<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000
REGISTRATION NO. 333-31722
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
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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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
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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)
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(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."
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<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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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 and related
agreements.
10.15 1999 Novo Series A Common Stock Incentive Plan and related
agreements.
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.
+ Portions redacted pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission.
++ Previously filed.
(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
II-4
<PAGE> 98
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.
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. 2 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 30th 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. 2 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 30, 2000
- ----------------------------------------------------- Executive Officer and Director
Kelly A. Rodriques (Principal Executive Officer)
* Chief Financial Officer (Principal March 30, 2000
- ----------------------------------------------------- Financial and Accounting
Kimberley H. Vogel Officer)
* Director March 30, 2000
- -----------------------------------------------------
Harry Schlough
* Director March 30, 2000
- -----------------------------------------------------
Richard Marcus
* Director March 30, 2000
- -----------------------------------------------------
Roy Bostock
* Director March 30, 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 and related
agreements.
10.15 1999 Novo Series A Common Stock Incentive Plan and related
agreements.
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.
+ Portions redacted pursuant to a request for confidential treatment filed
with the Securities and Exchange Commission.
++ Previously filed.
<PAGE> 1
EXHIBIT 10.2
CONSULTING AND DEVELOPMENT AGREEMENT
TMS (Toyota Motor Sales)
This Agreement is made and entered into as of July 27, 1998 ("Effective Date")
by and between Toyota Motor Sales ("TMS"), a corporation organized under the
laws of the State of California and Novo Media Group, Inc. ("Novo"), a
corporation organized under the laws of the State of California.
WHEREAS, in TMS's continuous improvement of Interactive communication and
transaction systems, TMS from time to time needs assistance in carrying out
software development, and
WHEREAS, NOVO is in the business of providing consulting and development
services regarding interactive communication and transaction systems, and
WHEREAS, TMS desires to retain NOVO from time to time to perform certain
projects for TMS upon request by TMS and as specified and agreed upon from time
to time.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS
The following definitions are in addition to the terms defined elsewhere in this
Agreement. Unless the context otherwise required, the following terms shall have
the following meaning:
1.1 "IP RIGHTS" means copyrights, trademark rights, trade secret rights,
inventions, patent rights (if any) and design rights, whether registered or
unregistered, and including any application for registration of any of the
foregoing, and any rights of similar nature or effect existing anywhere in the
world.
1.2 "NOVO TECHNOLOGY" means (i) any intellectual property of NOVO other than the
NOVO Work Product, such as NOVO Installer Application, NOVO Registration
Application, Custom Toyota Online Browser, PPP Dialer, TCP/IP protocol Stack,
Custom Toyota chat application, NOVO memory manager, portions of the Toyota Web
Site developed using Java or other similar authoring tools, and the observation
and tracking module, LiveTrack, and (ii) intellectual property which was created
by NOVO alone or jointly with others, or by NOVO's licensors, including but not
limited to intellectual property that is necessary, useful or otherwise
generally related to NOVO's development of products, services or components,
such as computer code, algorithms and programs relating to software development
or programming generally, or is otherwise created by NOVO for a third party, or
is licensed to NOVO by a third party, including without limitation computer
code, algorithms, and programs relating to software development or programming
generally and any inventions, innovations and trade secrets of NOVO relating to
the foregoing.
<PAGE> 2
1.3 "NOVO WORK PRODUCT" means any program materials, audio or visual designs,
artwork, user interfaces, derivative works or other copyrightable materials,
algorithms, methods, inventions, innovations conceived or developed by NOVO
hereunder whether singly or jointly with others and in the performance of the
Work, but excluding TMS Materials and the NOVO Technology.
1.4 "TMS MATERIALS" means any and all technology, information or materials
provided by TMS to NOVO in connection with NOVO's performance of the Work,
including, without limitation, TMS trademarks, product materials, product and
business information of TMS, and software programs and including all NOVO Work
product previously produced under all agreements and Statements of Work between
TMS and NOVO prior to the date hereof.
2. STATEMENT OF WORK
2.1 Novo shall render all the services ("Work") from time to time agreed upon by
the parties and specified in a statement of work (a "SOW" or "Statement of
Work"), which will be attached hereto as Exhibit A-1, A-2 etc., and which is
made a part hereof by this reference. Each assignment shall be set forth in a
separate Statement of Work. A Statement of Work shall consist of a separately
signed work order or assignment which details the scope of work and price and
which references this Agreement. Each Statement of Work will follow in sequence
and is subject to the terms and conditions of this Agreement. To be binding
each Statement of Work must be separately agreed to and signed by the parties.
NOVO shall have no obligation to commence work until the applicable SOW is
agreed upon and fully signed by the parties and TMS has submitted a purchase
order covering the applicable Work. TMS shall be responsible for timely issuing
or amending any applicable purchase orders required by its accounting systems so
that TMS can comply with the payment provisions of this Agreement.
2.2 Statements of Work may be amended or modified by a supplementary work order
agreed to in writing and signed by both parties, which order shall be attached
to the applicable Statement of Work. Thereupon, the Statement of Work shall
include the services described in the supplementary work order.
2.3 The terms and conditions of this Agreement and the related Statements of
Work shall exclusively govern the provisions of services and the license of any
software to TMS in connection with the Statements of Work hereunder, and shall
supersede all pre-printed terms and conditions contained in any purchase order,
order acknowledgment form, invoice or other business form submitted hereafter
(or concurrent herewith) by either party to the other.
3. RELATIONSHIP
3.1 NOVO shall provide services that include but are not limited to: Interactive
Ideation and Concept Development, Creative Development/Implementation,
Engineering/Production for
2
<PAGE> 3
Internet sites or other digital delivery systems. NOVO may use subcontractors to
perform the Work or any part thereof.
3.2 Neither NOVO nor its employees shall be deemed to be TMS employees. It is
understood that NOVO is an independent contractor for all purposes and at all
times. NOVO is wholly responsible for withholding and payment of all federal,
state and local income and other payroll taxes with respect to its employees,
including contributions from them as required by law.
4. BILLING AND PAYMENT
4.1 NOVO shall invoice TMS for fees for Work hereunder and expenses incurred in
accordance with the schedule set forth in the applicable Statement of Work.
Payment shall be due upon submission of accurate invoices by NOVO to TMS, and
TMS shall pay NOVO within 30 days of invoice date.
4.2 Any applicable payment schedule or milestone schedule shall be set forth in
the applicable Statement of Work. In case of any delay due to non-performance or
not timely performance by TMS or a third party or otherwise not within the
control of NOVO, any time for performance by NOVO will be appropriately
adjusted.
4.3 The amounts payable to NOVO under this Agreement do not include any sales,
use or other governmental taxes and charges. TMS shall be solely responsible for
payment of all taxes or charges resulting from the commerce or other taxable
activity conducted on or through the TMS world wide web site on which the NOVO
Work Product, TMS Materials or licensed NOVO Technology is used. NOVO shall be
solely responsible for any governmental taxes or charges resulting from payments
by TMS to NOVO for Work performed by NOVO under this Agreement. Notwithstanding
the foregoing, the party hereto in tax compliance with respect to matters
covered herein (the "Tax Compliant Party") shall not be required to pay or
otherwise be liable or responsible for, and the party hereto not in compliance
with applicable tax regulations with respect to the matters covered herein (the
"Non-Tax Compliant Party") hereby indemnifies and holds the Tax Compliant Party
harmless against, any penalty, additional tax, or interest that may be assessed
or levied against the Tax Compliant Party as a result of the failure of the
Non-Tax Compliant Party to collect or pay any tax, or to file any return, form
or information statement that may be required to be filed by any governmental
agency as required to be paid or filed by the Non-Tax Compliant Party. For
purposes of this Agreement, NOVO shall be required to collect and remit any
applicable sales, use or similar tax on the deliverables provided by NOVO to TMS
in connection with the Services under this Agreement, and, subject to the
foregoing sentence, TMS shall reimburse NOVO for such taxes.
5. DURATION
This Agreement shall commence as of the year and date first written and shall
extend to all Work done under the Statements of Work. However, this Agreement or
any Statement of
3
<PAGE> 4
Work hereunder may be terminated earlier as provided below. Termination of this
Agreement shall terminate all Statements of Work then in effect (but not the
payment obligations as described in this Agreement), but the termination of a
Statement of Work shall not affect this Agreement or other Statements of Work
then in effect.
6. TERMINATION; DEFAULT
6.1 Either Party shall be entitled to terminate without cause this Agreement or
any Statement of Work hereunder on sixty (60) days prior written notice to the
other party. Should TMS exercise its right to terminate a Statement of Work or
this Agreement prior to the completion of such Statement of Work or the
Agreement, NOVO will require payment of, and TMS agrees to pay, the payment for
all services provided by NOVO under this Agreement up to the end of the sixty
(60) termination period.
