TENANT IMPROVEMENTS LETTER UNDERTAKINGS") shall extend only
to Landlord's interest in the Building and not to any other assets of Landlord
or its officers, directors or shareholders; and
(b) Except to the extent of Landlord's interest in the Building, no
personal liability or personal responsibility of any sort with respect to any of
Landlord's Fourth/Fifth Floor Tenant Improvements Letter Undertakings or any
alleged breach thereof is assumed by, or shall at any time be asserted or
enforceable against, Landlord or Madison Marquette Realty Services, Inc. or
against any of their respective directors, officers, employees, agents,
constituent partners, beneficiaries, trustees or representatives.
IN WITNESS WHEREOF, this Fourth/Fifth Floor Tenant Improvements Letter
Agreement is executed as of the ________ day of ____________________, 1999
LANDLORD TENANT
222 SUTTER LIMITED PARTNERSHIP, MAIDEN INTERACTIVE STUDIO CORP.,
a Delaware limited partnership, a California corporation dba
NOVO INTERACTIVE
By: MRP DEVELOPMENT 222 SUTTER,
INC., a Delaware corporation, as
general partner
By:
----------------------------
Name:
---------------------------
By: Title:
--------------------------------- -------------------------
Name:
-------------------------------
Title:
------------------------------
By:
----------------------------
Name:
---------------------------
Date: Date:
------------------------------- -------------------------
6 November 22, 1999 (1:10pm)
<PAGE> 68
<TABLE>
<S><C>
[ONELEASE LETTERHEAD]
INFORMATION TECHNOLOGY
LEASE AGREEMENT
====================================================================================================================================
LESSEE INFORMATION
====================================================================================================================================
LESSEE LEGAL NAME ADDRESS
NOVO MEDIA GROUP 222 SUTTER STREET, 6TH FLOOR
- ------------------------------------------------------------------------------------------------------------------------------------
CITY COUNTY STATE ZIP PHONE NUMBER
SAN FRANCISCO CA 94108 (415) 646-7000
====================================================================================================================================
EQUIPMENT DESCRIPTION
====================================================================================================================================
DESCRIPTION OF EQUIPMENT LEASED MAKE AND TYPE MODEL NUMBER SERIAL NUMBER UNIT QUANTITY
NEW (X) USED ( ) REFURBISHED ( )
- ------------------------------------------------------------------------------------------------------------------------------------
See Schedule A
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT LOCATION SAME (X) OTHER ( ) ADDRESS CITY STATE ZIP
====================================================================================================================================
TERM AND PAYMENT SCHEDULE
====================================================================================================================================
TERM IN MONTHS LEASE PAYMENTS: (X) MONTHLY ( ) QUARTERLY ( ) OTHER AT THE TIME OF THIS LEASE AGREEMENT YOU AGREE TO
24 $ 2,067.37 _____MONTHS AT $_____ PAY: 2 LEASE PAYMENT(S), IN ADVANCE AND INCLUDE A
------------------ _____MONTHS AT $_____ CHECK IN THE AMOUNT OF:
(TAX INCLUDED) _____MONTHS AT $_____ $ 4,134.74
- -------------------------------------------------------------------------------- -----------------
AT THE EXPIRATION OF THIS LEASE, FAIR MARKET VALUE PURCHASE OPTION IF MORE THAN ONE LEASE PAYMENT IS REQUIRED IN
AND IF YOU ARE NOT IN DEFAULT, YOU WILL --- ADVANCE THE ADDITIONAL AMOUNT (LESS APPLICABLE TAX
HAVE THE FOLLOWING PURCHASE OPTION 10% PURCHASE OPTION ASSOCIATED WITH THE FIRST PAYMENT) WILL BE HELD AS
--- SECURITY AND APPLIED AT THE END OF THE ORIGINAL
X $1.00 PURCHASE LEASE TERM.
--- IF YOU ARE TAX EXEMPT PLEASE ATTACH CERTIFICATE
AND WRITE YOUR TAX EXEMPT #__________________.
====================================================================================================================================
LESSEE SIGNATURE
====================================================================================================================================
LESSEE LEGAL NAME LEASE GUARANTY
NOVO MEDIA GROUP THE UNDERSIGNED GUARANTEES THAT THE LESSEE WILL MAKE ALL PAYMENTS AND ALL
- ---------------------------------------------------- OTHER CHARGES REQUIRED UNDER THIS LEASE AGREEMENT WHEN THEY ARE DUE AND WILL
AUTHORIZED SIGNATURE PERFORM ALL OTHER OBLIGATIONS UNDER THIS LEASE AGREEMENT. THE UNDERSIGNED
(X) /S/ KIM VOGEL ALSO WAIVES ANY NOTIFICATION IF THE LESSEE IS IN DEFAULT AND CONSENTS TO ANY
- ---------------------------------------------------- EXTENSIONS OR MODIFICATIONS GRANTED TO THE LESSEE. IN THE EVENT OF A DEFAULT
PRINT AUTHORIZED SIGNATURE THE UNDERSIGNED WILL IMMEDIATELY PAY IN ACCORDANCE WITH ANY DEFAULT PROVISIONS
KIM VOGEL OF THIS LEASE AGREEMENT AND ALL SUMS DUE UNDER THE TERMS OF THIS LEASE
- ---------------------------------------------------- AGREEMENT.
AUTHORIZED SIGNOR TITLE DATED
CFO 7/7/99 SIGNED (X) /S/ ANTHONY WESTREICH SIGNED (X)
---------------------------- ----------------------------
PRINT NAME Anthony Westreich PRINT NAME
----------------------- ------------------------
(DO NOT PRINT TITLE)
====================================================================================================================================
LEASE AGREEMENT
====================================================================================================================================
Throughout this agreement the words "We," "Our," and "Us" refer to the lessor indicated below and the words "You" and "Your" refer
to the lessee indicated above. You agree to lease the equipment described above and agree to the terms and conditions of this Lease
Agreement. You agree to pay the lease payments shown above in accordance with the payment schedule outlined. We may adjust your
payment up or down by no more than 15% if the invoiced costs are different than the amount we used to calculate the lease payments
shown above. You are responsible for arranging delivery of the equipment described above. The lease will begin when the equipment
described above is delivered and installed. Unless you notify us within 10 days of installation, you unconditionally accept the
equipment. We may require you to provide us a signed delivery and acceptance certificate.
FAXED AND COPIED DOCUMENT:
The parties intend and agree that a carbon copy, photocopy or facsimile of this document with their signature thereon shall be
treated as an original, and shall be deemed to be as binding, valid, genuine, and authentic as an original signature document for
all purposes, including all matters of addenda and the "best address" rules.
LATE FEES AND COLLECTION CHARGES:
If any lease payment or other amount payable to us is not paid within ten (10) days of its due date, you agree to pay us a late
charge of 15% of the amount which is late, or if less, the maximum amount allowable under applicable law. You also agree to pay us
twenty dollars ($20.00) for each check returned for insufficient funds.
NO WARRANTY:
We are leasing the equipment to you as is. You acknowledge that we do not manufacture the equipment and that you have selected the
equipment and the supplier based on your own judgment. We grant no warranties, express or implied, including warranties of
merchantability or fitness for a particular purpose in connection with this agreement. You agree to continue making payments to
us under this lease regardless of any claims you make against the manufacturer or supplier. We transfer to you for the term of this
lease any warranties made by the manufacturer or the supplier.
EQUIPMENT/SOFTWARE LOCATION USE AND REPAIR:
You will keep and use the equipment/software only at the location shown above. You agree that the equipment/software cannot be
moved without advance written permission. You are responsible for keeping the equipment/software in good repair, condition, and
working order. Lessee may make alterations, modifications or attachments to the Software and Equipment so long as not in violation
of the Software License Agreement. Any alterations, unless consented to by the Software Licensor, shall not be made to the
original Software, but only copy. All alterations, modifications and attachments to the Equipment/Software which cannot be readily
removed without damaging the function, use or economic value of the Equipment/Software shall immediately become a part of the
Equipment/Software and property of the Lessor. The bankruptcy of the Software Licensor or Equipment/Software manufacturer or
vendor shall not be a valid excuse for Lessee to terminate Lease Payments of Lessor. Lessee shall take all action necessary to
protect Lessor's rights to use the Software under Section 365 of the Bankruptcy Code. Lessee shall elect to retain its rights
under the Bankruptcy Code to use the Software, and to the extent the Software License grants customer access to the source code,
Lessee shall make written request under the Bankruptcy Code of the Bankruptcy Trustee to obtain the source code. Except for normal
wear and tear, you are responsible to protect the equipment/software from damage or any kind of loss and will continue to make
payments if any damage or loss occurs. We are not responsible for any losses or damages caused by the installation or use of the
equipment/software, or from any other kind of loss while you have the equipment/software. Unless you notify us at least 30 days
prior to the expiration of the lease of your intention to exercise a purchase option if outlined above, this lease will
automatically renew for successive 30 day periods until you exercise an option or return the equipment/software and the original
and all backup copies of the software, including documentation, to us. If you elect to return the equipment/software to us, it
must be returned to the location that we designate at your expense. In addition, you agree to pay us a "restocking fee" equal to
one (1) base lease payment.
OWNERSHIP AND TITLE:
We are the owner of the equipment and have title to the equipment. You authorize us to record UCC financing statements and appoint
us as attorney-in-fact to execute on your behalf any financing statements to show our interest in the equipment.
INSURANCE:
You will provide at your expense, property insurance for the equipment, naming us as loss payee. You will also obtain a public
liability insurance policy covering any personal injury or third-party property damage, naming us as an additional insured. You will
provide us evidence of such insurance when requested. If you do not, we may at our option buy such insurance for you and include
such insurance costs and our fees to the payment amounts due from you under this lease or charge you a monthly risk charge of $7.50
per month plus administrative expenses.
TAXES AND UCCs:
You will pay when due, all taxes, fines and penalties relating to the use or our ownership of the equipment under this lease. Your
payments shown above do not include any applicable fees. We will include any applicable taxes and fees, and invoice you for those
taxes. You agree to pay the taxes and fees in addition to your payment. If we pay any taxes, fees or penalties for you, you will
pay us on demand the amount we had paid on your behalf plus an administrative fee equal to 10% of the property tax bill as per our
invoice. You agree to pay us a documentation fee of $75.00 to cover our expenses in processing this lease and filing documents
presented by the Uniform Commercial Code or other laws associated with the equipment described above.
DEFAULTS:
If you do not pay your monthly payment within ten (10) days of its due date, or you breach any of the terms or conditions of this
lease, you will be in default of this lease and any other agreement with us or any of our other affiliates. If you default, we may
require any consideration of the following: (1) pay the remaining balance of the lease, (2) pay the residual value of the lease, (3)
return all of the equipment. We can use any and all remedies available to use under the Uniform Commercial Code or any other laws.
If we have to take possession of the equipment, you agree to pay the cost of repossession. You agree we are not responsible for any
consequential or incidental damages related to the default or actions taken by us in the event of a default. You agree to pay us
reasonable attorney's fees and costs connected with any legal action we may take in the event of your default. In the event of your
default under this lease, we may retain any security deposits to insure your performance under this lease. At the termination of
this lease, if you are not in default, any security deposit will be refunded to you with interest.
ASSIGNMENT:
You have the right to sell, transfer, assign or sublease the equipment or this lease. We may sell, assign or transfer this lease or
our rights in the equipment without notice to you. You agree that if we sell, assign or transfer this lease, the new owner will have
the same rights or benefits we have now. You agree that the rights of the new owner will not be subject to any claim, defense or
setoff that you may have against us.
ARTICLE 2A RIGHTS AND REMEDIES:
You agree that this lease is a finance lease as that term is defined in Article 2A of the Uniform Commercial Code ("UCC"). You
hereby agree to waive any and all rights and remedies granted to you by sections 2A-508 through 2A-522 of the UCC.
CHOICE OF LAW:
You agree that, because we countersigned and accepted the terms of this lease in West Chester, Pennsylvania, that this lease was
entered into in the Commonwealth of Pennsylvania and that this lease shall be governed by and interpreted according to the laws of
the Commonwealth of Pennsylvania. You and we expressly waive any right to a trial by jury.
ABSOLUTE OBLIGATIONS:
Your obligation to pay the lease payments and other sums and all other obligations hereunder shall be absolute and unconditional and
are not subject to any abandonment, set-off, defense or counterclaim for any reason whatsoever. You agree that the terms and
conditions contained in this lease make up the entire agreement between you and us regarding the lease of the equipment. Any change
in any of the terms and conditions of this lease shall be in writing and signed by us. You agree that any delay or failure to
enforce our rights under this lease does not prevent us from enforcing any right at a later date. All of our rights and indemnities
will survive the termination of this agreement.
====================================================================================================================================
This lease may not be terminated early. This lease is not binding on us until we sign below. This lease and the equipment are
intended for business purposes only.
- ------------------------------------------------------------------------------------------------------------------------------------
LESSOR: BY: TITLE ACCEPTED ON
FIDELITY LEASING, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
THIS IS THE ENTIRE LEASE AGREEMENT
The OneLease program is administered by Fidelity Leasing, Inc.
</TABLE>
<PAGE> 69
SCHEDULE A
SCHEDULE FORMING PART OF LEASE BETWEEN FIDELITY LEASING, INC., LESSOR AND NOVO
MEDIA GROUP-d/b/a NOVO INTERACTIVE LESSEE. DATED JULY 7, 1999, LEASE NUMBER
53331.
AltiGen All-In One Communications Server
- - Complete NT FILE Server-Intel P II 333 MHz CPU, 256 MB, (2) 9.1 GB UW SCSI,
3.5 Floppy, 32 X CD ROM, 3 Com 905TX
- 1 T1 Card
- 7 AltiGen Quantum Boards providing 4 analog trunks 80 extensions
- 42 Ports of VoiceMail
- AltiWare Software OE 3.0 Port License 128
- AltiConsole Software
- Installation of Hardware & Software
- Configuration of Phone System including Music on Hold
- Training of Telephone System Administrator & End Users
- One Year Warranty
- 30 Norel 9216 Refurbished Telephones
Valcom Mode V2006A Paging System
THIS SCHEDULE SHALL HEREAFTER FORM PART OF THE AFOREMENTIONED LEASE.
- ------------------------------------------------------------------------------
LESSEE: NOVO MEDIA GROUP d/b/a NOVO INTERACTIVE
AUTHORIZED SIGNATURE: /s/ KIM VOGEL
--------------------------------------------------------
PRINT NAME Kim Vogel TITLE CFO DATE 7/7/99
----------------- -------------------- -------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LESSOR: FIDELITY LEASING, INC.
AUTHORIZED SIGNATURE:
--------------------------------------------------------
PRINT NAME TITLE DATE
----------------- -------------------- -------------------
- ------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
August 31, 1999 by and between (i) The MacManus Group, Inc., a Delaware
corporation ("MacManus") and (ii) Novo MediaGroup, Inc., a California
corporation ("Novo").
RECITALS
A. MacManus is a leading provider of media advertising, marketing and
advisory services and seeks to build a close relationship with a leading
provider of Internet media services.
B. Novo is a leading provider of Internet development services and desires
to build a close relationship with a leading provider of media advertising,
marketing and advisory services.
C. In order to effectuate the above transactions, MacManus and Novo have
determined that it is in the best interests of their respective shareholders for
Novo to sell and issue to MacManus shares of its Series A Preferred Stock in
exchange for the consideration as provided herein.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
PREFERRED ISSUANCE; CLOSING
1.1 THE CLOSING. Subject to the terms and conditions of this Agreement,
(a) the sale and issuance of the shares of Series A Preferred Stock (as defined
heroin), and (b) the other transactions contemplated hereby (the "Closing")
shall take place simultaneously with the execution of this Agreement by the
parties. The Closing shall take place at the offices of Britton Silberman &
Cervantez LLP, or such other place and time as the parties may otherwise agree,
and the date of the Closing is referred to herein as the "Closing Date."
1.2 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK
(a) On or prior to the Closing Date, Novo shall adopt and file with
the Secretary of State of the State of California the Amended and Restated
Articles of Incorporation in the form attached hereto as Exhibit A (the
"Restated Articles").
(b) Subject to the terms and conditions of this Agreement and the
terms and conditions of the Investors' Rights Agreement (as defined
below), MacManus agrees to purchase from Novo at the Closing and Novo
agrees to sell and issue to MacManus at the
1
<PAGE> 2
Closing an aggregate of Three Million Five Hundred Fifty One Thousand and
Thirty-three (3,551,033) shares of the Series A Preferred Stock of Novo at
a purchase price of $2.82 per share (the "Share Purchase Price"). The
shares of Series A Preferred Stock issued to MacManus pursuant to this
Agreement shall be hereinafter referred to as the, "Preferred Shares."
1.3 PROCEDURE AT THE CLOSING. At the Closing, the parties agree that the
following shall occur:
(a) MacManus shall have satisfied each of the applicable conditions
set forth in Article 5 and shall deliver to Novo (i) the Share Purchase
Price, by check payable to Novo or by wire transfer to Novo's bank
account, and (ii) the documents, certificates, opinions, consents, letters
and other items required by Article 5.
(b) Novo shall have satisfied each of the applicable conditions set
forth in Article 6 and shall deliver to MacManus (i) the certificates
representing all of the Preferred Shares, and (ii) the documents,
certificates, consents, letters and other items required by Article 6.
1.4 ANCILLARY AGREEMENTS. At the Closing, and as a condition to the
obligations of the parties contained herein, Novo, MacManus, Kelly Rodriques and
Anthony Westreich shall enter into an Investors' Rights Agreement substantially
in the form attached hereto as Exhibit C (the "Investors' Rights Agreement").
1.5 USE OF PROCEEDS OF SHARE PURCHASE PRICE. The parties agree that Novo
shall use the proceeds from the Share Purchase Price to provide for Novo's
expansion plans in the broad practice areas of interactive consulting and
engineering. MacManus acknowledges that Novo shall also be permitted to use a
portion of the proceeds from the Share Purchase Price to redeem shares of the
capital stock of Novo currently held by certain of Novo's shareholders having up
to an aggregate value of One Million Dollars ($1,000,000.00), as set forth in
Schedule 1.5 attached hereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Of NOVO
As a material inducement to MacManus to enter into this Agreement and to
consummate the transactions contemplated hereby, and except as set forth in
applicable schedules attached hereto which shall be deemed part of any of the
representations set forth in this Article 2, Novo makes the following
representations and warranties to MacManus:
2.1 CORPORATE STATUS. Novo is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and has
the requisite power and authority to own or lease its properties and to carry on
its business as presently conducted. There is no pending or threatened
proceeding for the dissolution, liquidation, insolvency or rehabilitation of
Novo or, except as could not reasonably be expected to have a Material Adverse
Effect on Novo.
2
<PAGE> 3
2.2 POWER AND AUTHORITY. Subject to the approval of the Board of Directors
of Novo as contemplated by Section 5.4, Novo has the corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. Subject to the
approval of the Board of Directors of Novo as contemplated by Section 5.4, Novo
has taken all corporate action necessary to authorize its execution and delivery
of this Agreement and the other transactions contemplated hereby, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by
Novo and constitutes its legal, valid and binding obligation enforceable against
Novo in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.4 CAPITALIZATION. (a) Schedule 2.4 sets forth, as of the date hereof,
with respect to Novo, (i) the number of authorized shares of each class of its
capital stock, and (ii) the number of issued and outstanding shares of each
class of its capital stock. All of the issued and outstanding shares of capital
stock (1) have been duly authorized and validly issued and are fully paid and
nonassessable, (2) were issued in compliance with all applicable state and
federal securities laws, and (3) were not issued in violation of any preemptive
rights or rights of first refusal or similar rights. No preemptive rights or
rights of first refusal or similar rights exist with respect to any shares of
capital stock of Novo and no such rights arise by virtue of or in connection
with the transactions contemplated hereby, there are no outstanding or
authorized rights, options, warrants, convertible securities, subscription
rights, conversion rights, exchange rights or other agreements or commitments of
any kind that could require Novo to issue or sell any shares of its capital
stock (or securities convertible into or exchangeable for shares of its capital
stock), there are no outstanding stock appreciation, phantom stock, profit
participation or other similar rights with respect to Novo, there are no
proxies, voting rights or other agreements or understandings with respect to the
voting or transfer of the capital stock of Novo and Novo is not obligated to
redeem or otherwise acquire any of its outstanding shares of capital stock.
(b) The shares of Series A Preferred Stock being issued by Novo pursuant to this
Agreement, and the underlying shares of Series C Common Stock, when issued,
exchanged and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, or when such Series A Preferred Stock shares are
subsequently converted into Series C Common Stock shares, will be duly and
validly issued, fully paid and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement or
agreements referred to in this Agreement or as applicable under Novo's charter
documents and under applicable state and federal securities laws.
2.5 NO VIOLATION. The execution and delivery of this Agreement by Novo,
the performance by Novo of its obligations hereunder and the consummation by
Novo of the transactions contemplated by this Agreement will not (a) contravene
any provision of the Articles of Incorporation or Bylaws of Novo, (b) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment, ruling or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon,
3
<PAGE> 4
or enforceable against Novo, (c) conflict with, result in any breach of, or
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or give rise to a right
to terminate, amend, modify, abandon or accelerate, any Contract which resulted
in earnings to Novo of over 10% of the revenues of Novo during the last 12
months measured from the date of the Closing and which is applicable to, binding
upon or enforceable against Novo, (d) result in or require the creation or
imposition of any Lien upon or with respect to any of the property or assets of
Novo, (e) give to any individual or entity a right or claim against Novo, which
would have a Material Adverse Effect on Novo; or (f) require the consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, any court or tribunal or any other Person, except (i)
pursuant to the Securities Act, (ii) filings required under the securities or
blue sky laws of the various states, (iii) any filings or consents required to
be made or obtained by MacManus, and (iv) the consent of the Board of Directors
and Shareholders of Novo.
2.6 RECORDS OF NOVO. The copies of the Articles of Incorporation, Bylaws
and other documents and agreements of Novo which were provided to MacManus are
true, accurate, and complete and reflect all amendments made through the date of
this Agreement. The minute books and other records of corporate actions for Novo
made available to MacManus for review were correct and complete as of the date
of such review, no further entries have been made through the date of this
Agreement, such minute books and records contain the true signatures of the
persons purporting to have signed them, and such minute books and records
contain an accurate record of all actions of Novo and directors (and any
committees thereof) of Novo taken by written consent or at a meeting or
otherwise since incorporation or formation. All corporate actions by Novo have
been duly authorized or ratified. The stock ledger of Novo, as previously made
available to MacManus, contains accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of Novo.
2.7 NO SUBSIDIARIES. Novo does not own, directly or indirectly, any
outstanding voting securities of or other interest in, or control, any other
corporation, partnership, limited liability company, joint venture or other
entity.
2.8 NOVO FINANCIAL STATEMENTS. Novo has delivered or made available to
MacManus the financial statements of Novo for the fiscal year ended December 31,
1998 and for the period ended June 30, 1999 (collectively, the "Novo Financial
Statements"). The balance sheet of Novo dated as of June 30, 1999 included in
the Novo Financial Statements is referred to herein as the "Current Novo Balance
Sheet." The Novo Financial Statements fairly present the financial position of
Novo at each of the balance sheet dates and have been prepared in accordance
with GAAP consistently applied throughout the periods indicated. There are no
material special or non-recurring items of income or expense during the periods
covered by the Novo Financial Statements, and the balance sheets included in the
Novo Financial Statements do not reflect any write-up or revaluation increasing
the book value of any assets. The Novo Financial Statements reflect all
adjustments necessary for a fair presentation of the financial information
contained therein.
2.9 CHANGES SINCE THE CURRENT NOVO BALANCE SHEET DATE. Since the date of
the Current Novo Balance Sheet included in the Novo Financial Statements, except
as expressly contemplated by the terms of this Agreement, except as expressly
contemplated by the terms of
4
<PAGE> 5
this Agreement, not Material Adverse Change has occurred with respect to Novo
except as set forth in Schedule 2.9 or the other Schedules to this Agreement.
2.10 LIABILITIES. Novo has no liabilities or obligations, whether accrued,
absolute, contingent or otherwise, except (a) to the extent reflected on Novo's
Current Balance Sheet and not heretofore paid or discharged, (b) liabilities
incurred in the ordinary course of business consistent with past practice since
the date of the Current Balance Sheet (none of which relates to (i) any breach
of contract or breach of warranty, or (ii) any tort, infringement or violation
of law, or which arose out of any action, suit, claim, governmental
investigation or arbitration proceeding), (c) liabilities incurred in the
ordinary course of business prior to the date of such entity's Current Balance
Sheet which, in accordance with GAAP consistently applied, were not required to
be recorded thereon and which, in the aggregate, are not material, and (d) as
set forth on Schedule 2.10 (the liabilities and obligations referenced in
clauses (a), (b), (c) and (d) above are referred to as the "Designated
Liabilities").
2.11 LITIGATION. Except as set forth in Schedule 2.11 there is no action,
suit or other legal or administrative proceeding or governmental investigation
pending, or, to the knowledge of Novo, threatened (i) against, by or affecting
any Novo or any properties or assets of the same (including the Novo Leased
Premises), or (ii) which questions the validity or enforceability of this
Agreement or the transactions contemplated hereby, and there is no basis for any
of the foregoing. There are no outstanding orders, decrees or stipulations
issued by any Governmental Authority in any proceeding to which Novo is or was a
party which have not been complied with in full or which continue to impose any
obligations on Novo.
2.12 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 2.12(a), or except where a
failure to comply would not have a Material Adverse Effect, Novo is and
has at all times been in full compliance with all Environmental Laws
governing the business, operations, properties and assets of Novo,
including, without limitation: (i) all requirements relating to the
Discharge and Handling of Hazardous Substances; (ii) all requirements
relating to notice, record keeping and reporting; (iii) all requirements
relating to obtaining and maintaining Licenses (as defined herein) for the
ownership by Novo of its properties and assets and the operation of its
business as presently conducted or the ownership and use by Novo of the
Novo Leased Premises (as defined in Section 2.13); and (iv) all applicable
writs, orders, judgments, injunctions, governmental communications,
decrees, informational requests or demands issued pursuant to, or arising
under, any Environmental Laws.
(b) Except as set forth in Schedule 2.12(b), there are no notices or
proceedings pending or, to the knowledge of Novo, threatened against or
involving Novo, its businesses, operations, properties or assets
(including the Novo Leased Premises) issued by any Governmental Authority
or third party with respect to any Environmental Laws or Licenses issued
to Novo thereunder in connection with, related to or arising out of the
ownership or use by any of Novo of its properties or assets (including the
Novo Leased Premises) or the operation of its businesses, which have not
been resolved to the satisfaction of the issuing Governmental Authority or
third party in a manner that would
5
<PAGE> 6
not impose any material obligation, burden or continuing liability on Novo
or MacManus in the event that the transactions contemplated by this
Agreement are consummated.
(c) For purposes of this Section, the following terms shall have the
meanings ascribed to them below:
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing, migrating or emitting, as any of such terms may
further be defined in any Environmental Law, into or through any medium
including, without limitation, ground water, surface water, land, soil or
air.
"Environmental Laws" means all federal state, regional or local
statutes, laws rules, regulations, codes, ordinances, orders, plans,
injunctions, decrees, rulings, licenses, and changes thereto, or judicial
or administrative interpretations thereof, or similar laws, whether
currently in existence, issued, or promulgated, any of which govern,
purport to govern or relate to pollution, protection of the environment,
public health and safety, air emissions, water discharges, waste disposal,
hazardous or toxic substances, solid or hazardous waste, occupational,
health and safety, as any of these terms are or may be defined in such
statutes, laws, rules, regulations, codes, orders, ordinances, plans,
injunctions, decrees, rulings, licenses, and changes thereto, or judicial
or administrative interpretations thereof.
"Hazardous Substances" shall be construed broadly to include any
toxic or hazardous substance, material or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi-solid, sludge and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated biphenyls,
the presence of which requires investigation or remediation under any
Environmental Laws or which are or become regulated, listed or controlled
by, under or pursuant to any Environmental Laws, or which has been or
shall be determined or interpreted at any time by any Governmental
Authority to be a hazardous or toxic substance regulated under any other
statute, law, regulation, order, code, rule, order, or decree.
"Licences" means all licenses, certificates, permits, approvals,
decrees and registrations.
2.13 REAL ESTATE.
(a) Novo owns no interest, directly or indirectly, in any real
property. Except as listed on Schedule 2.13(a), there has been no real
property (or any interest therein) owned by Novo within the past five (5)
years.
(b) Schedule 2.13(b) sets forth a list of all leases, licenses or
similar agreements to which Novo is a party, which are for the use or
occupancy of real estate owned by a third party ("Novo Leases") (copies of
which have previously been furnished to MacManus), in each case setting
forth: (i) the lessor and lessee thereof and the commencement date, term
and renewal rights under each of the Novo Leases; (ii) the street address
or legal description of each property covered thereby; and (iii) a brief
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description (including approximate size and function) of the principal
improvements and buildings thereon (the "Novo Leased Premises"). The Novo
Leases are in full force and effect and have not been amended except as
disclosed in Schedule 2.13(b), and no party thereto is in default or
breach under any such Lease. No event has occurred which, with the passage
of time or the giving of notice or both, would cause a breach of or
default under any of such Novo Leases. With respect to each such Novo
Leased Premises: (i) Novo has a valid leasehold interest in the Novo
Leased Premises, which leasehold interest is free and clear of any Liens,
covenants and easements or title defects of any nature whatsoever; (ii)
the portions of the buildings located on the Novo Leased Premises that are
used in the business of Novo are each in good repair and condition, normal
wear and tear excepted, and are in the aggregate sufficient to satisfy
Novo's current and reasonably anticipated normal business activities as
conducted thereat; (iii) each of the Novo Leased Premises is served by all
utilities in such quantity and quality as are sufficient to satisfy the
current normal business activities conducted at such parcel; and (iv) Novo
has not received notice of (A) any condemnation proceeding with respect to
any portion of the Novo Leased Premises or any access thereto and, to the
knowledge of Novo, no such proceeding is contemplated by any Governmental
Authority; or (B) any special assessment which may affect any of the Novo
Leased Premises and, to the knowledge of Novo, no such special assessment
is contemplated by any Governmental Authority.
2.14 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY.
(a) Novo owns and operates its business at the location(s) set forth on Schedule
2.13(a). Except as specifically disclosed in Schedule 2.14, Novo has good
and marketable title to, or other right or license to use, all of its owned
Assets free and clear of any Liens. For purposes of this Agreement, the term
"Assets" means all of the properties and assets of any nature owned or used
by the party to which such term is applied.
(b) The Fixed Assets currently in use or necessary for the business and
operations of Novo, are in good operating condition, normal wear and tear
excepted. For purposes of this Agreement, the term "Fixed Assets" means all
computers, machinery, equipment, supplies, leasehold improvements, furniture
and fixtures, owned, used by or located on the Premises of Novo, with
respect to Novo, set forth on the Current Balance Sheet or acquired by Novo
since the date of the Current Balance Sheet.
2.15 COMPLIANCE WITH LAWS. Except as set forth on Schedule 2.15, Novo and
its Affiliates have been in compliance with all laws, regulations and orders
applicable to Novo, its business and operations (as conducted by it now and in
the past), the Assets, the Novo Leased Premises and any other properties and
assets owned or used by it now or in the past. No Novo has been cited, fined or
otherwise notified of any asserted past or present failure to comply with any
laws, regulations or orders and no proceeding with respect to any such violation
is pending or, to the knowledge of Novo, threatened relating to or in any way
affecting Novo. Novo is not subject to any decree or injunction to which it is a
party which restricts the continued operation of any business or the expansion
thereof to other geographical areas, customers and suppliers or lines of
business. Neither Novo, nor any of its employees or agents, has made any payment
of funds in connection with Novo's business which is prohibited by law, and no
funds have been set
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aside to be used in connection with its business for any payment prohibited by
law. Novo is and at all times has been in full compliance with the terms and
provisions of the Immigration Reform and Control Act of 1986, as amended (the
"Immigration Act"), except where failure to comply would not be material. With
respect to each Employee (as defined in 8 C.F.R. 274a.l(f)) of Novo for whom
compliance with the Immigration Act is required, Novo has on file a true,
accurate and complete copy of (i) each Employee's Form 1-9 (Employment
Eligibility Verification Form) and (ii) all other records, documents or other
papers prepared, procured and/or retained pursuant to the Immigration Act. Novo
has not been cited, fined, served with a Notice of Intent to Fine or with a
Cease and Desist Order, nor has any action or administrative proceeding been
initiated or, to the knowledge of Novo, threatened against Novo, by the
Immigration and Naturalization Service by reason of any actual or alleged
failure to comply with the Immigration Act.
2.16 LABOR AND EMPLOYMENT MATTERS. Novo is not a party to or bound by any
collective bargaining agreement or any other agreement with a labor union, and
there has been no labor union prior to the date hereof organizing any employees
of Novo into one or more collective bargaining units. There is not now, and
there has not been prior to the date hereof, any actual or, to the knowledge of
Novo, threatened labor dispute, strike or work stoppage which affects or which
may affect the business of Novo, or which may interfere with its continued
operations. Neither Novo, nor any employee, agent or representative thereof, has
since the date of incorporation or formation of Novo, committed any material
unfair labor practice as defined in the National Labor Relations Act, as
amended, and there is no pending or, to the knowledge of Novo, threatened charge
or complaint against Novo by or with the National Labor Relations Board or any
representative thereof. There has been no strike, walkout or work stoppage
involving any of the employees of Novo prior to the date hereof. To the
knowledge of Novo, no executive or key employee or group of employees has any
plans to terminate his, her or their employment with Novo as a result of the
transactions contemplated hereby or otherwise. Novo has complied with applicable
laws, rules and regulations relating to employment, civil rights and equal
employment opportunities, including but not limited to, the Civil Rights Act of
1964, the Fair Labor Standards Act, and the Americans with Disabilities Act, all
as amended, except where failure to comply would not have a Material Adverse
Effect. Novo has furnished to MacManus a written schedule containing the salary
and other compensation and fringe benefits of the employees or other workers of
Novo to be employed at the Closing, which schedule is true and complete in all
material respects.
2.17 NOVO EMPLOYEE BENEFIT PLANS.
(a) Compliance with Law. With respect to each Novo Employee Benefit
Plan (i) each has been administered in all respects in compliance with its
terms and with all applicable laws, including, but not limited to, ERISA
and the Code; (ii) no actions, suits, claims or disputes are pending, or
to the knowledge of Novo, threatened; (iii) no audits, inquiries, reviews,
proceedings, claims, or demands are pending with any governmental or
regulatory agency; (iv) there are no facts which could give rise to any
liability in the event of any such investigation, claim, action, suit,
audit, review, or other proceeding; (v) all reports, returns and similar
documents required to be filed with any governmental agency or distributed
to any plan participant have been duly or timely filed or distributed; and
(vi) no "prohibited transaction" has occurred within the meaning of the
applicable
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provisions of ERISA or the Code. For purposes of this Section 2.17, "Novo
Employee Benefit Plans" is defined as each employee benefit plan or
arrangement of Novo, including but not limited to employee pension benefit
plans, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), multiemployer plans, as
defined in Section 3(37) of ERISA, employee welfare benefit plans, as
defined in Section 3(l) of ERISA, deferred compensation plans, stock
option plans, bonus plans, stock purchase plans, hospitalization,
disability and other insurance plans, severance or termination pay plans
and policies, whether or not described in Section 3(3) of ERISA, in which
employees (or their spouses or dependents) of Novo participate (true and
accurate copies of which, together with the most recent annual reports on
Form 5500 and summary plan descriptions with respect thereto, have been
furnished to MacManus).
(b) Compliance with Law. With respect to each Employee Benefit Plan
(i) each has been administered in all material respects in compliance with
its terms and with all applicable laws, including, but not limited to,
ERISA and the Code; (ii) no actions, suits, claims or disputes are
pending, or to the knowledge of MacManus, threatened; (iii) no audits,
inquiries, reviews, proceedings, claims, or demands are pending with any
governmental or regulatory agency; (iv) to the knowledge of Novo there are
no facts which could give rise to any liability in the event of any such
investigation, claim, action, suit, audit, review, or other proceeding;
(v) all reports, returns and similar documents required to be filed with
any governmental agency or distributed to any plan participant have been
duly or timely filed or distributed; and (vi) no "prohibited
transaction" has occurred within the meaning of the applicable provisions
of ERISA or the Code.
(c) Qualified Plans. Novo is not and has not been obligated with
respect to any Novo Employee Benefit Plan intended to qualify under Code
Section 401(a) or 403(a).
(d) Multiemployer Plans. Novo is not and has not been obligated with
respect to any multiemployer plan as described in Section 4001(a)(3) of
ERISA.
(e) Welfare Plans. (i) Novo is not obligated under any employee
welfare benefit plan as described in Section 3(1) of ERISA ("Welfare
Plan") to provide medical or death benefits with respect to any employee
or former employee of Novo or its predecessors after termination of
employment, other than pursuant to Section 4980B of the Code; (ii) Novo
has complied with the notice and continuation coverage requirements of
Section 4980B of the Code and the regulations thereunder with respect to
each Welfare Plan that is, or was during any taxable year for which the
statute of limitations on the assessment of federal income taxes remains
open, by consent or otherwise, a group health plan within the meaning of
Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets,
surplus or prepaid premiums under any Welfare Plan which is a Novo
Employee Benefit Plan. The consummation of the transactions contemplated
by this Agreement will not entitle any individual to severance pay, and,
will not accelerate the time of payment or vesting, or increase the amount
of compensation due to any individual.
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(f) Controlled Group Liability. Neither Novo nor any entity that
would be aggregated with Novo under Code Section 414(b), (c), (m) or (o):
(i) has ever terminated or withdrawn from an employee benefit plan under
circumstances resulting (or expected to result) in liability to the
Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the
employee benefit plan is funded, or any employee or beneficiary for whose
benefit the plan is or was maintained (other than routine claims for
benefits); (ii) has any assets subject to (or expected to be subject to) a
lien for unpaid contributions to any employee benefit plan; (iii) has
failed to pay premiums to the PBGC when due (iv) is subject to (or
expected to be subject) an excise tax under Code Section 4971; (v) has
engaged in any transaction which would give rise to liability under
Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code
Section 4980B or Section 601 through 608 of ERISA.