6.2 The occurrence of any of the following shall constitute an event of default
under this Agreement (a) either party shall default in the performance of any of
its obligations under this Agreement in any material respect and such default
continues for a period of thirty (30) days after receipt of written notice from
the non-defaulting party; (b) either party shall make an assignment for the
benefit of creditors, be adjudicated bankrupt, file a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization,
arrangement, readjustment of its debts or for any other relief under Title 11
of the United States code or any successor or other federal or state insolvency
law ("Bankruptcy Law"), have filed against it an involuntary petition in
bankruptcy or seeking reorganization, arrangement, readjustment of its debts or
for any other relief under any Bankruptcy Law, which petition is not discharged
within thirty (30) days or shall apply for or permit the appointment of a
receiver or trustee for its assets, (c) either party shall have failed to pay
any amounts due from such party within ten (10) days after receipt of written
notice from the other party, or (d) either party is in breach of its respective
obligations under Sections 7, 8 or 9 of this Agreement. In the event of the
other party's default hereunder, either party may, on written notice to the
defaulting party (i) terminate this Agreement (subject to the limitations of
Sections 6.3 and 7.3(a)), or (ii) elect to withhold any payment or service to be
paid or performed by the non-defaulting party hereunder which shall be due or
occur after the date of receipt of such notice by the non-terminating party
until such default is cured. The rights afforded the parties under this
paragraph will not be deemed to be exclusive, but shall be in addition to any
rights or remedies provided by law.
6.3 Effect of Termination. Upon termination of this Agreement and any Statement
of Work, TMS shall pay NOVO's fees for services performed to the date of
termination within thirty (30) days after such termination. In addition, NOVO
shall return all TMS Materials and other Confidential Information of TMS to TMS
and all licenses and rights granted to NOVO pursuant to Section 7.2 hereof shall
terminate. In the event this Agreement or a Statement of Work is terminated by
NOVO for default or violation by TMS of its obligations under Section 8 (b) or
Section 7.3, then the license granted in Section 7.3 relating to the applicable
Statement of Work or all Statements of Work hereunder (if the Agreement is
terminated) shall terminate and TMS shall promptly return to NOVO all NOVO
Technology, and other NOVO
4
<PAGE> 5
Confidential Information, if any. In the event a Statement of Work or this
Agreement is terminated for any other reason (including monetary breaches under
this Agreement), the licenses granted by NOVO to TMS in Section 7.3 shall
continue and survive such termination, subject to the termination rights of NOVO
in the event of a subsequent TMS breach of Section 7.3 or Section 8 of this
Agreement. In addition, upon termination as set forth herein,, TMS shall
promptly return to NOVO all Confidential Information of NOVO.
6.4 At any time within ninety (90) days prior to the expiration of this term of
agreement, NOVO may (but is not obligated to) submit to TMS a written request
for TMS's decision on renewing this Agreement. Within thirty (30) days following
such a request, TMS shall notify NOVO of TMS's decision regarding renewing this
Agreement.
7. TITLE TO MATERIAL
7.1 Except as and to the extent otherwise provided herein, neither this
Agreement nor the performance of Work hereunder, shall give either TMS or NOVO
any ownership interest in or right to any IP Right of the other party. All IP
Rights that are owned or controlled by a party at the commencement of this
Agreement shall remain under the ownership or control of such party throughout
this Agreement and thereafter.
7.2 TMS hereby grants to NOVO a royalty free, non-exclusive, worldwide license
to use and practice the TMS Materials and applicable TMS IP Rights for the sole
purpose of NOVO's performance of the Work under this Agreement including the
Statements of Work. TMS understands that in order to use the results of the Work
performed hereunder, it may be necessary to obtain licenses of third party
software (such as third party database software licenses) in order to be able to
fully use the results of the Work. NOVO shall cooperate with TMS in TMS's
obtaining such third party licenses and TMS agrees to bear the expense of
obtaining such licenses. With respect to all materials and software, if any,
that are necessary or desirable for NOVO to perform the services, the parties
agree to cooperate in obtaining for NOVO (at TMS's sole expense) the right for
NOVO to use, solely for the purpose of performing the Work for TMS hereunder,
such third party information, software and technology, and all IP Rights
therein.
7.3 The parties agree that the NOVO Technology hereunder and all IP Rights
therein, but excluding the NOVO Work product, TMS Materials and all IP Rights in
the TMS Materials, and the NOVO Work product, is and shall be owned by, and
shall be the sole and exclusive property of, NOVO. NOVO hereby grants, subject
to compliance with the license terms below, to TMS the following rights:
(a) in the NOVO Technology, the worldwide, royalty free, perpetual
(except in case of a termination of this license for breach or violation by TMS
of its obligations pursuant to this Section 7.3(a) or Section 8), non-assignable
(except to TMS' subsidiaries), limited license, with right to sublicense (but
only for the benefit of TMS or its permitted successor or assigns), to do any
and all of the following: use, include in other product material, copy and
reproduce the NOVO Technology, in object code form only, and to publicly display
and have
5
<PAGE> 6
third parties' use the NOVO Technology, in object code form only, and in each
case only as necessary for or in connection with the use, management and
maintenance of the interactive system(s) to be developed by NOVO for TMS under
this Agreement; and
7.4 The parties agree that the NOVO Work product, the TMS Materials and all IP
Rights in the NOVO Work product and the TMS Materials are and shall be owned by,
and shall be the sole and exclusive property of TMS. NOVO makes no claim to
ownership or title to the Novo Work product or the Work and/or production
processes or tools employed in the development of the Work product. NOVO shall
have no right to use the Work product for any purpose other than providing
services under any Statement of Work and for display of NOVO past projects for
marketing and sales purposes as contemplated by this Agreement without the prior
written consent of TMS, which may be withheld in TMS' sole discretion; provided,
however, that TMS hereby grants to NOVO the worldwide, royalty free, perpetual,
non-assignable (except to NOVO's subsidiaries), limited license to use,
reproduce, and create derivative works of any or all NOVO Work Product, and to
sublicense the use of such derivative works to any third parties not in direct,
material competition with TMS in the automotive industry.
7.5 Each party agrees to perform such acts, execute and deliver such instruments
and documents, and do all such other things as may be reasonably necessary to
evidence and perfect the rights of the parties as stated herein and to
accomplish the transactions contemplated by this Agreement.
8. CONFIDENTIAL INFORMATION
(a) Any specifications, drawings, sketches, models, samples, data, computer
programs, reports, work, work product, documentation or other technical or
business information ("Information") owned by TMS and furnished or disclosed by
TMS to NOVO hereunder and any Work Product created pursuant to this Agreement
and prior work product of NOVO created pursuant to prior agreements shall be
deemed confidential to TMS and shall be returned to TMS at the conclusion of
this Agreement, or shall be destroyed (if TMS shall so direct in
writing)(subject to the provisions of Section 22 hereof). Unless such
Information was previously known to NOVO, is in the public domain at the time of
disclosure, is subsequently made public by TMS or is received by NOVO without
any confidentiality obligation from a third party having a legal right to make
such disclosure, it shall be held in confidence by NOVO, shall be used only for
the purposes hereunder, and may not be used for other purposes. NOVO shall
notify and obligate each of its employees, agents and its subcontractors to keep
such requirements. It is understood that NOVO shall have the right to disclose
the terms of this Agreement to attorneys, government agencies (including the
S.E.C.), financial advisors and potential investors, subject to reasonable
confidentiality provisions.
(b) Any Information owned by NOVO and furnished or disclosed by NOVO to TMS
hereunder, including, without limitation, the NOVO Technology in source code and
object code form, shall be deemed confidential to NOVO and shall be returned to
NOVO at the conclusion of this Agreement or destroyed (if NOVO so directs in
writing). Unless such Information was previously known to TMS, is in the public
domain at the time of disclosure, or
6
<PAGE> 7
is subsequently made public by NOVO or is received by TMS without any
confidentiality obligation from a third party having a legal right to make such
disclosure, it shall be held in confidence by TMS, shall be used only for the
purposes hereunder, and may not be used for other purposes. TMS shall notify and
obligate each of its employees, NOVO's and subcontractors to keep such
requirements. It is understood that TMS shall have the right to disclose the
terms of this Agreement to attorneys, government agencies (including the
S.E.C.), and financial advisors, subject to reasonable confidentiality
provisions.
(c) It is not the intention of the parties that Confidentiality Agreements must
refer by name to NOVO or TMS. To the extent that any existing general
confidentiality agreements are sufficient to secure the obligations of the
parties, their employees, agents and subcontractors under paragraphs (a) or (b)
above, such agreements qualify as Confidentiality Agreements.
9. TRADEMARKS, TRADENAMES AND LOGOS
9.1 TMS Trademarks. TMS's trademarks, tradenames, logos, product
identifications, artwork and other symbols and devices associated with TMS's
products and services ("TMS Trademarks") are now and shall remain the property
of TMS. To the extent provided to NOVO, the TMS Trademarks shall be deemed
included in TMS Materials. NOVO is hereby granted the non-exclusive,
nonassignable and nontransferable right to use the TMS Trademarks identified in
the applicable Statement of Work solely for purposes of fulfilling its
obligations hereunder. NOVO may use TMS's name and the Work as described herein.
9.2 NOVO's Trademarks. NOVO's trademarks, tradenames, logos, product
identifications, artwork and other symbols and devices associated with NOVO'S
products and services ("NOVO Trademarks") are now and shall remain the property
of NOVO. TMS, upon approval by NOVO, may use the NOVO name, logo and/or
trademark, if any, in connection with the advertising, marketing, publicity and
promotion of the Work.