(g) Other Liabilities. (i) None of the Novo Employee Benefit Plans
obligates Novo to pay separation, severance, termination or similar
benefits solely as a result of any transaction contemplated by this
Agreement [or solely as a result of a "change of control" (as such term is
defined in Section 280G of the Code)]; (ii) all required or discretionary
(in accordance with historical practices) payments, premiums,
contributions, reimbursements, or accruals for all periods ending prior to
or as of the Closing Date shall have been made or properly accrued on the
Current Novo Balance Sheet or will be properly accrued on the books and
records of Novo as of the Closing Date; and (iii) none of the Novo
Employee Benefit Plans has any unfunded liabilities which are not
reflected on the Current Novo Balance Sheet or the books and records of
Novo.
2.18 TAX MATTERS. Except as set forth in Schedule 2.17, Novo filed or
caused to be filed, within the times and within the manner prescribed by law,
all federal, state and local tax returns and tax reports which are required to
be filed by, or with respect to, Novo. Such returns and reports reflect
accurately all liability for all federal, state and local income, sales, payroll
and withholding taxes and all other material taxes of Novo, for the period
covered thereby, and all amounts shown on such returns and reports as due and
payable have been timely paid. None of the federal, state, local or foreign tax
returns of Novo have ever been audited by the Internal Revenue Service or any
governmental body or agency, domestic or foreign. All federal, state and local
income, profits, franchise, sales, use occupancy, excise, payroll, accumulated
earnings tax and other taxes and assessments (including interest and penalties)
payable by, or due from Novo, (whether in its own right or as transferee of the
assets of, or successor to, any entity) have been fully paid or adequately
disclosed and fully provided for in the books and financial statements of Novo.
To the knowledge of Novo, no examination of any return of Novo is currently in
progress and Novo has not received notice of any proposed audit or examination.
There are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any tax return of Novo.
2.19 INSURANCE. Novo is covered by valid, outstanding enforceable policies
of insurance issued to it by reputable insurers covering its properties, assets
and business against risks of the nature normally insured against by similar
entities in the same or similar lines of business in coverage amounts typically
and reasonably carried by such entities (the "Novo Insurance Policies"). Such
Novo Insurance Policies are in full force and effect, and all premiums
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due thereon have been paid through the date of this Agreement and will be paid
through the Closing Date. Novo has complied with the provisions of such Novo
Insurance Policies applicable to it, and has provided MacManus copies of all
Novo Insurance Policies and all amendments and riders thereto. There is no
pending claim under any of the Novo Insurance Policies for an amount in excess
of $5,000.00 individually or $25,000.00 in the aggregate, including any claim
for loss or damage to the properties, assets or business of Novo (including the
Novo Leased Premises). Novo has not failed to give, in a timely manner, any
notice required under any of the Novo Insurance Policies to preserve its rights
thereunder.
2.20 RECEIVABLES. All of the Receivables are valid and legally binding,
represent bona fide transactions and arose in the ordinary course of business of
Novo. All of the Receivables are good and collectible receivables, and will be
collected in accordance with past practice and the terms of such receivables
(and in any event within six months following the Closing Date), without set off
or counterclaims, subject to the allowance for doubtful accounts, if any, set
forth on the Current Balance Sheet, as reasonably adjusted since the date of the
Current Balance Sheet in the ordinary course of business, consistent with GAAP.
For purposes of this Agreement, the term "Receivables" means all receivables of
Novo, including without limitation all contracts in transit and all trade
account receivables arising from the provision of services, notes receivable,
and insurance proceeds receivable.
2.21 LICENSES AND PERMITS. Except as set forth on Schedule 2.21 Novo
possesses all licenses and required governmental or official approvals, permits
or authorizations (collectively, the "Novo Permits") for its business and
operations, including with respect to the operations of the Novo Leased
Premises, except where the failure to so possess such license would not be
material. All such Novo Permits are valid and in full force and effect, Novo is
in compliance with the respective requirements thereof, and no proceeding is
pending or, to the knowledge of Novo, threatened to revoke or amend any of them.
None of such Novo Permits is or will be impaired or in any way affected by the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
2.22 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS;
AFFILIATED TRANSACTIONS. The Assets and the Leased Premises constitute, in the
aggregate, all of the assets and properties necessary for the conduct of the
business of Novo in the manner in which and to the extent to which such business
is currently being conducted. Except as set forth on Schedule 2.22, Novo has no
direct or indirect interest in any customer, supplier or competitor of Novo or
in any person from whom or to whom Novo leases real or personal property. No
Principal and no officer or director in Novo, nor any person related by blood or
marriage to any such person, nor any entity in which any such person owns any
beneficial interest, is a party to any Contract or transaction with Blue Marble
or has any interest in any property used by Novo (all such ownership, Contracts,
transactions and interests, collectively "Affiliated Transactions"), except as
set forth on Schedule 2.22.
2.23 INTELLECTUAL PROPERTY.
(a) Novo owns or possesses sufficient legal rights to all patents,
trademarks, service marks, tradenames, copyrights, trade secrets,
licenses, information and proprietary rights and processes necessary for
its business without any conflict with, or
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infringement of, the rights of others. Novo has not received any
communications alleging that Novo has violated or, by conducting its
business, would violate any of the patents,, trademarks, service marks,
tradenames, copyrights, trade secrets or other proprietary rights or
processes of any other person or entity. Novo is not aware that any
officer, director or employee is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to
promote the interest of Novo, or that would conflict with Novo's business
or prevent any such officer, director or employee from assigning
inventions to Novo. Neither the execution or delivery of this Agreement,
nor the carrying on of Novo's business by the employees of Novo, nor the
conduct of Novo's business as proposed, will, to Novo's knowledge,
conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employee is now obligated. Novo does not
believe it is or will be necessary to use any inventions of any of its
employees (or persons it currently intends to hire) made prior to their
employment by Novo.
(b) No claims have been asserted against Novo, and to the knowledge
of Novo (actual knowledge in the case of common law trademarks and
tradenames and patents) there are no claims which are reasonably likely to
be asserted against Novo or which have been asserted against others by any
person challenging Novo's use or distribution of any trademarks,
tradenames, copyrights, works of authorship, trade secrets, software,
technology, know-how or processes utilized by Novo or challenging or
questioning the validity or effectiveness of any license or agreement
relating thereto. The use of any trademarks, tradenames, copyrights, works
of authorship, software, technology, know-how or processes by Novo in its
business does not infringe on the rights of, constitute misappropriation
of, or in any way involve unfair competition with respect to, any
proprietary information or intangible property right of any third person
or entity, including, without limitation, any patent, trade secret,
copyright, trademark or tradename; provided, however, that such
representation is made only to Novo's actual knowledge with respect to
common law trademarks and tradenames, technology, patent or similar
intangible property right where infringement is possible without wrongful
taking.
(c) To the best knowledge of Novo, all designs, drawings
specifications, source code, object code, documentation, flow charts and
diagrams incorporated in any of Novo's proprietary rights constitute
original creations of and were written, developed and created solely and
exclusively by employees of Novo without the assistance of any third party
or entity, were public domain or were created by, or with the assistance
of, third parties who assigned ownership of or licensed their rights to
Novo in valid and enforceable agreements. Novo has at all times used
commercially reasonable efforts to treat its trade secrets as confidential
and has not disclosed or otherwise dealt with such items in such a manner
as to cause the loss of such trade secrets by release into the public
domain.
(d) To the best knowledge of Novo, no employee of Novo is in
violation of any term of any employment contract, patent disclosure
agreement, confidentiality
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agreement or any other contract or agreement relating to the relationship
of any such employee with Novo or, to the knowledge of Novo, any other
party because of the nature of Novo's business.
2.24 CONTRACTS. (a) Novo has made available to MacManus true, correct and
complete copies of each Material Contract (defined below). The copy of each
Material Contract furnished to MacManus is a true and complete copy of the
document it purports to represent and reflects all amendments thereto made
through the date of this Agreement, such list as set forth in schedule 2.24.
Novo has not violated any of the terms or conditions of any Material Contract or
any term or condition which would permit termination or modification of any
Material Contract; all of the covenants to be performed pursuant to any Material
Contract by any other party thereto have been fully performed; there are no
claims for breach or indemnification or notice of default or termination under
any Material Contract; and each of the Material Contracts is enforceable in
accordance with its terms. No event has occurred which constitutes, or after
notice or the passage of time, or both, would constitute, a default by Novo
under any Material Contract, and no such event has occurred which constitutes or
would constitute a default by any other party. Novo is not subject to any
liability or payment resulting from renegotiation of amounts paid under any
Material Contract.
(c) As used in this Section 2.24, "Material Contracts" shall include,
without limitation, formal or informal, all written or oral (a) loan agreements,
indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale
or title retention agreements, security agreements, equipment financing
obligations or guaranties, or other sources of contingent liability in respect
of any indebtedness or obligations of Novo to any other Person, or letters of
intent or commitment letters with respect to same (other than those which
individually provide for annual payments of less than $50,000); (b) contracts
obligating Novo to provide products or services valued at over $200,000; (c)
leases of the Novo Leased Premises to or from third parties and Novo; (d) leases
of personal property by Novo (other than those which individually provide for
annual payments of less than $20,000); (e) employment agreements, management
service agreements, consulting agreements, confidentiality agreements,
non-competition agreements, employee handbooks, policy statements and any other
agreements relating to any employee, officer or director of or partner in Novo
(except for routine NDAs and noncompete provisions applicable to standard
employment agreements and initial business development introductory meetings and
discussions); (f) licenses, assignments or transfers of trademarks, tradenames,
service marks, patents, copyrights, trade secrets or know-how, or other
agreements regarding proprietary rights or intellectual property with respect to
which Novo is a party; (g) any contract relating to pending capital
expenditures by Novo; (h) any contracts obligating Novo to make payments in
excess of $50,000 over the remaining terms of such contract, and (i) all other
material Contracts or understandings outside of the ordinary course of business
with respect to which Novo is a party or pursuant to which any of its assets is
bound, irrespective of subject matter and whether or not in writing, and not
otherwise disclosed on the Schedules.
(c) Except as set forth in Schedule 2.24, all of the representations set
forth in this Section 2.24 are true and correct as of the date hereof to the
best knowledge of Novo.
2.25 ACCURACY OF INFORMATION FURNISHED. No representation, statement or
information contained in this Agreement (including, without limitation, the
various Schedules attached
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hereto) or any agreement executed in connection herewith or in any certificate
delivered pursuant hereto or thereto or made or furnished to MacManus or its
representatives by Novo, contains or shall contain any untrue statement of a
fact or omits or shall omit any fact necessary to make the information contained
therein not misleading. Novo has provided MacManus with true, accurate and
complete copies of all documents listed or described in the various Schedules
attached hereto.
2.26 NO COMMISSIONS. No Novo has incurred any obligation for any finder's
or broker's or agent's fees or commissions or similar compensation in connection
with the transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF MACMANUS
As a material inducement to Novo to enter into this Agreement and to
consummate the transactions contemplated hereby, MacManus makes the following
representations and warranties to Novo:
3.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. MacManus hereby confirms, that the
Preferred Shares to be acquired by MacManus will be acquired for investment for
MacManus' own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that MacManus has no present
intention of selling, granting any participation in, or otherwise distributing
the same. MacManus further represents that MacManus does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Preferred Shares.
3.2 DISCLOSURE OF INFORMATION. MacManus has had an opportunity to discuss
Novo's business, management, financial affairs and the terms and conditions of
the offering of the Preferred Shares with Novo's management and has had an
opportunity to review Novo's facilities. MacManus understands that such
discussions, as well as the other written information delivered by Novo to
MacManus, were intended to describe the aspects of Novo's business which it
believes to be material.
3.3 RESTRICTED SECURITIES. MacManus understands that the Preferred Shares
have not been, and will not be, registered under the Securities Act, by reason
of a specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of MacManus' representations as expressed herein.
MacManus understands that the shares of Preferred Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, MacManus must hold the Preferred Shares indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. MacManus acknowledges that Novo has no
obligation to register or qualify the Preferred Shares for resale except as set
forth in the Registration Rights Agreement. MacManus further acknowledges that
if an exemption from
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registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Preferred Shares, and on requirements relating to Novo
which are outside of MacManus' control, and which Novo is under no obligation
and may not be able to satisfy.
3.4 NO PUBLIC MARKET. MacManus understands that no public market now
exists for any of the securities issued by Novo, and that Novo has made no
assurances that a public market will ever exist for the Preferred Shares.
3.5 LEGENDS. MacManus understands that the Preferred Shares and any
securities issued in respect of or exchange for the Preferred Shares, may bear
one or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION
OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
(b) Any legend set forth in the Investors' Rights Agreement.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the
certificate so legended.
3.6 REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend endorsed on a
certificate pursuant to subsection 3.5(a) and the stop transfer instructions
with respect to such legended Securities shall be removed, and Novo shall issue
a certificate without such legend to the holder of such Securities if such
Securities are registered under the Securities Act and a prospectus meeting the
requirements of Section 10 of the Securities Act is available or if such holder
satisfies the requirements of Rule 144.
3.7 ACCREDITED INVESTOR. MacManus is an accredited investor as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act.
3.8 PERMITTED TRANSFERS. MacManus may transfer the Preferred Shares
without the need of a registration statement or opinion of counsel to the effect
that no registration statement is required if the transferee is an affiliate of
MacManus and the transferee agrees in writing to be bound by the terms of this
Agreement and the Investors' Rights Agreement to the same extent as if such
Affiliate were the original purchaser of the Preferred Shares hereunder,
provided that Novo shall receive written notice of such transfer within thirty
(30) days of its completion.
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ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 FURTHER ASSURANCES. Each party shall execute, and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and, the transactions contemplated hereby.
4.2 COOPERATION. Each of the parties agrees to cooperate with the other in
the preparation and filing of all forms, notifications, reports and information,
if any, required or reasonably deemed advisable pursuant to any law, rule or
regulation in connection with the transactions contemplated by this Agreement
and to use their respective best efforts to agree jointly on a method to
overcome any objections by any Governmental Authority to any such transactions.
4.3 OTHER ACTIONS. Novo shall use its reasonable best efforts to take, or
cause to be taken, all appropriate actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated herein, including,
without limitation, using its reasonable best efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of any
Governmental Authority and parties to Contracts with Novo as are necessary for
the consummation of the transactions contemplated hereby. Novo shall make on a
prompt and timely basis all governmental or regulatory notifications and filings
required to be made by it for the consummation of the transactions contemplated
hereby. The parties also agree to use reasonable best efforts, consistent with a
mutually acceptable litigation strategy, to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby and to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby. The parties will coordinate their efforts to
pursue legal remedies as contemplated above in order to consummate the
transactions contemplated by this Agreement and to obtain appropriate relief.
4.4 NOTIFICATION OF CERTAIN MATTERS. Each of the parties to this Agreement
shall give prompt notice to the other parties of the occurrence or
non-occurrence of any event which would likely cause any representation or
warranty made by such party herein to be untrue or inaccurate or any covenant,
condition or agreement contained herein not to be complied with or satisfied
(provided, however, that any such disclosure shall not in any way be deemed to
amend, modify or in any way affect the representations, warranties and covenants
made by any party in or pursuant to this Agreement).
4.5 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement, the subject matter or terms hereof or any
confidential information or other proprietary knowledge concerning the business
or affairs of any other party which it may have acquired from such party in the
course of pursuing the transactions contemplated by this Agreement without the
prior
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consent of the other parties hereto; provided, that (i) any information that is
otherwise publicly available, without breach of this provision, or has been
obtained from a third party without a breach of such third party's duties, shall
not be deemed confidential information and (ii) that either party hereto shall
be able to disclose such information to its employees and agents and to such
other third parties as necessary as part of the operation of its business,
including disclosure to potential or existing investors, lenders or acquirors or
joint-venture candidates or as required by law or court order. No press release
or other public announcement related to this Agreement or the transactions
contemplated hereby shall be issued by either party or their respective
Affiliates without the prior written consent of the other party hereto.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF NOVO
The obligations of Novo to effect the sale of Series A Preferred Stock and
the other transactions contemplated hereby shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions any or all of which
may be waived in whole or in part by Novo:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of MacManus in this Agreement
shall be true and correct in all material respects at and as of the Closing
Date.
5.2 INVESTORS' RIGHTS AGREEMENT. MacManus and each of Kelly Rodriques and
Anthony Westreich shall have executed and delivered the Investors' Rights
Agreement.
5.3 RESTATED CERTIFICATE. The Restated Articles shall have been filed with
the Secretary of State of California on or prior to the Closing Date, and shall
continue to be in full force and effect as of the Closing Date.
ARTICLE 6
CONDITIONS TO THE
OBLIGATIONS OF MACMANUS
The obligations of MacManus to purchase the Series A Preferred Stock and
effect the other transactions contemplated hereby shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, any or
all of which may be waived in whole or in part by MacManus.
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Novo contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date with the same force and effect as though made at and as of that
time. Novo shall have performed and complied with all of its obligations
required by this Agreement to be performed or complied with at or prior to the
Closing Date. Novo shall each have delivered to MacManus a certificate, dated as
of the Closing Date, and signed by an executive officer, certifying that such
representations and warranties are
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true and correct in all material respects and that all such obligations have
been performed and complied with.
6.2 NO ORDER OR INJUNCTION. There shall not be issued and in effect by or
before any court or other governmental body an injunction or other similar court
or administrative order restraining or prohibiting the transactions contemplated
hereby.
6.3 INVESTORS' RIGHTS AGREEMENT. Novo and each of Kelly Rodriques and
Anthony Westreich shall have executed and delivered the Investors' Rights
Agreement.
6.5 OPINION OF COMPANY COUNSEL. MacManus shall have received from Britton
Silberman & Cervantez LLP, counsel for the Company, an opinion, dated as of the
Closing, in form and substance acceptable to MacManus.
6.6 RESTATED CERTIFICATE. Novo shall have filed the Restated Articles with
the Secretary of State of California on or prior to the Closing Date, which
shall continue to be in full force and effect as of the Closing Date.
6.7 NOVO BOARD OF DIRECTORS. The Board of Directors of the Company at the
Closing shall be as follows: Craig Brown and Roy Bostock as the two
representatives of the Series A Preferred Stock holders; Kelly Anthony Rodriques
and Harry Walter Schlough, as the representatives of the Series A Common Stock.
There shall be one vacancy on the Board of Directors to be filled by the Board
of Directors subsequent to the Closing.
ARTICLE 7
DEFINITIONS
7.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings:
"Affiliate" shall have the meaning ascribed to it in Rule l2b-2 of
the General Rules and Regulations under the Exchange Act, as in effect on
the date hereof
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, contract, lease, note, mortgage,
indenture, loan agreement, franchise agreement, covenant, employment
agreement, license, instrument purchase and sales order, commitment,
undertaking, obligation, whether written or oral, express or implied.
"Environmental Costs" shall mean any and all expenses, costs,
damages, liabilities or obligations, including, without limitation, fees
and expenses of counsel, (whether arising before, on or after the Closing
Date) incurred by, under or pursuant to any Environmental Laws or related
to the Discharge, Handling, presence or clean up of Hazardous Substances
arising as a result of events occurring or facts or circumstances
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arising or existing on or prior to the Closing Date (whether or not in the
ordinary course of business and whether or not reflected on Schedule
3.13(a) or (b)).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in effect in
the United States of America from time to time.
"Governmental Authority" means any nation or government, any state,
regional, local or other political subdivision thereof, and any entity or
official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, but not limited to, any conditional
sale or other title retention agreement any lease in the nature thereof,
and the filing of or agreement to give any financing statement under the
Uniform Commercial Code or comparable law or any jurisdiction in
connection with such mortgage, pledge, security interest, encumbrance,
lien or charge).
"Litigation Costs" shall mean any and all expenses, costs, damages,
liabilities, or obligations, including, without limitation, fees and
expenses of counsel, (whether arising before, on or after the Closing
Date) incurred in connection with any action, suit, or other legal or
administrative proceeding or governmental investigation arising as a
result of events occurring or facts or circumstances arising or existing
on or prior to the Closing Date (whether or not in the ordinary course of
business and whether or not set forth on Schedule 3.12).
"Material Adverse Change (or Effect)" means a change (or effect), in
the financial condition, properties, assets, liabilities, rights,
obligations, operations, business or prospects which change (or effect),
in the aggregate, is materially adverse to such condition, properties,
assets, liabilities, rights, obligations, operations, business or
prospects.
"Novo Transaction Fees" means all legal, accounting, tax, consulting
and financial advisory and other fees and expenses (including any filing
fees in connection with filings by Novo) incurred, paid, or payable by
Novo in connection with the transactions contemplated hereby.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, estate, trust,
unincorporated association, joint venture, Governmental Authority or other
entity, of whatever nature.
"Principal Transaction Fees" means all legal, accounting, tax,
consulting and financial advisory and other fees and expenses (including
any transfer taxes, fees and
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expenses incurred by any of MacManus in connection with any of the
transactions contemplated hereby or the performance by any of the
foregoing of any of the covenants set forth herein and all prepayment fees
or penalties incurred by MacManus arising from or due to the transactions
contemplated hereby) incurred by MacManus in connection with the
transactions contemplated hereby.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information statement
required to be filed in connection with or with respect to any Tax.
"Taxes" means all taxes, fees or other assessments, including, but
not limited to, income, excise, property, transfer, sales, use, franchise,
intangible, payroll, withholding, social security and unemployment taxes
imposed by any federal, state, local or foreign government agency, and any
interest or penalties related thereto.
7.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise
requires.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP applied on a basis consistent with prior periods,
where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
ARTICLE 8
[INTENTIONALLY DELETED]
ARTICLE 9
GENERAL PROVISIONS
9.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage pre-paid),
guaranteed overnight delivery or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
prepaid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to
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such other addresses or telecopy numbers which any party shall designate in
writing to the other parties):
(a) IF TO NOVO TO:
Novo MediaGroup, Inc.
222 Sutter Street, 6th Floor
San Francisco, CA 94108
Attn: Kelly Rodriques
Telecopy: (415) 646-7001
with a copy to:
Britton Silberman & Cervantez LLP
461 Second Street, Suite 332
San Francisco, CA 94107
Attn: Thomas J. Cervantez, Esq.
Telecopy: (415) 538-9000
(b) IF TO MACMANUS TO:
The MacManus Group
1675 Broadway
New York, NY 10019
Attn: Craig Brown
Telecopy: (212)-468-3085
with a copy to:
Davis & Gilbert
1740 Broadway
New York, NY 10019
Attn: Lewis A. Rubin
Telecopy: (212)-468-4888
9.2 ENTIRE AGREEMENT. This Agreement (including the Schedules attached
hereto) and other documents delivered at the Closing pursuant hereto, contain
the entire understanding of the parties in respect of its subject matters and
supersedes all prior agreements and understanding (oral or written) between or
among the parties with respect to such subject matter. The Schedules constitute
a part hereof as though set forth in full above.
9.3 EXPENSES. MacManus shall pay the Principal Transaction Fees. Novo
shall pay the Novo Transaction Fees.
9.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled, or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power
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or privilege hereunder preclude the exercise of any other right, power or
privilege. No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision,
nor shall any waiver be implied from any course of dealing between the parties.
No extension of time for performance of any obligations of other acts hereunder
or under any other agreement shall be deemed to be an extension of the time for
performance of any other obligations or any other acts.
9.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned or delegated by the any party hereunder without
the prior written consent of the other party. MacManus shall have the right to
assign this Agreement to any Affiliate, provided that MacManus continues to be
secondarily liable for the performance of its obligations hereunder.
9.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
9.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever, the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
9.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the state of
California applicable to contracts executed and to be wholly performed with such
state.
9.9 JURISDICTION.
(a) The parties to this Agreement agree that any suit, action or
proceeding arising out of, or with respect to, this Agreement or any
judgment entered by any court in respect thereof shall be brought in the
courts of San Francisco, California or New York, New York or in the U.S.
District Court for the Northern District of California or the Southern
District of New York, as the commencing party may elect, and all parties
hereby accept the exclusive jurisdiction of those courts for the purpose
of any suit, action or proceeding.
(b) In addition, each of the parties hereby irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any judgment entered by
any court in respect thereof brought in San Francisco County, California
or New York County, New York or the U.S. District Court for the Northern
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District of California or the Southern District of New York, as selected
by the commencing party, and hereby further irrevocably waives any claim
that any suit, action or proceedings brought in San Francisco County,
California or New York County, New York or in such District Courts has
been brought in an inconvenient forum.
9.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents and
warrants to all other parties hereto that (a) before executing this Agreement,
said party has fully informed itself of the terms, contents, conditions, and
effects of this Agreement; (b) said party has relied solely and completely upon
its own judgment in executing this Agreement; (c) said party has had the
opportunity to seek and has obtained the advise of counsel before executing this
Agreement; (d) said party has acted voluntarily and of its own free will in
executing this Agreement; (e) said party is not acting under duress, whether
economic or physical, in executing this Agreement; and (f) this Agreement is the
result of arm's length negotiations conducted by and among the parties and their
respective counsel. The foregoing shall not in any way be deemed to amend,
modify or in any way affect the representations, warranties and covenants made
by any party in or pursuant to this Agreement.
The parties hereto have caused this Agreement to be duty executed and
delivered as of the day and year first above written.
COMPANY: INVESTOR:
NOVO MEDIAGROUP, INC. THE MACMANUS GROUP, INC.
By: /s/ KELLY RODRIQUES By: /s/ DAVID WINCLECHTER
------------------------------ -----------------------------------
Kelly Rodriques, CEO Name: DAVID WINCLECHTER
--------------------------------
Address: Title: VP/SECRETARY
-------------------------------
Address:
Facsimile:
Facsimile:
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EXHIBIT 10.6
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into as of
August 31, 1999 by and among (i) The MacManus Group, Inc., a Delaware
corporation ("MacManus"); (ii) N.W. Ayer Communications, Inc., a Delaware
corporation ("Seller"), and (iii) Novo MediaGroup, Inc., a California
corporation ("Novo"). MacManus and Seller are sometimes referred to herein
collectively as the "MacManus Parties."
RECITALS
A. MacManus indirectly owns all of the issued and outstanding capital
stock of Seller, which in turn owns all of the issued and outstanding capital
stock of Blue Marble Advanced communications Group, Ltd., a Delaware corporation
("Blue Marble"). Novo desires to acquire, and MacManus desires to transfer to
Novo, in a stock exchange transaction, the business and operations of Blue
Marble.
B. In order to effectuate the above transaction, the MacManus Parties
and Novo have determined that it is in the best interests of their respective
shareholders for Novo to acquire all of the issued and outstanding shares of
capital stock of Blue Marble in exchange for which Seller will be receive the
stock consideration as provided herein. For federal income tax purposes, it is
intended that this exchange shall qualify as a tax free transaction pursuant to
Section 368(a)(1)(B) of the Internal Revenue Code of 1996, as amended.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
SHARE EXCHANGE; CLOSING
1.1 THE CLOSING. Subject to the terms and conditions of this Agreement,
(a) the consummation of the Share Exchange (as defined herein), and (b) the
other transactions contemplated hereby (the "Closing") shall take place on
August 31, 1999 after the satisfaction or waiver of the conditions set forth in
Article 7 and Article 8 hereof. The Closing shall take place at the offices of
Britton Silberman & Cervantez LLP, or such other place and time as the parties
may otherwise agree via in person execution of applicable documents or fax of
applicable signatures to the documents and attachment of such signatures in
counterparts to this Agreement and related documents, and the date of the
Closing is referred to herein as the "Closing Date."
1.2 SHARE EXCHANGE. (a) Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, assign, transfer and convey to
Novo all of the issued and outstanding capital stock of Blue Marble (the "Share
Exchange"), which consists of One Thousand (1000) shares of common stock, no par
value, free and clear of all Liens of any nature whatsoever, other than such
restrictions as may be imposed pursuant to state or federal securities laws in
exchange for the stock consideration described below.
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(b) At the Closing, upon delivery to Novo by Seller of certificates
representing all of the issued and outstanding stock of Blue Marble, Novo shall
issue and transfer to Seller and Seller shall receive from Novo 13,503,460
shares of Novo Series C Common Stock, no par value (the "Exchange
Consideration") free and clear of all liens of any nature whatsoever, other than
restrictions contemplated under this Agreement and applicable securities laws.
1.3 PROCEDURE AT THE CLOSING. At the Closing, the parties agree that the
following shall occur:
(a) The MacManus Parties shall have satisfied each of the
applicable conditions set forth in Article 7 and shall deliver to Novo
(i) the certificates representing all of the outstanding shares of
capital stock of Blue Marble (together with such stock powers and
instruments of transfer as are determined to be necessary by Novo), and
(ii) the documents, certificates, opinions, consents, letters and other
items required by Article 7.
(b) Novo shall have satisfied each of the applicable conditions
set forth in Article 8 and shall deliver to Seller (i) the certificates
representing 13,503,460 shares of Series C Common Stock representing all
of the Exchange Consideration, and (ii) the documents, certificates,
consents, letters and other items required by Article 8.
1.4 ANCILLARY AGREEMENTS. At the Closing, and as a condition to the
obligations of the parties contained herein, Novo, the MacManus Parties, and
certain other individuals shall enter into a Voting Agreement substantially in
the form attached hereto as Exhibit B (the "Voting Agreement") and such other
agreements as required hereby (collectively, the "Ancillary Agreements").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF NOVO
As a material inducement to the MacManus Parties to enter into this
Agreement and to consummate the transactions contemplated hereby, and except as
set forth in applicable schedules attached hereto which shall be deemed part of
any of the representations set forth in this Article 2, Novo makes the following
representations and warranties to the MacManus Parties.
2.1 CORPORATE STATUS. Novo is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and has
the requisite power and authority to own or lease its properties and to carry on
its business as presently conducted. There is no pending or threatened
proceeding for the dissolution, liquidation, insolvency or rehabilitation of
Novo or, except as could not reasonably be expected to have a Material Adverse
Effect on Novo, any such proceeding of any other Person. Novo is legally
qualified to do business as a foreign entity in each of the jurisdictions in
which it is required to be so qualified, which represent all
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jurisdictions where the nature of its properties and the conduct of its business
require such qualification, and is in good standing in each of the jurisdictions
in which it is so qualified except where the failure to so qualify will not have
a Material Adverse Effect on Novo.
2.2 POWER AND AUTHORITY. Novo has the corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. Novo has taken all corporate
action necessary to authorize its execution and delivery of this Agreement and
the other transactions contemplated hereby, the performance of its obligations
hereunder and the consummation of the transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duty executed and delivered
by Novo and constitutes its legal, valid and binding obligation enforceable
against Novo in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.4 CAPITALIZATION AND DUE AND VALID ISSUANCE. (a) Schedule 2.4 sets
forth, as of the date hereof, with respect to Novo, (i) the number of authorized
shares of each class of its capital stock, and (ii) the number of issued and
outstanding shares of each class of its capital stock. Except as set forth in
Schedule 2.4, all of the issued and outstanding shares of capital stock (1) have
been duly authorized and validly issued and are fully paid and nonassessable,
(2) were issued in compliance with all applicable state and federal securities
laws, and (3) were not issued in violation of any preemptive rights or rights of
first refusal or similar rights. No preemptive rights or rights of first refusal
or similar rights exist with respect to any shares of capital stock of Novo and
no such rights arise by virtue of or in connection with the transactions
contemplated hereby except as referred to in this Agreement; Except as set forth
in Schedule 2.4, there are no outstanding or authorized rights, options,
warrants, convertible securities, subscription rights, conversion rights,
exchange rights or other agreements or commitments of any kind that could
require Novo to issue or sell any shares of its capital stock (or securities
convertible into or exchangeable for shares of its capital stock), there are no
outstanding stock appreciation, phantom stock, profit participation or other
similar rights with respect to Novo, there are no proxies, voting rights or
other agreements or understandings with respect to the voting or transfer of the
capital stock of Novo and Novo is not obligated to redeem or otherwise acquire
any of its outstanding shares of capital stock.
(b) The shares of Series C Common Stock being issued by Novo pursuant to
this Agreement when issued, exchanged and delivered in accordance with the terms
of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement or
agreements referred to in this Agreement or as applicable under Novo's charter
documents and under applicable state and federal securities laws.
2.5 NO VIOLATION. The execution and delivery of this Agreement by Novo,
the performance by Novo of its obligations hereunder and the consummation by
Novo of the
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transactions contemplated by this Agreement will not (a) contravene any
provision of the Articles of incorporation or Bylaws of Novo, (b) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment, ruling or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon, or enforceable
against Novo, (c) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any material Contract which is
applicable to, binding upon or enforceable against Novo, (d) result in or
require the creation or imposition of any Lien upon or with respect to any of
the property or assets of Novo, (e) give to any individual or entity a right or
claim against Novo, which would have a Material Adverse Effect on Novo; or (f)
require the consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, any court or tribunal or any other
Person, except (i) pursuant to the Securities Act, (ii) filings required under
the securities or blue sky laws of the various states in each, which will be
made or obtained prior to the Closing except for such filings allowed to be
filed after the Closing by law.
2.6 RECORDS OF NOVO. The copies of the Articles of Incorporation, Bylaws
and other documents and agreements of Novo which were provided to the MacManus
are true, accurate, and complete and reflect all amendments made through the
date of this Agreement. The minute books and other records of corporate actions
for Novo made available to the MacManus for review were correct and complete as
of the date of such review, no further entries have been made through the date
of this Agreement, such minute books and records contain the true signatures of
the persons purporting to have signed them, and such minute books and records
contain an accurate record of all actions of Novo and directors (and any
committees thereof) of Novo taken by written consent or at a meeting or
otherwise since incorporation or formation. All corporate actions by Novo have
been duly authorized or ratified. The stock ledger of Novo, as previously made
available to MacManus, contains accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of Novo.
2.7 NO SUBSIDIARIES. Novo does not own, directly or indirectly, any
outstanding voting securities of or other interest in, or control, any other
corporation, partnership, limited liability company, joint venture or other
entity.
2.8 NOVO FINANCIAL STATEMENTS. Novo has delivered or made available to
the MacManus Parties the financial statements of Novo for the fiscal year ended
December 31, 1998 and for the period ended June 30, 1999 (collectively, the
"Novo Financial Statements"). The balance sheet of Novo dated as of June 30,
1999 included in the Novo Financial Statements is referred to herein as the
"Current Novo Balance Sheet." The Novo Financial Statements fairly present the
financial position of Novo at each of the balance sheet dates and have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated. There are no material special or non-recurring items of income or
expense during the periods covered by the Novo Financial Statements, and the
balance sheets included in the Novo Financial Statements do not reflect any
write-up or revaluation increasing the book value of any assets. The Novo
Financial Statements reflect all adjustments necessary for a fair presentation
of the financial information contained therein.
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2.9 CHANGES SINCE THE CURRENT NOVO BALANCE SHEET DATE. Since the date of
the Current Novo Balance Sheet included in the Novo Financial Statements, except
as expressly contemplated by the terms of this Agreement, no Material Adverse
Change has occurred with respect to Novo except as set forth in Schedule 2.9 or
the other Schedules to this Agreement.
2.10 LIABILITIES. Novo has no liabilities or obligations, whether
accrued, absolute, contingent or otherwise, except (a) to the extent reflected
on Novo's Current Balance Sheet and not heretofore paid or discharged, (b)
liabilities incurred in the ordinary course of business consistent with past
practice since the date of the Novo Current Balance Sheet (none of which relates
to (i) any breach of contract or breach of warranty, or (ii) any tort,
infringement or violation of law, or which arose out of any action, suit, claim,
governmental investigation or arbitration proceeding), (c) liabilities incurred
in the ordinary course of business prior to the date of such entity's Current
Balance Sheet which, in accordance with GAAP consistently applied, were not
required to be recorded thereon and which, in the aggregate, are not material,
and (d) as set forth on Schedule 2.10(a) (the liabilities and obligations
referenced in clauses (a), (b), (c) and (d) above are referred to as the "Novo
Designated Liabilities").
2.11 LITIGATION. Except as set forth in Schedule 2.11, there is no
action, suit, arbitration or other legal or administrative proceeding or
governmental investigation pending, or, to the knowledge of Novo, threatened (i)
against, by or affecting Novo or any properties or assets of the same (including
the Novo Leased Premises), or (ii) which questions the validity or
enforceability of this Agreement or the transactions contemplated hereby, and
there is no basis for any of the foregoing. There are no outstanding orders,
decrees or stipulations issued by any Governmental Authority in any proceeding
to which Novo is or was a party which have not been complied with in full or
which continue to impose any obligations on Novo.
2.12 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 2.12(a), or except where a
failure to comply would not have a Material Adverse Effect, Novo is and
has at all times been in full compliance with all Environmental Laws
governing the business, operations, properties and assets of Novo,
including, without limitation: (i) all requirements relating to the
Discharge and Handling of Hazardous Substances; (ii) all requirements
relating to notice, record keeping and reporting; (iii) all requirements
relating to obtaining and maintaining Licenses (as defined herein) for
the ownership by Novo of its properties and assets and the operation of
its business as presently conducted or the ownership and use by Novo of
the Novo Leased Premises (as defined in Section 2.13); and (iv) all
applicable writs, orders, judgments, injunctions, governmental
communications, decrees, informational requests or demands issued
pursuant to, or arising under, any Environmental Laws.
(b) Except as set forth in Schedule 2.12(b), there are no
notices or proceedings pending or, to the knowledge of Novo, threatened
against or involving Novo, its businesses, operations, properties or
assets (including the Novo Leased Premises) issued by any Governmental
Authority or third party with respect to any Environmental Laws or
Licenses issued to Novo thereunder in connection with, related to or
arising out of the ownership or use by Novo of its properties or assets
(including the Novo Leased
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Premises) or the operation of its businesses, which have not been
resolved to the satisfaction of the issuing Governmental Authority or
third party in a manner that would not impose any material obligation,
burden or continuing liability on Novo or the MacManus Parties in the
event that the transactions contemplated by this Agreement are
consummated.
(c) For purposes of this Section and Section 3.13 hereof, the
following terms shall have the meanings ascribed to them below:
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing, migrating or emitting, as any of such terms may
further be defined in any Environmental Law, into or through any medium
including, without limitation, ground water, surface water, land, soil
or air.
"Environmental Laws" means all federal state, regional or local
statutes, laws rules, regulations, codes, ordinances, orders, plans,
injunctions, decrees, rulings, licenses, and changes thereto, or
judicial or administrative interpretations thereof, or similar laws,
whether currently in existence, issued, or promulgated, any of which
govern, purport to govern, or relate to pollution, protection of the
environment, public health and safety, air emissions, water discharges,
waste disposal, hazardous or toxic substances, solid or hazardous waste,
occupational, health and safety, as any of these terms are or may be
defined in such statutes, laws, rules, regulations, codes, orders,
ordinances, plans, injunctions, decrees, rulings, licenses, and changes
thereto, or judicial or administrative interpretations thereof.
"Hazardous Substances" shall be construed broadly to include any
toxic or hazardous substance, material or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi-solid, sludge and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation
under any Environmental Laws or which are or become regulated, listed or
controlled by, under or pursuant to any Environmental Laws, or which has
been or shall be determined or interpreted at any time by any
Governmental Authority to be a hazardous or toxic substance regulated
under any other statute, law, regulation, order, code, rule, order, or
decree.
"Licenses" means all licenses, certificates, permits, approvals,
decrees and registrations.
2.13 REAL ESTATE.
(a) Novo owns no interest, directly or indirectly, in any real
property. Except as listed on Schedule 2.13(a) there has been no real
property (or any interest therein) owned by Novo within the past five
(5) years.
(b) Schedule 2.13(b) sets forth a list of all leases, licenses
or similar agreements to which Novo is a party, which are for the use or
occupancy of real estate owned by a third party ("Novo Leases") (copies
of which have previously been furnished
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to the MacManus Parties), in each case setting forth: (i) the lessor and
lessee thereof and the commencement date, term and renewal rights under
each of the Novo Leases, (ii) the street address or legal description of
each property covered thereby, and (iii) a brief description (including
approximate size and function) of the principal improvements and
buildings thereon (the "Novo Leased Premises"). The Novo Leases are in
full force and effect and have not been amended except as disclosed in
Schedule 2.13(b) and no party thereto is in default or breach under any
such Lease. No event has occurred which, with the passage of time or the
giving of notice or both, would cause a breach of or default under any
of such Novo Leases. With respect to each such Novo Leased Premises: (i)
Novo has a valid leasehold interest in the Novo Leased Premises, which
leasehold interest is free and clear of any Liens, covenants and
casements or title defects of any nature whatsoever; (ii) the portions
of the buildings located on the Novo Leased Premises that are used in
the business of Novo are each in good repair and condition, normal wear
and tear excepted, and are in the, aggregate sufficient to satisfy
Novo's current and reasonably anticipated normal business activities as
conducted thereat; (iii) each of the Novo Leased Premises is served by
all utilities in such quantity and quality as are sufficient to satisfy
the current normal business activities conducted at such parcel; and
(iv) Novo has not received notice of (A) any condemnation proceeding
with respect to any portion of the Novo Leased Premises or any access
thereto and, to the knowledge of Novo, no such proceeding is
contemplated by any Governmental Authority; or (B) any special
assessment which may affect any of the Novo Leased Premises and, to the
knowledge of Novo, no such special assessment is contemplated by any
Governmental Authority.
2.14 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY.
(a) Novo owns and operates its business at the location(s) set forth on Schedule
2.13(a). Except as specifically disclosed in Schedule 2.14, Novo has good
and marketable title to all of its owned Assets free and clear of any Liens.
For purposes of this Agreement, the term "Novo Assets" means all of the
properties and assets of any nature owned or used by the party to which such
term is applied.
(b) The Novo Fixed Assets currently in use or necessary for the business and
operations of Novo, are in good operating condition, normal wear and tear
excepted. For purposes of this Agreement, the term "Fixed Assets" means all
computers, machinery, equipment, supplies, leasehold improvements, furniture
and fixtures, owned, used by or located on the premises of Novo, with
respect to Novo, set forth on the Current Novo Balance Sheet or acquired by
Novo since the date of the Current Novo Balance Sheet.
2.15 COMPLIANCE WITH LAWS. Except as set forth on Schedule 2.15, Novo
and its Affiliates have been in compliance with all laws, regulations and orders
applicable to Novo, its business and operations (as conducted by it now and in
the past), the Assets, the Novo Leased Premises and any other properties and
assets owned or used by it now or in the past, except when any such violation
would not cause a Material Adverse Effect. Neither Novo nor any of its
affiliates has been cited, fined or otherwise notified of any asserted past or
present failure to comply with any laws, regulations or orders and no proceeding
with respect to any such violation is pending or, to the knowledge of Novo,
threatened relating to or in any way affecting Novo.
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Novo is not subject to any decree or injunction to which it is a party which
restricts the continued operation of any business or the expansion thereof to
other geographical areas, customers and suppliers of lines of business. Neither
Novo, nor any of its employees agents, has made any payment of funds in
connection with Novo's business which is prohibited by law, and no funds have
been set aside to be used in connection with its business for payment prohibited
by law, Novo is and at all times has been in full compliance with the terms and
provisions of the Immigration Reform and Control Act of 1986, as amended (the
"Immigration Act"), except where failure to comply would not be material. With
resect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of Novo for whom
compliance with the Immigration Act is required, Novo has on file a true,
accurate and complete copy of (i) each Employee's Form I-9 (Employment
Eligibility Verification Form) and (ii) all other records, documents or other
papers prepared, procured and/or retained pursuant to the Immigration Act. Novo
has not been cited, fined, served with a Notice of Intent to Fine or with a
Cease and Desist order, nor has any action or administrative proceeding been
initiated or, to the knowledge of Novo, threatened against Novo, by the
Immigration and Naturalization Service by reason of any actual or alleged
failure to comply with the Immigration Act.
2.16 LABOR AND EMPLOYMENT MATTERS. Novo is not a party to or bound by
any collective bargaining agreement or any other agreement with a labor union,
and there has been no labor union prior to the date hereof organizing any
employees of Novo into one or more collective bargaining units. There is not
now, and there has not been prior to the date hereof, any actual or, to the
knowledge of Novo, threatened labor dispute, strike or work stoppage which
affects or which may affect the business of Novo, or which may interfere with
its continued operations. Neither Novo, nor any employee, agent or
representative thereof, has since the date of incorporation or formation of
Novo, committed any material unfair labor practice as defined in the National
Labor Relations Act, as amended, and there is no pending or, to the knowledge of
Novo, threatened charge or complaint against Novo by or with the National Labor
Relations Board or any representative thereof. There has been no strike, walkout
or work stoppage involving any of the employees of Novo prior to the date
hereof. To the knowledge of Novo, no executive or key employee or group of
employees has any plans to terminate his, her or their employment with Novo as a
result of the transactions contemplated hereby or otherwise. Novo has complied
with applicable laws, rules and regulations relating to employment, civil rights
and equal employment opportunities, including but not limited to, the Civil
Rights Act of 1964, the Fair Labor Standards Act, and the Americans with
Disabilities Act, all as amended, except where failure to comply would not have
a Material Adverse Effect. Novo has furnished to MacManus a written schedule
containing the salary and other compensation and fringe benefits of the
employees or other workers of Novo to be employed at the Closing, which schedule
is true and complete in all material respects.
2.17 NOVO EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 2.17 contains a list
setting forth each employee benefit plan or arrangement of Novo,
including but not limited to employee pension benefit plans, as defined
in Section 3(2) of ERISA multiemployer plans, as defined in Section
3(37) of ERISA, employee welfare benefit plans, as defined in Section
3(l) of ERISA, deferred compensation plans, stock option plans, bonus
plans, stock purchase plans, hospitalization, disability and other
insurance plans, severance or
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termination pay plans and policies, whether or not described in Section
3(3) of ERISA, in which employees (or their spouses or dependents) of
Novo participate ("Employee Benefit Plans") (true and accurate copies of
which, together with the most recent annual reports on Form 5500 and
summary plan descriptions with respect thereto, have been furnished to
Novo).
(b) Compliance with Law. With respect to each Novo Employee
Benefit Plan (i) each has been administered in all material respects in
compliance with its terms and with all applicable laws, including, but
not limited to, ERISA and the Code; (ii) no actions, suits, claims or
disputes are pending or to the knowledge of Novo, threatened; (iii) no
audits, inquiries, reviews, proceedings, claims, or demands are pending
with any governmental or regulatory agency; (iv) to the knowledge of
Novo there are no facts which could give rise to any liability in the
event of any such investigation, claim, action, suit, audit, review, or
other proceeding; (v) all reports, returns and similar documents
required to be filed with any governmental agency or distributed to any
plan participant have been duly or timely filed or distributed; and (vi)
no "prohibited transaction" has occurred within the meaning of the
applicable provisions of ERISA or the Code. For purposes of this Section
2.17, "Novo Employee Benefit Plans" is defined as each employee benefit
plan or arrangement of Novo, including but not limited to employee
pension benefit plans, as defined in Section 3(2) of the ERISA Act,
multiemployer plans, as defined in Section 3(37) of ERISA, employee
welfare benefit plans, as defined in Section 3(l) of ERISA, deferred
compensation plans, stock option plans, bonus plans, stock purchase
plans, hospitalization, disability and other insurance plans, severance
or termination pay plans and policies, whether or not described in
Section 3(3) of ERISA, in which employees (or their spouses or
dependents) of Novo participate (true and accurate copies of which,
together with the most recent annual reports on Form 5500 and summary
plan descriptions with respect thereto, have been furnished to the
MacManus Parties).
(c) Compliance with Law. With respect to each Novo Employee
Benefit Plan (i) each has been administered in all respects in
compliance with its terms and with all applicable laws, including, but
not limited to, ERISA and the Code; (ii) no actions, suits, claims or
disputes, are pending, or to the knowledge of Novo, threatened; (iii) no
audits, inquiries, reviews, proceedings, claims, or demands are pending
with any governmental or regulatory agency; (iv) there are no facts
which could give rise to any liability in the event of any such
investigation, claim, action, suit, audit, review, or other proceeding;
(v) all reports, returns and similar documents required to be filed with
any governmental agency or distributed to any plan participant have been
duly or timely filed or distributed; and (vi) no "prohibited
transaction" has occurred within the meaning of the applicable
provisions of ERISA or the Code.
(c) Qualified Plans. Novo is not and has not been obligated with
respect to any Novo Employee Benefit Plan intended to qualify under Code
Section 401(a) or 403(a)
(d) Multiemployer Plans. Novo is not and has not been obligated
with respect to any multiemployer plan as described in Section
4001(a)(3) of ERISA.
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(e) Welfare Plans. (i) Novo is not obligated under any employee
welfare benefit plan as described in Section 3(l) of ERISA ("Welfare
Plan") to provide medical or death benefits with respect to any employee
or former employee of Novo or its predecessors after termination of
employment, other than pursuant to Section 4980B of the Code; (ii) Novo
has complied with the notice and continuation coverage requirements of
Section 4980B of the Code and the regulations thereunder with respect to
each Welfare Plan that is, or was during any taxable year for which the
statute of limitations on the assessment of federal income taxes remains
open, by consent or otherwise, a group health plan within the meaning of
Section 5000(b)(1) of the Code; and (iii) there are no reserves, assets,
surplus or prepaid premiums under any Welfare Plan which is a Novo
Employee Benefit Plan. The consummation of the transactions contemplated
by this Agreement will not entitle any individual to severance pay, and,
will not accelerate the time of payment or vesting, or increase the
amount of compensation due to any individual.
(f) Controlled Group Liability. Neither Novo nor any entity that
would be aggregated with Novo under Code Section 414(b), (c), (m) or
(o): (i) has ever terminated or withdrawn from an employee benefit plan
under circumstances resulting (or expected to result) in liability to
the PBGC, the fund by which the employee benefit plan is funded, or any
employee or beneficiary for whose benefit the plan is or was maintained
(other than routine claims for benefits); (ii) has any assets subject to
(or expected to be subject to) a lien for unpaid contributions to any
employee benefit plan; (iii) has failed to pay premiums to the PBGC when
due; (iv) is subject to (or expected to be subject) an excise tax under
Code Section 497 1; (v) has engaged in any transaction which would give
rise to liability under Section 4069 or Section 4212(c) of ERISA; or
(vi) has violated Code Section 4980B or Section 601 through 608 of
ERISA.
(g) Other Liabilities. (i) None of the Novo Employee Benefit
Plans obligates Novo to pay separation, severance, termination or
similar benefits solely as a result of any transaction contemplated by
this Agreement [or solely as a result of a "change of control" (as such
term is defined in Section 280G of the Code)]; (ii) all required or
discretionary (in accordance with historical practices) payments,
premiums, contributions, reimbursements, or accruals for all periods
ending prior to or as of the Closing Date shall have been made or
properly accrued on the Current Novo Balance Sheet or will be properly
accrued on the books and records of Novo as of the Closing Date; and
(iii) none of the Novo Employee Benefit Plans has any unfunded
liabilities which are not reflected on the Current Novo Balance Sheet or
the books and records of Novo.
2.18 TAX MATTERS. Except as set forth in Schedule 2.18. Novo filed or
caused to be filed, within the times and within the manner prescribed by law,
all federal, state and local tax returns and tax reports which are required to
be filed by, or with respect to, Novo. Such returns and reports reflect
accurately all liability for all federal, state and local income, sales, payroll
and withholding taxes and all other material taxes of Novo, for the period
covered thereby, and all amounts shown on such returns and reports as due and
payable have been timely paid. None of the federal, state, local or foreign tax
returns of Novo have ever been audited by the Internal Revenue Service or any
governmental body or agency, domestic or foreign. All federal, state and local
income, profits, franchise, sales, use occupancy, excise, payroll, accumulated
earnings
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tax and other taxes and assessments (including and penalties) payable by, or due
from Novo, (whether in its own night or as transferee of the assets of, or
successor to, any entity) have been fully paid or adequately disclosed and fully
provided for in the books and financial statements of Novo. To the knowledge of
Novo, no examination of any return of Novo is currently in progress and Novo
has not received notice of any proposed audit or examination. There are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any tax return of Novo.
2.19 INSURANCE. Novo is covered by valid, outstanding enforceable
policies of insurance issued to it by reputable insurers covering its
properties, assets and business in amounts and against risks of the nature
normally insured against by similar entities in the same or similar lines of
business in coverage amounts typically and reasonably carried by such entities
(the "Novo Insurance Policies"). Such Novo Insurance Policies are in full force
and effect, and all premiums due thereon have been paid through the date of this
Agreement and will be paid through the Closing Date. Novo has complied with the
provisions of such Novo Insurance Policies applicable to it, and has provided
the MacManus Parties copies of all Novo Insurance Policies and all amendments
and riders thereto. There is no pending claim under any of the Novo Insurance
Policies for an amount in excess of $5,000.00 individually or $25,000.00 in the
aggregate, including any claim for loss or damage to the properties, assets or
business of Novo (including the Novo Leased Premises). Novo has not failed to
give, in a timely manner, any notice required under any of the Novo Insurance
Policies to preserve its rights thereunder.
2.20 RECEIVABLES. All of the Novo Receivables are valid and legally
binding, represent bona fide transactions and arose in the ordinary course of
business of Novo. All of the Novo Receivables are good and collectible
receivables, and will be collected in accordance with past practice and the
terms of such receivables (and in any event within six months following the
Closing Date), without set off or counterclaims, subject to the allowance for
doubtful accounts, if any, set forth on the Current Novo Balance Sheet, as
reasonably adjusted since the date of the Current Novo Balance Sheet in the
ordinary course of business, consistent with GAAP. For purposes of this
Agreement, the term "Novo Receivables" means all receivables of Novo, including
without limitation all contracts in transit and all trade account receivables
arising from the provision of services, notes receivable, and insurance proceeds
receivable.
2.21 LICENSES AND PERMITS. Except as set forth on Schedule 2.21. Novo
possesses all licenses and required governmental or official approvals, permits
or authorizations (collectively, the "Novo Permits") for its business and
operations, including with respect to the operations of the Novo Leased
Premises, except where the failure to so possess such license would not be
material. All such Novo Permits are valid and in full force and effect, Novo is
in compliance with the respective requirements thereof, and no proceeding is
pending or, to the knowledge of Novo, threatened to revoke or amend any of them.
None of such Novo Permits is or will be impaired or in any way affected by the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
2.22 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS;
AFFILIATED TRANSACTIONS. The Novo Assets and the Novo Leased Premises
constitute, in the aggregate, all of the assets and properties necessary for the
conduct of the business of Novo in the manner in which and to the extent to
which such business is currently being conducted.
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Except as set forth on Schedule 2.22, Novo has no direct or indirect interest
in any customer, supplier or competitor of Novo or in any person from whom or
to whom Novo leases real or personal property. No Principal and no officer or
director in Novo, nor any person related by blood or marriage to any such
person, nor any entity in which any such person owns any beneficial interest, is
a party to any Contract or transaction with Novo or has any interest in any
property used by Novo (all such ownership, Contracts, transactions and
interests, collectively "Novo Affiliated Transactions"), except as set forth on
Schedule 2.22.
2.23 INTELLECTUAL PROPERTY.
(a) Novo owns or possesses sufficient legal rights to all
patents, trademarks, service marks, tradenames, copyrights, trade
secrets, licenses, information and proprietary rights and processes
necessary for its business without any conflict with, or infringement
of, the rights of others. Novo has not received any communications
alleging that Novo has violated or, by conducting its business, would
violate any of the patents, trademarks, service marks, tradenames,
copyrights, trade secrets or other proprietary rights or processes of
any other person or entity. Novo is not aware that any officer, director
or employee is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency,
that would interfere with the use of his or her best efforts to promote
the interest of Novo, or that would conflict with Novo's business or
prevent any such officer, director or employee from assigning inventions
to Novo. Neither the execution or delivery of this Agreement, nor the
carrying on of Novo's business by the employees of Novo, nor the conduct
of Novo's business as proposed, will, to Novo's knowledge, conflict with
or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant or instrument under
which any such employee is now obligated. Novo does not believe it is or
will be necessary to use any inventions of any of its employees (or
persons it currently intends to hire) made prior to their employment by
Novo.
(b) No claims have been asserted against Novo, and to the
knowledge of Novo (actual knowledge in the case of common law trademarks
and tradenames and patents) there are no claims which are reasonably
likely to be asserted against Novo or which have been asserted against
others by any person challenging Novo's use or distribution of any
trademarks, tradenames, copyrights, works of authorship, trade secrets,
software, technology, know-how or processes utilized by Novo or
challenging or questioning the validity or effectiveness of any license
or agreement relating thereto. The use of any trademarks, tradenames,
copyrights, works of authorship, software, technology, know-how or
processes by Novo in its business does not infringe on the rights of,
constitute misappropriation of, or in any way involve unfair competition
with respect to, any proprietary information or intangible property
right of any third person or entity, including, without limitation, any
patent, trade secret, copyright, trademark or tradename; provided,
however, that such representation is made only to Novo's actual
knowledge with respect to common law trademarks and tradenames,
technology, patent or similar intangible property right where
infringement is possible without wrongful taking.
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(c) To the best knowledge of Novo, all designs, drawings,
specifications, source code, object code, documentation, flow charts and
diagrams incorporated in any of Novo's proprietary rights constitute
original creations of and were written, developed and created solely and
exclusively by employees of Novo without the assistance of any third
party or entity, were public domain or were created by, or with the
assistance of, third parties who assigned ownership of or licensed their
rights to Novo in valid and enforceable agreements. Novo has at all
times used commercially reasonable efforts to treat its trade secrets as
confidential and has not disclosed or otherwise dealt with such items in
such a manner as to cause the loss of such trade secrets by release
into the public domain.
(d) To the best knowledge of Novo, no employee of Novo is in
violation of any term of any employment contract, patent disclosure
agreement, confidentiality agreement or any other contract or agreement
relating to the relationship of any such employee with Novo or, to the
knowledge of Novo, any other party because of the nature of Novo's
business.
2.24 CONTRACTS. Novo has made available to, or given copies of, each
Novo Material Contract to the MacManus Parties, and such Novo Material Contracts
are the true, correct and complete documents regarding each such Novo Material
Contract (defined below). Each Novo Material Contract furnished or made
available to the MacManus Parties is true and complete and reflects all
amendments thereto made through the date of this Agreement and the list of such
Novo Material Contracts set forth on Schedule 2.24 Is a true and complete list
of the Novo Material Contracts. Novo has not violated any of the terms or
conditions of any Novo Material Contract or any term or condition which would
permit termination or modification of any Novo Material Contract; all of the
covenants to be performed pursuant to any Novo Material Contract by any other
party thereto have been fully performed; there are no claims for breach or
indemnification or notice of default or termination under any Novo Material
Contract; and each of the Novo Material Contracts is enforceable in accordance
with its terms. To the knowledge of Novo, no event has occurred which
constitutes, or after notice or the passage of time, or both, would constitute,
a default by Novo under any Novo Material Contract, and to the knowledge of
Novo, no such event has occurred which constitutes or would constitute a default
by any other party. Novo is not subject to any liability or payment resulting
from renegotiation of amounts paid under any Novo Material Contract.
As used in this Section 2.24 "Novo Material Contracts" shall include,
without limitation, formal or informal, all written or oral (a) loan agreements,
indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale
or title retention agreements, security agreements, equipment financing
obligations or guaranties, or other sources of contingent liability in respect
of any indebtedness or obligations of Novo to any other Person, or letters of
intent or commitment letters with respect to same (other than those which
individually provide for annual payments of less than $50,000); (b) contracts
obligating Novo to provide products or services valued at over $200,000; (c)
leases of the Novo Leased Premises to or from third parties and Novo; (d) leases
of personal property by Novo (other than those which individually provide for
annual payments of less than $20,000); (e) employment agreements, management
service
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agreements, consulting agreements, confidentiality agreements, non-competition
agreements, employee handbooks, policy statements and any other agreements
relating to any employee, officer or director of or partner in Novo (except for
routine NDAs and noncompete provisions applicable to standard employment
agreements and initial business development introductory meetings and
discussions); (f) licenses, assignments or transfers of trademarks, trade names,
service marks, patents, copyrights, trade secrets or know how, or other
agreements regarding proprietary rights or intellectual property with respect to
which Novo is a party; (g) any contract relating to pending capital expenditures
by Novo; (h) any contracts obligating Novo to make payments in excess of $50,000
over the remaining terms of such contract; and (i) all other material Contracts
or understandings outside of the ordinary course of business with respect to
which Novo is a party or pursuant to which any of its assets is bound,
irrespective of subject matter and whether or not in writing, and not otherwise
disclosed on the Schedules.
(c) Except as set forth in Schedule 2.24, all of the representations set
forth in this Section 2.24 are true and correct as of the date hereof to the
best knowledge of Novo.
2.25 ACCURACY OF INFORMATION FURNISHED. No representation, statement or
information contained in this Agreement (including, without limitation, the
various Schedules attached hereto) or any agreement executed in connection
herewith or in any certificate delivered pursuant hereto or thereto or made or
furnished to the MacManus Parties or its representatives by Novo, contains or
shall contain any untrue statement of a fact or omits or shall omit any fact
necessary to make the information contained therein not misleading. Novo has
provided the MacManus Parties with true, accurate and complete copies of all
documents listed or described in the various Schedules attached hereto.
2.26 NO COMMISSIONS. Novo has not incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
2.27 CHEAT RELATIONS. Novo has previously provided MacManus with a
written schedule setting forth Novo's clients as of the date of the Current
Balance Sheet Date, and the revenues from each client for the calendar year
ended December 31, 1998 and the six months ended June 30, 1999, and the
estimated revenues for each client for the twelve months ending December 31,
1999. Novo does not warrant that the estimated revenues set forth on such
schedule will prove to be accurate; provided, however, Novo does represent that
they were made in good faith and on a reasonable basis. Except as previously
disclosed to MacManus in writing, no client of Novo has advised Novo in writing
that it is (x) terminating or considering terminating the handling of its
business by Novo as a whole or in respect of any particular product, project or
service; (y) planning to reduce its future spending with Novo in any material
manner, or (z) materially dissatisfied with the services provided by Novo; and
to the knowledge of Novo (without making any special inquiry of any clients), no
client has orally advised Novo of any of the foregoing events.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE
MACMANUS PARTIES
As a material inducement to Novo to enter into this Agreement and to
consummate the transactions contemplated hereby, the MacManus Parties, except as
set forth in applicable schedules attached hereto which shall be deemed part of
any of the representations set forth in this Article 3, jointly and severally,
make the following representations and warranties to Novo:
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3.1 CORPORATE STATUS OF MACMANUS PARTIES. MacManus and Seller each are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware. The MacManus Parties each have the requisite
power and authority to own or lease its properties and to carry on its business
as now being conducted. There is no pending or threatened proceeding for the
dissolution, liquidation, in solvency, reorganization, or rehabilitation of
MacManus or Seller, except as could not reasonably be expected to have a
Material Adverse Effect on the MacManus Parties.
3.2 CORPORATE STATUS OF BLUE MARBLE. Blue Marble is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Blue Marble has the requisite power and authority to own or lease its
properties and to carry on its business as now being conducted. Blue Marble is
legally qualified to do business as a foreign entity in each of the
jurisdictions in which it is required to be so qualified, which represent all
jurisdictions where the nature of its properties and the conduct of its business
require such qualification, and is in good standing in each of the jurisdictions
in which it is so qualified except where the failure to so qualify will not have
a material adverse affect on Blue Marble. There is no pending or threatened
proceeding for the dissolution, liquidation, insolvency, reorganization, or
rehabilitation of Blue Marble, except as could not reasonably be expected to
have a Material Adverse Effect on the MacManus Parties.
3.3 POWER AND AUTHORITY. Each of the MacManus Parties has the corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated hereby.
Each of the MacManus Parties has taken all corporate action necessary to
authorize the execution and delivery of this Agreement, the performance of its
respective obligations hereunder, and the consummation of the transactions
contemplated hereby.
3.4 ENFORCEABILITY. This Agreement has been duly executed and delivered
by or on behalf of each of the MacManus Parties and constitutes the legal, valid
and binding obligation of each of them, enforceable against each of them in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws. affecting
the enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
3.5 CAPITALIZATION. Schedule 3.5 sets forth, as of the date hereof, with
respect to Blue Marble, (a) the number of authorized shares of each class of its
capital stock, and (b) the number of issued and outstanding shares of each class
of its capital stock. All of the issued and outstanding shares of capital stock
(i) have been duly authorized and validly issued and are fully paid and
nonassessable, (ii) were issued in compliance with all applicable state and
federal securities laws, and (iii) were not issued in violation of any
preemptive rights or rights of first refusal or similar rights. No preemptive
rights or rights of first refusal or similar rights exist with respect to any
shares of capital stock of Blue Marble and no such rights arise by virtue of or
in connection with the transactions contemplated hereby except as set forth in
this Agreement; there are no outstanding or authorized rights, options, wants,
convertible securities, subscription rights, conversion rights, exchange rights
or other agreements or commitments of any kind that could require Blue Marble to
issue or sell any shares of its capital stock (or securities convertible into or
exchangeable for shares of its capital stock), there are no outstanding stock
appreciation, phantom stock, profit participation or other similar rights with
respect to Blue Marble, there are
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no proxies, voting rights or other agreements or understandings with respect to
the voting or transfer of the capital stock of Blue Marble and Blue Marble is
not obligated to redeem or otherwise acquire any of its outstanding shares of
capital stock.
3.6 NO VIOLATION. Except for any approvals or consents required under
the Material Contracts (as defined in Section 3.25), the execution and delivery
of this Agreement by the MacManus Parties, the performance by such parties of
their respective obligations hereunder and the consummation by them of the
transactions contemplated by this Agreement will not (a) contravene any
provision of the Articles of Incorporation, Bylaws, or other organizational or
governing document of Blue Marble or the Certificate of Incorporation, Bylaws,
or other organizational or governing document of MacManus, (b) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against Blue Marble, (c) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right of payment
under or the right to terminate, amend, modify, abandon or accelerate, any
material Contract and which is applicable to, binding upon or enforceable
against Blue Marble, or any of their assets, (d) result in or require the
creation or imposition of any Lien upon or with respect to any of the properties
or assets of any MacManus Party, (e) give to any Person a right or claim against
Blue Marble, or (f) require the consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority, any court or
tribunal or any other Person, except (i) pursuant to the Securities Act, (ii)
filings required under the securities or blue sky laws of the various states, in
each case which will be made or obtained prior to Closing except as allowed by
law to occur after Closing.
3.7 RECORDS OF BLUE MARBLE. The copies of the Articles of Incorporation,
Bylaws and other documents and agreements of Blue Marble which were provided to
Novo are true, accurate, and complete and reflect all amendments made through
the date of this Agreement. The minute books and other records of corporate
actions for Blue Marble made available to Novo for review were correct and
complete as of the date of such review, no further entries have been made
through the date of this Agreement, such minute books and records contain the
true signatures of the persons purporting to have signed them, and such minute
books and records contain an accurate record of all actions of MacManus and
directors (and any committees, thereof) of Blue Marble taken by written consent
or at a meeting or otherwise since incorporation or formation. All corporate
actions by Blue Marble have been duly authorized or ratified. The stock ledger
of Blue Marble, as previously made available to Novo, contains accurate and
complete records of all issuances, transfers and cancellations of shares of the
capital stock of Blue Marble.
3.8 NO SUBSIDIARIES. Blue Marble does not own, directly or indirectly,
any outstanding voting securities of or other interests in, or control, any
other corporation, partnership, limited liability company, joint venture or
other entity.
3.9 FINANCIAL STATEMENTS. The MacManus Parties have delivered or made
available to Novo the financial statements of Blue Marble for the fiscal year
ended December 31, 1998 and for the period ended June 30, 1999 (collectively,
the "Financial Statements"). The balance sheet of Blue Marble dated as of June
30, 1999 included in the Financial Statements is referred to
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herein as the "Current Balance Sheet." The Financial Statements fairly present
the financial position of Blue Marble at each of the balance sheet dates and
have been prepared in accordance with GAAP consistently applied throughout the
periods indicated. There are no material special or non-recurring items of
income or expense during the periods covered by the Financial Statements, and
the balance sheets included in the Financial Statements do not reflect any write
up or revaluation increasing the book value of any assets. The Financial
Statements reflect all adjustments necessary for a fair presentation of the
financial information contained therein.
3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Since the date of the
Current Balance Sheet included in the Financial Statements, except as expressly
contemplated by the terms of this Agreement, no Material Adverse Change has
occurred with respect to the Blue Marble except as set forth in Schedule 3.10
or the other Schedules to this Agreement.
3.11 LIABILITIES. Blue Marble has no liabilities or obligations, whether
accrued, absolute, contingent or otherwise, except (a) to the extent reflected
on Blue Marble's Current Balance Sheet and not heretofore paid or discharged,
(b) liabilities incurred in the ordinary course of business consistent with past
practice since the date of the Blue Marble Current Balance Sheet (none of which
relates to (i) any breach of contract or breach of warranty, or (ii) any tort,
infringement or violation of law, or which arose out of any action, suit, claim,
governmental investigation or arbitration proceeding), (c) liabilities incurred
in the ordinary course of business prior to the date of such entity's Current
Balance Sheet which, in accordance with GAAP consistently applied, were not
required to be recorded thereon and which, in the aggregate, are not material,
and (d) as set forth on Schedule 3.11(a) (the liabilities and obligations
referenced in clauses (a), (b), (c) and (d) above are referred to as the "Blue
Marble Designated Liabilities").
3.12 LITIGATION. Except as set forth in Schedule 3.12, there is no
action, suit, arbitration or other legal or administrative proceeding or
governmental investigation pending, or, to the knowledge of Blue Marble,
threatened (i) against, by or affecting any Blue Marble or any properties or
assets of any of the same (including the Leased Premises), or (ii) which
questions the validity or enforceability of this Agreement or the transactions
contemplated hereby, and there is no basis for any of the foregoing. There are
no outstanding orders, decrees or stipulations issued by any Governmental
Authority in any proceeding to which Blue Marble is or was a party which have
not been complied with in full or which continue to impose any obligations on
Blue Marble.
3.13 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 3.13(a), or except where a
failure to comply would not have a Material Adverse Effect, Blue Marble
is and has at all times been in full compliance with all Environmental
Laws governing the business, operations, properties and assets of Blue
Marble, including, without limitation: (i) all requirements relating to
the Discharge and Handling of Hazardous Substances; (ii) all
requirements relating to notice, record keeping and reporting; (iii) all
requirements relating to obtaining and maintaining Licenses (as defined
herein) for the ownership by Blue Marble of its properties and assets
and the operation of its business as presently conducted or the
ownership and use by Blue Marble of the Leased Premises (as defined in
Section 3.14);
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and (iv) all applicable writs, orders, judgments, injunctions,
governmental communications, decrees, informational requests or demands
issued pursuant to, or arising under, any Environmental Laws.
(b) Except as set forth in Schedule 3.13(b) there are no notices
or proceedings pending or to the knowledge of the MacManus Parties
threatened against or involving Blue Marble, their businesses,
operations, properties or assets (including the Leased Premises) issued
by any Governmental Authority or third party with respect to any
Environmental Laws or Licenses issued to Blue Marble thereunder in
connection with, related to or arising out of the ownership or use by
Blue Marble of its properties or assets (including the Leased Premises)
or the operation of its businesses, which have not been resolved to the
satisfaction of the issuing Governmental Authority or third party in a
manner that would not impose any material obligation, burden or
continuing liability on Novo or Blue Marble in the event that the
transactions contemplated by this Agreement are consummated.
3.14 REAL ESTATE.
(a) Except as set forth in Schedule 3.14(a) Blue Marble owns
no interest, directly or indirectly, in any real property and there has
been no real property (or any interest therein) owned by Blue Marble
within the past five (5) years.
(b) Schedule 3.14(b) sets forth a list of all leases, licenses
or similar agreements to which Blue Marble is a party, which are for the
use or occupancy of real estate owned by a third party ("Leases")
(copies of which have previously been furnished to Novo), in each case
setting forth: (i) the lessor and lessee thereof and the commencement
date, term and renewal rights under each of the Leases; (ii) the street
address or legal description of each property covered thereby; and (iii)
a brief description (including approximate size and function) of the
principal improvements and buildings thereon (the "Leased Premises").
The Leases are in full force and effect and have not been amended except
as disclosed in Schedule 3.14(b), and no party thereto is in default or
breach under any such Lease. No event has occurred which, with the
passage of time or the giving of notice or both, would cause a breach of
or default under any of such Leases. With respect to each such Leased
Premises: (i) Blue Marble has a valid leasehold interest in the Leased
Premises, which leasehold interest is free and clear of any Liens,
covenants and casements or title defects of any nature whatsoever; (ii)
the portions of the buildings located on the Leased Premises that are
used in the business of Blue Marble are each in good repair and
condition, normal wear and tear excepted, and are in the aggregate
sufficient to satisfy Blue Marble's current and reasonably anticipated
normal business activities as conducted thereat; (iii) each of the
Leased Premises is served by all utilities in such quantity and quality
as are sufficient to satisfy the current normal business activities
conducted at such parcel; and (iv) none of the MacManus Parties has
received notice of (A) any condemnation proceeding with respect to any
portion of the Leased Premises or any access thereto and, to the
knowledge of the MacManus Parties, no such proceeding is contemplated by
any Governmental Authority; or (B) any special assessment which may
affect any of the Leased Premises and, to the
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knowledge of the MacManus Parties, no such special assessment is
contemplated by any Governmental Authority.
3.15 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY
(a) Blue Marble owns and operates its business at the
location(s) set forth on Schedule 3.14(a). Upon the consummation of the
transactions contemplated hereby, Novo will have acquired and own all of
Blue Marble's assets and operations. Except as specifically disclosed in
Schedule 3.15(a), Blue Marble has good and marketable title to all of
its owned Assets free and clear of any Liens. For purposes of this
Agreement, the term "Blue Marble Assets" means all of the properties and
assets of any nature owned or used by Blue Marble.
(b) The Blue Marble Fixed Assets currently in use or necessary
for the business and operations of Blue Marble, are in good operating
condition, normal wear and tear excepted. For purposes of this
Agreement, the term "Blue Marble Fixed Assets" means all computers,
machinery, equipment, supplies, leasehold improvements, furniture and
fixtures, owned, used by or located on the premises of Blue Marble, with
respect to Blue Marble, set forth on the Current Blue Marble Balance
Sheet or acquired by Blue Marble since the date of the Current Blue
Marble Balance Sheet.
3.16 COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.16, Blue
Marble has been in compliance with all laws, regulations and orders applicable
to Blue Marble, its business and operations (as conducted by it now and in the
past), the Assets, the Leased Premises and any other properties and assets owned
or used by it now or in the past, except when any such violation would not cause
a Material Adverse Effect. No MacManus Party, nor any affiliates of a MacManus
Party, has been cited, fined or otherwise notified of any asserted past or
present failure to comply with any laws, regulations or orders and no proceeding
with respect to any such violation is pending or, to the knowledge of the
MacManus Parties, threatened relating to or in any way affecting Blue Marble.
Blue Marble is not subject to any decree or injunction to which it is a party
which restricts the continued operation of any business or the expansion thereof
to other geographical areas, customers and suppliers or lines of business. None
of the MacManus Parties, nor any of their employees or agents, has made any
payment of funds in connection with Blue Marble's business which is prohibited
by law, and no funds have been set aside to be used in connection with its
business for any payment prohibited by law. Blue Marble is and at all times has
been in full compliance with the terms and provisions of the Immigration Reform
and Control Act of 1986, as amended (the "Immigration Act"), except where
failure to comply would not be material. With respect to each Employee (as
defined in 8 C.F.R. 274a.1(f)) of Blue Marble for whom compliance with the
Immigration Act is required, Blue Marble has on file a true, accurate and
complete copy of (i) each Employee's Form I-9 (Employment Eligibility
Verification Form) and (ii) all other records, documents or other papers
prepared, procured and/or retained pursuant to the Immigration Act. Blue Marble
has not been cited, fined, served with a Notice of Intent to Fine or with a
Cease and Desist Order, nor has any action or administrative proceeding been
initiated or, to the knowledge of the MacManus Parties, threatened against Blue
Marble, by the Immigration and Naturalization Service by reason of any actual
or alleged failure to comply with the Immigration Act.