10. LIMITED WARRANTY AND LIMITATIONS
10.1 NOVO warrants that the Work provided hereunder will be performed in a
professional manner. In order to receive warranty remedies, deficiencies must be
reported within ninety (90) days from the display or other operation of the Work
on a TMS world wide web site or other location accessible by third parties
generally. Such warranty does not cover any deficiency due to any modification
by anyone other than NOVO, any abuse or misuse of the Work, or extraordinary or
unusual environmental conditions, including operating environment. TMS sole
remedy is to have the affected Work re-performed or, at NOVO's option, to
receive a refund for the pro rata amount of the fees attributable to the
affected Work.
7
<PAGE> 8
10.2 THIS WARRANTY SET FORTH IN THIS SECTION IS EXCLUSIVE AND NOVO DISCLAIMS ALL
OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION,
THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT, WHICH ARE EACH EXPRESSLY DISCLAIMED AND TMS HEREBY EXPRESSLY
WAIVES SUCH WARRANTIES.
10.3 EXCEPT TO THE EXTENT PROVIDED IN SECTION 11 BELOW, UNDER NO CIRCUMSTANCES
SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER, ARISING OUT OF OR IN ANY
WAY RELATED TO THIS AGREEMENT, THE WORK OR THE USE OR INABILITY TO USE THE WORK,
INCLUDING, WITHOUT LIMITATION, LOST GOODWILL, LOST PROFITS, LOSS OF DATA OR
SOFTWARE, WORK STOPPAGE OR IMPAIRMENT OF OTHER GOODS, AND WHETHER ARISING OUT OF
BREACH OF WARRANTY, BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
LIABILITY OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE OR IF
SUCH DAMAGE COULD HAVE BEEN REASONABLY FORESEEN, AND NOTWITHSTANDING ANY FAILURE
OF ESSENTIAL PURPOSE OF ANY EXCLUSIVE REMEDY PROVIDED HEREIN. IN ADDITION, IN NO
EVENT SHALL NOVO BE LIABLE FOR THE COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES OR ANY OTHER DIRECT DAMAGES.
11. INSURANCE AND INDEMNIFICATION
11.1 NOVO Indemnification. NOVO shall indemnify and hold harmless TMS, its
parent, subsidiaries and affiliates and their respective employees, contractors,
shareholders and directors, and defend and pay any damages, fines or penalties
finally awarded with respect to claims brought by third parties against TMS, its
parent, subsidiaries, affiliates, and their respective directors, officers,
agents and employees (1) due to any act of infringement of any U.S. patent or
worldwide copyright or any unauthorized use of any trade secret by the NOVO
Technology or the NOVO Workproduct (but excluding infringement based on TMS
failure to obtain necessary IP Rights as per Section 7.2 hereof), each in
unaltered form, (2) based on NOVO's failure to comply with U.S. federal, state
or local law, or (3) in connection with third party claims only, the negligent
acts or omissions of NOVO, its employees or subcontractor; but in all events
excluding liability to the extent covered under Section 11.2 below; provided
that TMS promptly notifies NOVO of any such claim, provides NOVO with reasonable
assistance and full information, and gives NOVO sole control over the defense
and/or settlement thereof, and provided further that NOVO shall not settle any
such claim in any manner having a material, detrimental effect on TMS without
TMS prior written consent. Subject to the foregoing, TMS shall have the right to
participate in any such claim with counsel of its own selection at TMS's own
expense. If the NOVO Technology or NOVO Work product is or in NOVO's reasonable
judgment may become the subject of any such claims brought by third parties,
NOVO may at its option, election and expense (i) procure a license for TMS to
continue to use and maintain the system or the website, as applicable and
8
<PAGE> 9
appropriate in NOVO's discretion; or (ii) replace the affected NOVO Technology
or NOVO Work product with other suitable subject matter or (iii) modify the
NOVO Technology or NOVO Work product to make it noninfringing; or (iv) remove
the allegedly infringing NOVO Technology or NOVO Work product from the Toyota
Web Site. The foregoing states NOVO's entire liability and TMS's sole and
exclusive remedy with respect to claims of infringement of third party
proprietary rights of any kind. In no event shall the liability hereunder exceed
the higher of (i) the total payment received by NOVO with respect to the Work
described herein or (ii) the total amount of insurance coverage maintained by
NOVO applicable to the indemnity provided for in this Section 11.1.
11.2 TMS Indemnification. TMS shall indemnify and hold harmless NOVO, its
parent, subsidiaries and affiliates and their respective employees, contractors,
shareholders and directors, and defend and pay any damages, fines or penalties
finally awarded with respect to claims brought by third parties against NOVO,
its parent, subsidiaries, affiliates, and their respective directors, officers,
agents and employees (1) arising in connection with any TMS Materials (so long
as such liability is not caused by modifications made by NOVO to such TMS
Materials) or NOVO's use thereof, or failure to obtain necessary IP Rights as
per Section 7.2 hereof; (2) based on TMS' failure to comply with U.S. federal,
state or local laws, or (3) in connection with third party claims only, the
negligent acts or omissions of TMS, its employees or subcontractors; provided
that NOVO promptly notifies TMS of any such claim, provides TMS with reasonable
assistance and full information, and gives TMS sole control over the defense
and/or settlement thereof; and provided further that TMS shall not settle any
such claim in any manner having a material, detrimental effect on NOVO without
NOVO prior written consent. Subject to the foregoing, NOVO shall have the right
to participate in any such claim with counsel of its own selection at NOVO's own
expense. In no event shall the liability hereunder exceed the higher of (i) the
total payment made by TMS to NOVO with respect to the Work delivered herein or
(ii) the total amount of insurance coverage maintained by TMS applicable to the
indemnity provided for in this Section 11.2.
11.3 Insurance. NOVO shall procure and maintain, during the term of this
Agreement, at its sole expense, commercial general liability insurance,
including contractual and advertising liability, with an insurance company
satisfactory to TMS, in the amount of not less than One Million Dollars
($1,000,000) combined single limit for bodily injury and property damage. NOVO
shall also maintain, at all times hereunder, employer's liability insurance in
the minimum amount of One Million Dollars ($1,000,000) and worker's compensation
insurance in an amount satisfying applicable laws. NOVO shall provide TMS with a
certificate or certificates of the insurance described herein within five (5)
days after the date of this Agreement, which certificate shall specify that the
insurance carrier will provide TMS thirty (30) days written notice prior to any
change, cancellation or reduction in such coverage. The certificate(s) for the
product and commercial general liability policies shall also show TMS, its
parent and subsidiaries as additional insureds thereunder. The insurance
coverage required hereunder shall be procured from an insurer with a Best's
performance rating of at least A- and with a financial size category of at least
Class VII.
9
<PAGE> 10
12. NOTICE
Any notice hereunder shall be in writing and delivered when delivered
personally, by fax (and confirmed by regular mail), or by overnight express, or
if mailed by certified or registered mail, postage prepaid, addressed to a party
at its address stated below its signature hereto or to such other address as
such party may designate by written notice to the other party in accordance
herewith and shall be deemed effective upon receipt.
13. WAIVER
The failure of either party at any time to enforce any right or remedy available
to it under this Agreement with respect to any breach or failure by the other
party shall not be construed to be a waiver of such right or remedy with respect
to any other breach or failure by the other party.
14. SEVERABILITY
If any provision of this Agreement shall be held illegal, invalid or
unenforceable, in whole or in part, such provision shall be modified to the
minimum extent necessary to make it legal, valid and enforceable, and the
legality, validity and enforceability of all other provisions of this Agreement
shall not be affected thereby.
15. SURVIVAL OF OBLIGATION
The provisions of Sections 6.3, 7.3 (except as pursuant to operation of Section
6.3), 7.4, 8, 9, 10, 11.1, 11.2, 15, 16, 20, 22 shall survive the termination of
this Agreement for whatever reason and, in addition, the obligations of the
parties under this Agreement that by their nature continue beyond the expiration
of this Agreement shall survive any termination or cancellation of this
Agreement.
16. CHOICE OF LAW
The construction, interpretation and performance of this Agreement shall be
governed by the laws of the State of California, excluding conflict of laws
rules and principles.
17. INTERPRETATION; CAPTIONS
The captions in this Agreement are included for convenience only and shall not
be construed to define or limit any of the provisions contained herein. This
Agreement shall be fairly
10
<PAGE> 11
interpreted in accordance with its terms without any strict construction in
favor of or against either party and ambiguities shall not be interpreted
against the drafting party.
18. ENTIRE AGREEMENT; AMENDMENT
This Agreement together with the Statements of Work constitutes the entire
agreement between TMS and NOVO relating to the subject matter hereof and
supersedes all prior oral and written and all contemporaneous oral negotiations,
commitments and understandings of the parties other than confidentiality
agreements. This Agreement or any Statement of Work shall not be changed in any
manner except by a writing executed by both parties. Other than as expressly
provided herein, both TMS and NOVO agree that no prior to contemporaneous oral
representations form a part of their agreement.