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3.17 LABOR AND EMPLOYMENT MATTERS. Except as set forth on Schedule 3.17
Blue Marble is not a party to any employment agreement and Blue Marble is not a
party to or bound by any collective bargaining agreement or any other agreement
with a labor union, and there has been no labor union prior to the date hereof
organizing any employees of Blue Marble into one or more collective bargaining
units. There is not now, and there has not been prior to the date hereof, any
actual or, to the knowledge of the MacManus Parties, threatened labor dispute,
strike or work stoppage which affects or which may affect the business of Blue
Marble, or which may interfere with its continued operations. Neither Blue
Marble, nor any employee, agent or representative thereof, has since the date of
incorporation or formation of Blue Marble, committed any material unfair labor
practice as defined in the National Labor Relations Act, as amended, and there
is no pending or, to the knowledge of the MacManus Parties, threatened charge or
complaint against Blue Marble by or with the National Labor Relations Board or
any representative thereof. There has been no strike, walkout or work stoppage
involving any of the employees of Blue Marble prior to the date hereof. To the
knowledge of the MacManus Parties, no executive or key employee or group of
employees has any plans to terminate his, her or their employment with Blue
Marble as a result of the transactions contemplated hereby or otherwise. Blue
Marble has complied with applicable laws, rules and regulations relating to
employment, civil rights and equal employment opportunities, including but not
limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the
Americans with Disabilities. Act, all as amended, except where failure to comply
would not have a Material Adverse Effect. Blue Marble has previously furnished
to Novo a written schedule containing the salary and other compensation and
fringe benefits of the employees or other workers of Blue Marble to be employed
at the Closing, which schedule is true and complete in all material respects.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 3.18 contains a list
setting forth each employee benefit plan or arrangement of Blue Marble,
including but not limited to employee pension benefit plans, as defined
in Section 3(2) of ERISA multiemployer plans, as defined in Section
3(37) of ERISA, employee welfare benefit plans, as defined in Section
3(l) of ERISA, deferred compensation plans, stock option plans, bonus
plans, stock purchase plans, hospitalization, disability and other
insurance plans, severance or termination pay plans and policies,
whether or not described in Section 3(3) of ERISA, in which employees
(or their spouses or dependents) of Blue Marble participate ("Employee
Benefit Plans") (true and accurate copies of which, together with the
most recent annual reports on Form 5500 and summary plan descriptions
with respect thereto, have been furnished to Novo).
(b) Compliance with Law. With respect to each Blue Marble
Employee Benefit Plan (i) each has been administered in all material
respects in compliance with its terms and with all applicable laws,
including, but not limited to, ERISA and the Code; (ii) no actions,
suits, claims or disputes are pending, or to the knowledge of the
MacManus Parties, threatened; (iii) no audits, inquiries, reviews,
proceedings, claims, or demands are pending with any governmental or
regulatory agency; (iv) to the knowledge of the MacManus Parties there
are no facts which could give rise to any liability in the event of any
such investigation, claim, action, suit, audit, review, or other
proceeding; (v) all reports, returns and similar documents required to
be filed with any governmental agency
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or distributed to any plan participant have been duty or timely filed or
distributed; and (vi) no "prohibited transaction" has occurred within
the meaning of the applicable provisions of ERISA or the Code.
(c) Qualified Plans. Blue Marble is not and has not been
obligated with respect to any Employee Benefit Plan intended to qualify
under Code Section 401(a) or 403(a)
(d) Multiemployer Plans. Blue Marble is not and has not been
obligated with respect to any multiemployer plan as described in Section
4001(a)(3) of ERISA.
(e) Welfare Plans. (i) Blue Marble is not obligated under any
employee welfare benefit plan as described in Section 3(l) of ERISA
("Welfare Plan") to provide medical or death benefits with respect to
any employee or former employee of Blue Marble or its predecessors after
termination of employment, other than pursuant to Section 4980B of the
Code; (ii) Blue Marble has complied with the notice and continuation
coverage requirements of Section 4980B of the Code and the regulations
thereunder with respect to each Welfare Plan that is, or was during any
taxable year for which the statute of limitations on the assessment of
federal income taxes remains open, by consent or otherwise, a group
health plan within the meaning of Section 5000(b)(1) of the Code; and
(iii) there are no reserves, assets, surplus or prepaid premiums under
any Welfare Plan which is an Employee Benefit Plan. The consummation of
the transactions contemplated by this Agreement will not entitle any
individual to severance pay, and, will not accelerate the time of
payment or vesting, or increase the amount of compensation due to any
individual.
(f) Controlled Group Liability. Neither Blue Marble nor any
entity that would be aggregated with Blue Marble under Code Section
414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from an
employee, benefit plan under circumstances resulting (or expected to
result) in liability to the PBGC, the fund by which the employee benefit
plan is funded, or any employee or beneficiary for whose benefit the
plan is or was maintained (other than routine claims for benefits); (ii)
has any assets subject to (or expected to be subject to) a lien for
unpaid contributions to any employee benefit plan; (iii) has failed to
pay premiums to the PBGC when due (iv) is subject to (or expected to be
subject) an excise tax under Code Section 4971; (v) has engaged in any
transaction which would give rise to liability under Section 4069 or
Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or
Section 601 through 608 of ERISA.
(g) Other Liabilities. (i) None of the Employee Benefit Plans
obligates Blue Marble to pay separation, severance, termination or
similar benefits solely as a result of any transaction contemplated by
this Agreement or solely as a result of a "change of control" (as such
term is defined in Section 280G of the Code); (ii) all required or
discretionary (in accordance with historical practices) payments,
premiums, contributions, reimbursements, or accruals for all periods
ending prior to or as of the Closing Date shall have been made or
properly accrued on the Current Balance Sheet or will be properly
accrued on the books and records of Blue Marble as of the Closing Date;
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and (iii) none of the Employee Benefit Plans has any unfunded
liabilities which are not reflected on the Current Balance Sheet or the
books and records of Blue Marble.
3.19 TAX MATTERS. Except as set forth in Schedule 3.19, Blue Marble
filed or caused to be filed within the times and within the manner prescribed by
law, all federal, state and local tax returns and tax reports which are required
to be filed by, or with respect to, Blue Marble. Such returns and reports
reflect accurately all liability for all federal, state and local income, sales,
payroll and withholding taxes and all other material taxes of Blue Marble, for
the period covered thereby, and all amounts shown on such returns and reports as
due and payable have been timely paid. None of the federal, state, local or
foreign tax returns of Blue Marble have ever been audited by the Internal
Revenue Service or any governmental body or agency, domestic or foreign. All
federal, state and local income, profits, franchise, sales, use occupancy,
excise, payroll, accumulated, earnings, tax and other taxes and assessments
(including interest and penalties) payable by, or due from Blue Marble, (whether
in its own right or as transferee of the assets of, or successor to, any entity)
have been fully paid or adequately disclosed and fully provided for in the books
and financial statements of Blue Marble. To the knowledge of the MacManus
Parties, no examination of any return of Blue Marble is currently in progress
and Blue Marble has not received notice of any proposed audit or examination.
There are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any tax return of Blue Marble.
3.20 INSURANCE. Blue Marble is covered by valid, outstanding enforceable
policies of insurance issued to it by reputable insurers covering its
properties, assets and business in amounts and against risks of the nature
normally insured against by similar entities in the same or similar lines of
business in coverage amounts typically and reasonably carried by such entities
(the "Insurance Policies"). Such Insurance Policies are in full force and
effect, and all premiums due thereon have been paid through the date of this
Agreement and will be paid through the Closing Date. Blue Marble has complied
with the provisions of such Insurance Policies applicable to it, and has
provided Novo copies of all Insurance Policies and all amendments and riders
thereto. There is no pending claim under any of the Insurance Policies for an
amount in excess of $5,000.00 individually or $25,000.00 in the aggregate,
including any claim for loss or damage to the properties, assets or business of
Blue Marble (including the Leased Premises). Blue Marble has not failed to give,
in a timely manner, any notice required under any of the Insurance Policies to
preserve its rights thereunder.
3.21 RECEIVABLES. All of the Blue Marble Receivables are valid and
legally binding, represent bona fide transactions and arose in the ordinary
course of business of Blue Marble. All of the Blue Receivables are good and
collectible receivables, and will be collected in accordance with past practice
and the terms of such receivables (and in any event within six months following
the Closing Date), without set off or counterclaims, subject to the allowance
for doubtful accounts, if any, set forth on the Current Blue Marble Balance
Sheet, as reasonably adjusted since the date of the Current Blue Marble Balance
Sheet in the ordinary course of business, consistent with GAAP. For purposes of
this Agreement, the term "Receivables" means all receivables of Blue Marble,
including without limitation all contracts in transit and all trade account
receivables arising from the provision of services, notes receivable, and
insurance proceeds receivable.
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3.22 LICENSES AND PERMITS. Except as set forth on Schedule 3.22, Blue
Marble possesses all licenses and required governmental or official approvals,
permits or authorizations (collectively, the "Permits") for its business and
operations, including with respect to the operations of the Leased Premises,
except where the failure to so possess such license would not be material.
Schedule 3.22 sets forth a true, complete and accurate list of all such Permits.
All such Permits are valid and in full force and effect, Blue Marble is in
compliance with the respective requirements thereof, and no proceeding is
pending or, to the knowledge of the MacManus Parties, threatened to revoke or
amend any of them. None of such Permits is or will be impaired or in any way
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
3.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS;
AFFILIATED TRANSACTIONS. The Blue Marble Assets and the Blue Marble Leased
Premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of the business of Blue Marble in the manner in which
and to the extent to which such business is currently being conducted. Except as
set forth on Schedule 3.23, Blue Marble has no direct or indirect interest in
any customer, supplier or competitor of Blue Marble or in any person from whom
or to whom Blue Marble leases real or personal property. No Principal and no
officer or director in Blue Marble, nor any person related by blood or marriage
to any such person, nor any entity in which any such person owns any beneficial
interest, is a party to any Contract or transaction with Blue Marble or has any
interest in any property used by Blue Marble (all such ownership, Contracts,
transactions and interests, collectively "Blue Marble Affiliated Transactions"),
except as set forth on Schedule 3.23.
3.24 INTELLECTUAL PROPERTY.
(a) Blue Marble owns or possesses sufficient legal rights to all
patents, trademarks, service marks, tradenames, copyrights, trade
secrets, licenses, information and proprietary rights and processes
necessary for its business without any conflict with or infringement of,
the rights of others. The MacManus Parties have not received any
communications alleging that Blue Marble has violated or, by conducting
its business, would violate any of the patents, trademarks, service
marks, tradenames, copyrights, trade secrets or other proprietary rights
or processes of any other person or entity. None of the MacManus Parties
is aware that any officer, director or employee is obligated under any
contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment decree or order of any court
or administrative agency, that would interfere with the use of his or
her best efforts to promote the interest of Blue Marble, or that would
conflict with Blue Marble's business or prevent any such officer,
director or employee from assigning inventions to Blue Marble. Neither
the execution or delivery of this Agreement, nor the carrying on of Blue
Marble's business by the employees of Blue Marble, nor the conduct of
Blue Marble's business as proposed, will, to the MacManus Parties'
knowledge, conflict with or result in a breach of the terms, conditions,
or provisions of, or constitute a default under, any contract, covenant
or instrument under which any such employee is now obligated. Blue
Marble does not believe it is or will be necessary to use any inventions
of any of its employees (or persons it currently intends to hire) made
prior to their employment by Blue Marble.
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(b) No claims have been asserted against Blue Marble, and to the
knowledge of the MacManus Parties (actual knowledge in the case of
common law trademarks and tradenames and patents) there are no claims
which are reasonably likely to be asserted against Blue Marble or which
have been asserted against others by any person challenging Blue
Marble's use or distribution of any trademarks, tradenames, copyrights,
works of authorship, trade secrets, software, technology, know-how or
processes utilized by Blue Marble or challenging or questioning the
validity or effectiveness of any license or agreement relating thereto.
The use of any trademarks, tradenames, copyrights, works of authorship,
software, technology, know-how or processes by Blue Marble in its
business does not infringe on the rights of, constitute misappropriation
of, or in any way involve unfair competition with respect to, any
proprietary information or intangible property right of any third person
or entity, including, without limitation, any patent, trade secret,
copyright, trademark or tradename; provided, however, that such
representation is made only to the MacManus Parties' actual knowledge
with respect to common law trademarks and tradenames, technology, patent
or similar intangible property right where infringement is possible
without wrongful taking.
(c) To the best knowledge of the MacManus Parties, all designs,
drawings, specifications, source code, object code, documentation, flow
charts and diagrams incorporated in any of Blue Marble's proprietary
rights constitute original creations of and were written, developed and
created solely and exclusively by employees of Blue Marble without the
assistance of any third party or entity, were public domain or were
created by, or with the assistance of, third parties who assigned
ownership of or licensed their rights to Blue Marble in valid and
enforceable agreements. Blue Marble has at all times used commercially
reasonable efforts to treat its trade secrets as confidential and has
not disclosed or otherwise dealt with such items in such a manner as to
cause the loss of such trade secrets by release into the public domain.
(d) To the best knowledge of the MacManus Parties, no employee
of Blue Marble is in violation of any term of any employment contract,
patent disclosure agreement, confidentiality agreement or any other
contract or agreement relating to the relationship of any such employee
with Blue Marble or, to the knowledge of the MacManus Parties, any
other party because of the nature of Blue Marble's business.
3.25 CONTRACTS. Blue Marble has made available to, or given copies of,
each Blue Material Contract to the Novo, and such Blue Material Contracts are
the true, correct and complete documents regarding each such Blue Material
Contract (defined below). Each Blue Marble Material Contract furnished or made
available to the Novo is true and complete and reflects all amendments thereto
made through the date of this Agreement and the list of such Blue Marble
Material Contracts attached hereto as Schedule 3.25 is a true and complete list
of the Blue Marble Material Contracts. Blue Marble has not violated any of the
terms or conditions of any Material Contract or any term or condition which
would permit termination or modification of any Material Contract; all of the
covenants to be performed pursuant to any Blue Marble Material Contract by any
other party thereto have been fully performed; there are no claims for breach or
indemnification or notice of default or termination under any Blue Marble
Material Contract; and each of the Blue Marble Material Contracts is enforceable
in accordance with its terms. To the knowledge of the MacManus Parties, no event
has occurred which
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constitutes, or after notice or the passage of time, or both, would constitute a
default by Blue Marble under any Blue Marble Material Contract, and to the
knowledge of the MacManus Parties no such event has occurred which constitutes
or would constitute a default by any other party. Blue Marble is not subject to
any liability or payment resulting from renegotiation of amounts paid under any
Material Contract.
As used in this Section 3.25, "Blue Marble Material Contracts" shall
include, without limitation, formal or informal, all written or oral (a) loan
agreements, indentures, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements, equipment
financing obligations or guaranties, or other sources of contingent liability in
respect of any indebtedness or obligations of Blue Marble to any other Person,
or letters of intent or commitment letters with respect to same (other than
those which individually provide for annual payments of less than $50,000); (b)
contracts obligating Blue Marble to provide products or services which generated
revenue to Blue Marble of more than $200,000 (c) leases of the Leased Premises
to or from third parties and Blue Marble; (d) leases of personal property by
Blue Marble (other than those which individually provide for annual payments of
less than $20,000); (e) employment agreements, management service agreements,
consulting agreements, confidentiality agreements, non-competition agreements,
employee handbooks, policy statements and any other agreements relating to any
employee, officer or director of or partner in Blue Marble (except for routine
NDAs and noncompete provisions applicable to, standard employment agreements and
initial business development introductory meetings and discussions); (f)
licenses, assignments or transfers of trademarks, trade names, service marks,
patents, copyrights, trade secrets or know how, or other agreements regarding
proprietary rights or intellectual property with respect to which Blue Marble is
a party, (g) any contract relating to pending capital expenditures by Blue
Marble; (h) any contracts obligating Blue Marble to make payments in excess of
$50,000 over the remaining terms of such contract, and (i) all other material
Contracts or understandings outside of the ordinary course of business with
respect to which Blue Marble is a party or pursuant to which any of its assets
is bound, irrespective of subject matter and whether or not in writing, and not
otherwise disclosed on the Schedules.
3.26 ACCURACY OF INFORMATION FURNISHED. No representation, statement or
information contained in this Agreement (including, without limitation, the
various Schedules attached hereto) or any agreement executed in connection
herewith or in any certificate delivered pursuant hereto or thereto or made or
furnished to Novo or its representatives by the MacManus Parties contains or
shall contain any untrue statement of a fact or omits or shall omit any fact
necessary to make the information contained therein not misleading. The MacManus
Parties have provided Novo with true, accurate and complete copies of all
documents listed or described in the various Schedules attached hereto.
3.27 NO COMMISSIONS. The MacManus Parties have not incurred any
obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby
3.28 CLIENT RELATIONS. The MacManus Parties have previously provided
Novo with a written schedules setting forth Blue Marble's clients as of the date
of the Blue Marble Current Balance Sheet Date, and the revenues from each client
for the calendar year ended December 31,
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1998 and the six months ended June 30, 1999, and the estimated revenues for each
client for the twelve months ending December 31, 1999. The MacManus Parties do
not warrant that the estimated revenues set forth on such schedule will prove to
be accurate; provided, however, The MacManus Parties do represent that they
were made in good faith and on a reasonable basis.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF MACMANUS
As a material inducement to Novo to enter into this Agreement and to
consummate the transactions contemplated hereby, MacManus makes the following
representations and warranties to Novo:
4.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. MacManus hereby confirms, that
the Series C Common Stock to be acquired by MacManus will be acquired for
investment for MacManus' own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that MacManus has no
present intention of selling, granting any participation in, or otherwise
distributing the same. MacManus further represents that MacManus does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Series C Common Stock.
4.2 DISCLOSURE OF INFORMATION. MacManus has had an opportunity to
discuss Novo's business, management, financial affairs and the terms and
conditions of the offering of the Series C Common Stock with Novo's management
and has had an opportunity to review Novo's facilities. MacManus understands
that such discussions, as well as the other written information delivered by
Novo to MacManus, were intended to describe the aspects of Novo's business which
it believes to be material.
4.3 RESTRICTED SECURITIES. MacManus understands that the Series C Common
Stock have not been, and will not be, registered under the Securities Act, by
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of MacManus' representations as expressed
herein, MacManus understands that the shares of Series C Common Stock are
"restricted securities" under applicable U.S. federal and state securities laws
and that, pursuant to these laws, MacManus must hold the Series C Common Stock
indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. MacManus acknowledges
that Novo has no obligation to register or qualify the Series C Common Stock.
MacManus further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period
for the Series C Common Stock, and on requirements relating to Novo which are
outside of MacManus' control, and which Novo is under no obligation and may not
be able to satisfy.
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4.4 NO PUBLIC MARKET. MacManus understands that no public market now
exists for any of the securities issued by Novo, and that Novo has made no
assurances that a public market will ever exist for the Series C Common
Stock.
4.5 LEGENDS. MacManus understands that the Series C Common Stock may
bear one or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED."
(b) Any legend set forth in the Ancillary Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the
certificate so legended.
4.6 REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend endorsed on
a certificate pursuant to subsection 4.5(a) and the stop transfer instructions
with respect to such legended Securities shall be removed, and Novo shall issue
a certificate without such legend to the holder of such Securities if such
Securities are registered under the Securities Act and a prospectus meeting the
requirements of Section 10 of the Securities Act is available or if such holder
satisfies the requirements of Rule 144.
4.7 ACCREDITED INVESTOR. MacManus is an accredited investor as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act.
4.8 PERMITTED TRANSFERS. MacManus may transfer the Series C Common
Stock without the need of a registration statement or opinion of counsel to the
effect that no registration statement is required if the transferee is an
affiliate of MacManus and the transferee agrees in writing to be bound by the
terms of this Agreement and the Ancillary Agreements to the same extent as if
such Affiliate were the original purchaser of the Series C Common Stock
hereunder, provided that Novo shall receive written notice of such transfer
within thirty (30) days of its completion.
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ARTICLE 5
RESERVED
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
6.2 RESERVED.
6.3 COOPERATION. Each of the parties agrees to cooperate with the other
in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation in connection with the transactions contemplated by this
Agreement and to use their respective reasonable best efforts to agree jointly
on a method to overcome any objections by any Governmental Authority to any such
transactions.
6.4 OTHER ACTIONS. Each of the parties hereto shall use its reasonable
best efforts to take, or cause to be taken, all appropriate actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated herein, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of any Governmental Authority and parties to Contracts
with Blue Marble and Novo as are necessary for the consummation of the
transactions contemplated hereby. Each of the parties shall make on a prompt and
timely basis all governmental or regulatory notifications and filings required
to be made by it for the consummation of the transactions contemplated hereby.
The parties also agree to use reasonable best efforts, consistent with a
mutually acceptable litigation strategy, to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby and to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby. The parties will coordinate their efforts to
pursue legal remedies as contemplated above in order to consummate the
transactions contemplated by this Agreement and to obtain appropriate relief.
6.5 ACCESS TO INFORMATION. The parties hereto shall, and shall cause
their directors, officers, employees, auditors, counsel and agents to, afford
the other party's officers, employees, auditors, counsel and agents reasonable
access at all reasonable times to their respective properties, offices and other
facilities, to its officers and employees and to all books and records, and
shall furnish such persons with all financial, operating and other data and
information as may be requested as necessary to effectuate the transactions
described in this Agreement. Novo shall be entitled to conduct prior to Closing
a due diligence review of the assets, properties, books and records of Blue
Marble, including the Leased Premises. The MacManus Parties shall be entitled
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to conduct prior to Closing a due diligence review of the assets, properties,
books and records of Novo, including the Leased Premises. All parties hereto
shall use reasonable efforts to avoid or minimize the disturbance or disruption
of the operations of the other parties during such investigation. No information
provided to or obtained by the other shall affect any representation or warranty
in this Agreement except as provided for herein.
6.6 RESERVED.
6.7 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement, the subject matter or terms hereof or any
confidential information or other proprietary knowledge concerning the business
or affairs of any other party which it may have acquired from such party in the
course of pursuing the transactions contemplated by this Agreement without the
prior consent of the other parties hereto; provided, that (i) any information
that is otherwise publicly available, without breach of this provision, or has
been obtained from a third party without a breach of such third party's duties,
shall not be deemed confidential information and (ii) that either party hereto
shall be able to disclose such information to its employees and agents and to
such other third parties as necessary as part of the operation of its business,
including disclosure to existing or potential investors, lenders, acquirors or
joint-venture candidates or as required by law or court order. No press release
or other public announcement related to this Agreement or the transactions
contemplated hereby shall be issued by any party or their respective Affiliates
without the prior written consent of the other parties hereto.
6.8 RESERVED.
6.9 RIGHT OF FIRST OFFER. The parties hereto acknowledge the existing
Right of First Offer entered into between MacManus, Seller and Novo pursuant to
that certain Investor Rights' Agreement dated August 31, 1999 and the
applicability of such Right of First Offer to the Series C Common Stock being
exchanged hereto.
6.10 RESERVED.
6.11 RESERVED.
6.12 RESERVED.
6.13 SHAREHOLDER AND DIRECTOR VOTE. MacManus, in executing this
Agreement, consents as the ultimate parent company of Seller and Blue Marble to
the Share Exchange and other transactions contemplated hereby, and waive notice
of any meeting in connection therewith and hereby release and waives (a) all
rights it may possess with respect to the transactions contemplated hereby under
any agreements relating to the sale, purchase or voting of stock in Blue Marble,
and (b) effective as of the Closing, all rights or options of any kind relating,
directly or indirectly, to stock or other equity interests in Blue Marble,
subject to the terms of this Agreement.
6.14 TAX MATTERS.
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(a) Tax Returns. The MacManus Parties shall duly prepare, or
cause to be prepared, and file, or cause to be filed, on a timely basis,
all Tax Returns for Blue Marble for any period ending on or before the
Closing Date. The MacManus Parties shall provide such Tax Returns to
Novo for review at least 20 days prior to their due date (including
extensions where applicable). The MacManus Parties shall not file any
amended Tax Returns with respect to Blue Marble without the prior
written consent of Novo.
(b) Tax Cooperation. The MacManus Parties and Novo shall provide
the other party with such information and records and access to such of
its officers, directors, employees and agents as may be reasonably
requested by the other party in connection with the preparation of any
tax return or any audit or other proceeding relating to Blue Marble.
From and after the Closing, Novo shall cause Blue Marble to obtain the
prior consent of MacManus before entering into any binding agreement
with any tax authority in respect of any audit or other proceeding
relating to a tax return of any such entity filed prior to the Closing
where the effect of such action would adversely affect MacManus'
liabilities hereunder, provided that such consent shall not be
unreasonably withheld or delayed.
(c) Tax Refunds. MacManus shall be entitled to receive all
refunds with respect to Taxes paid with respect to Blue Marble for
taxable periods ending on or prior to the Closing Date.
6.15 WORKING CAPITAL; LONG TERM INDEBTEDNESS.
Working Capital. Each of the MacManus Parties covenants and
agrees that the aggregate Working Capital Deficit of Blue Marble on the
Closing Date, after giving effect to all of the transactions
contemplated by this Agreement, the aggregate Working Capital Deficit
shall not be greater than Three Hundred Thousand Dollars ($300,000).
Should such Working Capital Deficit on the Closing Date be greater than
Three Hundred Thousand Dollars ($300,000), Novo shall be entitled to the
amount that such deficit exceeds Three Hundred Thousand ($300,000) as
Indemnifiable Damages as defined in Article 8 herein. For purposes of
this Agreement, (i) "Working Capital" shall mean the amount, if any, by
which the aggregate of the Current Assets of Blue Marble exceeds the
aggregate of the Current Liabilities of Blue Marble; (ii) "Current
Assets" shall mean on a combined basis all current assets of Blue Marble
determined in accordance with GAAP; and (iii) "Current Liabilities"
shall mean on a combined basis the current liabilities of Blue Marble
determined in accordance with GAAP.
6.16 BLUE MARBLE RECEIVABLES PURCHASE. In the event that any accounts
receivable more than 90 days past due on the books of Blue Marble on the Closing
Date have not been collected within 90 days after the Closing, then MacManus
agrees to purchase such receivables from Blue Marble as requested by Novo. Any
such repurchase shall be in lieu of any indemnity obligation of Seller or
MacManus hereunder in respect of the non-collectibility of such accounts
receivable. Upon such repurchase, Novo shall transfer all rights and interests
in such accounts receivable to MacManus or its designee.
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ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF NOVO
The obligations of Novo to effect the Share Exchange and the other
transactions contemplated hereby shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions, any or all of which may be
waived in whole or in part by Novo:
7.1 ACCURACY OF - REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the MacManus Parties in this Agreement shall be true and
correct in all material respects at and as of the Closing Date.
7.2 CORPORATE CERTIFICATE. The MacManus Parties shall have delivered to
Novo (i) a copy of the Articles of Incorporation of Blue Marble, certified by
the Secretary of State of the State of Delaware no longer than fifteen (15) days
prior to the Closing Date, (ii) a copy of the Bylaws of Blue Marble in effect
immediately prior to the Closing Date, (iii) a copy of resolutions adopted by
the Board of Directors and shareholders of Blue Marble authorizing the
transactions contemplated by this Agreement, and (iv) a certificate of good
standing of Blue Marble, issued by the State of Delaware and each other state in
which it is qualified to do business as of a date not more than five days prior
to the Closing Date, and all of such documents as to Blue Marble shall be
certified as of the Closing Date by the Secretary (or general partner) of Blue
Marble as being true, correct and complete.
7.3 OPINION OF COUNSEL. Novo shall have received an opinion, dated as of
the Closing Date, from counsel for the MacManus Parties, in form and substance
acceptable to Novo.
7.4 CONSENTS. The MacManus Parties and Novo shall have received consents
to the Share Exchange and other transactions contemplated hereby and waivers of
rights to terminate or modify any rights or obligations of the MacManus Parties
from any Person from whom such consent or waiver is required.
7.5 NO ADVERSE LITIGATION. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Share Exchange, or other transactions hereunder, or which, in the reasonable
judgment of Novo, makes it inadvisable to proceed with the transactions
contemplated hereby.
7.6 VOTING AGREEMENT. MacManus and each of Kelly Rodriques, Anthony
Westreich and Harry Schlough shall have executed the Voting Agreement.
7.7 RESTATED CERTIFICATE. Novo shall have filed the Restated Articles
with the Secretary of State of California on or prior to the Closing Date, which
shall continue to be in full force and effect as of the Closing Date.
7.8 TRANSITION AGREEMENT AND SUBLEASE. Novo shall receive an executed
Sublease acceptable to Novo between Blue Marble and MacManus, and MacManus shall
have executed a
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Transition Agreement addressing the continuing service arrangements and
treatment and termination of service fees and expense fees between MacManus and
Blue Marble.
ARTICLE 8
CONDITIONS TO THE
OBLIGATIONS OF THE MACMANUS PARTIES
The obligations of the MacManus Parties to effect the Share Exchange and
the other transactions contemplated hereby shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions, any or all of which
may be waived in whole or in part by the MacManus Parties.
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Novo contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date.
8.2 NO ORDER OR INJUNCTION. There shall not be issued and in effect by
or before any court or other governmental body an injunction or other similar
court or administrative order restraining or prohibiting the transactions
contemplated hereby.
8.3 VOTING AGREEMENT. Novo and each of Kelly Rodriques, Anthony
Westreich and Harry Schlough shall have executed the Voting Agreement.
8.4 OPINION OF COMPANY COUNSEL. The MacManus Parties shall have received
from Britton Silberman & Cervantez LLP, counsel for the Company, an opinion,
dated as of the Closing, in form and substance acceptable the MacManus.
8.5 RESTATED CERTIFICATE. Novo shall have filed the Restated Articles
with the Secretary of State of California on or prior to the Closing Date,
which shall continue to be in full force and effect as of the Closing Date.
8.6 NO ADVERSE LITIGATION. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Share Exchange, or other transactions hereunder, or which, in the reasonable
judgment of MacManus, makes it inadvisable to proceed with the transactions
contemplated hereby.
8.7 TRANSITION AGREEMENT AND SUBLEASE. MacManus shall receive an
executed Sublease acceptable to MacManus between Blue Marble and MacManus, and
Novo and MacManus shall have executed a Transition Agreement acceptable to
MacManus addressing the continuing service arrangements and the treatment and
termination of service fees and expense fees between MacManus and Blue Marble.
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ARTICLE 9
INDEMNIFICATION
9.1(a) AGREEMENT BY MACMANUS FOR INDEMNIFICATION.
(i) MacManus agrees to and hereby does indemnify, defend,
protect and hold Novo and its stockholders, directors, officers,
employees, attorneys, agents and Affiliates harmless from and against
the aggregate of, all expenses, losses, costs, deficiencies, liabilities
and damages (including, without limitation, related counsel and
paralegal fees and expenses) incurred or suffered by Novo arising out
of, relating to, or resulting, from (1) any breach of a representation
or warranty made by the MacManus Parties in or pursuant to this
Agreement, (2) any breach of the covenants or agreements made by the
MacManus Parties, in or pursuant to this Agreement, or (3) any
inaccuracy in any certificate, instrument or other document delivered by
the MacManus Parties, as required by this Agreement or (4) any items on
Schedule 3.12 (collectively, "Indemnifiable Damages"). Without limiting
the generality of the foregoing, with respect to the measurement of
Indemnifiable Damages, Novo shall have the right to be put in the same
pretax consolidated financial position as it would have been in if the
breach or inaccuracy referenced in the foregoing clauses (1), (2), (3)
or (4) that caused such Indemnifiable Damages had not occurred.
(ii) Notwithstanding anything to the contrary set forth in
Sections 9.1(a), no claim for Indemnifiable Damages, other than claims
with respect to Nonthreshold Liabilities (as hereinafter defined), shall
be asserted by Novo until the aggregate of all Indemnifiable Damages
exceeds the sum of $100,000.00 (the "Indemnification Threshold"), in
which case Novo shall be entitled to all Indemnifiable Damages. All
Nonthreshold Liabilities may be asserted and collected by Novo without
regard to the Indemnification Threshold. For the purposes hereof, the
term "Nonthreshold Liabilities" shall mean (1) claims under clause (2)
of Section 9.1(a), (2) Environmental Costs and Litigation Costs to the
extent attributable to or arising from any of the items set forth on
Schedule 3.12 and Schedule 3.13, (3) claims under Sections 3.1, 3.2,
3.4, 3.5, and 3.19, and (4) claims arising from the fraud or intentional
misrepresentation of any of the MacManus Parties, and (5) any shortfall
in Working Capital in excess of that permitted by Section 6.15.
(iii) Notwithstanding anything to the contrary set forth in this
Agreement, the total Indemnifiable Damages payable by the MacManus
Parties pursuant to this Section 9.1 shall not exceed the Exchange
Consideration, except to the extent such Indemnifiable Damages are due
to the fraud or intentional misrepresentation of any of the MacManus
Parties.
9.1(b) AGREEMENT BY NOVO FOR INDEMNIFICATION.
(i) Novo agrees to and hereby does indemnify, defend, protect
and hold the MacManus Parties and their stockholders, directors,
officers, employees, attorneys, agents and Affiliates harmless from and
against the aggregate of, all expenses, losses,
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costs, deficiencies, liabilities and damages (including, without
limitation, related counsel and paralegal fees and expenses) incurred or
suffered by MacManus arising out of, relating to, or resulting, from (1)
any breach of a representation or warranty made by the Novo in or
pursuant to this Agreement, (2) any breach of the covenants or
agreements made by Novo, in or pursuant to this Agreement, or (3) any
inaccuracy in any certificate, instrument or other document delivered
by the Novo, as required by this Agreement (collectively, "Indemnifiable
Damages"). Without limiting the generality of the foregoing, with
respect to the measurement of Indemnifiable Damages, MacManus shall have
the right to be put in the same pretax consolidated financial position
as it would have been in if the breach or inaccuracy referenced in the
foregoing clauses (1), (2), and (3) that caused such Indemnifiable
Damages had not occurred.
(ii) Notwithstanding anything to the contrary set forth in
Sections 9.1(b), no claim for Indemnifiable Damages, other than claims
with respect to Nonthreshold Liabilities (as hereinafter defined), shall
be asserted by MacManus until the aggregate of all Indemnifiable Damages
exceeds the sum of $100,000.00 (the "Indemnification Threshold"), in
which case MacManus shall be entitled to all Indemnifiable Damages. All
Nonthreshold Liabilities may be asserted and collected by Novo without
regard to the Indemnification Threshold. For the purposes hereof, the
term "Nonthreshold Liabilities" shall mean (1) claims under clause (2)
of Section 9.1(b), (2) Environmental Costs and Litigation Costs to the
extent attributable to or arising from any of the items set forth on
Schedule 2.12 and Schedule 2.13, (3) claims under Sections 2.1, 2.2,
2.4, 2.5, and 2.19 and (4) claims arising from the fraud or intentional
misrepresentation of Novo.
(iii) Notwithstanding anything to the contrary set forth in this
Agreement, the total Indemnifiable Damages payable by Novo pursuant to
this Section 9.1 shall not exceed the Exchange Consideration, except to
the extent such Indemnifiable Damages are due to the fraud or
intentional misrepresentation of Novo.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the MacManus Parties and Novo in this
Agreement or pursuant hereto shall survive for two (2) years following the
Closing Date, except that the representations and warranties in Section 2.12,
Section 2.17 and Section 2.18 by Novo and Section 3.13, Section 3.18 and Section
3.19 by the MacManus Parties shall survive for the respective statute of
limitations and the representations and warranties in Section 2.3, Section 2.4,
Section 3.4 and Section 3.5 shall survive indefinitely. No claim for the
recovery of Indemnifiable Damages arising from a breach of such representations
and warranties may be asserted by the applicable party after the applicable
period has expired; provided, however, that claims for Indemnifiable Damages
first asserted within such period shall not thereafter be barred.
Notwithstanding any knowledge of facts determined or determinable by any party
by investigation, each party shall have the right to fully rely on the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement or in any other documents or papers delivered in
connection herewith. Each representation, warranty, covenant and agreement of
the parties contained in this Agreement is independent of each other
representation, warranty, covenant and agreement.
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<PAGE> 35
9.3 REMEDIES CUMULATIVE; WAIVER. The remedies provided herein shall be
cumulative and shall not preclude either party hereto from asserting any other
right, or seeking any other remedies against the other party. MacManus hereby
waive any right to contribution or any other similar right they may have against
Blue Marble as a result of their agreement to indemnify in this Article 9.
Notwithstanding anything to the contrary, however, the indemnity procedures
provided herein shall be the sole remedy with respect to any party's breaches of
representations and warranties in connection with the transactions contemplated
in this Agreement, excluding breaches as a result of such party's fraud or
intentional misrepresentations.
9.4 INDEMNIFICATION PROCEDURES. In the event that any Person 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 Person who is not a party to
this Agreement or an affiliate of a party to this Agreement (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 30 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 15 days after receipt from the Indemnified
Party of notice of such claim, which notice by the lndemnifying 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 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 such 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 and to compromise and settle
the claim 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.
(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 the
defense and 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; 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.
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<PAGE> 36
(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 Indemnified
Party 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 an 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 clause (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, (iv) that, in the event any MacManus
Party is the Indemnified Party, involves any client or supplier of
MacManus or any of its affiliates or subsidiaries (each, a "MacManus
Company") if, in the sole discretion of MacManus, the handling of such
client or supplier dispute could have a material adverse effect on the
business relationships of any MacManus Company or (v) if such claim
would impose liability on the part of the Indemnified Party for which
the Indemnified Party is not entitled to indemnification hereunder. 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 or
delayed.
(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.
(g) A failure by an Indemnified Party to give timely, complete
or accurate notice as provided in this Section 9.4 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
36
<PAGE> 37
applicable insurance coverage or was otherwise directly and materially
damaged as a result of such failure to give timely notice.