19. COMPLIANCE WITH LAW; EXPORT
In performing its obligations under this Agreement, each party hereto shall
comply with all applicable federal, state, and local laws, rules and
regulations.
20. ARBITRATION
If any dispute should arise between the parties in connection with this
Agreement, before resorting to any other legal remedy, the parties shall attempt
in good faith to resolve the dispute. If the parties are unable to resolve the
dispute after good faith consultation, the controversy or claim arising out of
or relating to this Agreement, or the breach, termination or validity thereof,
shall be settled by binding arbitration in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration of Business Disputes ("Rules"),
by three arbitrators appointed in accordance with said Rules. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16,
and judgment upon the award rendered by the arbitrators may be entered by any
court having jurisdiction thereof. The place of arbitration shall be Los
Angeles, California.
21. NO ASSIGNMENT
The rights granted herein are personal to the parties and neither party may
assign this Agreement, any Statement of Work or any rights hereunder or
thereunder without the prior written consent of the other party, except that TMS
may assign this Agreement together with related Statements of Work and license
rights to any of its subsidiary or parent corporations, without NOVO's
consent; provided, further, that neither party hereto shall require the
consent of the other party with respect to an assignment of this Agreement in
the event of a sale of all
11
<PAGE> 12
or substantially all of the assets or other merger or reorganization of the
party transferring the Agreement.
22. NOVO CREDITS
NOVO retains the right to demonstrate in NOVO's web site, printed materials and
marketing programs or arrangements any Work as part of a portfolio of work it
has done for other customers. NOVO will not represent any Work before it is
available to access by the general public. TMS hereby grants NOVO a limited
irrevocable license to display the TMS Materials and the NOVO Work Product to
the extent such TMS Materials and NOVO Work Product are incorporated in the Work
solely for the purpose of NOVO displaying its Work as part of its portfolio of
works.
IN WITNESS WHEREOF, NOVO and TMS have executed this Agreement in duplicate on
the day and year below written.
July 27, 1998
Toyota Motor Sales NovoMedia Group Inc.
By /s/ JUNE OKAMOTO By: /S/ KELLY ANTHONY RODRIQUES
------------------------------------ ---------------------------------
JUNE OKAMOTO Kelly Anthony Rodriques
Address: 19001 S. Western Avenue Address: 222 Sutter Street
Torrance, CA 90509 6th Floor
San Francisco, CA 94108
415.646.7000 (o)
415.646.7001 (f)
12
<PAGE> 13
EXHIBIT A
Toyota Motor Sales
Summary of Work and Compensation
"Toyota Interactive Network"
WORK TO BE PERFORMED
NOVO will use its reasonable commercial efforts to undertake and complete
development and implementation of interactive products and services requested by
TMS (the "Products") in accordance with and substantially on the schedule agreed
upon by the parties. NOVO shall perform services and provide Products that meet
the reasonable satisfaction of TMS. For significant projects to be performed
under this Agreement, TMS and NOVO shall execute an appropriate Work Order
specifying the scope of the project and Work to be performed and the schedule
for performing such Work.
SITE MAINTENANCE/AUGMENTATION
NOVO shall provide interactive strategy, concept, and creative/production
services for maintenance and augmentation of the Toyota web site. Production
services are rendered at the rates listed below and apply specifically to the
team of individuals allocated by NOVO, which is comprised by the positions
listed below:
<TABLE>
<CAPTION>
MONTHLY TOTAL
POSITION HOURS PER MONTH PER HOUR COST/MONTH
-------- --------------- --------- ----------
<S> <C> <C> <C>
CEO (Kelly Rodriques) as needed $[ * ] [ * ]
Director of Client Services 30 $[ * ] [ * ]
Account Supervisor 160 $[ * ] $[ * ]
Senior Producer 160 $[ * ] $[ * ]
CTO/Director of Engineering 65 $[ * ] $[ * ]
Engineers (4) 640 $[ * ] $[ * ]
Traffic 160 $[ * ] $[ * ]
Programmers (3) 480 $[ * ] $[ * ]
1695 $[ * ]
</TABLE>
ADDITIONAL EXPENSES
NOVO agrees to absorb travel and related out-of-pocket expenses for two (2)
people two (2) times per month to the Toyota location in Torrance, California.
If TMS requests travel in excess of said allotment, TMS shall absorb those
associated costs. In addition, TMS shall
13
AN ASTERISK [ * ] INDICATES THAT CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED, PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT, AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
<PAGE> 14
absorb all travel and related out-of-pocket expenses for one (1) person to
attend the Fall, 1998 dealer show.
BROWSERS AND OPERATING SYSTEMS
NOVO will support the following browsers on WINDOWS, MAC and UNIX where there is
a released version for that platform and related additional versions: AOL -
Internet Explorer 3.0, AOL - Internet Explorer 4.0, Internet Explorer 3.0,
Internet Explorer 4.0, Internet Explorer 5.0, Netscape 2.0, Netscape 3.0,
Netscape 4.0, Netscape 5.0, Opera, WebTV
THIRD PARTY TOOLS
NOVO shall occasionally recommend third party tools or other software programs
in developing and maintaining the Toyota web site. Prior to TMS making a
decision with regard to such recommendation, NOVO shall inform TMS of the extent
of its familiarity with such tools or software and the likelihood of delays in
providing the deliverables called for by the related Services owing to any lack
of familiarity. In addition, TMS shall have the right to request that NOVO
demonstrate its expertise in use of said tool or related software program(s) by
providing NOVO with written notice of TMS's request. The reasonable cost of said
demonstration shall be included in the fees set forth above. If NOVO anticipates
that the cost of said demonstration is in excess of the monthly fees set forth
above, NOVO shall notify TMS of the additional costs involved.
AUDIT
TMS shall have the right to have a third party consultant audit NOVO to test the
efficiency of the code NOVO is compiling and writing in connection with TMS's
projects. NOVO and TMS shall mutually agree upon said consultant and said audit
shall be at the sole cost and expense of TMS.
14
<PAGE> 15
[NOVO/IRONLIGHT LOGO]
FIRST ADDENDUM
This First Addendum made this 16th of Feb. 1999 by and between Novo MediaGroup,
Inc. ("Novo") and Toyota Motor Sales ("TMS") hereinafter called the Parties.
WHEREAS the Parties have entered into Consulting and Development Agreement
("Agreement") dated July 27, 1998 and,
WHEREAS, it is the desire of the Parties to amend and modify the Agreement, and
NOW, therefore, the Agreement is hereby amended and modified in the following
respects.
WITNESSETH
1. SERVICES. As of January 1, 1999 Novo shall add one (1) Account Manager to
the TMS retained relationship. Said Account Manager shall work One Hundred
and Sixty (160) hours per month on the TMS account and shall be billed at
the rate of [ * ] Dollars ($[ * ]) per hour.
2. BUDGET. The monthly retained agreement between TMS and Novo shall increase
by [ * ] Dollars ($[ * ]) per month for the revised monthly total of [ * ]
Dollars ($[ * ]).
All other terms and provisions of the said contract between the parties hereto
shall remain in full force and effect.
In TESTIMONY WHEREOF, the parties hereto have hereunto subscribed their names as
of the date first abovewritten
NOVO MEDIAGROUP, INC. TOYOTA MOTOR SALES
By: /s/ ANTHONY WESTREICH BY: /s/ JUNE OKAMOTO
----------------------------------- ---------------------------------
Name: Anthony Westreich Name: June Okamoto
--------------------------------- -------------------------------
Title: President, COO Title: Internet Marketing Manager
-------------------------------- ------------------------------
Date: 2/[ILLEGIBLE]/99 Date: February 16, 1999
--------------------------------- -------------------------------
222 Sutter Street, Sixth Floor
San Francisco, CA 94108
415.646.7000
www.novoironlight.com
AN ASTERISK [ * ] INDICATES THAT CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN
THIS DOCUMENT HAS BEEN OMITTED,
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT, AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 16
[NOVO/IRONLIGHT LOGO]
SECOND ADDENDUM
This Second Addendum made this 16th of Feb., 1999 by and between Novo
MediaGroup, Inc. ("Novo") and Toyota Motor Sales ("TMS") hereinafter called the
Parties.
WHEREAS the Parties have entered into Consulting and Development Agreement
("Agreement") and First Addendum ("First Addendum") dated July 27, 1998 and Feb.
16, 1999 respectively, and,
WHEREAS, it is the desire of the Parties to amend and modify the Agreement, and
NOW, therefore, the Agreement is hereby amended and modified in the following
respects.
WITNESSETH
1. SERVICES. As of March 15, 1999 or when the Toyota.com site goes live at the
Global Frontier Center, Novo shall add one (1) Network Administrator and one
(1) Database Administrator to the TMS retained relationship. Said Network
Administrator shall bill at the rate of [ * ] Dollars ($[ * ]) per hour and
shall work Thirty-Five (35) hours per month on the TMS account and said
Database Administrator shall bill at the rate of [ * ] Dollars ($[ * ]) per
hour and shall work Twenty (20) hours on the TMS account.