9.5 BLUE MARBLE EMPLOYEE CLAIMS. Notwithstanding anything to the
contrary above, in the event that any claim is made against Novo or Blue Marble
by any current or former employee of Blue Marble in respect of undisclosed
promises or agreements made or actions taken by Blue Marble prior to the
Closing, which claims Novo asserts in good faith constitute Indemnifiable
Damages under Section 9.1 (a) above, but in respect of which MacManus disputes
its indemnity obligation hereunder, MacManus agrees nonetheless to bear the full
financial burden and take direct financial responsibility for any such claims,
including the defense costs and related expenses thereof, until a final
resolution of such matter. If it is ultimately determined that such employee
claims do not constitute Indemnifiable Damages hereunder, Novo agrees to
immediately reimburse MacManus for any such amounts paid by it under this
paragraph.
ARTICLE 10
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings:
"Affiliate" shall have the meaning ascribed to it in Rule 12b-2
of the General Rules and Regulations under the Exchange Act, as in
effect on the date hereof
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, contract, lease, note, mortgage,
indenture, loan agreement, franchise agreement, covenant, employment
agreement, license, instrument, purchase and sales order, commitment,
undertaking, obligation, whether written or oral, express or implied.
"Environmental Costs' shall mean any and all expenses, costs,
damages, liabilities or obligations, including, without limitation, fees
and expenses of counsel, (whether arising before, on or after the
Closing Date) incurred by, under or pursuant to any Environmental Laws
or related to the Discharge, Handling, presence or clean Up of Hazardous
Substances arising as a result of events occurring or facts or
circumstances arising or existing on or prior to the Closing Date
(whether or not in the ordinary course of business and whether or not
reflected on Schedule 3.13(a) or (b).
"ERISA' means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in effect
in the United States of America from time to time.
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<PAGE> 38
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited
to, any conditional sale or other title retention agreement any lease in
the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code or comparable law or any
jurisdiction in connection with such mortgage, pledge, security
interest, encumbrance, lien or charge).
"Litigation Costs" shall mean any and all expenses, costs,
damages, liabilities, or obligations, including, without limitation,
fees and expenses of counsel, (whether arising before, on or after the
Closing Date) incurred in connection with any action, suit, or other
legal or administrative proceeding or governmental investigation arising
as a result of events occurring or facts or circumstances arising or
existing on or prior to the Closing Date (whether or not in the ordinary
course of business and whether or not set forth on Schedule 3.12).
"Material Adverse Change (or Effect)" means with respect to a
person or entity a change (or effect), in the financial condition,
properties, assets, liabilities, rights, obligations, operations,
business or prospects which change (or effect), in the aggregate, is
materially adverse to the business or operations of such business as a
whole.
"Novo Transaction Fees" means all legal, accounting, tax,
consulting and financial advisory and other fees and expenses (including
any filing fees in connection with filings by Novo) incurred, paid, or
payable by Novo in connection with the transactions contemplated hereby.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, estate, trust,
unincorporated association, joint venture, Governmental Authority or
other entity, of whatever nature.
"Principal Transaction Fees" means all legal, accounting, tax,
consulting and financial advisory and other fees and expenses (including
any transfer taxes, fees and expenses incurred by any of the MacManus
Parties in connection with any of the transactions contemplated hereby
or the performance by any of the foregoing of any of the covenants set
forth herein and all prepayment fees or penalties incurred by the
MacManus Parties arising from or due to the transactions contemplated
hereby) incurred by the MacManus Parties in connection with the
transactions contemplated hereby.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to any
Tax.
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<PAGE> 39
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, transfer, sales, use,
franchise, intangible, payroll, withholding, social security and
unemployment taxes imposed by any federal, state, local or foreign
government agency, and any interest or penalties related thereto.
10.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made
or delivered pursuant hereto or thereto, unless the context otherwise
requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be determined
in accordance with GAAP applied on a basis consistent with prior
periods, where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
(e) "Knowledge" with respect to the MacManus Parties shall mean
the actual knowledge of the executive officers of MacManus directly
involved in the transactions under this Agreement.
ARTICLE 11
RESERVED
ARTICLE 12
GENERAL PROVISIONS
12.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage pre-paid),
guaranteed overnight delivery or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which any party
shall designate in writing to the other parties):
(a) IF TO NOVO TO:
Novo MediaGroup, Inc.
222 Sutter Street, 6th Floor
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<PAGE> 40
San Francisco CA 94108
Attn: Kelly Rodriques
Telecopy: (415) 646-7001
with a copy to:
Britton Silberman & Cervantez LLP
461 Second Street, Suite 332
San Francisco, CA 94107
Attn: Thomas J. Cervantez, Esq.
Telecopy (415) 538-9000
(b) IF TO THE MACMANUS PARTIES TO,
The Macmanus Group Inc
1675 Broadway
New York, NY 10019
Attn: Craig D. Brown
Telecopy: (212) 468-3085
with a copy to:
Davis & Gilbert LLP
1740 Broadway
New York, NY 10019
Attention: Lewis A. Rubin, Esq.
Telecopy: (212) 468-4888
12.2 ENTIRE AGREEMENT. This Agreement (including the Schedules attached
hereto) and other documents delivered at the Closing pursuant hereto, contain
the entire understanding of the parties in respect of its subject matters and
supersedes all prior agreements and understanding (oral or written) between or
among the parties with respect to such subject matter. The Schedules constitute
a part hereof as though set forth in full above.
12.3 EXPENSES. MacManus shall pay the Principal Transaction Fees. Novo
shall pay the Novo Transaction Fees.
12. 4 AMENDMENT, WAIVER. This Agreement may not be modified, amended,
supplemented, canceled, or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same any other provision, nor shall any waiver be implied from any
course of dealing between the parties. No extension of time for performance of
any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts.
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<PAGE> 41
12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned or delegated by the any party hereunder without
the prior written consent of the other parties, provided that any party hereto
may assign its rights hereunder to any successor that acquires all or
substantially all of the assets or stock of such assigning party. In addition,
the MacManus Parties may assign this Agreement to any of their affiliated
entities, provided that with respect to assignments by MacManus to its affiliate
entities, MacManus will remain liable for any obligations not satisfied by such
affiliate entity under this Agreement.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever, the words "include," includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
12.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the state of
California applicable to contracts executed and to be wholly performed with such
state.
12.9 JURISDICTION.
(a) The parties to this Agreement agree that any suit, action or
proceeding arising out of, or with respect to, this Agreement or any
judgment entered by any court in respect thereof shall be brought in the
courts of San Francisco, California or New York, New York or in the U.S.
District Court for the Northern District of California or the Southern
District of New York, as the commencing party may elect, and all parties
hereby accept the exclusive jurisdiction of those courts for the,
purpose of any suit, action or proceeding.
(b) In addition, each of the parties hereby irrevocably waives,
to the fullest extent permitted by law , any objection which it may now
or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any judgment
entered by any court in respect thereof brought in San Francisco County,
California or New York County, New York, or the U.S. District Court for
the Northern District of California or Southern District of New York, as
selected by the commencing party, and hereby further irrevocably waives
any claim that any suit, action or proceedings brought in San Francisco
County, California or New York County, New York or in such District
Courts has been brought in an inconvenient forum.
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<PAGE> 42
12.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to all other parties hereto that (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions, and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advise of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel. The foregoing does not limit the
representations, warranties or agreements of the parties hereto in any respect.
The parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first above written.
NOVO MEDIAGROUP, INC. THE MACMANUS GROUP, INC.
By: /s/ KELLY RODRIQUES By: /s/ DAVID WINCLECHTER
------------------------------ -------------------------------
Name: Kelly Rodriques Name: David Winclechter
---------------------------- -----------------------------
Title: CEO Title: VP/Secretary
--------------------------- ----------------------------
Address: Address:
Facsimile: Facsimile:
N.W. AYER COMMUNICATIONS, INC.
By: /s/ DAVID WINCLECHTER
------------------------------
Name: David Winclechter
----------------------------
Title: VP/Secretary
---------------------------
Address:
Facsimile:
42
<PAGE> 1
EXHIBIT 10.7
ACKNOWLEDGEMENT
AGREEMENT (this "Agreement") is entered into as of August 31, 1999 by
and between The MacManus Group, Inc., a Delaware corporation ("MacManus"), and
Novo MediaGroup, Inc., a California corporation ("Novo").
WHEREAS, MacManus and Novo are parties to a certain Exchange Agreement
dated the date hereof, and certain other transactions, whereby among other
things Novo will become the owner of all of the outstanding capital stock of
Blue Marble Advanced Communications Group, Ltd., a Delaware corporation ("Blue
Marble"), and MacManus will become the owner of certain of the outstanding
capital stock of Novo; and
WHEREAS, the parties wish to acknowledge certain understandings between
them relating to the transactions contemplated by the Exchange Agreement
referred to above.
Accordingly, the parties agree as follows:
1. PREFERRED PROVIDER. It is the intention of the parties hereto that
Novo shall be a preferred provider of Internet professional services to
MacManus' operating companies and their clients, such that MacManus will seek
where appropriate to provide introductions and recommendations that Novo be a
provider of Internet professional services to its affiliated companies and their
clients, with the understanding that the respective MacManus affiliated
companies and their clients shall have the ability to make independent decisions
regarding their use of the services of Novo. In turn, it is the intention of the
parties that Novo will cooperate with MacManus' affiliated companies and make
available to their clients the full range of Internet professional services
capabilities and services offered by Novo. In connection therewith, it is
intended that Novo will participate in new business presentations with MacManus
companies. The parties mutually agree to use their reasonable efforts to
position Novo and take all other reasonable action as may be necessary to
resolve any client conflicts in a manner as will enable Novo to handle the
client accounts of MacManus' affiliated companies.
2. CLIENT CONFLICT POLICIES. Novo agrees that at all times that MacManus
owns at least 1% of the outstanding voting capital stock of Novo, it will abide
by the specific client conflict of interest policies maintained by the following
clients of the MacManus group of companies: Coca-Cola, General Motors and
Procter & Gamble. Notwithstanding the foregoing, Novo will not be required by
MacManus to resign Toyota as a client. Novo also agrees to use its reasonable
efforts to abide by any client conflict policies of other MacManus clients which
are applicable to Novo. MacManus will use its reasonable efforts to position
Novo and its client relationships so as to avoid their being viewed as
conflicts, where possible.
3. NON-SOLICITATION OF BLUE MARBLE CLIENTS. For a period of at least two
years from the date of this Agreement, MacManus shall not, and shall cause its
subsidiary companies not to, solicit any of the specific client brand or product
assignments for
<PAGE> 2
which Blue Marble currently is providing Internet professional services as of
the date of this Agreement, for the purpose of causing such client to transfer
such assignment(s) from Novo to any other MacManus business unit which may then
be providing Internet professional services directly in competition with Novo;
but subject in all cases to the ability of clients to make independent decisions
regarding their use of the services of Novo, and subject to Novo continuing to
perform services for such clients in a manner which satisfies the standards and
expectations of such clients.
4. BUDGET APPROVAL PROCESS. The parties acknowledge that prior to the
commencement of each fiscal year of Novo, an annual operating budget for Novo
shall be prepared, which budget will be consistent with the general strategic
direction of Novo, and set forth in sufficient detail all significant items of
income and expense. Such operating budget, and any material deviations
therefrom, will be presented to the Board of Directors of Novo for its review
and approval, which process will include a review of all significant financial
items of Novo, including compensation and incentive packages for senior
management of Novo, employment contracts, capital expenditures and borrowings or
other financing arrangements.
5. MISCELLANEOUS:
5.1 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled, or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts.
5.2 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage pre-paid),
guaranteed overnight delivery or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which any party
shall designate in writing to the other parties):
2
<PAGE> 3
(a) if to Novo to:
Novo MediaGroup, Inc.
222 Sutter Street
San Francisco, CA 94108
Attn: Chief Financial Officer
Telecopy: (415) 646-7001
with a copy to:
Britton Silberman & Cervantez LLP
461 Second Street, Suite 332
San Francisco, CA 94107
Attn: Tbomas J. Cervantez, Esq.
Telecopy: (415) 538-9000
(b) if to MacManus to:
The MacManus Group, Inc
1675 Broadway
New York, NY 100 10019
Attn: Craig D. Brown
Telecopy: (212) 468-3085
with a copy to:
Davis & Gilbert LLP
1740 Broadway
New York, NY 10019
Attention: Lewis A. Rubin, Esq.
Telecopy: (212) 468-4888
5.3 PREVAILING PARTY. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
5.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
3
<PAGE> 4
5.5 GOVERNING LAW. Interpretation. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
California applicable to contacts executed and to be wholly performed with
such state.
The MacManus Group, Inc.
By /S/ DAVID WINCLECHTER
----------------------------------
Novo MediaGroup, Inc.
By /S/ KELLY RODRIQUES
----------------------------------
4
<PAGE> 1
EXHIBIT 10.8
NOVO MEDIAGROUP, INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (the "Agreement" is made as of the 31st
day of August, 1999, by and among Novo MediaGroup, Inc., a California
corporation (the "Company"), the holders of the Company's Series A Preferred
Stock (the "Investors"), N.W. Ayer Communications, Inc. (solely as to the Right
of First Offer set forth in Section 3 hereof) and Kelly Rodriques and Anthony
Westreich ("Westreich", together with "Rodriques", collectively, the "Founders"
and each, a "Founder").
RECITALS
The Company and the Investors have entered into a Stock Purchase
Agreement (the "Acquisition Agreement") of even date herewith pursuant to which
the Company desires to sell to the Investors and the Investors desire to
purchase from the Company shares of the Company's Series A Preferred Stock. A
condition to the Investors' obligations under the Acquisition Agreement is that
the Company, the Founders and the Investors enter into this Agreement in order
to provide (i) the Investors with certain rights to register shares of the
Company's Common. Stock issuable upon conversion of the Company's Series A
Preferred Stock held by the Investors, (ii) the Investors with certain rights to
receive or inspect information pertaining to the, Company, (iii) the Investors
with a right of first offer with respect to certain issuances by the Company of
its securities; and (iv) the Investors with co-sale rights with respect to
proposed share dispositions by the Founders and other members of the Company's
management. The Company and the Founders each desire to induce the Investors to
purchase shares of Series A Preferred Stock pursuant to the Acquisition
Agreement by agreeing to the terms and conditions set forth herein.
AGREEMENT
The parties hereby agree as follows:
1. Registration Rights. The Company and the Investors covenant and agree
as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement or document by the Commission;
(b) The term "Registrable Securities" means:
(i) The shares of Series A Common Stock of
the Company issuable or issued upon
conversion of the Series A
<PAGE> 2
Preferred Stock of the Company held by
the Investors (including the Series A
Common Stock issued upon conversion of
the Series C Common Stock initially to
be issued upon conversion of the Series
A Preferred Stock);
(ii) any other shares of Common Stock of the
Company issued as (or issuable upon the
conversion or exercise of any warrant,
right or other security which is issued
as) a dividend or other distribution
with respect to, or in exchange for or
in replacement of the shares listed in
(i) above, provided, however, that the
foregoing definition shall exclude in
all cases any Registrable Securities
sold by a person in a transaction in
which his or her rights under this
Agreement are not assigned.
Notwithstanding the foregoing, Common
Stock and other securities shall only be
treated as Registrable Securities if and
so long as they have not been (A) sold
to or through a broker or dealer or
underwriter in a public distribution or
a public securities transaction, or (B)
sold in a transaction exempt from the
registration and prospectus delivery
requirements of the Securities Act under
Section 4(l) thereof so that all
transfer restrictions, and restrictive
legends with respect thereto, if any,
are removed upon the consummation of
such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are Registrable Securities and the number of shares of
Registrable Securities that are shares of Common Stock issuable pursuant to then
exercisable and/or convertible securities;
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.11 hereof;
(e) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(f) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
(g) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Sections 2.2,2.3 and 2.10 hereof,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, fees and
disbursements of a single counsel for the Holders, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
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<PAGE> 3
(h) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale.
(i) "Founder Shares" shall mean vested shares of the
Company's Common Stock now owned or subsequently acquired by the Founders
excluding any Common Stock issuable upon conversion of any Preferred Stock which
may be subsequently purchased by the Founders.
1.2 Requested Registration. In case the Company shall receive
from Holders owning at least 33% of the Registrable Securities (the "Initiating
Holders") at any time after the Company's initial registration statement
including shares on its behalf to be sold to the public is declared effective by
the Commission, a written request that the Company effect any registration with
respect to at least thirty-three percent (33%) of all the Registrable Securities
then outstanding (or any lesser percentage if the anticipated offering price,
net of underwriter's commissions, would exceed $5,000,000), the Company will:
(a) promptly give written notice of the proposed
registration to all other Holders; and
(b) as soon as practicable, use its diligent best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested at the earliest possible date and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request given within fifteen (15) days after
receipt of such written notice from the Company; provided that the Company shall
not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 1.2:
(i) In any particular jurisdiction in which
the Company would be required to execute
a general consent to service of process
in effecting such registration,
qualification or compliance unless the
Company is already subject to service in
such jurisdiction and except as may be
required by the Securities Act;
(ii) At any time after the date that is five
years following the effective date of
the Company's first registered
underwritten offering to the general
public of its securities for its own
account;
(iii) Within six (6) months immediately
following the effective date of the
filing of the initial registration
statement pertaining to an underwritten
public offering of securities of the
Company for its own account (other than
a
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<PAGE> 4
registration relating solely to a
Commission Rule 145 transaction or a
registration relating solely to employee
benefit plans or a registration on any
registration form which does not include
substantially the same information as
would be required to be included in a
registration statement covering the sale
of Registrable Securities), and within
four (4) months of any subsequent
registration pursuant to an underwritten
public offering; and
(iv) After the Company has effected one
registration pursuant to this Section
1.2 and such registration has been
declared or ordered effective.
Subject to the foregoing clauses (i) through (iv) and to Section 1.2(d),
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Initiating Holders, and in any event within ninety (90) days
of such request; provided, however, that if the Company shall furnish to such
Initiating Holders, within 30 days after receipt of notice from the Initiating
Holders, a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer the date of such filing, the Company shall have the
right to defer such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however that the
Company may not make such certification more than once in any 12 month period.
(c) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 1.2 and the Company shall include such information in the
written notice referred to in Section 1.2(a). The right of any Holder to
registration pursuant to Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 1.2, if the underwriter (or
the managing underwriter on behalf of the underwriters) determines that
marketing factors require a limitation of the number of shares to be
underwritten and so advises the Initiating Holders in writing, then the
Initiating Holders shall so advise all Holders (except those Holders who have
indicated to the Company their decision not to distribute any of their
Registrable Securities through such underwriting) and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all such Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities owned by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded
4
<PAGE> 5
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration.
If any Holder disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the
underwriter (or managing underwriter on behalf of all of the underwriters) and
the Initiating Holders. The Registrable Securities and/or other securities so
withdrawn from such underwriting shall also be withdrawn from such registration;
provided, however, that, if by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be Included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 1.2(c).
If the underwriter (or managing underwriter on behalf of all of the
underwriters) has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account in such
registration if the underwriters so agree and if the number of Registrable
Securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
(d) Delay of Registration. If at the time of any request to
register Registrable Securities pursuant to this Section 1.2 the Company is
engaged or has fixed plans to engage within sixty (60) days of the time of the
request in a registered public offering as to which the Holders will be able to
include Registrable Securities pursuant to Sections 1.2 or 1.3, then the Company
may at its option direct that such request be delayed for a period not in excess
of six months from the effective date of such offering, provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and, provided further, that no other
person or entity could require the Company to file a registration statement
during such period. Such right to delay a request may be exercised by the
Company not more than once in any two-year period.
1.3 Company Registration.
(a) If at any time or from time to time, the Company shall
determine to register any of its Common Stock, for its own account or for the
account of shareholders (other than the Holders) exercising any demand
registration rights which they may have, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
Commission Rule 145 transaction or any Rule adopted by the Commission in
substitution thereof or in amendment thereto, or a registration on any
registration form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration (and any
related qualification under blue sky
laws or other compliance therewith), and
in any underwriting involved therein,
all the Registrable
5
<PAGE> 6
Securities specified in a written
request or requests, made within fifteen
(15) days after receipt of such written
notice from the Company, by any Holder
or Holders.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, THE Company shall so advise the Holders as a part of the written
notice given pursuant to Section 13(a)(i). In such event the right of any Holder
to registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.3, if the
underwriter (or managing underwriter on behalf of all of the underwriters)
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter (or managing underwriter on
behalf of all of the underwriters) may exclude some or all Registrable
Securities from such registration and underwriting -- the Company will, however,
use its best efforts to include such Registrable Shares in such offering. The
Company shall so advise all Holders (except those Holders who have indicated to
the Company their decision not to distribute any of their Registrable Securities
through such underwriting), and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among such Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities owned by such Holders at the time of filing
the registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Holder disapproves of the terms of any
such underwriting, such person may elect to withdraw therefrom by written notice
to the Company and the underwriter. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration.
1.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 (or any successor to
Form S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 1.4:
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<PAGE> 7
(i) if Form S-3 (or any successor or similar form) is
not available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than two million dollars ($2,000,000), or
(iii) if within thirty (30) days of receipt of a written
request from any Holder or Holders pursuant to this Section 1.4, the Company
shall furnish to the Holders a certificate signed by the Chairman of the Board
of Directors of the Company stating that in the good faith judgment of the Board
of Directors of the Company it is the Company's intention to make a public
offering within ninety (90) days;
(iv) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 1.4; provided, that such
right to delay a request shall be exercised by the Company not more than once in
any twelve (12) month period, or
(v) if the Company has already effected three (3)
registrations on Form S-3 for the Holders pursuant to this Section 1.4, or
(vi) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance,
unless the Company is already subject to service in such a jurisdiction and
except as may be required by the Securities Act.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2.
1.5 Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Section 1.2 or any registration under Section 1.3 shall be borne by the Company;
and all Selling Expenses shall be borne by the holders of the securities so
registered pro rata, on the basis of the number of shares so registered. The
Company and the holders shall mutually bear the cost of a registration under
Section 1.4 on a 50/50 basis with the Holders portion of such costs being borne
on a pro-rata basis based on the number of securities so registered.
1.6 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each
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<PAGE> 8
Holder advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense
the Company will:
(a) Keep such registration, qualification or compliance
effective for a period of one hundred twenty (120) days or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably request;
(c) Use its best efforts and qualify the securities
covered by such registration statement under such securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in such states or jurisdictions;
(d) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement in usual
and customary form, with the underwriter or underwriters of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement; and
(e) Notify each Holder of Registrable Securities covered
by such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
1.7 Indemnification,
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and such Holder's legal counsel and
independent accountants and each person controlling such Holder, with respect to
whose Registrable Securities registration, qualification or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any amendment or supplement thereto and any related
registration statement notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, or (ii) any violation by the Company
of any federal, state or common law rule or regulation applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and
8
<PAGE> 9
such holder's legal counsel and independent accountants and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or commission based upon
written information furnished to the Company by an instrument duly executed by
such Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each legal counsel and independent accountant of the
Company, each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act, and each other such Holder, each of
its officers and directors and each person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular of other similar document (including any amendment or supplement
thereto), or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, and
will reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that (i) the
indemnity agreement contained in this Section 1.7(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage or liability if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld or delayed); and (ii), in no event shall the
liability of any Holder under this Section 1.7(b) exceed the net proceeds from
the offering received by such Holder; and (iii) the indemnity agreement
contained in this paragraph shall not apply in the case of a sale directly by
the Company of its securities (including a sale of such securities through any
lead institution or underwriter retained by the Company to engage in a
distribution solely on behalf of the Company) in which an untrue statement or
omission or alleged untrue state or omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and the Company or
such lead institution or underwriter failed to deliver a copy of the final or
amended prospectus at or prior to the sale of the Registrable Securities.
(c) Each party entitled to indemnification under this
Section 1.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has received written notice of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the
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<PAGE> 10
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, provided, however that the indemnifying Party
shall bear the expense of such indemnified Party if the indemnified Party
reasonably determines that representation of both parties by the same counsel
would be inappropriate due to actual or potential conflicts of interest. The
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 1.7 unless
such failure to give notice shall materially adversely affect the Indemnifying
Party in the defense of any such claim or any such litigation. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
1.8 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section 1.
1.9 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Use its best efforts to facilitate the sale of the
Restricted Securities to the public, without registration under the Securities
Act pursuant to Rule 144 under the Securities Act ("Rule 144"), provided that
nothing contained in this Section 1.8 shall require the Company to file reports
under the Securities Act and the Exchange Act at anytime prior to the Company's
being otherwise required to file such reports.
(b) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act at all
times after the effective date of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(c) Use its best efforts to file with the Commission in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act, as amended (at any time after it has
become subject to such reporting requirements);
(d) So long as a Purchaser owns any Restricted
Securities, to furnish to the Purchaser forthwith upon request (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time after ninety (90) days after the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report
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of the Company, and (iii) such other reports and documents so filed by the
Company as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
1.10 "Market Stand-off" Agreement. Investors hereby agree, if
requested by the Company and the underwriter managing the offering of Common
Stock (or other securities) of the Company, not to sell or otherwise transfer or
dispose of any Common Stock (or other securities) of the Company held by
Investors, without the prior consent of the Company or of such underwriter
during any period requested by the Company and such underwriter (not to exceed
one hundred eighty (180) days) following the effective date of a registration
statement of the Company filed under the Securities Act provided that:
(a) such agreement shall only apply to the first such
registration statement of the Company including shares (or securities) to be
sold on its behalf to the public in an underwritten offering;
(b) all officers and directors and 5% or greater
shareholders of the Company enter into similar agreements. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said period.
1.11 Transfer of Registration Rights. The rights to cause the
Company to register securities granted Investors under Sections 1.2, 1.3 and 1.4
may be assigned or otherwise conveyed by any Holder; provided, that the Company
is given written notice by such transferee at the time of or within a reasonable
time after said transfer, stating the name and address of said transferee and
said transferee's agreement to be bound by the provisions of Section 1 of this
agreement; provided, however, that the failure to so notify shall not affect the
validity or effectiveness of such transfer or assignment. Each Purchaser will
cause any proposed transferee of the Shares (or of the Common Stock into which
the Shares are convertible) held by a Purchaser to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 1.
1.12 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and keep such
registration statement effective for up to one hundred twenty (120) days or, if
earlier, until the Holder or Holders have completed the distribution related
thereto. The Company shall not be required to file, cause to become effective or
maintain the effectiveness of any registration statement that contemplates a
distribution of securities on a delayed or continuous basis pursuant to Rule 415
under the Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the
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disposition of all securities covered by such registration statement for the
period set forth in paragraph (a) above.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by Such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Use its best efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and (ii)
a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.
(h) Immediately notify each Holder of Registrable Securities
covered by such registration statement and confirm such advice in writing: (i)
when the registration statement has become effective and (ii) when any
post-effective amendment to the registration statement becomes effective.
(i) Cause all Registrable Securities registered pursuant hereto
on a Registration Statement for resale by a Holder to be listed on each
securities exchange or included for trading in such automated quotation system
on or in which the shares of Common Stock of the Company are then listed or
included.
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<PAGE> 13
1.13 Delay of Registration.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
(b) It shall be a condition precedent to the obligations of the
Company to register the shares of any Holder pursuant to Section 1.2, 1.3 or 1.4
that such selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities hold by them and their intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2, if, due to the operation of
subsection 1.2(c), the number of shares or the anticipated aggregate offering
price of the Registrable Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in Section 1.2.
1.14 Limitation on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of a majority in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any registration rights the terms of
which are more favorable than the registration rights granted to the Holders
hereunder.
1.15 Termination of Registration Rights. The rights granted to
any Holder under this Section 1 shall terminate five (5) years from the date of
the Company's initial registration statement including shares on its behalf to
be sold to the public is declared effective by the Commission and shall also
terminate earlier (but in no event prior to one year after the date of the
Company's initial public offering) as to any Holder who could sell all shares of
Common Stock in any 90 day period pursuant to Rule 144.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver
to each Holder of, at least 10% of all Registrable Securities (including for the
purposes hereof the Series A Preferred Stock and Series C Common Stock into
which it may convert) (each, a "Major Investor"):
(a) as soon as practicable after the end of each
calendar year (assuming that the calendar year and the fiscal year are the same,
and if not, then delivery of financials will follow the fiscal year) of the
Company, an income statement for such calendar year, a balance sheet of the
Company and statement of shareholder's equity as of the end of such year, and a
statement of cash flows for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by an independent public
accounting firm of nationally recognized standing selected by the Company -
provided, however, that unaudited financials will
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<PAGE> 14
be provided within a minimum of 90 days after the end of the calendar year and
that the audited financials will be provided as soon as practicable after the
completion of the applicable audit;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement for such
fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter;
(c) within forty-five (45) days of the end of each
month, an unaudited income statement and balance sheet for and as of the end of
such month, in reasonable detail;
(d) as soon as practicable, but in any event no later
than the beginning of each fiscal year, a budget and business plan for such
fiscal year, prepared on a monthly basis, including balance sheets and sources
and applications of funds statements for such months and, as soon as prepared,
any other budgets or revised budgets prepared by the Company; and
(e) provided, however, that with respect to the
financial information provided for in Section 2.1(a) to (d), that except as
may be required by law or as otherwise permitted or expressly contemplated
herein, no Holder or their respective affiliates, employees, agents and
representatives shall disclose to any third party any confidential information
or other proprietary knowledge concerning the business or affairs of the
Company which it may have acquired from the Company without the prior consent
of the Company; provided, that (i) any information that is otherwise publicly
available, without breach of this provision, or has been obtained from a third
party without a breach of such third party's duties, shall not be deemed
confidential information and (ii) that either party hereto shall be able to
disclose such information to its employees and agents and to such other third
parties as necessary as part of the operation of its business, including
disclosure to existing or potential investors, lenders, acquirors or
joint-venture candidates or as required by law or court order.
2.2 Inspection. The Company shall permit each Major Investor, at
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Major Investor; provided, however, that the Company shall not
be obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
2.3 Right to Maintain Interest.
(a) Mechanics. Each time the Company proposes to offer
any shares of, or securities convertible into or exercisable for any shares of,
any class of its capital stock ("Shares"), the Company shall notify each
Investor of such proposal and permit each Investor to participate in such
offering in order to maintain such Investor's percentage ownership interest in
the Company in accordance with the following provisions:
(i) The, Company shall deliver a notice
("Notice") to each Investor stating (A)
its bona fide intention to offer such
Shares; (B) the number of such Shares to
be offered; and
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<PAGE> 15
(C) the price and terms, if any, upon
which it proposes to offer such Shares.
(ii) Within fifteen (15) days after delivery
of the Notice, each Investor may submit
to the Company an irrevocable commitment
to purchase or obtain, within
thirty-five (35) days after receipt of
the Notice, at the price and on the
terms specified in the Notice, up to
that portion of such Shares which equals
the proportion that the number of shares
of Common Stock, including Common Stock
then issuable upon conversion of any
Preferred Stock held by such Investor
bears to the total number of shares of
Common Stock and Preferred Stock then
outstanding (assuming the exercise or
conversion of all securities exercisable
for or convertible into Common Stock).
(iii) The Company may, during the 60-day
period following the expiration of the
35-day period provided in Section
2.3(a)(ii), offer the remaining
unsubscribed portion of the Shares to
any person or persons at a price not
less than, and upon terms no more
favorable to the offeree than those
specified in the Notice. If the Company
does not enter into an agreement for the
sale of the Shares within such period,
or if such agreement is not consummated
within sixty (60) days of the execution
thereof, the right provided hereunder
shall be deemed to be revived and such
Shares shall not be offered unless the
Investors are permitted to maintain
their percentage ownership interest in
the Company in such offering in
accordance with this Section 2.3.
(b) Exclusions. The right to maintain interest in this Section
2.3 shall not be applicable to the issuance of:
(i) securities issued pursuant to the
conversion or exercise of convertible or
exercisable securities, subject to
adjustments hereunder and under the
Company's charter documents;
(ii) securities in connection with the
acquisition by the Company of another
entity, as approved by the Board of
Directors, whether by merger,
consolidation, sale of assets, sale or
exchange of stock or otherwise, subject
to the provisions of the Company's
charter documents;
(iii) securities to financial institutions or
lessors in connection with commercial
credit arrangements, equipment
financings or similar transactions
approved by the Board of Directors; or
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<PAGE> 16
(iv) securities to any person or entity in
which such issuance is approved by the
Board of Directors in connection with a
strategic business relationship between
the Company and such person or entity
also involving material marketing,
distribution, product development or
technology licensing rights, as
determined in good faith by the Board of
Directors of the Company and securities
offered to the Company by the holders of
Registrable Securities and any
transferees of holder of Registrable
Securities as part of any Right of First
Refusal subsequently agreed to between
the holders of Registrable Securities as
applied to shares of Registrable
Securities and any other securities of
the Company which a holder of
Registrable Securities may obtain from
the Company.
(c) Assignment of Right. Each Investor shall be
permitted to assign the right to maintain interest in this Section 2.3 to
constituent partners or members of such investor or any entity controlling,
controlled by or under common control with such Investor.
2.4 Co-Sale Rights.
(a) Sales by a Founder.
(i) If any Founder proposes to sell or
transfer any Founder Shares in one or
more related transactions which will
result in the transfer of 50,000 or more
shares of Founder Shares by such
Founder, then such Founder shall
promptly give written notice (the
"Notice") to the Company and to each of
the Major Investors at least 30 days
prior to the closing of such sale or
transfer. The Notice shall describe in
reasonable detail the proposed sale or
transfer including, without limitation,
the number of Founder Shares to be sold
or transferred, the nature of such sale
or transfer, the consideration to be
paid, and the name and address of each
prospective purchaser or transferee. In
the event that the sale or transfer is
being made pursuant to the provisions of
subsection (b) hereof, the Notice shall
state under which section and subsection
the sale or transfer is being made.
(ii) Each Major Investor shall have the
right, exercisable upon written notice
to such Founder within twenty (20) days
after receipt of the Notice, to
participate in such sale on the same
terms and conditions specified in the
Notice. To the extent that one or more
of the Major Investors exercise such
right of participation in accordance
with the terms and conditions set forth
below, the number of Founder Shares
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<PAGE> 17
that the Founder may sell in the
transaction shall be correspondingly
reduced.
(iii) Each Major Investor may sell all or any
part of that number of shares of Common
Stock equal to the product obtained by
multiplying (A) the aggregate number of
Founder Shares covered by the Notice by
(B) a fraction, the numerator of which
is the number of shares of Common Stock
owned by the Major Investor at the time
of the sale or transfer and the
denominator of which is the total number
of shares of Common Stock owned by the
Founder and the Major Investors at the
time of the sale or transfer (each such
Major Investor who elects to sell shares
in such a transaction is defined as a
"Participant" for purposes of such
sale).
(iv) If any Major Investor fails to elect to
fully participate in such Founder's sale
pursuant to this subsection (b), then
the other Major Investors may elect to
purchase such shares on a pro-rata basis
within 10 days of such notice not to
participate, and thereafter such Founder
may sell an additional number of Founder
Shares that is equal to the pro-rata
share of any such Major Investor who so
elects not to become a Participant and
with respect to which there is room for
additional sales of stock by such
Founder.
(v) Each Participant shall effect its
participation in the sale by promptly
delivering to the Founder for transfer
to the prospective purchaser one or more
certificates, properly endorsed for
transfer, which represent:
(A) the number of shares of Common
Stock which such Participant elects
to sell; or
(B) that number of shares of Preferred
Stock which is at such time
convertible into the number of
shares of Common Stock which such
Participant elects to sell;
provided, however, that if the
prospective purchaser objects to
the delivery of Preferred Stock in
lieu of Common Stock, such
Participant shall convert such
Preferred Stock into Common Stock
and deliver Common Stork as
provided in subparagraph 2(e)(i)
above. The Company agrees to make
any such conversion concurrent with
the actual transfer of such shares,
to the purchaser.
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<PAGE> 18
(vi) The stock certificate or certificates
that the Participant delivers to the
Founder pursuant to paragraph 2(e) shall
be transferred to the prospective
purchaser in consummation of the sale of
the Common Stock pursuant to the terms
and conditions specified in the Notice,
and the Founder shall concurrently
therewith remit to such Participant that
portion of the sale proceeds to which
such Participant is entitled by reason
of such participant's participation in
such sale. To the extent that any
prospective purchaser, or purchasers,
prohibits such assignment or otherwise
refuses to purchase shares or other
securities a Participant exercising
rights of co-sale hereunder, the Founder
shall not sell to such prospective
purchaser or purchasers any Founder
Shares unless and until, simultaneously
with such sale, the Founder shall
purchase such shares or other securities
from such Participant.
(vii) The exercise or non-exercise of the
rights of the Participants hereunder to
participate in one or more sales of
Founder Shares made by a Founder shall
not adversely affect their rights to
participate in subsequent sales of
Founder Shares subject to paragraph
2(a).
(viii) If none of the Major Investors elects to
participate in the sale of the Founder
Shares subject to the Notice, the
Founder may, not later than sixty (60)
days following delivery to the Company
and each of the Major Investors of the
Notice, enter into an agreement
providing for the closing of the
transfer of the Founder Shares covered
by the Notice within thirty (30) days of
such agreement on terms and conditions
not more favorable to the transferor
than those described in the Notice. Any
proposed transfer on terms and
conditions more favorable than those
described in the Notice, as well as any
subsequent proposed transfer of any of
the Founder Shares by the Founder, shall
again be subject to the co-sale rights
of the Major Investors and shall require
compliance by the Founder with the
procedures described in this subsection
(b).
(b) Exempt Transfers.
(i) Notwithstanding the foregoing, the
provisions of subsections (a)(ii)
through (a)(viii) shall not apply to (A)
any pledge of Founder Shares made
pursuant to a bona fide loan transaction
that creates a mere security interest;
(B) any transfer to the ancestors,
descendants or spouse of a Founder or to
trusts for the benefit of such persons
or a
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<PAGE> 19
Founder; or (C) any bona fide gift;
provided that (I) the transferring
Founder shall inform the Major Investors
of such pledge, transfer or gift prior
to effecting it and (II) the pledgee,
transferee or donee shall furnish the
Major Investors with a written agreement
to be bound by and comply with all
provisions of subsection (a) above, as
well as the terms of any stock purchase
or other agreement pursuant to which
such Founder Shares were issued. Such
transferred Founder Shares shall remain
"Founder Shares" hereunder, and such
pledgee, transferee or donee shall be
treated as a "Founder" for purposes of
this Agreement.
(ii) Notwithstanding the foregoing, the
provisions of subsection (a) above shall
not apply to the sale of any Founder
Shares (i) to the public pursuant to a
registration statement filed with, and
declared effective by, the Securities
and Exchange Commission under the
Securities Act of 1933, as amended (the
"Securities Act"); (ii) to the Company,
or (iii) if prior to such sale, the
Founder held less than 5% of the
Company's outstanding shares or the
Founders collectively held less than 10%
of the Company's outstanding shares.
(c) Prohibited Transfers.
(i) In the event a Founder should sell any
Founder Shares in contravention of the
co-sale rights of the Major Investors
under this Agreement (a "Prohibited
Transfer"), each Major Investor, in
addition to such other remedies as may
be available at law, in equity or
hereunder, shall have the put option
provided below, and the Founder shall
be bound by the applicable provisions of
such option.
(ii) In the event of a Prohibited Transfer by
a Founder, each Major Investor shall
have the right to sell to such Founder
the number of shares of Common Stock
equal to the number of shares each Major
Investor would have been entitled to
transfer to the purchaser under
subsection (a)(iii) had the Prohibited
Transfer hereof been effected pursuant
to and in compliance with the terms
hereof. Such sale shall be made on the
following terms and conditions:
(A) The price per share at which the
shares are to be sold to the
Founder shall be equal to the price
per share paid by the purchaser to
the Founder in the Prohibited
Transfer. 'The Founder shall also
reimburse each Major Investor for
any and all fees and expenses,
including legal fees and expenses,
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<PAGE> 20
incurred pursuant to the exercise
or the attempted exercise of the
Major Investor's rights under
subsection (b).
(B) Within 90 days after the later of
the dates on which the Major
Investor (I) received notice of the
Prohibited Transfer or (II)
otherwise became aware of the
Prohibited Transfer, each Major
Investor shall, if exercising the
option created hereby, deliver to
the Founder the certificate or
certificates representing shares to
be sold, each certificate to be
properly endorsed for transfer.
(C) The Founder shall, upon receipt of
the certificate or certificates for
the shares to be sold by a Major
Investor, pursuant to this
subparagraph (c)(ii), pay the
aggregate purchase price therefor
and the amount of reimbursable fees
and expenses, as specified in
subparagraph (c)(2)(A), in cash or
by other means acceptable to the
Major Investor
(D) Notwithstanding the foregoing, any
attempt by a Founder to transfer
Founder Shares in violation of
subsection (b) hereof shall be void
and the Company agrees it will not
effect such a transfer nor will it
treat any alleged transferee as the
holder of such shares without the
written consent of a majority in
interest of the Major Investors.
(d) Legend.
(i) Each certificate representing shares of
Stock now or hereafter owned by the
Founders or issued to any person in
connection with a transfer pursuant to
subsection (a)(i) hereof shall be
endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE
CORPORATION AND CERTAIN HOLDERS OF PREFERRED STOCK OF THE CORPORATION. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(ii) Each Founder agrees that the Company may
instruct its transfer agent to impose
transfer restrictions on the shares
represented by certificates bearing the
legend referred to in subsection (d)(i)
above to enforce the provisions of this
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<PAGE> 21
Agreement and the Company agrees
promptly to do so. The legend shall be
removed upon termination of this
Agreement.
(e) Right of First Offer
(i) In the event that a Notice is delivered
to each Major Investor pursuant to
subsection (a)(i) above, each such Major
Investor, in lieu of the exercise of the
rights set forth in subsection (a)(ii)
above, shall have the right within
twenty (20) days following receipt of
the Notice, to purchase any or all of
the Founder Shares specified in the
Notice (including any shares being sold
by Participants pursuant to this
paragraph 2) upon substantially the same
terms and conditions specified therein.
Each such Major Investor so electing to
purchase such Founder Shares is referred
to herein as a "Purchasing Investor."
Such right shall be exercisable by
written notice (the "Purchase Notice")
delivered by the Purchasing Investor(s)
to the Company, the Founders and the
Participants prior to the expiration of
the twenty (20) day exercise period. If
such right is exercised with respect to
all or any of the Founder Shares
specified in the Notice, then the
Purchasing Investor(s) shall effect the
purchase of the Founder Shares,
including payment of the purchase price,
not more than ten (10) business days
after delivery of the Purchase Notice;
and at such time the Founder and/or
Participant shall deliver to the
Purchasing Investor the certificates
representing the Founder Shares to be
purchased, properly endorsed for
transfer.
(ii) In the event that no Major Investor
exercises the rights provided in this
subsection (e), the Founder Shares shall
be sold pursuant to the provisions of
subsection (a)(viii) above. In the event
that the Purchasing Investor(s) make a
timely exercise of the rights contained
in this subsection (e) with respect to a
portion, but not all of the Founder
Shares subject to the Notice, then the
remainder of the Founder Shares subject
to such Notice shall be sold pursuant to
the provisions of subsection (a)(viii)
above.
2.6 Termination of Covenants. The covenants set forth in
Sections 2.1 through Section 2.4 shall terminate as to each Major Investor and
be of no further force or effect upon the earliest of (a) the effective date of
the Company's first registration statement filed under the Securities Act for
the sale of its securities to the public; (b) the closing of the sale,
conveyance, or other disposition or encumbrance all or substantially all of the
Company's assets or business or the merger into or consolidation with any other
entity (other than a wholly-owned
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<PAGE> 22
subsidiary corporation) or any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of (other than a merger effected exclusively for the purpose
of changing the domicile of the Company); and (c) when the Company first becomes
subject to the periodic reporting requirements of Sections 13 or 15(d) of the
Exchange Act.
2.7 Aggregation of Stock. For purposes of the share threshold
used in determining which Investors are "Major Investors" under this Agreement,
all shares of Registrable Securities held or acquired by affiliated entities or
persons shall be aggregated together.
3. Right of First Offer of Company.
(a) If MacManus proposes to sell or transfer any shares of the
Series A Preferred Stock or any other stock of Novo which MacManus shall acquire
in respect of the Series A Preferred Stock in any subsequent or simultaneous
transaction or any shares of Series C Common Stock issued to MacManus or an
affiliate of MacManus in connection with any share transfer or exchange between
MacManus or its controlled affiliates and Novo (collectively, for purposes of
this Section 3, the "Transfer Shares") to any purchaser other than Novo or as
otherwise set forth below, then MacManus shall promptly give written notice (the
"Offer Notice") to Novo offering to sell to Novo such Transfer Shares at a price
and on such other terms as shall be specified in such Offer Notice.
(b) Upon receipt of an Offer Notice, Novo, or any assignee of
Novo, shall have the right within thirty (30) business days following receipt of
the Transfer Notice, to purchase all (but not less than all) of the Transfer
Shares specified in the Offer Notice (which right shall be exercised at the
discretion of the Board of Directors of Novo or any Committee thereof to which
such power shall be delegated by such Board) upon substantially the same terms
and conditions specified therein. Such right shall be exercisable by written
notice (the "Purchase Notice") delivered by Novo or its assignee to MacManus
prior to the expiration of the thirty (30) business day exercise period. If such
right is exercised with respect to all of the Transfer Shares specified in the
Offer Notice, then Novo shall effect the purchase of such Transfer Shares,
including payment of the purchase price, not more than ten (10) business days
after delivery of the Purchase Notice; and at such time MacManus shall deliver
to Novo or its designate the certificates representing such Transfer Shares to
be purchased, properly endorsed for transfer.
(c) In the event that Novo, or its assignee, elects not to
exercise the rights provided in this Section 3, the Transfer Shares specified in
the Offer Notice may be sold by MacManus to any third party (subject to
paragraph (g) below and the provisions of Article 3 above); provided the terms
of such sale are not materially more favorable to the third party purchaser than
the terms set forth in the Offer Notice; and further provided that such sale
takes place within one hundred twenty (120) days after the Offer Notice was
first delivered to Novo. MacManus shall be required to satisfy again with the
procedures contained in this Section 3 in the event any such proposed sale to
the third party shall not comply with the provisos contained in the immediately
preceding sentence.
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<PAGE> 23
(d) The covenants set forth in this Section 3 shall terminate
and be of no further force or effect upon the earliest of (i) the effective date
of Novo's first registration statement filed under the Securities Act for the
sale of its securities to the public; and (ii) when Novo first becomes subject
to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange
Act or (iii) when MacManus ceases to own Series A Preferred Stock and/or Series
C Common Stock representing at least 20% of the total outstanding voting stock
of Novo.
(e) In the event of any subsequent receipt of shares of Novo by
MacManus in respect of the shares of Series A Preferred Stock acquired
hereunder, whether by stock dividend, reclassification, share exchange or any
other form of transaction, MacMamus agrees that such shares shall be
automatically subject to the terms of this Right of First Offer set forth above.
(f) The Right of First Offer contained in this Section 3 shall
not apply to any transfer of Transfer Shares by MacManus to any MacManus
Affiliate, including for these purposes any transfer directly to or to any
company controlled by the shareholders of MacManus or in correction with any
transaction where MacManus is selling all or a substantial portion of its
business.
(g) Notwithstanding anything to the contrary above, in the event
the Transfer Shares that MacManus intends to transfer to a third party represent
30% or more of the then outstanding voting capital stock of Novo, Novo shall
have the right, to the extent it has reasonable, good faith objections to the
identity of the proposed purchaser (such as if such purchaser is a direct
competitor of Novo or has an unfavorable reputation in the Internet industry) to
require that MacManus not sell shares constituting 30% or more of such voting
stock to such proposed purchaser. Any such objection by Novo must be made in
writing to MacManus within 10 business days of the date Novo is first informed
by MacManus of the identity of such proposed purchaser.
(h) So long as the securities subject to this Agreement are
subject to the Right of First Offer set forth in this Agreement, such shares
subject to the Right of First Offer shall have the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH
THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER
HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING
RIGHTS OF FIRST OFFER UPON AN ATTEMPTED TRANSFER OF SECURITIES. THE SECRETARY OF
THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER HEREOF WITHOUT CHARGE."
4. Miscellaneous.
23
<PAGE> 24
4.1 Additional Parties. In the event of (a) an additional
closing or closings of the purchase of shares of Series A Preferred Stock; or
(b) the issuance of any additional warrants to purchase shares of Series A
Preferred Stock to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions,
the terms of which approved are by the Board of Directors, then upon execution
of a signature page counterpart hereto by any purchaser, financial institution
or lessor and without need for an amendment hereto except to add such entity's
name to Exhibit A hereto, any such entity shall become a party to this
Agreement, shall be deemed an "Investor" for purposes of this Agreement, and
shall have the identical rights and obligations hereunder as the other
Investors, in each case as of the date of execution of such counterpart
signature page.
4.2 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties
(including transferees of any of the Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
4.3 Governing Law. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
4.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.6 Notices. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth on
the signature pages hereto or on Exhibit A hereto or as subsequently modified by
written notice, and if to the Company, with a copy to (i) Thomas J. Cervantez,
Esq., c/o Britton Silberman & Cervantez LLP, 461 Second Street, San Francisco,
California 94107 and (ii) Lewis A. Rubin, Esq., c/o David & Gilbert LLP, 1740
Broadway, New York, New York 10019.
4.7 Prevailing Party. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
24
<PAGE> 25
4.8 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding, not including the
Founders' Stock; provided that if such amendment has the effect of affecting the
Founders' Stock (a) in a manner different than securities issued to the
Investors and (b) in a manner adverse to the interests of the holders of the
Founders' Stock, then such amendment shall require the consent of the holder or
holders of a majority of the Founders' Stock. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
4.9 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
4.10 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party to this Agreement upon any breach
or default of any other party under this Agreement shall impair any such right,
power or remedy of such party nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring.
4.11 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof,
and any and all other written or oral agreements existing between the parties
hereto are expressly canceled.
[Signature Page Follows]
25
<PAGE> 26
The parties have executed this Investors' Rights Agreement as of the
date first above written.
COMPANY: INVESTORS:
NOVO MEDIAGROUP, INC. THE MACMANUS GROUP, INC.
By: /s/ KELLY RODRIQUES By: /s/ DAVID WINCLECHTER
----------------------------- -------------------------------------
Kelly Rodriques, C.E.O. Name: David Winclechter
-----------------------------------
Title: VP/SECRETARY
----------------------------------
Address:
Address:
Facsimile:
Facsimile:
FOUNDERS:
/s/ KELLY RODRIQUES /s/ ANTHONY WESTREICH
- -------------------------------- ----------------------------------------
Kelly Rodriques Anthony Westreich
Address: 222 Sutter 6th Floor Address: 222 Sutter Street 6th Floor
San Francisco, CA. 94108 San Francisco, CA. 94108
Facsimile: Facsimile:
N.W. AYER COMMUNICATIONS, INC. (to be
bound by the Right of First Offer in
Section 3 hereof as relates to the
Series C Common Stock and any
distributions thereon)
By: /s/ DAVID WINCLECHTER
-------------------------------------
Name: David Winclechter
-----------------------------------
Title: VP/SECRETARY
----------------------------------
Address:
Facsimile:
<PAGE> 1
EXHIBIT 10.9
SUBLEASE AGREEMENT
The parties agree as follows:
DATE OF THIS SUBLEASE:
September 1, 1999
PARTIES TO THIS SUBLEASE:
Overtenant: THE MACMANUS GROUP, INC.
Address for notices: 1675 Broadway, New York, New York 10019
You, the Undertenant: BLUE MARBLE ADVANCED COMMUNICATIONS GROUP LTD.
Address for notices: 1675 Broadway, New York, New York 10019
If there are more than one Overtenant or Undertenant, the words "Overtenant"
and "Undertenant" used in this Sublease include them.
INFORMATION FROM OVER-LEASE:
Landlord: EOP WORLDWIDE PLAZA, L.L.C., successor-in-interest to New York
Communications Associates, L.P.
Address for notices: 540 Madison Avenue, New York, New York 10022
Overtenant: THE MACMANUS GROUP, INC., successor-in-interest to D'Arcy Masius
Benton & Bowles, Inc.
Address for notices: 1675 Broadway, New York, New York 10019
Date of Over-Lease: As of October 16, 1996
Term: from: October 16 1999 to: January 31, 2010
A copy of the Over-Lease is attached as an important part of the Sublease.
TERM:
1. ___________ years; ___________ months; Beginning: As of September 1, 1999
ending: March 31, 2001
PREMISES RENTED:
2. 19,272 usable square feet on the thirty-third (33rd) floor at Worldwide
Plaza Building, 825 Eight Avenue, New York, New York.
USE OF PREMISES:
3. The premises may be used for in accordance with the terms of the Overlease
only.
RENT:
4. The yearly rent is $1,252,680.00. You, the Undertenant, will pay this
yearly rent to Over-tenant in twelve equal monthly payments of $104,390.00.
Payments shall be paid in advance on the first day of each month during the
Term.
SECURITY:
AGREEMENT TO LEASE AND PAY RENT:
6. Overtenant sublets the premises to you, the Undertenant, for the Term.
Overtenant states that it has the authority to do so. You, the Undertenant,
agree to pay the Rent and other charges as required in the Sublease. You,
the Undertenant, agree to do everything required of you in the Sublease.
NOTICES:
7. All notices in the Sublease shall be sent by certified mail, "return
receipt requested".
SUBJECT TO:
8. The Sublease is subject to the Over-Lease. It is also subject to any
agreement to which the Over-Lease is subject. You, the Undertenant, state
that you have read and initialed the Over-Lease and will not violate it in
any way.
OVERTENANT'S DUTIES:
9. The Over-Lease describes the Landlord's duties. The Overtenant is not
obligated to perform the Landlord's duties. If the Landlord fails to
perform, you, the Undertenant, must send the Overtenant a notice. Upon
receipt of the notice, the Overtenant shall then promptly notify the
Landlord and demand that the Over-Lease agreements be carried out. The
Overtenant shall continue the demands until the Landlord performs.
CONSENT:
10. If the Landlord's consent to the Sublease is required, this consent must be
received within ___ days from the date of this Sublease. If the Landlord's
consent is not received within this time, the Sublease will be void. In
such event all parties are automatically released and all payments shall be
refunded to you, the Undertenant.
ADOPTING THE OVER-LEASE AND EXCEPTIONS:
11.
<PAGE> 2
NO AUTHORITY: 12. You, the Undertenant, have no authority to contact
or make any agreement with the Landlord about the
premises or the Over-Lease. You, the Undertenant,
may not pay rent or other charges to the Landlord,
but only to the Overtenant.
SUCCESSORS: 13. Unless otherwise stated, the Sublease is binding on
all parties who lawfully succeed to the rights or
take the place of the Overtenant or you, the
Undertenant. Examples are an assign, heir, or a
legal representative such as an executor of your
will or administrator of your estate.
CHANGES: 14. This sublease can be changed only by an agreement
in writing signed by the parties to the Sublease.
SIGNATURES: OVERTENANT:
THE MACMANUS GROUP, INC.
-----------------------------
By: /s/ DAVID WINCLECHTER
-----------------------------
You, the UNDERTENANT:
BLUE MARBLE ADVANCED
Witness: COMMUNICATIONS GROUP, LTD.
By: /s/ DAVID WINCLECHTER
----------------------- -----------------------------
STATE OF COUNTY OF ss:
On 19 before me personally appeared
to me known and known to me to be the individual(s) described in and who
executed the foregoing Sublease, and duly acknowledged to me that he executed
the same.
----------------------------
GUARANTY OF PAYMENT WHICH IS PART OF THE SUBLEASE
DATE OF GUARANTY: 19
GUARANTOR
AND ADDRESS:
REASON FOR 1. I know that the Overtenant would not rent the
GUARANTY: premises to the Undertenant unless I guarantee
Undertenant's performance. I have also requested
the Overtenant to enter into the Sublease with the
Undertenant. I have a substantial interest in
making sure that the Overtenant rents the premises
to the Undertenant.
GUARANTY: 2. The following is my Guaranty:
I guaranty the full performance of the Sublease by
the Undertenant. This Guaranty is absolute and
without any condition. It includes, but is not
limited to, the payment of rent and other money
charges.
In addition, I agree to these other terms:
CHANGES IN 3. This Guaranty will not be affected by any change
SUBLEASE HAVE in the Sublease, whatsoever. This includes, but is
NO EFFECT: not limited to, any extension of time or renewals.
The Guaranty will be binding even if I am not a
party to these changes.
WAIVER OF NOTICE: 4. I do not have to be informed about any failure of
performance by Undertenant. I waive notice of
nonpayment or nonperformance
PERFORMANCE: 5. If the Undertenant fails to perform under the
Sublease, the Overtenant may require me to perform
without first demanding that the Undertenant
perform.
WAIVER OF JURY TRIAL: 6. I give up my right to trial by jury in any claim
related to the Sublease or this Guaranty.
CHANGES: 7. This Guaranty of payment and performance can be
changed only by written agreement signed by all
parties to the Sublease an Guaranty.
SIGNATURES: GUARANTOR:
WITNESS:
----------------------------
---------------------
<PAGE> 3
RIDER TO SUBLEASE AGREEMENT DATED
AS OF SEPTEMBER 1, 1999, BETWEEN
THE MACMANUS GROUP, INC., AS OVERTENANT
AND
BLUE MARBLE ADVANCED COMMUNICATIONS GROUP LTD.,
AS UNDERTENANT
15. Undertenant shall be entitled to receive all services to be rendered
to the premises pursuant to the terms of the Overlease. Overtenant shall
cooperate with Undertenant, at no cost to Overtenant, in seeking to obtain the
performance of Landlord to provide any such services.
16. During the term of this Sublease, Undertenant will continue to have
use of the furniture and fixtures currently located in the premises as of the
date hereof, at no additional cost to Undertenant (but excluding any such
furniture and fixtures which is specifically being sublet to Undertenant
pursuant a separate equipment sublease agreement with The MacManus Group). Upon
the termination of the term of the Sublease, such furniture and fixtures will be
returned to Overtenant, in their current condition, ordinary wear and tear
excepted.
17. The use of the telephone equipment shall cost $3,903.00 per month,
which represents the monthly depreciation expense to Overtenant, and which cost
is included in the rent set forth in Article 4 of this Sublease. Undertenant may
discontinue the telephone equipment on not less than 30 days prior written
notice to Overtenant, and receive a credit of $3,903.00 per month against the
rent for each month after its use of the telephone equipment has been
discontinued.
18. Undertenant shall pay to Overtenant, as additional rent, 100% of
all amounts payable by Overtenant to Landlord for overtime services rendered to
the premises
<PAGE> 4
by the Landlord which have been specifically requested by Undertenant, such as
for overtime A/C, additional cleaning services and the like.
19. Undertenant acknowledges that it has inspected the Premises and
accepts such possession of the Premises in its "as is" condition.
20. Undertenant shall not assign this Sublease or subsublet the Premises
except with Overtenant's consent, which may be arbitrarily granted or withheld
in Overtenant's sole discretion, and the Landlord's consent if and when required
pursuant to the terms of the Lease.
21. Undertenant, at its sole cost and expense, shall maintain such
insurance as required of Tenant pursuant to the Overlease.
22. On the date upon which the term hereof shall expire, by lapse of
time or otherwise, Undertenant, at Undertenant's sole cost and expense, shall
quit and surrender the Premises to Overtenant in the same good order and
condition as Overtenant is delivering it to Undertenant.
23. Overtenant and Undertenant represent that it did not deal with a
broker in connection with this Sublease.
2
<PAGE> 5
24. Overtenant shall reimburse Undertenant an aggregate amount not to
exceed Twenty Thousand ($20,000.00) Dollars for any permanent improvements to
the Premises made by Undertenant, in accordance with the terms of the Lease,
during the term of this Sublease, within twenty (20) days after Undertenant has
furnished Overtenant with receipted invoices for such improvements. Such
improvements shall not include furniture and furnishings, or communications or
other equipment.
25. This Sublease shall be binding upon the parties hereto and their
respective successors and assigns.
OVERTENANT:
THE MACMANUS GROUP, INC.
By: /s/ DAVID WINCLECHTER
---------------------------------
UNDERTENANT:
BLUE MARBLE ADVANCED
COMMUNICATIONS GROUP, LTD.
By: /s/ DAVID WINCLECHTER
---------------------------------
3
<PAGE> 1
EXHIBIT 10.10
ART TECHNOLOGY GROUP
DYNAMO PARTNER PROGRAM AGREEMENT
This Agreement is by and between Art Technology Group, Inc., 101 Huntington
Avenue, Boston, Massachusetts 02199, ("ATG") and Novo Interactive, 222 Sutter
Street, 6th Floor, San Francisco, CA 94108 ("Dynamo Partner") and is effective
as of 9/29/99, 1999 (the "Effective Date").
0. SCOPE OF AGREEMENT. For an annual fee, this program provides benefits for
developers and integrators who use ATG products in their business as developers
of custom applications programs that run on ATG's Dynamo software or as
integrators who furnish multi-vendor solutions to their customers.
1. TERM. This Agreement will have a one year term beginning on the Effective
Date above and will be renewed automatically for additional one year periods
unless terminated as described below.
2. DYNAMO PARTNER OBLIGATIONS. Upon signing this Agreement, Dynamo Partner
will pay the nonrefundable initial Program enrollment fee to ATG. It will
arrange for two (2) or more of its employees to complete a designated training
course offered by ATG within sixty (60) days after entering into this
Agreement. At the end of the training course, each employee may become a
certified Dynamo Programmer by submitting a certification application and
passing a certification examination. During the term of this Agreement. Dynamo
Partner shall maintain at least two certified Dynamo programmers. In order to
remain certified, these employees must be re-certified whenever ATG releases a
new version of ATG's Products. During the term of this Agreement, Dynamo
Partner shall actively promote itself as a member of the Program and identify
itself as such on its web page and in other marketing material.
3. PROGRAM BENEFITS.
a) Software License. Provided that Dynamo Partner agrees to the terms of
ATG's standard software license, made available to Dynamo Partner at the time
it downloads the software, ATG shall provide the following ATG products to
Dynamo Partner at no charge: a single Developer License, Not For Resale copy of
the Dynamo Application Server, Dynamo Personalization Server and Commerce
Station Products. However, Dynamo Partner's use of the software shall be
restricted to development and enhancement of application software designed to
run on ATG's Dynamo software platform. Dynamo Partner may purchase additional
licenses to use the Dynamo Application Server Product at special pricing for
members of the Program, provided that it executes ATG's Master Ordering,
License and Service agreement. In no event may Dynamo Partner use any Products
as part of a direct or indirect connection to the Internet, including a
production environment platform for any software application connected to the
Internet. The Products may not be sublicensed to any party for any purpose
whatsoever.
b) Training. At no charge, ATG shall provide yearly training on ATG's Dynamo
Application Server Product for two of Dynamo Partner's employees at ATG's
headquarters. Dynamo Partner may order additional training for other employees
at special pricing (currently ATG's List Price less 20%).
c) Access to Program Page. ATG will supply a personal password to a special,
limited access Program page of its web site that will contain such support
facilities as FAQs, success stories, how-to guides, documentation, marketing
materials, user group chat room, and such other facilities as ATG shall deem
useful to members of the Program.
d) Web Publicity. ATG will display Dynamo Partner's name, logo, and
corporate overview on its web site's Program Partner page.
Dynamo Partner Program Agreement
Version 99B
<PAGE> 2
Dynamo Partner Program Agreement Page 2
e) Help Desk Support. Dynamo Partner will be entitled to receive up to five
(5) instances of ATG Help Desk support at no charge.
f) ATG Contact. ATG will designate a Major Account Manager and Regional
Channel Manager who will be available for lead information sharing, access to
technical resources, and co-marketing activities when appropriate.
4. ANNUAL FEE. For the first year of this Agreement, Dynamo Partner shall pay
ATG an initial enrollment fee of $3,000. For each renewal year, Dynamo Partner
will pay an annual Program renewal fee as set forth in ATG's then current Price
List. All fees stated are payable in US Dollars and are nonrefundable. Dynamo
Partner is responsible for paying any taxes and fees associated with this
agreement.
5. LIMITATION OF LIABILITY. DYNAMO PARTNER IS SOLELY RESPONSIBLE FOR THE
PROPER CONDUCT OF ITS BUSINESS AND ALL OTHER MATTERS UNDER ITS CONTROL. IN NO
EVENT SHALL ATG BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING ANY DAMAGES RESULTING FROM LOSS OF USE, LOSS OF DATA, LOSS OF PROFITS
OR LOSS OF BUSINESS, EVEN IF ATG HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. DYNAMO PARTNER AGREES TO INDEMNIFY AND HOLD ATG HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS, DEMANDS, COSTS AND LIABILITIES (INCLUDING ATTORNEYS
FEES) OF ANY KIND WHATSOEVER, ARISING DIRECTLY OR INDIRECTLY OUT OF DYNAMO
PARTNER'S CONDUCT OF ITS BUSINESS AND THE FURNISHING OF SERVICES OR OTHER
ACTIONS OR OMISSIONS OF DYNAMO PARTNER IN CONNECTION WITH THIS AGREEMENT.
6. TRADEMARKS. ATG grants to Dynamo Partner during the term of this Agreement
a non-exclusive, non-assignable and non-transferable right and license to use
the ATG trademarks ("ATG Marks") in its business in a manner approved by ATG in
writing. Dynamo Partner shall send to ATG for approval any proposed advertising
or promotional materials which include an ATG mark. Dynamo Partner may describe
itself as an "Authorized Dynamo Partner of Art Technology Group, Inc." In
advertising, promotional materials, and other appropriate documents. Dynamo
Partner agrees it is not authorized under this Agreement to use any ATG Marks in
connection with any business conducted by Dynamo Partner other than the conduct
of its software development and/or software integration business contemplated by
the terms of this Agreement. Dynamo Partner will not claim any ownership or
similar interest in any of the ATG Marks at any time, nor attempt to register
any of the ATG Marks in its own name. Upon termination of this Agreement, all
rights and licenses granted to Dynamo Partner shall terminate and revert
immediately to ATG, and Dynamo Partner shall immediately cease using the ATG
Marks.
7. TERMINATION, DEFAULT AND REMEDIES. This Agreement may be terminated at any
time after the first year by either party, without cause, by giving 30 days
prior written notice to the other party. ATG may also terminate this agreement
if Dynamo Partner breaches any of its terms and fails to cure the breach within
30 days after notice from ATG (or 14 days if the breach is for nonpayment). Upon
termination of the Agreement, Dynamo Partner shall (i) immediately stop acting
and identifying itself as a member of the Program and return to ATG all ATG
Products supplied under this Agreement, (ii) pay to ATG all amounts owed to ATG
in full within 30 days, and (iii) cease using any printed material, trademarks,
trade name or domain name identified with ATG without the express written
consent of ATG. Those provisions of this Agreement which by their nature are
intended to survive any expiration of termination of this Agreement shall
survive such expiration or termination. ATG shall have no liability to Dynamo
Partner for damages of any kind, including direct damages, due to termination of
this Agreement.
8. GENERAL. The parties are independent contractors. Neither party is
authorized to act on behalf of the other party, nor create any obligation or
liability on behalf of the other party. This Agreement may not be assigned by
Dynamo Partner without the prior written consent of ATG. It shall be governed
and construed in accordance with the laws of the Commonwealth of Massachusetts
without regard to its
<PAGE> 3
Dynamo Partner Program Agreement Page 3
conflict of law rules. If one party fails to enforce a provision of this
Agreement, it shall not be precluded from enforcing the same provision at
another time. The remedies in this Agreement are cumulative and may be
exercised to the extent permitted by law, and the exercise of one shall not bar
any other. If any part of this Agreement is determined to be illegal or
unenforceable, the Agreement will be interpreted as if the provision were not
present. Notices shall be in writing and shall be hand delivered, sent by
express courier service or prepaid registered or certified mail, return receipt
requested (if available), or sent by facsimile and confirmed. This Agreement
represents the entire agreement between the parties, supersedes all prior
communications relating to its subject matter, and may not be modified except
by a writing signed by both parties.
FOR ART TECHNOLOGY GROUP, INC. FOR DYNAMO PARTNER
Signature: /s/ ANN C. BRADY Signature: /s/ KIM VOGEL
Name: Ann Brady Name: Kim Vogel
Title: CFO Title: CFO
Date: 10/29/99 Date: 8/25/99
<PAGE> 1
EXHIBIT 10.12
[LOGO] MERRILL LYNCH FINANCIAL ASSETS SECURITY AGREEMENT
================================================================================
Standard
FINANCIAL ASSETS SECURITY AGREEMENT ("Security Agreement") dated as of December
8, 1999, given by NOVO MEDIAGROUP, INC. d/b/a NOVO INTERACTIVE, a corporation
organized and existing under the laws of the State of California ("Customer")
to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS").
1. DEFINITIONS. (a) In addition to terms defined elsewhere in this Security
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt or receivership law or statute shall be filed or consented to by Customer;
or (B) any such proceeding shall be filed against Customer and shall not be
dismissed or withdrawn within sixty (60) days after filing; or (C) Customer
shall make a general assignment for the benefit of creditors; or (D) Customer
shall become insolvent or generally fail to pay or admit in writing its
inability to pay its debts as they become due; or (E) Customer shall be
adjudicated a bankrupt or insolvent.
(ii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iii) "Collateral" shall mean: (A) the Securities Account, (B) any free credit
balances now or hereafter credited to or owing from MLPF&S to Customer in
respect of the Securities Account, (C) all financial assets and investment
property (including, without limitation, all security entitlements, securities
accounts, stocks, bonds, mutual funds, certificates of deposit, commodities
contracts and other securities), money market deposit accounts, instruments,
general intangibles and other property of whatever kind or description now and
hereafter in or controlled by the Securities Account or listed on any
confirmation or periodic report from MLPF&S as being in or controlled by the
Securities Account, whether now owned or hereafter acquired, (D) all proceeds
of the sale, exchange, redemption or exercise of any of the foregoing,
including, without limitation, all dividends, interest payments and other
distributions of cash or property in respect thereof, and (E) all rights
incident to the ownership of any of the foregoing.
(iv) "Loan Agreements" shall mean that certain WCMA LOAN AND SECURITY
AGREEMENT NO. 749-07522 between Customer and MLBFS, and that certain WCMA LOAN
AND SECURITY AGREEMENT NO. 749-07529 between Customer and MLBFS, as either or
both of the same may from time to time be or have been amended, restated,
extended or supplemented.
(v) "Minimum Value" shall mean $8,800,000.00.
(vi) "MLPF&S" shall mean MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
and its successors and assigns.
(vii) "Obligations" shall mean all obligations, liabilities and indebtedness
of every kind and nature now or hereafter owing, arising, due or payable from
Customer to MLBFS, howsoever created, arising, or evidenced, whether direct or
indirect, absolute or contingent, or due or to become due, including, without
limitation, interest accruing after the filing of any petition in bankruptcy,
and all present and future obligations, liabilities and indebtedness of
Customer to MLBFS under the Loan Agreements and the agreements, instruments and
documents executed pursuant thereto, including, without limitation, this
Security Agreement.
(viii) "Permitted Liens" shall mean: (A) liens in favor of MLBFS; (B) liens for
current taxes not delinquent and, if MLBFS' rights to and interest in the
Collateral are not materially and adversely affected thereby, liens for taxes
being contested in good faith by appropriate proceedings; (C) any trade
settlement liens of MLPF&S; and (D) other liens permitted in writing by MLBFS.
(ix) "Securities Account" shall mean that certain MLPF&S securities account
number 749-07520 in the name of Customer and any and all successor securities
accounts at MLPF&S.
(b) All terms used in this Security Agreement which are defined in the Uniform
Commercial Code of Illinois ("UCC") shall have the meanings set forth in the
UCC. Without limiting the foregoing, the term "financial assets" and "security
entitlement" shall have the meaning set forth in Section 8-102 of the UCC, and
the term "investment property" shall have the meaning set forth in Section
9-115 of the UCC.
2. GRANT OF SECURITY INTEREST. In order to secure payment and performance of
the Obligations, Customer hereby pledges, grants and conveys and assigns to
MLBFS a continuing first lien and security interest upon the Collateral subject
only to any Permitted Liens. In furtherance thereof, Customer hereby
irrevocably: (i) authorizes and directs MLPF&S to name or rename the Securities
Account on its books and records as the "NOVO MEDIAGROUP, INC. PLEDGED
COLLATERAL ACCOUNT F/B/O MLBFS", (ii) authorizes and directs MLPF&S and every
other person or entity now or hereafter holding or otherwise having possession
or control of any Collateral to hold, possess or control such Collateral as
agent for MLBFS and subject to the rights, direction, control and security
interest of MLBFS, (iii) authorizes and directs MLPF&S and all such other
persons or entities to comply with any and all present and future orders or
directions of MLBFS with respect to all or any part of the Collateral,
notwithstanding any contrary direction or dispute by Customer or any other
party (unless prohibited by law or the order of a judicial body having
appropriate jurisdiction), and without making any inquiry whatsoever as to
MLBFS' right or authority to give such order or direction or as to the
application of any payment pursuant thereto, and (iv) waives and releases
MLPF&S and all such other persons and entities from, and agrees to indemnify
and hold harmless MLPF&S and all such other persons and entities from and
against, any liability
<PAGE> 2
whatsoever for complying with any such order or directions of MLBFS. So long as
no Event of Default shall have occurred and be continuing, MLBFS will not issue
any orders or directions to MLPF&S with respect to the Collateral not approved
by Customer.
3. RIGHTS AND LIMITATIONS OF CUSTOMER. (a) Except upon the prior written consent
of MLBFS, Customer shall not: (i) purchase any financial assets, investment
property or other property with funds in the Securities Account other than: (A)
publicly held domestic money market funds, (B) obligations of or guaranteed or
insured by the U.S. Government (including insured certificates of deposit), or
(C) if the overall investment quality of the Collateral is not thereby
materially reduced, stocks, bonds and other financial assets or investment
property purchased with the proceeds of other Collateral which has been sold by
Customer; (ii) borrow any funds on margin or otherwise from anyone other than
MLBFS using the Securities Account, any financial assets or investment property
in or controlled by the Securities Account or any other Collateral as
collateral; (iii) otherwise grant or permit to exist any lien or security
interest upon any part of the Collateral other than Permitted Liens, or (iv)
directly or indirectly withdraw any financial assets, investment property or
other property from the Securities Account except in connection with a sale
permitted hereby.
(b) So long as no Event of Default shall have occurred and be continuing,
Customer may without the consent of MLBFS: (i) retain any financial assets,
investment property and other property which are in or controlled by the
Securities Account on the date hereof; (ii) sell any such property at any time
so long as the proceeds are either held in the Securities Account or used to
purchase other financial assets or investment property permitted hereby which
are held in or controlled by the Securities Account; and (iii) exercise any
voting and consensual rights with respect to the financial assets, investment
property and other property included in the Collateral for any purpose not
inconsistent with this Security Agreement.
4. WARRANTIES. Customer warrants to MLBFS on a continuing basis that:
(a) OWNERSHIP AND PRIORITY. Except for the rights of MLBFS hereunder and for
any Permitted Liens: (i) Customer is the owner of the Securities Account and
all other Collateral free and clear of any interest or lien of any third party;
and (ii) upon the acknowledgment of this Security Agreement by MLPF&S and/or
the completion of any other action required by applicable law to perfect its
security interest hereunder, MLBFS will have a valid and perfected first lien
and security interest upon all of the Collateral.
(b) COLLATERAL NOT RESTRICTED; ENFORCEABILITY. Except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally or by general principles of equity: (i) neither Customer nor any part
of the Collateral is subject to any legal, contractual or other restriction
which might hinder or prevent the grant to or enforcement by MLBFS of the
security interest in the Collateral pursuant to this Security Agreement, and
(ii) this Security Agreement is the legal, valid and binding obligation of
Customer, enforceable against Customer in accordance with its terms.
(c) RIGHT, POWER AND AUTHORITY. Customer has the full right, power and
authority to make, execute and deliver this Security Agreement.
5. COVENANTS.
(a) NO OTHER LIENS. Except upon the prior written consent of MLBFS, Customer
will not cause or permit to exist any security interests or liens upon the
Collateral other than Permitted Liens.