2. BUDGET. The monthly retained agreement between TMS and Novo shall increase
by [ * ] Dollars ($[ * ]) per month for the revised monthly total of [ * ]
Dollars ($[ * ]).
All other terms and provisions of the Agreement and First Addendum between the
parties hereto shall remain in full force and effect.
In TESTIMONY WHEREOF, the parties hereto have hereunto subscribed their names as
of the date first abovewritten
NOVO MEDIAGROUP, INC. TOYOTA MOTOR SALES
By: /s/ ANTHONY WESTREICH BY: /s/ JUNE OKAMOTO
----------------------------------- ---------------------------------
Name: Anthony Westreich Name: June Okamoto
--------------------------------- -------------------------------
Title: President, COO Title: Internet Marketing Manager
-------------------------------- ------------------------------
222 Sutter Street, Sixth Floor
San Francisco, CA 94108
415.646.7000
www.novoironlight.com
AN ASTERISK [ * ] INDICATES THAT CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN
THIS DOCUMENT HAS BEEN OMITTED, PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT,
AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
<PAGE> 1
EXHIBIT 10.3
[NOVO INTERACTIVE LOGO]
CONSULTING AND DEVELOPMENT AGREEMENT
GLOSS.COM, INC.
This Agreement is made and entered into as of August 30, 1999 ("Effective
Date") by and between Gloss.com, Inc. ("CUSTOMER"), a corporation duly
registered in the State of Delaware, U.S.A., with its offices at 1550 Bryant
Street, Suite 575, San Francisco, CA 94103 and Novo MediaGroup, Inc. ("NOVO"),
a corporation duly registered in the State of California, U.S.A., 222 Sutter
Street, 6th Floor, San Francisco, CA 94108.
WHEREAS, in CUSTOMER'S continuous improvement of interactive communication and
transaction systems for its online retail business, CUSTOMER from time to time
needs assistance in carrying out software development, and
WHEREAS, NOVO is in the business of providing consulting and development
services regarding interactive communication and transaction systems, and
WHEREAS, CUSTOMER desires to retain NOVO from time to time to perform certain
projects for CUSTOMER upon request by CUSTOMER and as specified and agreed upon
from time to time.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS
The following definitions are in addition to the terms defined elsewhere in this
Agreement. Unless the Agreement expressly provides otherwise, the following
terms shall have the following meaning:
1.1 "IP RIGHTS" means copyrights, trademark rights, trade secret rights,
inventions, patent rights (if any) and design rights, whether registered or
unregistered, and including any application for registration of any of the
foregoing, and any rights of similar nature or effect existing anywhere in the
world.
1.2 "NOVO Technology" means any pre-existing technology of NOVO or its
licensors that is used in connection with NOVO's services to CUSTOMER hereunder
and that, if delivered to CUSTOMER, is identified in advance of such delivery in
a Statement of Work as defined below in Section 2.1.
1.3 "NOVO Work Product" means any program materials, audio or visual designs,
artwork, user interfaces, derivative works or other copyrightable materials,
algorithms, methods, inventions, innovations conceived or developed by NOVO
hereunder whether singly or jointly with others and in the performance of the
Work, but excluding CUSTOMER Materials and the NOVO Technology. Notwithstanding
anything in this Agreement to the contrary, any copyrightable materials,
technology and/or information
<PAGE> 2
created and/or developed for CUSTOMER hereunder shall constitute NOVO Work
Product.
1.4 "CUSTOMER MATERIALS" means any and all technology, information or
materials provided by CUSTOMER to NOVO in connection with NOVO's performance of
the Work, including, without limitation, CUSTOMER trademarks, product materials,
product and business information of CUSTOMER, and software programs and
including all NOVO Work Product previously produced under all agreements and
Statements of Work between CUSTOMER and NOVO prior to the date hereof.
2. STATEMENT OF WORK
2.1 Novo shall render all the services ("Work") from time to time agreed upon
by the parties and specified in a statement of work (a "SOW" or "Statement of
Work"). A Statement of Work shall consist of a separately signed work order or
assignment which details the scope of work, milestones and price and which
references this Agreement. Each Statement of Work will follow in sequence and is
subject to the terms and conditions of this Agreement. To be binding, each
Statement of Work must be separately agreed to and signed by the parties. NOVO
shall have no obligation to commence work until the applicable SOW is agreed
upon and fully signed by the parties and CUSTOMER has submitted a purchase order
covering the applicable Work. CUSTOMER shall be responsible for timely issuing
or amending any applicable purchase orders required by its accounting systems so
that CUSTOMER can comply with the payment provisions of this Agreement.
2.2 A Statement of Work may be amended or modified by a supplementary work order
agreed to in writing and signed by both parties, which order shall be attached
to the applicable Statement of Work. Thereupon, the Statement of Work shall
include the services described in the supplementary work order.
2.3 The terms and conditions of this Agreement and the related Statements of
Work shall exclusively govern the provisions of services and the license of any
software to CUSTOMER in connection with the Statements of Work hereunder. In the
event of a conflict between this Agreement and a Statement of Work, this
Agreement shall supersede all terms and conditions contained in any Statement of
Work, purchase order, order acknowledgment form, invoice or other business form
submitted hereafter (or concurrent herewith) by either party to the other. This
Agreement may only be amended by a writing indicating that it is the intention
of the parties to amend this Agreement.
3. RELATIONSHIP
3.1 NOVO shall provide services that include but are not limited to: interactive
design and concept development, creative development, project implementation and
maintenance and engineering/production for CUSTOMER Internet sites or other
digital delivery systems. NOVO may use subcontractors to perform the Work or any
part thereof upon prior written approval of each such subcontractor by CUSTOMER,
which shall not be unreasonably withheld, and provided that such subcontractors
execute
<PAGE> 3
agreements which contain appropriate "work made for hire" and "assignment"
clauses and confidentiality provisions, all substantially equivalent to the
corresponding provisions set forth this in this Agreement (including 7.4, 7.5,
and 8.1), to allow for the transfer of all ownership rights with regard to such
subcontractor work to CUSTOMER.
3.2 Neither NOVO, its employees nor its subcontractors, if any, shall be deemed
to be CUSTOMER employees. It is understood that NOVO is an independent
contractor for all purposes and at all times. NOVO is wholly responsible for
withholding and payment of all federal, state and local income and other payroll
taxes with respect to its employees, including contributions from them as
required by law, and for payment for any subcontractors.
4. BILLING AND PAYMENT
4.1 NOVO shall invoice CUSTOMER for fees for Work hereunder and expenses
incurred in accordance with the schedule set forth in Exhibit A-1 attached
hereto and made a part hereof. CUSTOMER shall pay NOVO within fifteen (15) days
of receipt of the applicable invoice
4.2 The amounts payable to NOVO under this Agreement do not include any sales,
use or other governmental taxes and charges. As between NOVO and CUSTOMER,
CUSTOMER shall be solely responsible for payment of all taxes or charges
resulting from the commerce or other activity conducted on or through the
CUSTOMER world wide web site on which the NOVO Work Product, CUSTOMER Materials
or licensed NOVO Technology is used or performed by or on behalf of CUSTOMER.
NOVO shall be solely responsible for any governmental taxes or charges resulting
from payments by CUSTOMER to NOVO for Work performed by NOVO under this
Agreement. The party hereto in tax compliance with respect to matters covered
herein (the "Tax Compliant Party") shall not be required to pay or otherwise be
liable or responsible for, and the party hereto not in compliance with
applicable tax regulations with respect to the matters covered herein (the
"Non-Tax Compliant Party") hereby indemnifies and holds the Tax Compliant Party
harmless against, any penalty, additional tax, or interest that may be assessed
or against the Tax Compliant Party as a result of the failure of the Non-Tax
Compliant Party to collect or pay any tax, or to file any return, form or
information statement that may be required to be filed by any governmental
agency as required to be paid or filed by the Non-Tax Compliant Party.
5. DURATION
This Agreement shall commence as the Effective Date set forth above and shall
extend until terminated by the parties hereto. However, this Agreement or any
Statement of Work hereunder may be terminated earlier as provided below. The
termination of this Agreement shall terminate all Statements of Work then in
effect (but not any payment obligations accrued prior to the termination as
described in this Agreement). Termination of a Statement of Work shall not
affect this Agreement or other Statements of Work then in effect.
6. TERMINATION; DEFAULT
<PAGE> 4
6.1 Either Party shall be entitled to terminate without cause this Agreement or
any Statement of Work hereunder on sixty (60) days prior written notice to the
other party. Should CUSTOMER exercise its right to terminate a Statement of Work
or this Agreement prior to the completion of such Statement of Work or the
Agreement, NOVO will require payment of, and CUSTOMER agrees to pay, the payment
for all services provided by NOVO under this Agreement up to the end of the
sixty (60) termination period. In the event that NOVO elects to terminate this
Agreement, NOVO agrees to continue to provide services under any Statement of
Work then in effect at the rates set forth in such Statement of Work for a
period of 60 calendar days from notice of termination, and as reasonably
requested by CUSTOMER at NOVO's then applicable hourly billing rates for a
period not to exceed 60 calendar days from the notice of termination to allow
for the transition of the services provided by NOVO hereunder to CUSTOMER or a
third party.