(b) MAINTENANCE OF PERFECTION. Customer will execute and deliver to MLBFS such
Uniform Commercial Code financing statements, continuation statements and other
agreements, instruments and documents as MLBFS may from time reasonably require
in order to establish, perfect and maintain perfected the lien and security
interest of MLBFS hereunder.
(c) CHANGE IN PRINCIPAL PLACE OF BUSINESS. Customer will provide not less than
30 days prior written notice of any change in Customer's principal place of
business.
(d) CHANGE WITH MLPF&S. Customer will provide MLBFS with prompt written notice
of any change known to Customer in the account number of the Securities
Account, the Financial Consultant at MLPF&S assigned to Customer or the address
of said Financial Consultant's office at MLPF&S.
(e) MINIMUM COLLATERAL VALUE. Customer further warrants and agrees that the
aggregate immediate market value of the Collateral will at all times during the
term hereof be not less than the Minimum Value. In determining the value of the
Collateral for the purposes of this Section, no value will be given to any
financial assets or investment property in or controlled through the Securities
Account for less than 30 calendar days where such financial assets or
investment property either: (i) have been issued by an open-end investment
company (including money market funds and other open-end mutual funds) other
than in connection with reinvestment of dividends; or (ii) are part of a new
issue with respect to which MLPF&S participated as a member of the selling
group or syndicate.
6. EVENT OF DEFAULT. The occurrence of any of the following will constitute an
"Event of Default" hereunder: (a) the occurrence of an Event of Default under
the terms of any of the Loan Agreements; or (b) if Customer shall breach or
violate any of its covenants or warranties herein contained, and does not cure
such breach or violation within 10 Business Days after notice from MLBFS; or (c)
a default or Event of Default by Customer shall occur under the terms of any
other agreement, instrument or document with or intended for the benefit of
MLBFS, MLPF&S or any of their affiliates, and any required notice shall have
been given and required passage of time shall have elapsed; or (d) Customer's
subscription to the Securities Account shall be terminated for any reason; or
(e) any event shall occur which shall reasonably cause MLBFS to in good faith
believe that the prospect of payment or performance by Customer has been
materially impaired (determined in a manner consistent with the intent of
Section 1-208 of the UCC); or (f) if at any time the aggregate immediate market
value of the Collateral shall be or become an amount less than the Minimum Value
(determined in a manner consistent with Section 5(e) hereof), and Customer shall
not within 1 Business Day of written demand by MLBFS deposit into the Securities
Account additional financial assets or investment property acceptable to MLBFS
sufficient to increase such aggregate immediate market value to at least the
Minimum Value; or (g) any Bankruptcy Event shall occur.
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<PAGE> 3
7. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter during the continuance thereof, MLBFS may, at its option, and in
addition to all other rights and remedies available to MLBFS: (a) by written
notice to MLPF&S, terminate all rights of Customer with respect to control of
the Collateral (it being understood, however, that upon the occurrence of any
Bankruptcy Event all rights of Customer with respect to control of the
Collateral shall automatically terminate without notice or other action on the
part of MLBFS), and thereby obtain the right to exclusive control over the
Collateral, including, without limitation, the right to cancel any open orders
and close any and all outstanding contracts, liquidate all or any part of the
Collateral, transfer the Securities Account or any other Collateral to the name
of MLBFS or its nominee, and withdraw any Collateral from the Securities
Account; and (b) exercise any one or more of the rights and remedies of a
secured party under the UCC. Any sale of Collateral pursuant to this Paragraph
may be made at MLBFS' discretion on any exchange or other market where such
business is usually transacted, or at public auction or private sale, and MLBFS
or MLBFS' agent may at any such sale be the purchaser for the account of MLBFS
or such agent. The proceeds of sale or other disposition of any of the
Collateral shall be applied by MLBFS on account of the Obligations, with any
excess paid over to Customer or its successors or assigns, as their interests
and rights may appear, or whoever else may then be adjudged entitled thereto.
To the fullest extent permitted by law, Customer waives notice of any sale,
advertisement and all other notices and formalities whatsoever. All rights and
remedies available to MLBFS hereunder shall be cumulative and in addition to
all other rights and remedies otherwise available to it at law, in equity or
otherwise, and any one or more of such rights and remedies may be exercised
simultaneously or successively. No waiver by MLBFS of any Event of Default
shall waive any other or subsequent Event of Default. None of the provisions
hereof shall be held to have been waived by any act or knowledge of MLBFS, but
only by a written instrument executed by an officer of MLBFS and delivered to
Customer.
8. POWER OF ATTORNEY. Customer further agrees that MLBFS shall have and hereby
irrevocably grants to MLBFS, effective upon the occurrence and during the
continuance of any Event of Default, the full and irrevocable right, power and
authority in the name of Customer or in MLBFS' own name, to demand, collect,
withdraw, receipt for and sue for the Securities Account and any or all of the
other Collateral, and all amounts due or to become due and payable upon or with
respect to the Collateral; to execute any withdrawal receipts respecting any or
all of the Collateral; to endorse the name of Customer on any and all
commercial paper and other instruments given in payment therefor; and, in its
discretion, to take any and all further action (including, without limitation,
the transfer of the Securities Account or any other Collateral to the name of
MLBFS or its nominee) which MLBFS shall deem necessary or appropriate to
preserve or protect its interests hereunder.
9. RIGHTS ABSOLUTE. The rights of MLBFS hereunder and with respect to the
Collateral are absolute and unconditional, and nothing that MLBFS does or
leaves undone shall affect such rights of MLBFS. Without limiting the
foregoing, MLBFS shall not as a condition of such rights be required to resort
to any other collateral or security, pursue or exhaust any remedy against
Customer or any other party or observe any formality of notice or otherwise
(except as expressly provided herein); and (ii) Customer hereby consents to,
and waives notice of, any extension, renewal or modification from time to time
of any of the Loan Agreements or any other agreement, instrument or document
evidencing or securing the Obligations, any extensions, forbearances,
compromises or releases of any of the Obligations, and the release of any party
primarily or secondarily obligated for the Obligations or of any other
collateral therefor.
10. LIMITATION OF MLBFS' OBLIGATIONS. MLBFS shall not as a result of this
Security Agreement be subjected to any obligation or liability of Customer of
any manner or type with respect to the Collateral, including, but not limited
to, the duty to perform any covenants and agreements made by Customer; all of
which obligations and liabilities shall continue to rest upon Customer as
though this Security Agreement had not been made.
11. MLPF&S NOT AUTHORIZED. CUSTOMER ACKNOWLEDGES AND AGREES THAT
NOTWITHSTANDING THE AFFILIATION BETWEEN MLBFS AND MLPF&S, AND THE AGENCY
RELATIONSHIP ACKNOWLEDGED BY MLPF&S IN THE CONSENT HERETO, NEITHER MLPF&S NOR
ANY OF ITS EMPLOYEES ARE AUTHORIZED TO WAIVE ON BEHALF OF MLBFS ANY PROVISION
HEREOF, OR CONSENT ON BEHALF OF MLBFS TO ANY ACTION OR INACTION BY CUSTOMER, OR
OTHERWISE BIND MLBFS.
12. TERM. This Security Agreement shall become effective when signed by
Customer, and shall continue in effect so long thereafter as any of the Loan
Agreements shall be in effect or there shall be any Obligations outstanding.
13. MISCELLANEOUS.
(a) Customer waives notice of the acceptance hereof by MLBFS.
(b) Titles to Paragraphs are for convenience only and shall not be considered
in the interpretation hereof.
(c) This Security Agreement shall be binding upon Customer and Customer's
heirs, personal representatives, successors and assigns, as applicable, and
shall inure to the benefit of MLBFS and its successors and assigns. If there is
more than one "Customer", their obligations hereunder are joint and several.
(d) THIS WRITTEN SECURITY AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, MAY BE MODIFIED ONLY BY
A WRITTEN INSTRUMENT EXECUTED BY BOTH MLBFS AND CUSTOMER, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
(e) THIS SECURITY AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF
THE STATE OF ILLINOIS. WITHOUT LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS
SECURITY AGREEMENT IN ANY JURISDICTION AND VENUE PERMITTED BY APPLICABLE LAW,
CUSTOMER AGREES THAT THIS SECURITY AGREEMENT MAY AT THE OPTION OF MLBFS BE
ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH ANY OF THE LOAN
AGREEMENTS MAY BE ENFORCED. CUSTOMER FURTHER AGREES THAT ANY CLAIM BY CUSTOMER
AGAINST MLBFS HEREUNDER OR WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY SHALL BE BROUGHT AGAINST MLBFS ONLY IN AN ACTION OR PROCEEDING IN A
FEDERAL OR STATE COURT IN THE COUNTY OF COOK AND STATE OF ILLINOIS, AND
CUSTOMER WAIVES THE RIGHT TO BRING ANY SUCH ACTION OR PROCEEDING OR ASSERT ANY
COUNTERCLAIM AGAINST MLBFS IN ANY OTHER JURISDICTION OR BEFORE ANY OTHER FORUM.
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<PAGE> 4
(f) Customer and MLBFS hereby each expressly waive any and all rights to a
trial by jury in any action, proceeding or counterclaim brought by either of
the parties against the other party in any way related to or arising out of
this Security Agreement, any of the Loan Agreements or any of the transactions
contemplated hereby or thereby.
Dated as of the day and year first above written.
NOVO MEDIAGROUP, INC.
By: /s/ KIMBERLEY H. VOGEL
---------------------------------------------------------
Signature (1) Signature (2)
Kimberley H. Vogel
---------------------------------------------------------
Printed Name Printed Name
CFO
---------------------------------------------------------
Title Title
ACCEPTED AT CHICAGO, ILLINOIS:
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
By: /s/ SIGNATURE ILLEGIBLE
---------------------------------------------------------
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<PAGE> 1
EXHIBIT 10.13
[MERRILL LYNCH LOGO} WCMA(R) LOAN AND SECURITY AGREEMENT
================================================================================
WCMA LOAN AND SECURITY AGREEMENT NO. 749-07528 ("Loan Agreement") dated as of
December 8, 1999 between NOVO MEDIAGROUP, INC. D/B/A NOVO INTERACTIVE, a
corporation organized and existing under the laws of the State of California
having its principal office at 222 Sutter Street, 6th Floor, San Francisco, CA
94108 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a
corporation organized and existing under the laws of the State of Delaware
having its principal office at 222 North LaSalle Street, Chicago, IL 60601
("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 749-07528 ("WCMA Agreement") between Customer and MLBFS' affiliate MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and
subject to the terms and conditions herein set forth MLBFS has agreed to
provide, a commercial line of credit for Customer (the "WCMA Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants
of the parties hereto, Customer and MLBFS hereby agree as follows:
ARTICLE I. DEFINITIONS
1.1 SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(b) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
he WCMA Program.
(c) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.
(d) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt
or receivership law or statute shall be filed or consented to by Customer or
any Guarantor; or (ii) any such proceeding shall be filed against Customer or
any Guarantor and shall not be dismissed or withdrawn within sixty (60) days
after filing; or (iii) Customer or any Guarantor shall make a general
assignment for the benefit of creditors; or (iv) Customer or any Guarantor
shall generally fail to pay or admit in writing its inability to pay its debts
as they become due; or (v) Customer or any Guarantor shall be adjudicated a
bankrupt or insolvent.
(e) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(f) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Investment Property and Financial Assets of Customer,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records
(including computer records) directly related thereto, all proceeds thereof
(including, without limitation, proceeds in the form of Accounts and insurance
proceeds), and the additional collateral described in Section 3.6(c) hereof.
(g) "Commitment Expiration Date" shall mean January 7, 2000.
(h) "Default" shall mean either an "Event of Default" as defined in Section 3.5
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(i) "Default Interest Rate" shall mean a rate equal to the sum of the "Interest
Rate", as determined below, plus two percent (2%) per annum.
(j) "General Funding Conditions" shall mean each of the following conditions to
any WCMA Loan by MLBFS hereunder: (i) no Default shall have occurred and be
continuing or would result from the making of any WCMA Loan hereunder by MLBFS;
(ii) there shall not have occurred and be continuing any material adverse change
in the business or financial condition of Customer or any Guarantor; (iii) all
representations and warranties of Customer or any Guarantor herein or in any
Additional Agreements shall then be true and correct in all material respects;
(iv) MLBFS shall have received this Loan Agreement and all of the Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (v) MLBFS
shall have received evidence reasonably satisfactory to it as to the ownership
of the Collateral and the perfection and priority of MLBFS liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (vi) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (vii) any
additional conditions specified in the "WCMA Line of Credit Approval" letter
executed by MLBFS with respect to the transactions contemplated hereby shall
have been met to the reasonable satisfaction of MLBFS.
<PAGE> 2
(k) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations.
(l) "Initial Maturity Date" shall mean the first date upon which the WCMA
Line of Credit will expire (subject to renewal in accordance with the terms
hereof); to wit: the earlier of: (i) June 30, 2000 or (ii) 180 calendar days
from the Activation Date.
(m) "Interest Due Date" shall mean the last Business Day of each calendar
month during the term hereof (or, if Customer makes special arrangements with
MLPF&S, the last Friday of each calendar month during the term hereof).
(n) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 2.30% and the 30-day Dealer Commercial Paper Rate. The "30-day
Dealer Commercial Paper Rate" shall mean, as of the date of any determination,
the interest rate from time to time published in the "Money Rates" section of
The Wall Street Journal as the "Dealer Commercial Paper" rate for 30-day
high-grade unsecured notes sold through dealers by major corporations. The
Interest Rate will change as of the date of publication in The Wall Street
Journal of a 30-day Dealer Commercial Paper Rate that is different from that
published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-day Dealer
Commercial Paper Rate, MLBFS will choose a reasonably comparable index or
source to use as the basis for the Interest Rate. Upon the occurrence and
during the continuance of a Default, the Interest Rate with respect the WCMA
Line of Credit may be increased to the "Default Interest Rate", as herein
provided.
(o) "Line Fee" shall mean a fee of $15,625.00 payable periodically by Customer
to MLBFS in accordance with the provisions of Section 2.2 (k) hereof.
(p) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(q) "Maturity Date" shall mean the date of expiration of the WCMA Line of
Credit.
(r) "Maximum WCMA Line of Credit" shall mean $2,500,000.00.
(s) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect,
absolute or contingent, due or to become due, primary or secondary or joint or
several, and, without limiting the foregoing, shall include interest accruing
after the filing of any petition in bankruptcy, and all present and future
liabilities, indebtedness and obligations of Customer under this Loan Agreement
and under that certain WCMA Loan and Security Agreement No. 749-07520.
(t) "Permitted Liens" shall mean with respect to the Collateral; (i) liens for
current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being contested in good faith by appropriate proceedings;
(ii) liens in favor of MLBFS; (iii) liens which will be discharged with the
proceeds of the initial WCMA Loan; and (iv) any other liens expressly
permitted in writing by MLBFS.
(u) "Renewal Period" shall mean and refer to the 180 calendar day period
immediately following the Initial Maturity Date.
(v) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 749-07528 and any
successor Working Capital Management Account of Customer with MLPF&S.
(w) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(x) "WCMA Loan Balance" shall mean an amount equal the aggregate unpaid
principal amount of all WCMA Loans.
1.2 OTHER TERMS. Except as otherwise defined herein: (i) all terms used in
this Loan Agreement which are defined in the Uniform Commercial Code of
Illinois ("UCC") shall have the meanings set forth in the UCC, and
(ii) capitalized terms used herein which are defined in the WCMA Agreement shall
have the meanings set forth in the WCMA Agreement.
ARTICLE II. THE WCMA LINE OF CREDIT
2.1 WCMA PROMISSORY NOTE. FOR VALUE RECEIVED, Customer hereby promises to pay
to the order of MLBFS, at the times and in the manner set forth in this Loan
Agreement, or in such other manner and at such place as MLBFS may hereafter
designate in writing, the following: (a) on the Maturity Date, or if earlier,
on the date of termination of the WCMA Line of Credit, the WCMA Loan Balance;
(b) interest at the Interest Rate (or, if applicable, at the Default Interest
Rate) on the outstanding WCMA Loan Balance, from and including the date on
which the initial WCMA Loan is made until the date of payment of all WCMA Loans
in full; and (c) on demand, all other sums payable pursuant to this Loan
Agreement, including, but not limited to, the periodic Line Fee. Except as
otherwise expressly set forth herein, Customer hereby waives presentment,
demand for payment, protest and notice of protest, notice of dishonor, notice
of acceleration, notice of intent to accelerate and all other notices and
formalities in connection with this WCMA Promissory Note and this Loan
Agreement.
2.2 WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date
shall not then have occurred, and (ii) Customer shall have subscribed to the
WCMA Program and its subscription to the WCMA Program shall then be in effect,
the Activation Date shall occur on or promptly after the date, following the
acceptance of this Loan Agreement by MLBFS at its office in Chicago, Illinois,
upon which each of the General Funding Conditions shall have been met or
satisfied to the reasonable satisfaction of MLBFS. No activation by MLBFS of
the WCMA Line of Credit for a nominal amount shall be deemed evidence of the
satisfaction of any of the conditions herein set forth, or a waiver of any of
the terms or conditions hereof. Customer hereby authorizes MLBFS to pay out
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<PAGE> 3
of and charge to Customer's WCMA Account on the Activation Date any and all
amounts necessary to fully pay off any bank or other financial institution
having a lien upon any of the Collateral other than a Permitted Lien.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the first to occur of the Maturity Date
or the date of termination of the WCMA Line of Credit pursuant to the terms
hereof, and in addition to WCMA Loans automatically made to pay accrued
interest, as hereafter provided: (i) MLBFS will make WCMA Loans to Customer in
such amounts as Customer may from time to time request in accordance with the
terms hereof, up to an aggregate outstanding amount not to exceed the Maximum
WCMA Line of Credit, and (ii) Customer may repay any WCMA Loans in whole or in
part at any time, and request a re-borrowing of amounts repaid on a revolving
basis. Customer may request such WCMA Loans by use of WCMA Checks, FTS, Visa(R)
charges, wire transfers, or such other means of access to the WCMA Line of
Credit as may be permitted by MLBFS from time to time; it being understood that
so long as the WCMA Line of Credit shall be in effect, any charge or debit to
the WCMA Account which but for the WCMA Line of Credit would under the terms of
the WCMA Agreement result in an overdraft, shall be deemed a request by
Customer for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any
such requests by Customer, if at the time of receipt by MLBFS of Customer's
request: (i) the making of such WCMA Loan would cause the Maximum WCMA Line of
Credit to be exceeded; or (ii) the Maturity Date shall have occurred, or the
WCMA Line of Credit shall have otherwise been terminated in accordance with the
terms hereof; or (iii) Customer's subscription to the WCMA Program shall have
been terminated; or (iv) an event shall have occurred and be continuing which
shall have caused any of the General Funding Conditions to not then be met or
satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any
WCMA Loan at a time when any one or more of said conditions shall not have been
met shall not in any event be construed as a waiver of said condition or
conditions or of any Default, and shall not prevent MLBFS at any time
thereafter while any condition shall not have been met from refusing to honor
any request by Customer for a WCMA Loan.
(d) LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power,
fire, Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S
or any of their affiliates unless directly arising out of the willful wrongful
act or active gross negligence of MLBFS. In no event shall MLBFS be liable to
Customer or any other party for any incidental or consequential damages arising
from any act or omission by MLBFS, MLPF&S or any of their affiliates in
connection with the WCMA Line of Credit or this Loan Agreement.
(e) INTEREST. (i) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Activation
Date shall occur. Unless otherwise hereafter directed in writing by MLBFS on or
after the first to occur of the Maturity Date or the date of termination of the
WCMA Line of Credit pursuant to the terms hereof, such interest will be
automatically charged to the WCMA Account on the applicable Interest Due Date,
and, to the extent not paid with free credit balances or the proceeds of sales
of any Money Accounts then in the WCMA Account, as hereafter provided, paid by
a WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed
for the actual number of days elapsed on the basis of a year consisting of 360
days.
(ii) Upon the occurrence and during the continuance of any Default, but without
limiting the rights and remedies otherwise available to MLBFS hereunder or
waiving such Default, the interest payable by Customer hereunder shall at the
option of MLBFS accrue and be payable at the Default Interest Rate. The Default
Interest Rate, once implemented, shall continue to apply to the Obligations
under this Loan Agreement and by payable by Customer until the date such
Default is either cured or waived in writing by MLBFS.
(iii) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (A) Customer shall not be obligated to pay any Excess
Interest; and (B) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be: (1)
applied as a credit against the then unpaid WCMA Loan Balance, (2) refunded to
the payer thereof, or (3) any combination of the foregoing.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may
be made by the delivery of checks (other than WCMA Checks), or by means of FTS
or wire transfer of funds (other than funds from the WCMA Line of Credit) to
MLPF&S for credit to Customer's WCMA Account. Notwithstanding anything in the
WCMA Agreement to the contrary, Customer hereby irrevocably authorizes and
directs MLPF&S to apply available free credit balances in the WCMA Account to
the repayment of the WCMA Loan Balance prior to application for any other
purpose. Payments to MLBFS from funds in the WCMA Account shall be deemed to be
made by Customer upon the same basis and schedule as funds are made available
for investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a
lesser amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS
in connection with the WCMA Line of Credit are subject to final collection.
(g) IRREVOCABLE INSTRUCTIONS TO MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective
on the Activation Date and continuing thereafter so long as this Agreement
shall be in effect: (i) to immediately and prior to application for any other
purpose pay to MLBFS to the extent of any WCMA Loan Balance or other amounts
payable by Customer hereunder all available free credit balances from time to
time in the WCMA Account; and (ii) if such available free credit balances are
insufficient to pay the WCMA Loan Balance and such other amounts, and there are
in the WCMA Account at any time any investments in Money Accounts (other than
any investments constituting any Minimum Money Accounts
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Balance under the WCMA Directed Reserve Program), to immediately liquidate such
investments and pay to MLBFS to the extent of any WCMA Loan Balance and such
other amounts the available proceeds from the liquidation of any such Money
Accounts.
(h) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed
to MLPF&S.
(i) USE OF WCMA LOAN PROCEEDS. The proceeds of each WCMA Loan initiated by
Customer shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLBFS, for other
lawful business purposes of Customer not prohibited hereby. CUSTOMER AGREES THAT
UNDER NO CIRCUMSTANCES WILL THE PROCEEDS OF ANY WCMA LOAN BE USED: (i) FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON WHATSOEVER, OR (ii) TO
PURCHASE, CARRY OR TRADE IN SECURITIES, OR REPAY DEBT INCURRED TO PURCHASE,
CARRY OR TRADE IN SECURITIES, WHETHER IN OR IN CONNECTION WITH THE WCMA ACCOUNT,
ANOTHER ACCOUNT OF CUSTOMER WITH MLPF&S OR AN ACCOUNT OF CUSTOMER AT ANY OTHER
BROKER OR DEALER IN SECURITIES, OR (iii) UNLESS OTHERWISE CONSENTED TO IN
WRITING BY MLBFS, TO REPAY ANY DEBT TO MERRILL LYNCH AND CO., INC. OR ANY OF ITS
SUBSIDIARIES.
(j) RENEWAL; RIGHT OF CUSTOMER TO TERMINATE. Upon receipt of a written request
of Customer, MLBFS will renew the WCMA Line of Credit for the Renewal Period if
Customer pledges to MLBFS $2,500,000.00 in cash or cash equivalents, in form
and substance satisfactory to MLBFS in its sole discretion; it being understood,
however, that no such renewal shall be effective unless set forth in a writing
executed by a duly authorized representative of MLBFS and delivered to
Customer. In connection with said renewal, Customer hereby agrees to execute
and deliver any additional documents required by MLBFS, including, but not
limited to a Financial Asset Security Agreement. Customer shall have the right
to terminate the WCMA Line of Credit at any time upon written notice to MLBFS.
(k) LINE FEES. (i) In consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer during the period from the Activation Date to the Initial
Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If the Line
Fee has not heretofore been paid by Customer, Customer hereby authorizes MLBFS,
at its option, to either cause the Line Fee to be paid on the Activation Date
with a WCMA Loan, or invoice Customer for such Line Fee (in which event Customer
shall pay said Line Fee within 5 Business Days after receipt of such invoice).
No delay in the Activation Date, howsoever caused, shall entitle Customer to
any rebate or reduction in the Line Fee or to any extension of the Initial
Maturity Date.
(ii) Customer shall pay an additional Line Fee of $12,500.00 for the Renewal
Period. In connection therewith, Customer hereby authorizes MLBFS, at its
option, to either cause such additional Line Fee to be paid with a WCMA Loan on
or at any time after the first Business Day of such Renewal Period or invoiced
to Customer at such time (in which event Customer shall pay such Line Fee
within 5 Business Days after receipt of such invoice). Each Line Fee shall be
deemed fully earned by MLBFS on the date payable by Customer, and no
termination of the WCMA Line of Credit, howsoever caused, shall entitle
Customer to any rebate or refund of any portion of such Line Fee; provided,
however, that if Customer shall terminate the WCMA Line of Credit not later
than 5 Business Days after the receipt by Customer of notice from MLBFS of a
renewal of the WCMA Line of Credit, Customer shall be entitled to a refund of
any Line Fee charged by MLBFS for the ensuing Renewal Period.
ARTICLE III. GENERAL PROVISIONS
3.1 REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of California and
is qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance by Customer of this Loan Agreement and by Customer and each
Guarantor of such of the Additional Agreements to which it is a party: (i) have
been duly authorized by all requisite action, (ii) do not and will not violate
or conflict with any law or other governmental requirement, or any of the
agreements, instruments or documents which formed or govern Customer or any
such Guarantor, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer or any such
Guarantor under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
or any Guarantor of such of this Loan Agreement and the Additional Agreements
to which it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements
to which Customer or any Guarantor is a party are the respective legal, valid
and binding obligations of Customer and such Guarantor, enforceable against it
or them, as the case may be, in accordance with their respective terms, except
as enforceability may be limited by bankruptcy and other similar laws affecting
the rights of creditors generally or by general principles of equity.
(e) COLLATERAL. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
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(f) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct in all material respects, and fairly
present the financial condition of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim
unaudited financial statements, to normal year-end adjustments); and since the
most recent date covered by such financial statements, there has been no
material adverse change in any such financial condition or operation. All
financial statements furnished to MLBFS of any Guarantor are true and correct
in all material respects and fairly represent such Guarantor's financial
condition as of the date of such financial statements, and since the most
recent date of such financial statements, there has been no material adverse
change in such financial condition.
(g) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer.
(h) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that
any such failure to file or pay will not materially and adversely affect either
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or any Guarantor, or
the continued operations of Customer).
(i) COLLATERAL LOCATION. All of the tangible Collateral is located at a
location of Tangible Collateral.
(j) NO OUTSIDE BROKER. Except for employees of MLBFS, MLPF&S or one of their
affiliates, Customer has not in connection with the transactions contemplated
hereby directly or indirectly engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with
each request for a WCMA Loan.
3.2 FINANCIAL AND OTHER INFORMATION
(a) Customer shall furnish or cause to be furnished to MLBFS during the term
of this Loan Agreement all of the following:
(i) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close for each
fiscal year of Customer, a copy of the annual audited financial statements of
Customer, including in reasonable detail, a balance sheet and statement of
retained earnings as at the close of such fiscal year and statements of
profit and loss and cash flow for such fiscal year;
(ii) INTERIM FINANCIAL STATEMENTS. Within 30 days after the close of each
fiscal month of Customer, a copy of the interim financial statements of
Customer for such fiscal month (including in reasonable detail both a balance
sheet as of the close of such fiscal period, and statement of profit and loss
for the applicable fiscal period);
(iii) PERSONAL FINANCIAL STATEMENTS. Not later than 120 days after the close
of each fiscal year of Customer, a current signed financial statement of each
individual Guarantor; and
(iv) OTHER INFORMATION. Such other information as MLBFS may from time to time
reasonably request relating to Customer, any Guarantor or the Collateral.
(b) GENERAL AGREEMENTS WITH RESPECT TO FINANCIAL INFORMATION. Customer agrees
that except as otherwise specified herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial statements required to be furnished by Customer
to MLBFS hereunder will be prepared by either the current independent
accountants for Customer or other independent accountants reasonably acceptable
to MLBFS, and (ii) all other financial information required to be furnished by
Customer to MLBFS hereunder will be certified as correct by the party who has
prepared such information, and, in the case of internally prepared information
with respect to Customer, certified as correct by its chief financial officer.
3.3 OTHER COVENANTS.
Customer further covenants and agrees during the term of this Loan Agreement
that:
(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its
principal place of business complete and accurate books and records,
and maintain all of its financial records in a manner consistent with the
financial statements heretofore furnished to MLBFS, or prepared on such other
basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its duly
authorized representatives, upon reasonable notice and at reasonable times, to
inspect its properties (both real and personal), operations, books and records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes,
assessments and other governmental charges, howsoever designated, and all other
liabilities and obligations, except to the extent that any such failure to pay
will not materially and adversely affect either the liens and security
interests of MLBFS hereunder or under any of the Additional Agreements, the
financial condition of Customer or any Guarantor or the continued operations of
Customer.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer not any Guarantor
will violate any law, regulation or other governmental requirement, any
judgment or order of any court or governmental agency or authority, or any
agreement, instrument or document to which it is a party or by which it is
bound, if any such violation will materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer.
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(d) NO USE OF MERRILL LYNCH NAME. Except upon the prior written consent of
MLBFS, neither Customer nor any Guarantor will directly or indirectly publish,
disclose or otherwise use in any advertising or promotional material, or press
release or interview, the name, logo or any trademark of MLBFS, MLPF&S, Merrill
Lynch and Co., Incorporated or any of their affiliates.
(e) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer; (iii) any information
which indicates that any financial statements of Customer or any Guarantor fail
in any material respect to present fairly the financial condition and results of
operations purported to be presented in such statements; and (iv) any change in
Customer's outside accountants. Each notification by Customer pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy such
event or information.
(f) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(g) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld; (i) Customer shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Customer, or (B) a material adverse change in the financial condition or
operations of Customer, (ii) Customer shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Customer
shall not engage in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business; (iv) Customer shall not
cause or permit any other person or entity to assume or succeed to any material
business or operations of Customer; and (v) Customer shall not cause or permit
any material change in its controlling ownership.
(h) FIXED CHARGE COVERAGE RATIO. Customer shall at all times during the term
hereof maintain a Fixed Charge Coverage Ratio of not less than 1.15 to 1. The
term "Fixed Charge Coverage Ratio" shall mean the ratio of: (a) income before
interest (including payments in the nature of interest under capital leases),
taxes, depreciation and amortization, less internally financed capital
expenditures, to (b) the sum the aggregate principal and interest paid or
accrued, the aggregate rental under capital leases paid or accrued, any
dividends and other distributions paid or payable to shareholders and taxes paid
in cash; all as determined on a trailing 12-month basis from the regular
consolidated financial statements of Customer prepared in a manner consistent
with the terms hereof.
3.4 COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to
MLBFS, and grants to MLBFS first liens and security interests in and upon all
of the Collateral, subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amount received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of
MLBFS, Customer shall not make or permit any material alterations to any
tangible Collateral which might materially reduce or impair its market value or
utility. Customer shall at all times keep the tangible Collateral in good
condition and repair, reasonable wear and tear excepted, and shall pay or cause
to be paid all obligations arising from the repair and maintenance of such
Collateral, as well as all obligations with respect to any Location of Tangible
Collateral, except for any such obligations being contested by Customer in good
faith by appropriate proceedings.
(g) LOCATION. Except for movements required in the ordinary course of
Customer's business, Customer shall give MLBFS 30 days' prior written notice of
the placing at or movement of any tangible Collateral to any Location of
Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance policies shall provide that
MLBFS will receive not less than 10 days prior
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written notice of any cancellation, and shall otherwise be in form and amount
and with an insurer or insurers reasonably acceptable to MLBFS. Customer shall
furnish MLBFS with a copy or certificate of each such policy or policies and,
prior to any expiration or cancellation, each renewal or replacement thereof.
(i) EVENT OF LOSS. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i) 90 days after
the occurrence of such Event of Loss, or (ii) 10 Business Days after the date
on which either Customer of MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer of MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
deposit into the WCMA Account an amount equal to the actual cash value of such
Collateral as determined by either the insurance company's payment (plus any
applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS; it being further understood that any such
deposit shall be accompanied by a like permanent reduction in the Maximum WCMA
Line of Credit. Notwithstanding the foregoing, if at the time of occurrence of
such Event of Loss or any time thereafter prior to replacement or line
reduction, as aforesaid, an Event of Default shall have occurred and be
continuing hereunder, the MLBFS may at its sole option, exercisable at any time
while such Event of Default shall be continuing, require Customer to either
replace such Collateral or make a deposit into the WCMA Account and reduce the
Maximum WCMA Line of Credit, as aforesaid.
(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising
out of or in any manner occasioned by (i) the ownership, collection,
possession, use or operation of any Collateral, or (ii) any failure by Customer
to perform any of its obligations hereunder, excluding, however, from said
indemnity any such claims, liabilities, etc. arising directly out of the
willful wrongful act or active gross negligence of MLBFS. This indemnity shall
survive the expiration or termination of this Loan Agreement as to all matters
arising or accruing prior to such expiration or termination.
3.5 EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. If the WCMA Loan Balance shall
at any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance
below the Maximum WCMA Line of Credit within five (5) Business Days after
written notice thereof shall have been given by MLBFS to Customer.
(b) OTHER FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement, or shall fail to pay when due
any other Obligations, and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS
to Customer.
(c) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(d) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the Additional Agreements
shall at any time prove to have been incorrect in any material respect when
made.
(e) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired. The
existence of such a material impairment shall be determined in a manner
consistent with the intent of Section 1-208 of the UCC.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of $100,000.00
or more of Customer or any Guarantor to another creditor under any indenture,
agreement, undertaking, or otherwise.
(i) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.
3.6 REMEDIES
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(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all
of the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit
and all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer (it being understood, however, that
upon the occurrence of any Bankruptcy Event, the WCMA Line of Credit and all
such obligations shall automatically terminate without any action on the part
of MLBFS); and upon any such termination MLBFS shall be relieved of all such
obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all such
principal, interest and other Obligations shall automatically become due and
payable without any action on the part of MLBFS.
(iii) EXERCISE OTHER RIGHTS. MLBFS may exercise any or all of the remedies of a
secured party under applicable law, including, but not limited to, the UCC, and
any or all or its other rights and remedies under this Loan Agreement and the
Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated
by MLBFS which is reasonably convenient to Customer, or may take possession of
the Collateral and the records pertaining to the Collateral without the use of
any judicial process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper.
MLBFS may purchase any Collateral at any such public sale. The net proceeds of
any such public or private sale and all other amounts actually collected or
received by MLBFS pursuant hereto, after deducting all costs and expenses
incurred at any time in the collection of the Obligations and in the
protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Customer or
whoever else may be entitled thereto, and with Customer and each Guarantor
remaining jointly and severally liable for any amount remaining unpaid after
such application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payments of money (properly
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Customer at any time in full or partial payment of any
Collateral, and require that Customer not commingle any such items which may be
so received by Customer with any other of its funds or property but instead
hold them separate and apart and in trust for MLBFS until delivery is made to
MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor
that its Account or Chattel Paper has been assigned to MLBFS and direct such
Account Debtor to make payment directly to MLBFS of all amounts due or becoming
due with respect to such Account or Chattel Paper, and MLBFS may enforce
payment and collect, by legal proceedings or otherwise, such Account or Chattel
Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and
of any rejected, returned, stopped in transit or repossessed goods included in
the Collateral and endorse Customer's name on any item of payment on or
proceeds of the Collateral.
(b) COLLECTION FEE. If following any acceleration of the WCMA Loan Balance
pursuant to Section 3.6(a)(ii) hereof Customer shall fail to pay the entire
WCMA Loan Balance in full within ten (10) Business Days after Customer is
notified of such acceleration, then Customer shall pay to MLBFS, in addition to
all other sums payable hereunder, a collection fee in an amount equal to the
lesser of: (i) five percent (5%) of the then WCMA Loan Balance, or (ii) the
maximum collection fee permitted by law. Such collection fee, which is intended
to compensate MLBFS for its administrative costs incident to the collection of
the WCMA Loan Balance following an Event of Default and acceleration, shall be
payable on demand, or, without demand, may in the sole discretion of MLBFS be
paid by a WCMA Loan and added to the WCMA Loan Balance in the same manner as
provided herein for accrued interest.
(c) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and apply
toward payment of any of the Obligations, in such order of application as MLBFS
may from time to time and at any time elect, any cash, credit, deposits,
accounts, financial assets, investment property, securities and any other
property of Customer which is in transit to or in the possession, custody or
control of MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S.
Customer hereby collaterally assigns and grants to MLBFS a continuing security
interest in all such property as additional Collateral.
(d) POWER OF ATTORNEY. Effective upon the occurrence and during the
continuance of an Event of Default, Customer hereby irrevocably appoints MLBFS
as its attorney-in-fact, with full power of substitution, in its place and stead
and in its name or in the name of MLBFS, to from time to time in MLBFS' sole
discretion take any action and to execute any instrument which MLBFS may deem
necessary or advisable to accomplish the purposes of this Loan Agreement,
including, but not limited to, to receive, endorse and collect all checks,
drafts and other instruments for the payment of money made payable to Customer
included in the Collateral.
(e) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
-3-
<PAGE> 9
(f) NOTICES. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
3.7 MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or any of the
Additional Agreements shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) FEES, EXPENSES AND TAXES. Customer shall pay or reimburse MLBFS for: (i) all
Uniform Commercial Code filing and search fees and expenses incurred by MLBFS in
connection with the verification, perfection or preservation of MLBFS' rights
hereunder or in the Collateral or any other collateral for the Obligations; (ii)
any and all stamp, transfer and other taxes and fees payable or determined to be
payable in connection with the execution, delivery and/or recording of this Loan
Agreement or any of the Additional Agreements; and (iii) all reasonable fees and
out-of-pocket expenses (including, but not limited to, reasonable fees and
expenses of outside counsel) incurred by MLBFS in connection with the collection
of any sum payable hereunder or under any of the Additional Agreements not paid
when due, the enforcement of this Loan Agreement or of any of the Additional
Agreements and the protection of MLBFS' rights hereunder or thereunder,
excluding, however, salaries and normal overhead attributable to MLBFS'
employees. Customer hereby authorizes MLBFS, at its option, to either cause any
and all such fees, expenses and taxes to be paid with a WCMA Loan, or invoice
Customer therefor (in which event Customer shall pay all such fees, expenses and
taxes within 5 Business Days after receipt of such invoice). The obligations of
Customer under this paragraph shall survive the expiration or termination of
this Loan Agreement and the discharge of the other Obligations.