6.2 The occurrence of any of the following shall constitute an event of default
under this Agreement (a) either party shall default in the performance of any of
its obligations under this Agreement in any material respect and such default
continues for a period of thirty (30) days (or with respect to Novo and its
performance-related obligations set forth in Exhibit A-1 for a period of seven
(7) business days) after receipt of written notice from the non-defaulting
party; (b) either party shall make an assignment for the benefit of creditors,
be adjudicated bankrupt, file a voluntary petition in bankruptcy or a voluntary
petition or an answer seeking reorganization, arrangement, readjustment of its
debts or for any other relief under Title 11 of the United States code or any
successor or other federal or state insolvency law ("Bankruptcy Law"), have
filed against it an involuntary petition in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts or for any other relief
under any Bankruptcy Law, which petition is not discharged within thirty (30)
days or shall apply for or permit the appointment of a receiver or trustee for
its assets, (c) either party shall have failed to pay any amounts overdue from
such party within ten (10) days after receipt of written notice of a default
from the other party, or (d) either party is in breach of its respective
obligations under Sections 7, 8 or 9 of this Agreement. In the event of the
other party's default hereunder, either party may, on written notice to the
defaulting party (i) terminate this Agreement (subject to the limitations of
Sections 6.3 and 7.3(a)), or (ii) elect to withhold any payment or service to be
paid or performed by the non-defaulting party hereunder which shall be due or
occur after the date of receipt of such notice by the non-terminating party
until such default is cured. The rights afforded the parties under this
paragraph will not be deemed to be exclusive, but shall be in addition to any
rights or remedies provided by law.
6.3 Effect of Termination. Upon termination of this Agreement and any Statement
of Work, CUSTOMER shall pay NOVO's fees for services performed to the date of
termination within thirty (30) days after such termination. In addition, NOVO
shall return all CUSTOMER Materials and other Confidential Information of
CUSTOMER to CUSTOMER, and shall deliver all NOVO Work Product to Customer, and
all licenses and rights granted to NOVO pursuant to Section 7.2 hereof shall
terminate. In the event this Agreement or a Statement of Work is terminated by
NOVO for default or violation by CUSTOMER of its obligations under Section 8(b)
or Section 7.3, then the license granted in Section 7.3 relating to the
applicable Statement of Work or all Statements of Work hereunder (if the
Agreement is terminated) shall terminate and CUSTOMER shall promptly return to
NOVO all NOVO Technology, and other NOVO Confidential
<PAGE> 5
Information, if any. In the event a Statement of Work or this Agreement is
terminated for any other reason (including monetary breaches under this
Agreement), the licenses granted by NOVO to CUSTOMER in Section 7.3 shall
continue and survive such termination, subject to the termination rights of NOVO
in the event of a subsequent CUSTOMER breach of Section 7.3 or Section 8 of this
Agreement. In addition, upon termination as set forth herein, CUSTOMER shall
promptly return to NOVO all Confidential Information of NOVO.
6.4 At any time within ninety (90) days prior to the expiration of this term of
agreement. NOVO may (but is not obligated to) submit to CUSTOMER a written
request for CUSTOMER's decision on renewing this Agreement. Within thirty (30)
days following such a request, CUSTOMER shall notify NOVO of CUSTOMER'S decision
regarding renewing this Agreement.
7. TITLE TO MATERIAL
7.1 Except as and to the extent otherwise provided herein, neither this
Agreement nor the performance of Work hereunder, shall give either CUSTOMER or
NOVO any ownership interest in or right to any IP Right of the other party. All
IP Rights that are owned or controlled by a party at the commencement of this
Agreement shall remain under the ownership or control of such party throughout
this Agreement and thereafter.
7.2 CUSTOMER hereby grants to NOVO a royalty free, non-exclusive, worldwide
license to use and practice the CUSTOMER Materials and applicable CUSTOMER IP
Rights for the sole purpose of NOVO's performance of the Work under this
Agreement including the Statements of Work. CUSTOMER understands that in order
to use the results of the Work performed hereunder, it may be necessary to
obtain licenses of third party software (such as third party database software
licenses) in order to be able to fully use the results of the Work. NOVO shall
cooperate with CUSTOMER in CUSTOMER's obtaining such third party licenses and
CUSTOMER agrees to bear the expense of obtaining such licenses provided that
NOVO sets forth any required licenses in the applicable Statement of Work. With
respect to all materials and software, if any, that are reasonably necessary or
desirable for NOVO to perform the services, the parties agree to cooperate in
obtaining for NOVO (at CUSTOMER's sole expense) the right for NOVO to use,
solely for the purpose of performing the Work for CUSTOMER hereunder, such third
party information, software and technology, and all IP Rights therein.
7.3 The parties agree that the NOVO Technology hereunder and all IP Rights
therein, (but excluding the NOVO Work product, CUSTOMER Materials and all IP
Rights in the CUSTOMER Materials, and the NOVO Work Product), is and shall be
owned by, and shall be the sole and exclusive property of, NOVO. NOVO hereby
grants, subject to compliance with the license terms below, to CUSTOMER the
following rights:
(a) in the NOVO Technology, the worldwide, royalty free, perpetual,
irrevocable (except in case of a termination of this license for breach or
violation by CUSTOMER of its obligations pursuant to this Section 7.3(a) or
Section 8), non-assignable (except to CUSTOMER' affiliates and successors),
limited license, with right to sublicense
<PAGE> 6
(but only for the benefit of CUSTOMER or its permitted successor or assigns), to
do any and all of the following: use, include in other product material, copy
and reproduce the NOVO Technology, in object code form only, and to publicly
display and have third parties' use the NOVO Technology, in object code form
only, and in each case only as necessary for or in connection with the use,
management and maintenance of the interactive system(s) to be developed by NOVO
for CUSTOMER under this Agreement. In each applicable Statement of Work, NOVO
shall define all NOVO Technology incorporated into any NOVO Work Product
developed in connection with such Statement of Work; provided however that
failure to disclose NOVO Technology will not affect NOVO's ownership of such
NOVO Technology.
7.4 The parties agree that the NOVO Work product, the CUSTOMER Materials and all
IP Rights in the NOVO Work product and the CUSTOMER Materials are and shall be
owned by, and shall be the sole and exclusive property of CUSTOMER. NOVO makes
no claim to ownership or title to the Novo Work product or the Work and/or
production processes or tools employed in the development of the Work product.
NOVO shall have no right to use the Work product for any purpose other than
providing services under any Statement of Work and for display of NOVO past
projects for marketing and sales purposes as contemplated by this Agreement
without the prior written consent of CUSTOMER, which may be withheld in
CUSTOMER'S sole discretion; provided, however, that CUSTOMER hereby grants to
NOVO the worldwide, royalty free, perpetual, nonassignable (except to NOVO's
subsidiaries), limited license to use, reproduce, and create derivative works of
any or all NOVO Work Product, and to sublicense the use of such derivative works
to any third parties not in direct, material competition with CUSTOMER. If NOVO
reproduces specific derivative works or Work Product of CUSTOMER to a third
party, CUSTOMER shall have the right to request that NOVO remove or alter said
derivative works or Work Product. If NOVO is aware that said derivative works or
Work Product is the property of CUSTOMER, NOVO shall review said derivative
works or Work Product with CUSTOMER prior to use.
7.5 Each party agrees to perform such acts, execute and deliver such instruments
and documents, and do all such other things as may be reasonably necessary to
evidence and perfect the rights of the parties as stated herein and to
accomplish the transactions contemplated by this Agreement.
8. CONFIDENTIAL INFORMATION
8.1 Any specifications, drawings, sketches, models, samples, data, computer
programs, reports, work, work product, documentation or other technical or
business information (including any CUSTOMER Materials) ("Information") owned by
CUSTOMER and furnished or disclosed by CUSTOMER to NOVO hereunder and any Work
created pursuant to this Agreement (including NOVO Work Product) shall be deemed
confidential to CUSTOMER and shall be returned to CUSTOMER at the conclusion of
this Agreement, or shall be destroyed (if CUSTOMER shall so direct in writing)
(subject to the provisions of Section 22 hereof). Unless such Information was
previously known to NOVO, is in the public domain at the time of disclosure, is
subsequently made public by CUSTOMER or is received by NOVO without any
confidentiality obligation from a third
<PAGE> 7
party having a legal right to make such disclosure, it shall be held in
confidence by NOVO, shall be used only for the purposes hereunder, and may not
be used for other purposes. NOVO shall notify and obligate each of its
employees, agents and its subcontractors to keep such requirements. It is
understood that NOVO shall have the right to disclose the terms of this
Agreement to attorneys, government agencies (including the S.E.C.), financial
advisors and potential investors, subject to reasonable confidentiality
provisions.
8.2 Any Information owned by NOVO and furnished or disclosed by NOVO to CUSTOMER
hereunder, including, without limitation, the NOVO Technology in object code
form, shall be deemed confidential to NOVO and shall be returned to NOVO at the
conclusion of this Agreement or destroyed (if NOVO so directs in writing).
Unless such Information was previously known to CUSTOMER, is in the public
domain at the time of disclosure, or is subsequently made public by NOVO or is
received by CUSTOMER without any confidentiality obligation from a third party
having a legal right to make such disclosure, it shall be held in confidence by
CUSTOMER, shall be used only for the purposes hereunder, and may not be used for
other purposes. CUSTOMER shall notify and obligate each of its employees, NOVO's
and subcontractors to keep such requirements. It is understood that CUSTOMER
shall have the right to disclose the terms of this Agreement to attorneys,
government agencies (including the S.E.C.), and financial advisors, subject to
reasonable confidentiality provisions. Notwithstanding anything in this Section
8.2 to the contrary, CUSTOMER is entitled to use, disclose, and retain upon
termination or expiration of this Agreement, Confidential Information of NOVO
and any information that is incorporated into or is otherwise necessary to the
use, operation, management and/or maintenance of the interactive system(s) or
other projects to be developed for CUSTOMER hereunder to the extent provided in
Sections 6.3 and 7.3.
8.3 It is not the intention of the parties that Confidentiality Agreements must
refer by name to NOVO or Customer. To the extent that any existing general
confidentiality agreements are sufficient to secure the obligations of the
parties, their employees, agents and subcontractors under paragraphs (a) or (b)
above, such agreements qualify as Confidentiality Agreements.
9. TRADEMARKS, TRADENAMES AND LOGOS
9.1 CUSTOMER Trademarks. CUSTOMER'S trademarks, tradenames, logos, product
identifications, artwork and other symbols and devices associated with
CUSTOMER's products and services ("CUSTOMER Trademarks") are now and shall
remain the property of CUSTOMER. To the extent provided to NOVO, the CUSTOMER
Trademarks shall be deemed included in CUSTOMER Materials. NOVO is hereby
granted the non-exclusive, nonassignable and nontransferable right to use the
CUSTOMER Trademarks identified in the applicable Statement of Work solely for
purposes of fulfilling its obligations hereunder, such use to be in accordance
with standard trademark usage practice and any trademark usage guidelines that
CUSTOMER may promulgate from time to time. Any and all goodwill generated by any
use of CUSTOMER'S Trademarks shall inure solely to the benefit of CUSTOMER.
<PAGE> 8
9.2 NOVO's Trademarks. NOVO's trademarks, tradenames, logos, product
identifications, artwork and other symbols and devices associated with NOVO'S
products and services ("NOVO Trademarks") are now and shall remain the property
of NOVO. CUSTOMER may use the NOVO name, logo and/or trademark, if any, in
connection with the advertising, marketing, publicity and promotion of the Work,
such use to be in accordance with standard trademark usage practice and any
trademark usage guidelines that NOVO may promulgate from time to time. Any and
all goodwill generated by any use of NOVO Trademarks shall inure solely to the
benefit of NOVO.
10. LIMITED WARRANTY AND LIMITATIONS
10.1 NOVO represents and warrants as follows: (a) that the Work provided
hereunder will be performed in a professional manner; (b) that the Work shall be
free of material bugs and defects, and shall not contain any timebombs, viruses
or other harmful components; (c) that the Work shall be year 2000 compliant,
which shall mean that the NOVO Technology, the NOVO Work Product and the Work
will not experience material error, loss of functionality, or abnormal software
operation when processing, calculating, comparing, or sequencing dates before,
during and after the calendar year 2000; and (d) that the NOVO Technology and
NOVO Work Product shall not infringe or violate the IP Rights or other rights of
any third party. Such warranty does not cover any deficiency due to any
modification by anyone other than NOVO or its subcontractors, any abuse or
misuse of the Work by CUSTOMER, or extraordinary or unusual environmental
conditions, including operating environment (unless such conditions were
contemplated by the parties).
10.2 THIS WARRANTY SET FORTH IN THIS SECTION IS EXCLUSIVE AND BOTH PARTIES
DISCLAIM ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY. INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NON-INFRINGEMENT, WHICH ARE EACH EXPRESSLY DISCLAIMED AND EACH PARTY
HEREBY EXPRESSLY WAIVES SUCH WARRANTIES.
10.3 EXCEPT TO THE EXTENT PROVIDED IN SECTION 11 BELOW, UNDER NO CIRCUMSTANCES
SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER, ARISING OUT OF OR IN ANY
WAY RELATED TO THIS AGREEMENT, THE WORK OR THE USE OR INABILITY TO USE THE WORK,
INCLUDING, WITHOUT LIMITATION, LOST GOODWILL, LOST PROFITS, LOSS OF DATA OR
SOFTWARE, WORK STOPPAGE OR IMPAIRMENT OF OTHER GOODS, AND WHETHER ARISING OUT OF
BREACH OF WARRANTY, BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
LIABILITY OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE OR IF
SUCH DAMAGE COULD HAVE BEEN REASONABLY FORESEEN AND NOTWITHSTANDING ANY FAILURE
OF ESSENTIAL PURPOSE OF ANY EXCLUSIVE REMEDY PROVIDED HEREIN. IN NO EVENT SHALL
NOVO BE LIABLE FOR THE COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES.
EXCEPT FOR LIABILITY ARISING UNDER SECTION 11, IN NO EVENT WILL EITHER PARTY'S
LIABILITY HEREUNDER EXCEED THE TOTAL PAYMENTS RECEIVED BY NOVO FOR WORK
DEVELOPED OR SERVICES PROVIDED PURSUANT TO THIS AGREEMENT.
11. INDEMNIFICATION
<PAGE> 9
11.1 NOVO Indemnification. NOVO shall indemnify and hold harmless CUSTOMER, its
parent, subsidiaries and affiliates and their respective employees, contractors,
shareholders and directors, and defend and pay any damages, fines or penalties
finally awarded with respect to claims brought by third parties against
CUSTOMER, its parent, subsidiaries, affiliates, and their respective directors,
officers, agents and employees (1) due to any act of infringement of any third
party IP right or any unauthorized use of any trade secret by the NOVO
Technology or the NOVO Work Product (but excluding infringement based on
CUSTOMER failure to obtain necessary third party licenses IP Rights identified
in the applicable Statement of Work, as per Section 7.2 hereof), (2) based on
NOVO's failure to comply with U.S. federal, state or local law, (3) in
connection with third party claims only, the misconduct, or any reckless or
negligent acts or omissions of NOVO, its employees or subcontractors, (4) any
breach of the warranties set forth in Section 10.1; provided that CUSTOMER
promptly notifies NOVO of any such claim, provides NOVO with reasonable
assistance and full information, and gives NOVO sole control over the defense
and/or settlement thereof; and provided further that NOVO shall not settle any
such claim in any manner having a material, detrimental effect on CUSTOMER
without CUSTOMER prior written consent. Subject to the foregoing, CUSTOMER shall
have the right to participate in any such claim with counsel of its own
selection at CUSTOMER'S own expense. If the NOVO Technology or NOVO Work Product
is or in NOVO's reasonable judgment may become the subject of any such claims
brought by third parties, NOVO may at its option upon consultation with
CUSTOMER, and at NOVO's expense (i) procure a license for CUSTOMER to continue
to use and maintain the system or the website; or (ii) replace the affected NOVO
Technology or NOVO Work Product with other suitable and functionally equivalent
subject matter; or (iii) modify the NOVO Technology or NOVO Work Product to make
it noninfringing provided that it is functionally equivalent, or if none of the
foregoing alternatives is reasonably available to NOVO then, (iv) remove the
allegedly infringing NOVO Technology or NOVO Work Product from the CUSTOMER web
site, and refund a mutually agreed upon prorated portion of the fees paid by
CUSTOMER in connection with NOVO Work Product. The foregoing states NOVO's
entire liability and CUSTOMER's sole and exclusive remedy with respect to claims
of infringement of third party proprietary rights of any kind.
11.2 CUSTOMER Indemnification. CUSTOMER shall indemnify and hold harmless NOVO,
its parent, subsidiaries and affiliates and their respective employees, approved
subcontractors, shareholders and directors, and defend and pay any damages,
fines or penalties finally awarded with respect to claims brought by third
parties against NOVO, its parent, subsidiaries, affiliates, and their respective
directors, officers, agents and employees (1) arising in connection with any
CUSTOMER Materials (so long as such liability is not caused by modifications
mode by NOVO or its subcontractors to such CUSTOMER Materials) or NOVO's use
thereof, or failure to obtain necessary IP Rights as per Section 7.2 hereof,
provided that NOVO complies with its obligations set forth in Section 7.2
hereof; (2) based on CUSTOMER failure to comply with U.S. federal, state or
local laws, or (3) in connection with third party claims only, the misconduct or
any reckless or negligent acts or omissions of CUSTOMER, its employees or
subcontractors; provided that NOVO promptly notifies CUSTOMER of any such claim,
provides CUSTOMER with reasonable assistance and full information, and gives
CUSTOMER sole control over the defense and/or settlement thereof; and provided
further that
<PAGE> 10
CUSTOMER shall not settle any such claim in any manner having a material,
detrimental effect on NOVO without NOVO prior written consent. Subject to the
foregoing, NOVO shall have the right to participate in any such claim with
counsel of its own selection at NOVO's own expense.