(e) RIGHT TO FORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.
(g) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
-9-
<PAGE> 10
(h) HEADINGS. Captions and section and paragraph headings in this Loan
Agreement are inserted only as a matter of convenience, and shall not affect
the interpretation hereof.
(i) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly
provided therein, each of the Additional Agreements, shall be governed in all
respects by the laws of the State of Illinois.
(j) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Loan Agreement and the Additional Agreements shall be interpreted in such manner
as to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Loan Agreement and the Additional
Agreements or affecting the validity or enforceability of such provision in any
other jurisdiction.
(k) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.
(l) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(m) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER
CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR
FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY
AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES
ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN
THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH
RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR
ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
(n) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING,
CUSTOMER ACKNOWLEDGES THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN: (i)
NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR
RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND THE AVAILABILITY OF
THE WCMA LINE OF CREDIT OR THE MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA
LINE OF CREDIT, OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER
PARTY; (ii) NO PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE
MAXIMUM WCMA LINE OF CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT
SHALL BE VALID OR BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT
SIGNED BY MLBFS; AND (iii) THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND
ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS
TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO
AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS
TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY
BOTH MLBFS AND CUSTOMER.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and
year first above written.
NOVO MEDIAGROUP, INC. D/B/A NOVO INTERACTIVE
By: /s/ KIMBERLEY VOGEL
-------------------------------------------------------------
Signature(1) Signature(2)
Kimberley Vogel
-------------------------------------------------------------
Printed Name Printed Name
CFO
-------------------------------------------------------------
Title Title
-10-
<PAGE> 11
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: [Signature Illegible]
--------------------------------------
-11-
<PAGE> 1
EXHIBIT 10.19
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered
into effective as of the 21st day of September, 1999 ("THE EFFECTIVE DATE"), by
and between Novo Media Group, a California corporation d/b/a/ Novo Interactive
(the "COMPANY"), and Diana Wilson Todd, an individual resident of California
("EXECUTIVE").
In consideration of the promises herein made and on the terms and
subject to the conditions herein contained, the Company and Executive hereby
agree as follows:
1. Employment. The Company hereby employs Executive on the terms set
forth herein and Executive hereby accepts such employment for an indefinite term
beginning on the Effective Date, subject to termination as provided under
Section 5 below.
2. Duties.
(a) Executive shall be the Executive Vice President, Delivery,
shall report to the Chief Operation Officer ("COO") and shall have input in the
management and direction of the Company as well as such other duties and
responsibilities commensurate with such title as the COO may assign to
Executive. Initial responsibilities will include overall day-to-day
responsibilities of the engineering, development and production departments.
(b) Executive shall faithfully and diligently perform
Executive's duties in conformity with the reasonable and appropriate directions
of the COO to the best of Executive's ability. Executive shall devote
substantially all of Executive's entire working time, attention and energies to
the business and affairs of the Company, subject to vacations and sick leave as
provided herein and in accordance with Company policy. Notwithstanding the
foregoing, Executive's devotion of time to personal investments and other
business and personal matters will not be deemed a breach of this Agreement
unless such activity substantially interferes with the performance of
Executive's duties hereunder.
(c) Executive shall, subject to travel requirements on behalf of
the Company, be based at the Company's offices in San Francisco, in this regard,
Executive shall maintain Executive's personal residence at a location within
reasonable access to Executive's place of employment.
3. Compensation and Benefits.
<PAGE> 2
(a) Base Salary. The Company agrees to pay to Executive for employment
hereunder a base salary ("Base Salary") at the annual rate of $160,000.
Executive's Base Salary may be increased (but shall not be required to increase)
in such amount as shall be determined at the discretion of the Company on an
annual basis. Base Salary shall be payable in installments consistent with the
Company's payroll practices then in effect and the Company shall withhold from
such compensation all applicable federal and state income, social security, and
disability and other taxes as required by applicable laws.
(b) Bonus. Executive will be considered for any company bonus programs
appropriate for Executive Vice Presidents. In 1999, Executive will be considered
for a 25% performance based bonus with parameters established by the COO.
Performance based bonuses will be pro-rated based on start date. Performance
based bonuses shall be reconciled in January of the following year end and, if
applicable, paid out in three equal monthly installments on February 1, March 1
and April 1, provided however that Executive must be employed at the time of
distribution of said bonus.
(c) Grant of Option. The Company will grant Executive an option to
acquire 320,000 shares of Common Stock in the Company pursuant to the Stock
Option Agreement, a copy of which is attached hereto as EXHIBIT A, and the
Company's 1999 Stock Option Plan ("OPTION PLAN").
(d) Benefits and Perquisites. Executive shall be entitled to participate
in such equity, compensation and other incentive plans, benefit plans and
programs, including health insurance, and receive the benefits and perquisites,
as are made available to any of the management executives of the Company. In
addition to normal holidays recognized by the Company, Executive shall be
entitled to 3 weeks paid vacation per year accrued in accordance with the terms
of the Company's vacation policy, provided however that any determination of
amounts owed as accrued vacation upon termination of employment will be based on
the Company's vacation policy then in effect at the time of termination and
based solely upon Executive's Base Salary, as described in Section 3(a), above.
(e) Travel and Business Expenses. Upon submission of itemized expense
statements in the manner reasonably specified by the Company, Executive shall be
entitled to reimbursement for reasonable travel and other reasonable business
expenses duly incurred by Executive in the performance of Executive's duties
under this Agreement in accordance with the policies and procedures established
by the Company from time to time for the Company's management executives.
<PAGE> 3
4. No Conflict; No Other Employment. During Executive's employment with
the Company, Executive shall not: (i) engage in any activity which conflicts or
interferes with or derogates from the performance of Executive's duties
hereunder nor shall Executive engage in any other business activity, whether or
not such business activity is pursued for gain or profit, except as approved in
advance in writing by the Board of Directors of the Company, such approval not
to be unreasonably withheld; or (1i) accept any other full-time or substantially
full-time employment, whether as an executive or consultant or in any other
capacity, and whether or not compensated therefor.
5. Termination of Employment.
(a) Termination At Will By Either Party. Subject to the payment
of Executive of the applicable severance payment as provided in Section 5(d)
below, if any, either party may terminate this Agreement, for any reason, with
or without Cause (as defined at Section 5(c) below), upon written notice to the
other.
(b) Death or Permanent Disability of Executive. This Agreement
will terminate automatically upon the death or permanent disability of
Executive. Executive will be deemed permanently disabled for the purpose of this
Agreement if, in the good faith determination of the Board, based on sound
media[ advice, Executive has become physically or mentally incapable of
performing her duties hereunder for a continuous period of 120 days, in which
event Executive will be deemed permanently disabled upon the expiration of such
120-day period. In the event of a termination of this Agreement due to the death
or permanent disability of Executive, Executive or her estate will be entitled
only to the Base Salary and bonuses earned through the date of such death or
disability, in accordance with Section 3(a) and (b) above, and will receive in
addition severance payment as outlined with Section 5(d)(ii). During any period
that Executive fails to perform Executive's duties hereunder as a result of
incapacity due to physical or mental illness (a "Disability Period"), Executive
shall continue to receive the compensation and benefits provided by Section 3
hereof until Executive's employment hereunder is terminated; provided, however,
that the amount of compensation and benefits received by Executive during the
Disability Period shall be reduced by the aggregate amounts, if any, payable to
Executive under disability benefit plans and programs of the Company or under
the Social Security disability insurance program.
(c) Executive's Termination for Cause. The Company will have the
right to terminate Executive's employment hereunder for "Cause" at any time
effective upon its giving notice to Executive of the facts and circumstances
<PAGE> 4
constituting such Cause. For such purposes, "CAUSE" means the occurrence of one
or more of the following: (i) conviction of or plea of nolo contendere to any
crime (whether or not involving the Company) constituting a felony or involving
an act of embezzlement, fraud or theft with respect to the property of the
Company; (ii) habitual alcohol or drug abuse on the job or in a manner affecting
Executive's job performance; (iii) the intentional breach of fiduciary duty to
the Company; (iv) gross neglect or misconduct in the performance of Executive's
duties hereunder which causes material loss, damage or injury to or otherwise
materially endangers the property, reputation or employees of the Company; (vi)
incompetence or repeated failure or refusal to perform the duties required by
this Agreement and as may be assigned to Executive; provided such duties are
commensurate with Executive's position; (vii) commission of any other action
with the intent to materially harm or injure the Company; or (viii) the material
breach of any material provision of this Agreement by Executive.
(d) Compensation Upon Termination.
(i) In the event the Company terminates Executive's
employment for Cause pursuant to Section 5(c) above or Executive voluntarily
resigns her employment, Executive will be entitled to only: (A) the compensation
provided for in Section 3(a) hereof for the period of time ending with the date
of termination; (B) compensation for any unused vacation that Executive may have
accrued, as well as all earned benefits, up to and including the date of
termination; (C) "COBRA" benefits as the extend required by applicable law; and
(D) reimbursement for such expenses as Executive may have properly incurred on
behalf of the Company as provided in Section 3(e) above prior to the date of
termination.
(ii) In the event the Company terminates Executive's
employment without Cause, in addition to the amounts payable pursuant to Section
3(a) above, Executive will be entitled to receive a severance payment equal to
the Base Salary that Executive would have otherwise received during the period
of six (6) months from the effective date of such termination, commencing with
such date of termination, payable in one lump sum within thirty (30) days of the
date of termination and payment for three months outplacement service, provided
however that in any case the Company's obligation to pay any severance or
outplacement service payment to Executive will be expressly conditioned upon the
execution by Executive and delivery by him to the Company of a general release
and waiver of all claims (employment-related and otherwise) against the Company
and its affiliates and their respective officers, directors, employees and
agents, and covenant not to sue any such party in connection with such released
claims, in reasonable form provided by the Company.
<PAGE> 5
(iii) The payments set forth in this Section 5(d) will
fully discharge all responsibilities of the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives to Executive under this Agreement or
relating to or arising out of the termination of Executive's employment.
6. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any purchaser of all or
substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise). The Company will require any such
purchaser, successor or assignee to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such purchase, succession or assignment had taken
place.
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
7. Unfair Competition by Executive
(a) Executive agrees that all trade secrets, confidential or
proprietary information with respect to the activities and businesses of the
Company including, without limitation, personnel information, secret processes,
know-how, customer lists, data bases, ideas, techniques, processes, inventions
(whether patentable or not), and other technical plans, business plans,
marketing plans, product plans, forecasts, contacts, strategies and information
(collectively "Proprietary Information") which were learned by Executive in the
course of her employment by the Company and any other Proprietary Information
received, developed or learned by Executive hereafter in the course of her
future employment by or in association with the Company are confidential and
will be kept and held in confidence and trust as a fiduciary by Executive.
Executive will not use or disclose Proprietary Information except as necessary
in the normal course of the business of the Company for its sole and exclusive
benefit, unless Executive is compelled so to disclose under process of law, in
which case Executive will first
<PAGE> 6
notify the Company promptly after receipt of a demand to so disclose. Upon
termination of Executive's employment with the Company for any reason, she will
immediately deliver to the Company all tangible, written, graphical, machine
readable and other materials (including all copies) in her possession or under
her control containing or disclosing Proprietary Information. Executive will not
disclose to the Company or use in connection with her employment on behalf of
the Company any confidential information of any third party. Executive
represents to the Company that her employment with the Company, and her
activities on its behalf, will not violate any obligation or commitment that
Executive has to any third party.
(b) For a period of two (2) years following the termination of
her employment with the Company for any reason, Executive will not, without the
Company's express written consent, either on her own behalf or on behalf of
another, solicit employees of the Company for the purpose of hiring them.
(c) Executive and the Company acknowledge that: (i) each
covenant and restriction contained in Sections 7 and 8 of this Agreement is
necessary, fundamental, and required for the protection of the Company's
business; (ii) such relate to matters which are of a special, unique, and
extraordinary character that gives each of them a special, unique, and
extraordinary value; and (iii) a breach of any such covenant or restriction will
result in irreparable harm and damage to the Company which cannot be compensated
adequately by a monetary award. Accordingly, it is expressly agreed that, in
addition to all other remedies available at law or in equity, and
notwithstanding anything to the contrary in Section 10 below, the Company will
be entitled to the immediate remedy of a temporary restraining order,
preliminary injunction, or such other form of injunctive or equitable relief as
may be used by any court of competent jurisdiction to restrain or enjoin any of
the parties hereto from breaching any such covenant or restriction, or otherwise
specifically to enforce the provisions contained in Sections 7 and 8 of this
Agreement.
8. Proprietary Matters. Executive expressly understands and agrees that
any and all improvements, inventions, discoveries, processes, or know-how that
are generated or conceived by Executive during the term of this Agreement,
whether so generated or conceived during Executive's regular working hours or
otherwise, will be the sole and exclusive property of the Company, and Executive
will, whenever requested to do so by the Company (either during the term of this
Agreement or thereafter), execute and assign any and all applications,
assignments and/or other instruments and do all things which the Company may
deem necessary or appropriate in order to apply for, obtain, maintain, enforce
and defend patents, copyrights, trade names or trademarks of the United States
or of foreign
<PAGE> 7
countries for said improvements, inventions, discoveries, processes, or
know-how, or in order to assign and convey or otherwise make available to the
Company the sole and exclusive right, title, and interest in and to said
improvements, inventions, discoveries, processes, know-how, applications,
patents, copyrights, trade names or trademarks, subject to California Labor Code
section 2870, which reads as follows:
"(a) Any provision in an employment agreement which provides
that an employee shall assign, or offer to assign, any of his or her
rights in an invention to his or her employer shall not apply to an
invention that the employee developed entirely on his or her own time
without using the employer's equipment, supplies, facilities, or trade
secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual
or demonstrably anticipated research or development of the
employer; or
(2) Result from any work performed by the employee for
the employer.
(b) To the extent a provision in an employment agreement
purports to require an employee to assign an invention otherwise
excluded from being required to be assigned under subdivision (a), the
provision is against the public policy of this state and is
unenforceable."
9. Key-Man Insurance. Executive agrees to make himself available and to
undergo, at the Company's request and expense, any physical examination or other
procedure necessary to allow the Company to obtain a key-man insurance policy on
Executive. If the Company obtains such policy, it will maintain the policy at
its expense and all proceeds will be the sole property of the Company.
10. Arbitration. The parties will attempt in good faith promptly by
negotiations to resolve any dispute or controversy arising out of or relating to
this Agreement or to the employment or termination of Executive by the Company.
If a party intends to be accompanied at a negotiation meeting by an attorney,
the other party will be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations pursuant
to this clause are confidential and will be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence and state rules of
evidence.
<PAGE> 8
In the event the parties are unable to settle such controversy amicably
through negotiations, the dispute will be submitted to binding arbitration
before a single arbitrator in accordance with the Employment Dispute Resolution
Rules of the American Arbitration Association provided that: (i) the arbitrator
will be instructed and empowered to take whatever steps to expedite the
arbitration as he or she deems reasonable; (ii) each party will bear its own
costs in connection with the arbitration; (iii) the arbitrator's judgment will
be final and binding upon the parties, except that it may be challenged on the
grounds of fraud or gross misconduct; and (iv) the arbitration will be held in
San Francisco, California. Judgment upon any verdict in arbitration may be
entered in any court of competent jurisdiction. The parties hereby consent to
the jurisdiction of, and proper venue in, the federal and state courts located
in San Francisco, California.
Unless otherwise expressly set forth in this Agreement, the procedures
specified in this Section 10 will be the sole and exclusive procedures for the
resolution of disputes and controversies between the parties arising out of or
relating to this Agreement; provided, however, that a party may seek a
preliminary injunction or other provisional judicial relief if in its judgment
such action is necessary to avoid irreparable damage or to preserve the status
quo. Despite such action the parties will continue to participate in good faith
in the procedures specified in this Section 10.
11. Miscellaneous.
(a) Governing Law; Interpretation. This Agreement and its
EXHIBIT A will be governed by the substantive laws of the State of California
applicable to contracts entered into and fully performed in such jurisdiction.
The headings and captions of the Sections of this Agreement are for convenience
only and in no way define,, limit or extend the scope or intent of this
Agreement or any provision hereof. This Agreement will be construed as a whole,
according to its fair meaning, and not in favor of or against any party,
regardless of which party may have initially drafted certain provisions set
forth herein.
(b) Assignment. This Agreement is personal to Executive and she
may not assign any of her rights or delegate any of her obligations hereunder
without first obtaining the prior written consent of the Board of Directors of
the Company.
(c) Notices. Any notice, request, claim or other communication
required or permitted hereunder will be in writing and will be deemed to have
been duly given if delivered by hand or if sent by certified mail, postage and
certification prepaid, to Executive at her residence (as noted in the Company's
records), or to the Company at its address as set forth below its signature on
the
<PAGE> 9
signature page of this Agreement, or to such other address or addresses as
either party may have furnished to the other in writing in accordance herewith.
(d) Severability. In the event any provision of this Agreement
or the application of any such provision to either of the parties is held by a
court of competent jurisdiction to be contrary to law, such provision will be
deemed amended to the extent necessary to comply with such law, and the
remaining provisions of this Agreement will remain in full force and effect.
(e) Entire Agreement; Amendments. This Agreement together with
EXHIBIT A constitutes the final and complete expression of all of the terms of
the understanding and agreement between the parties hereto with respect to the
subject matter hereof, and this Agreement replaces and supersedes any and all
prior or contemporaneous negotiations, communications, understandings,
obligations, commitments, agreements or contracts, whether written or oral,
between the parties respecting the subject matter hereof. Except as provided in
Section 11(d) above, this Agreement may not be modified, amended, altered or
supplemented except by means of the execution and delivery of a written
instrument mutually executed by both parties.
(f) Attorneys' Fees. In the event it becomes necessary for any
party to initiate legal action or any other proceeding to enforce, defend or
construe such party's rights or obligations under this Agreement, the prevailing
party will be entitled to its reasonable costs and expenses, including
attorneys' fees, incurred in connection with such action or proceeding.
12. Executive Acknowledgment. Executive acknowledges that she has been
given the opportunity to consult with legal counsel concerning the rights and
obligations arising under this Agreement (including for purposes of this Section
12, the Stock Option Agreement and the related Stock Option Plan), that she has
read and understands each and every provision of this Agreement, and that she is
fully aware of the legal effect and implications of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
<PAGE> 10
NOVO MEDIA GROUP, INC.. Executive:
By: /s/ KIMBERLEY VOGEL
--------------------------------
/s/ DIANA WILSON TODD
------------------------------------
Its: CFO Diana Wilson Todd
-------------------------------
Address: Address: 1083 Vine St. PMB 242
Healdsburg, CA 95448
Fax: Fax: (707) 857-1751
<PAGE> 11
Exhibit A
Stock Option Agreement
[form to be attached]
<PAGE> 1
EXHIBIT 10.20
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of the 28th day of September, 1999 (the "Effective Date"), by and
between Novo Media Group, a California corporation d/b/a/ Novo Interactive (the
"Company"), located at 222 Sutter Street, San Francisco, California 94108, and
Andrew Sievers ("Executive"), an individual residing in Tokyo, Japan.
In consideration of the promises herein made and on the terms and subject
to the conditions herein contained, the Company and Executive hereby agree as
follows:
1. Employment. The Company hereby employs Executive on the terms
set forth herein and Executive hereby accepts such employment for an indefinite
term beginning on the Effective Date, subject to termination as provided under
Section 5 below.
2. Duties.
(a) Executive shall be the Vice President - General
Manager of New York Operations, shall report to the Chief Operating
Officer ("COO") and shall have input in the management and direction of
the Company as well as such other duties and responsibilities
commensurate with such title as the COO may assign to Executive.
(b) Executive shall faithfully and diligently perform
Executive's duties in conformity with the reasonable and appropriate
directions of COO to the best of Executive's ability. Executive shall
devote substantially all of Executive's entire working time, attention
and energies to the business and affairs of the Company, subject to
vacations and sick leave as provided herein and in accordance with
Company policy. Notwithstanding the foregoing, Executive's devotion of
time to personal investments and other business and personal matters
will not be deemed a breach of this Agreement unless such activity
substantially interferes with the performance of Executive's duties
hereunder.
(c) Executive shall, subject to travel requirements on
behalf of the Company, be based at the Company's offices in New York, in
this regard, Executive shall maintain Executive's personal residence at
a location within reasonable access to Executive's place of employment.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive
for employment hereunder a base salary ("Base Salary") at the annual
rate One Hundred Fifty Thousand Dollars and No Cents ($150,000).
Executive's Base Salary may be increased (but shall not be required to
increase) in such amount as shall be determined at the discretion of the
Company. Executive's Base Salary will be reviewed in December of each
calendar for potential increase in January of the following year. Base
Salary shall be payable in installments consistent with the Company's
payroll practices then in effect and
<PAGE> 2
the Company shall withhold from such compensation all applicable federal
and state income, social security, and disability and other taxes as
required by applicable laws.
(b) Performance Bonus. Executive shall be eligible to
receive an annual performance-based bonus (Performance Bonus) in an
amount not less than twenty-five percent (25%) of Executive's Base
Salary over the period for which the Performance Bonus is calculated
(Bonus Period). Such Performance Bonus shall be based upon the
performance of the Company, be determined by uniform standards applied
to all Vice Presidents, and shall be payable within 30 days after the
last day of the Bonus Period. The Executive and the Company must achieve
the performance levels so specified for each year (or shorter period, if
applicable) in order for Executive to earn the Performance Bonus. The
Bonus Period will be from January I to December 31 annually. If the
Executive is not employed during the entire Bonus Period, the
Performance Bonus will be pro-rated based on their Executive's start
date with the Company.
(c) One-Time Cost. The Company shall pay you a one-time
allowance of net $10,000 to cover your costs associated with previous
commitments. This bonus will be payable within 30 days of your start
date provided you return all necessary paperwork.
(d) One-Time Bonus. The Company shall pay you a one-time
bonus of $40 000, less applicable taxes and withholdings. This bonus
will be payable within 30 days of your start date provided you return
all necessary paperwork.
(e) Grant of Option. The Company will grant Executive an
option to acquire One Hundred Thousand (100,000) shares of Common Stock
in the Company pursuant to the Stock Option Agreement ("Option
Agreement"), a copy of which is attached hereto as Exhibit A
(f) Benefits and Perquisites. Executive shall be entitled
to participate in such equity, compensation and other incentive plans,
benefit plans and programs, including health insurance, and receive the
benefits and perquisites, as are made available to any of the management
executives of the Company. In addition to normal holidays recognized by
the Company, Executive shall be entitled to 3 weeks paid vacation per
year accrued in accordance with the terms of the Company's vacation
policy, provided however that any determination of amounts owed as
accrued vacation upon termination of employment will be based on the
Company's vacation policy then in effect at the time of termination and
based solely upon Executive's Base Salary, as described in Section 3(a),
above.
(g) Travel and Business Expenses. Upon submission of
itemized expense statements in the manner reasonably specified by the
Company, Executive shall be entitled to reimbursement for reasonable
travel and other reasonable business expenses duly incurred by Executive
in the performance of Executive's duties under this Agreement in
accordance with the policies and procedures established by the Company
from time to time for the Company's management executives.
<PAGE> 3
4. No Conflict; No Other Employment. During Executive's
employment with the Company, Executive shall not: (i) engage in any activity
which conflicts or interferes with or derogates from the performance of
Executives duties, hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Board of Directors of the
Company, such approval not to be unreasonably withheld; or (ii) accept any other
full-time or substantially full-time employment, whether as an executive or
consultant or in any other capacity, and whether or not compensated therefor.
5. Termination of Employment.
(a) Termination At Will By Either Party. Subject to the
payment of Executive of the applicable severance payment as provided in
Section 5(d) below, if any, either party may terminate this Agreement,
for any reason, with or without Cause (as defined at Section 5(c)
below), upon written notice to the other.
(b) Death or Permanent Disability of Executive. This
Agreement will terminate automatically upon the death or permanent
disability of Executive. Executive will be deemed permanently disabled
for the purpose of this Agreement if, in the good faith determination of
the Board, based on sound medical advice, Executive has become
physically or mentally incapable of performing his duties hereunder for
a continuous period of 120 days, in which event Executive will be deemed
permanently disabled upon the expiration of such 120-day period. In the
event of a termination of this Agreement due to the death or permanent
disability of Executive, Executive or his estate will be entitled only
to the Base Salary and bonuses earned through the date of such death or
disability, in accordance with Section 3(a) above, and will receive in
addition severance payment as outlined with Section 5(d)(ii). During any
period that Executive fails to perform Executives duties hereunder as a
result of incapacity due to physical or mental illness (a "Disability
Period), Executive shall continue to receive the compensation and
benefits provided by Section 3 hereof until Executive's employment
hereunder is terminated; provided, however, that the amount of
compensation and benefits received by Executive during the Disability
Period shall be reduced by the aggregate amounts, if any, payable to
Executive under disability benefit plans and programs of the Company or
under the Social Security disability insurance program.
(c) Executive's Termination for Cause. The Company will
have the right to terminate Executive's employment hereunder for "Cause"
at any time effective upon giving notice to Executive of the facts and
circumstances constituting such Cause. For such purposes, "Cause" shall
mean the occurrence of one or more of the following: (i) conviction of
or plea of nolo contendere to any crime (whether or not involving the
Company) constituting a felony or involving an act of embezzlement,
fraud or theft with respect to the property of the Company; (ii)
habitual alcohol or drug abuse on the job or in a manner affecting
Executive's job performance; (iii) the intentional breach of fiduciary
duty to the Company; (iv) gross neglect or intentional misconduct in the
performance of Executive's duties hereunder which causes material loss,
damage or injury to or otherwise materially endangers the property,
reputation or employees of the Company; (v) material
<PAGE> 4
incompetence or failure or refusal to perform the duties required by
this Agreement as may be assigned to Executive; provided such duties are
commensurate with the Executive's position, after a written demand is
delivered to Executive by the Company which specifically identifies the
manner in which such Company believes that Executive has engaged in
incompetence or failure or refusal to perform the duties required, and
Executive is given ten (10) days to correct the alleged incompetence or
failure or refusal to perform the duties required; (vi) commission of
any other action with the intent to materially harm or injure the
Company; or (vii) the material breach of any provision of this Agreement
by Executive, after a written demand is delivered to Executive by the
Company which specifically identifies the manner in which such Company
believes that Executive has breached the agreement, and Executive is
given ten (10) days to correct the alleged breach.
(d) Compensation Upon Termination.
(i) In the event the Company terminates Executive's
employment for Cause pursuant to Section 5(c) above or Executive
voluntarily resigns his employment, Executive will be entitled to
only: (A) the compensation provided for in Section 3(a) hereof
for the period of time ending with the date of termination; (B)
compensation for any unused vacation that Executive may have
accrued, as well as all earned benefits, up to and including the
date of termination; (C) "COBRA" benefits to the extent required
by applicable law; and (D) reimbursement for such expenses as
Executive may have properly incurred on behalf of the Company as
provided in Section 3(e) above prior to the date of termination.
(ii) In the event the Company terminates
Executive's employment without Cause, in addition to the amounts
payable pursuant to Section 3(a) and 5(d)(i) above, Executive
will be entitled to receive a severance payment equal to the Base
Salary that Executive would have otherwise received through the
period of 6 months from the effective date of such termination,
commencing with such date of termination, payable in one lump sum
within thirty (30) days of the date of termination. In addition
Executive will receive payment for three months outplacement
service, provided however that in any case the Company's
obligation to pay any severance, COBRA, or outplacement service
payment to Executive, will be expressly conditioned upon the
execution by Executive and delivery by him to the Company of a
general release and waiver of all claims (employment-related and
otherwise) against the Company and its affiliates and their
respective officers, directors, employees and agents, and
covenant not to sue any such party in connection with such
released claims, in reasonable form provided by the Company.
(iii) The payments set forth in this Section
5(d)(ii) will fully discharge all responsibilities of the Company
to Executive under this Agreement or relating to or arising out
of the termination of Executive's employment.
<PAGE> 5
6. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of
and be enforceable by, and may be assigned by the Company to, any
purchaser of all or substantially all of the Company's business or
assets, any successor to the Company or any assignee thereof (whether
direct or indirect, by purchase, merger, consolidation or otherwise).
The Company will require any such purchaser, successor or assignee to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such purchase, succession or assignment had taken place.
(b) Executive. Executive's rights and obligations under
this Agreement shall not be transferable by Executive by assignment or
otherwise, and any purported assignment, transfer or delegation thereof
shall be void; provided, however, that if Executive shall die, all
amounts then payable to Executive hereunder shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee or
other designee or, if there be no such designee, to Executive's estate.
7. Unfair Competition by Executive.
(a) Executive agrees that all trade secrets, confidential
or proprietary information with respect to the activities and businesses
of the Company not generally available to the public, including, without
limitation, personnel information, secret processes, know-how, customer
lists, data bases, ideas, techniques, processes, inventions (whether
patentable or not), and other technical plans, business plans, marketing
plans, product plans, forecasts, contacts, strategies and information
(collectively, "Proprietary Information") which were learned by
Executive in the course of his employment by the Company and any other
Proprietary Information received, developed or learned by Executive
hereafter in the course of his future employment by or in association
with the Company are confidential and will be kept and held in
confidence and trust as a fiduciary by Executive. Executive will not use
or disclose Proprietary Information except as necessary in the normal
course of the business of the Company for its sole and exclusive
benefit, unless Executive is compelled so to disclose under process of
law, in which case Executive will first notify the Company promptly
after receipt of a demand to so disclose. Upon termination of
Executive's employment with the Company for any reason, he will
immediately deliver to the Company all tangible, written, graphical,
machine readable and other materials (including all copies) in his
possession or under his control containing or disclosing Proprietary
Information. Executive will not disclose to the Company or use in
connection with his employment on behalf of the Company any confidential
information of any third party. Executive represents to the Company that
his employment with the Company, and his activities on its behalf, will
not violate any obligation or commitment that Executive has to any third
party.
(b) For a period of two (2) years following the
termination of his employment with the Company for any reason, Executive
will not, without the Company's express written consent, either on his
own behalf or on behalf of another, solicit employees of the Company
for the purpose of hiring them.
<PAGE> 6
(c) Executive and the Company acknowledge that: (i) each
covenant and restriction contained in Sections 7 and 8 of this Agreement
is necessary, fundamental, and required for the protection of the
Company's business; (ii) such relate to matters which are of a special,
unique, and extraordinary character that gives each of them a special,
unique, and extraordinary value; and (iii) a breach of any such covenant
or restriction will result in irreparable harm and damage to the Company
which cannot be compensated adequately by a monetary award. Accordingly,
it is expressly agreed that, in addition to all other remedies available
at law or in equity, and notwithstanding anything to the contrary in
Section 10 below, the Company will be entitled to the immediate remedy
of a temporary restraining order, preliminary injunction, or such other
form of injunctive or equitable relief as may be used by any court of
competent jurisdiction to restrain or enjoin any of the parties hereto
from breaching any such covenant or restriction, or otherwise
specifically to enforce the provisions contained in Sections 7 and 8 of
this Agreement.
8. Proprietary Matters. Executive expressly understands and agrees
that any and all improvements, inventions, discoveries, processes, or know-how
that are generated or conceived by Executive during the term of this Agreement,
whether so generated or conceived during Executive's regular working hours or
otherwise, will be the sole and exclusive property of the Company, and
Executive will, whenever requested to do so by the Company (either during the
term of this Agreement or thereafter), execute and assign any and all
applications, assignments and/or other instruments and do all things which the
Company may deem necessary or appropriate in order to apply for, obtain,
maintain, enforce and defend patents, copyrights, trade names or trademarks of
the United States or of foreign countries for said improvements, inventions,
discoveries, processes, or know-how, or in order to assign and convey or
otherwise make available to the Company the sole and exclusive right, title, and
interest in and to said improvements, inventions, discoveries, processes,
know-how, applications, patents, copyrights, trade names or trademarks, subject
to California Labor Code section 2870, which reads as follows:
"(a) Any provision in an employment agreement which
provides that an employee shall assign, or offer to assign, any of his
or her rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely on his or her own time
without using the employer's equipment, supplies, facilities, or trade
secret information except for those inventions that either:
(1) Relate at the time of conception or reduction
to practice of the invention to the employer's business,
or actual or demonstrably anticipated research or
development of the employer, or
(2) Result from any work performed by the employee
for the employer.
(b) To the extent a provision in an employment agreement
purports to require an employee to assign an invention otherwise
excluded from being required to be assigned under subdivision (a), the
provision is against the public policy of this state and is
unenforceable."
<PAGE> 7
9. Key-Man Insurance. Executive agrees to make himself available
and to undergo, at the Company's request and expense, any physical examination
or other procedure necessary to allow the Company to obtain a key-man insurance
policy on Executive. If the Company obtains such policy, it will maintain the
policy at its expense and all proceeds will be the sole property of the Company.
10. Arbitration. The parties will attempt in good faith promptly
by negotiations to resolve any dispute or controversy arising out of or relating
to this Agreement or the employment or termination of Executive by the Company.
If a party intends to be accompanied at a negotiation meeting by an attorney,
the other party will be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations pursuant
to this clause are confidential and will be treated as compromise and settlement
negotiations for the purposes of the Federal Rules of Evidence and state rules
of evidence.
In the event the parties are unable to settle such controversy
amicably through negotiations, the dispute will be submitted to binding
arbitration before a single arbitrator in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association provided that: (i) the
arbitrator will be instructed and empowered to take whatever steps to expedite
the arbitration as he or she deems reasonable; (ii) each party will bear its own
costs in connection with the arbitration; (iii) the arbitrator's judgment will
be final and binding on the parties, except that it may be challenged on the
grounds of fraud or gross misconduct; and (iv) the arbitration will be held in
San Francisco, California. Judgment upon any verdict in arbitration may be
entered in any court of competent jurisdiction. The parties hereby consent to
the jurisdiction of, and proper venue in, the federal and state courts located
in New York, New York.
11. Approval of Plan. The Company hereby represents that its
Board of Directors has approved the Option Plan.
12. Miscellaneous.
(a) Governing Law; Interpretation. This Agreement and its
Exhibits will be governed by the substantive laws of the State of
California. The headings and captions of the Sections of this Agreement
are for convenience only and in no way define, limit or extend the scope
or intent of this Agreement or any provision hereof. This Agreement will
be construed as a whole, according to its fair meaning, and not in favor
of or against any party, regardless of which party may have initially
drafted certain provisions set forth herein.
(b) Assignment. This Agreement is personal to Executive
and he may not assign any of his rights or delegate any of his
obligations hereunder without first obtaining the prior written consent
of the Board of Directors of the Company.
(c) Notices. Any notice, request, claim or other
communication required or permitted hereunder will be in writing and
will be deemed to have been duly given if delivered by hand or if sent
by certified mail, postage and certification prepaid, to Executive at
his residence (as noted in the Company's records), or to the Company at
its address as set forth below its signature on the signature page of
this Agreement, or to
<PAGE> 8
such other address or addresses as either party may have furnished to
the other in writing in accordance herewith.
(d) Severability. In the event any provision of this
Agreement or the application of any such provision to either of the
parties is held by a court of competent jurisdiction to be contrary to
law, such provision will be deemed amended to the extent necessary to
comply with such law, and the remaining provisions of this Agreement
will remain in full force and effect.
(e) Entire Agreement; Amendments. This Agreement together
with Exhibit A constitutes the final and complete expression of all of
the terms of the understanding and agreement between the parties hereto
with respect to the subject matter hereof, and this Agreement replaces
and supersedes any and all prior or contemporaneous negotiations,
communications, understandings, obligations, commitments, agreements or
contracts, whether written or oral, between the parties respecting the
subject matter hereof. Except as provided in Section 12(d) above, this
Agreement may not be modified, amended, altered or supplemented except
by means of the execution and delivery of a written instrument mutually
executed by both parties.
13. Executive Acknowledgment. Executive acknowledges, that he has been
given the opportunity to consult with legal counsel concerning the rights and
obligations arising under this Agreement (including for purposes of this
Section 13, the Stock Option Agreement and the related Stock Option Plan), that
he has read and understands each and every provision of this Agreement, and that
he is fully aware of the legal effect and implications of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NOVO MEDIA GROUP, INC. Executive
By: /s/ HARRY SCHLOUGH
--------------------------------
Its: PRESIDENT & COO /s/ ANDREW SIEVERS 11-1-99
------------------------------- -----------------------------------
Andrew Sievers
Address: Address:
Fax:
- -----------------------------------
Fax:
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No.1 to Registration Statement
No.333-31722 of Novo Group, Inc. on Form S-1 of our report dated March 3, 2000
on the consolidated financial statements of Novo Group, Inc. and our report
dated March 3, 2000 on the financial statements of Blue Marble Advanced
Communications Group, LTD., both reports appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 8, 2000
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,866
<SECURITIES> 9,543
<RECEIVABLES> 5,182
<ALLOWANCES> 533
<INVENTORY> 0
<CURRENT-ASSETS> 18,201
<PP&E> 892
<DEPRECIATION> (577)
<TOTAL-ASSETS> 66,821
<CURRENT-LIABILITIES> 8,044
<BONDS> 0
0
10,000
<COMMON> 37,505
<OTHER-SE> (8,728)
<TOTAL-LIABILITY-AND-EQUITY> 46,821
<SALES> 13,738
<TOTAL-REVENUES> 13,738
<CGS> 6,428
<TOTAL-COSTS> 6,428
<OTHER-EXPENSES> 10,521
<LOSS-PROVISION> 533
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,817)
<INCOME-TAX> 23
<INCOME-CONTINUING> (1,840)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (1,840)
<EPS-BASIC> (0.11)
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