12. NOTICE
Any notice hereunder shall be in writing and delivered when delivered
personally, by fax (and confirmed by regular mail), or by overnight express, or
if mailed by certified or registered mail, postage prepaid, addressed to a party
at its address stated below its signature hereto or to such other address as
such party may designate by written notice to the other party in accordance
herewith and shall be deemed effective upon receipt. Receipt shall be deemed to
have occurred 5 days after mailing via first class U.S. mail; on the next day if
mailed via overnight express delivery service such as FedEx; or on the same day
of delivery if delivered via courier or fax.
13. WAIVER
The failure of either party at any time to enforce any right or remedy available
to it under this Agreement with respect to any breach or failure by the other
party shall not be construed to be a waiver of such right or remedy with respect
to any other breach or failure by the other party.
14. SEVERABILITY
If any provision of this Agreement shall be held illegal, invalid or
unenforceable, in whole or in part, such provision shall be modified to the
minimum extent necessary to make it legal, valid and enforceable, and the
legality, validity and enforceability of all other provisions of this Agreement
shall not be affected thereby.
15. SURVIVAL OF OBLIGATION
The provisions of Sections 6.3, 7.3 (except as pursuant to operation of Section
6.3), 7.1, 7.4, 7.5, 8, 9, 10, 11.1, 11.2, 14, 15, 16, 17, 18, 20, 22 shall
survive the termination of this Agreement for whatever reason and, in addition,
the obligations of the parties under this Agreement that by their nature
continue beyond the expiration of this Agreement shall survive any termination
or cancellation of this Agreement.
16. CHOICE OF LAW
The construction, interpretation and performance of this Agreement shall be
governed by the laws of the State of California, excluding conflict of laws
rules and principles.
17. INTERPRETATION; CAPTIONS
The captions in this Agreement are included for convenience only and shall not
be construed to define or limit any of the provisions contained herein. This
Agreement shall be fairly interpreted in accordance with its terms without any
strict construction in favor
<PAGE> 11
of or against either party and ambiguities shall not be interpreted against the
drafting party.
18. ENTIRE AGREEMENT; AMENDMENT
This Agreement together with the Statements of Work constitutes the entire
agreement between CUSTOMER and NOVO relating to the subject matter hereof and
supersedes all prior oral and written and all contemporaneous oral negotiations,
commitments and understandings of the parties other than confidentiality
agreements. This Agreement or any Statement of Work shall not be changed in any
manner except by a writing executed by both parties. Other than as expressly
provided herein, both CUSTOMER and NOVO agree that no prior or contemporaneous
oral representations form a part of their agreement.
19. COMPLIANCE WITH LAW; EXPORT
In performing its obligations under this Agreement, each party hereto shall
comply with all applicable federal, state, and local laws, rules and
regulations.
20. ARBITRATION
If any dispute should arise between the parties in connection with this
Agreement, before resorting to any other legal remedy, the parties shall attempt
in good faith to resolve the dispute. If the parties are unable to resolve the
dispute after good faith consultation, or if one party refuses to participate in
any such consultation, the controversy or claim arising out of or relating to
this Agreement, or the breach, termination or validity thereof, shall be settled
by binding arbitration in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes ("Rules"), by three
arbitrators appointed in accordance with said Rules. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and
judgment upon the award rendered by the arbitrators may be entered by any court
having jurisdiction thereof. The place of arbitration shall be San Francisco,
California.
21. NO ASSIGNMENT
The rights granted herein are personal to the parties and neither party may
assign this Agreement, any Statement of Work or any rights hereunder or
thereunder without the prior written consent of the other party, except that
CUSTOMER may assign this Agreement together with related Statements of Work and
license rights to any of its subsidiary or parent corporations, without NOVO's
consent; provided, further, that neither party hereto shall require the consent
of the other party with respect to an assignment of this Agreement in the event
of a sale of all or substantially all of the assets or other merger or
reorganization of the party transferring the Agreement. Notwithstanding the
foregoing, CUSTOMER may transfer rights in any system(s) or other projects
created hereunder without NOVO's consent provided that no NOVO Technology is
sold or transferred on a standalone basis and that any assignee of such system
agree not to engage in such standalone sale of the NOVO Technology.
<PAGE> 12
22. NOVO CREDITS
NOVO retains the right to demonstrate in NOVO's web site, printed materials and
marketing programs or arrangements any Work as part of a portfolio of work it
has done for other customers upon prior approval of CUSTOMER, not to be
unreasonably withheld. NOVO will not represent any Work before it is available
to access by the general public. CUSTOMER hereby grants NOVO a limited license
to display the CUSTOMER Materials and the NOVO Work Product to the extent such
CUSTOMER Materials and NOVO Work Product are incorporated in the Work solely for
the purpose of NOVO displaying its Work as part of its portfolio of works and as
approved by CUSTOMER. NOVO shall further obtain CUSTOMER approval prior to
demonstrating CUSTOMER work.
IN WITNESS WHEREOF, NOVO and CUSTOMER have executed this Agreement in duplicate
on the day and year below written.
Sept. 8, 1999
NOVO MEDIAGROUP, INC. GLOSS.COM, IN
By: /s/ ANTHONY WESTREICH By: /s/ MICHAEL HANANEL
------------------------------------- --------------------------------
Name: Anthony Westreich Name: Michael Hananel
Title: Corporate Development Officer Title: Vice President, Operations
Date: Sept. 8, 1999 Date: September 3, 1999
----------------------------------- ------------------------------
<PAGE> 13
[NOVO INTERACTIVE LOGO]
EXHIBIT A-1
GLOSS.COM, INC.
SUMMARY AND WORK AND COMPENSATION
1. Time and Materials
NOVO, on a time and materials basis ("Time and Materials") as set forth in
Section 1.1 and 1.2 below, shall provide Work services comprised generally of
interactive strategy, concept, creative development and engineering services for
implementation, maintenance and augmentation of CUSTOMER's web site. Novo's
production services are rendered at NOVO's present hourly rates as shown on
Exhibit A-2 attached hereto and made a part hereof. Novo reserves the right to
adjust its hourly rate structure every six (6) months. NOVO shall actualize the
hours dedicated to CUSTOMER on a semi-monthly basis, with any overages being
billed in addition to the monthly advance payment (as defined below) and any
under usage being applied as a credit to the next 15 day payment cycle's
services.
1.1 July 1, 1999 to September 17, 1999 Advance Payment. CUSTOMER shall make an
advance payment ("Advance Payment") of $250,000.00 to NOVO via check or wire on
each of July 1, 1999, August 1, 1999 and September 1, 1999 for services to be
rendered in the applicable month. As provided for in Section 1 above, NOVO shall
actualize the services provided against the Advance Payment on the 15th and 30th
of each respective month and either bill such additional time (such additional
service time subject to collection within 15 days of receipt as provided for in
Section 5 below) or treat any unused time as a credit for the next 15 day
payment cycle if such full allotment of time is not utilized in the applicable
15 day payment cycle. NOVO shall supply CUSTOMER with backup on the
actualization.
1.2 September 28, 1999 to December 31, 1999. On or about September 1, 1999 NOVO
shall provide to CUSTOMER an estimate for the balance of services to be provided
for the period from September 28, 1999 to December 31, 1999. Beginning on
October 1, 1999, NOVO shall bill against such estimated total on a semi-monthly
basis, assuming an even monthly services delivery timeline for such total
services. CUSTOMER shall pay such new estimate amount via check or wire on the
first of each month from October 1999 to December 1999. As provided for in
Section 1 above, NOVO shall actualize the services provided against the estimate
at the end of each 15 day payment cycle and either bill such additional time
(such additional service time subject to collection within 15 days of receipt as
provided for in Section 5 below) or treat any unused time as a credit for the
next 15 day payment cycle if such full allotment of time is not utilized in the
applicable 15 day payment cycle.
2. Price Discounts; Stock Compensation; Bonus Payments.
CUSTOMER shall incentivize NOVO for attaining certain criteria as defined below.
<PAGE> 14
NOVO INTERACTIVE
2.1. [ * ]% Discount. NOVO shall provide CUSTOMER a [ * ]% discount on all
hourly fees (the "Discount"), which shall accrue over time up to a maximum
amount of $[ * ]. Promptly following the earlier of the termination of this
Agreement or the date on which the total amount accrued under the Discount
equals $[ * ], CUSTOMER shall issue to NOVO shares of Series B Preferred Stock
at a purchase price of $[ * ] per share, which shall be payable by cancellation
of indebtedness of CUSTOMER to NOVO in the form of the Discount in consideration
of NOVO's services hereunder. The number of shares of Series B Preferred Stock
issued under this Section 2.1 shall equal (i) the total amount then accrued
under the Discount, divided by (ii) $[ * ]. Issuance of the Series B Preferred
Stock under this Section 2.1 shall be subject to NOVO entering into a mutually
agreeable stock purchase agreement containing customary investor representations
and warranties.
2.2. Performance Stock Grant. As a performance incentive, CUSTOMER shall issue
NOVO [ * ] shares of Common Stock in the event that NOVO achieves, and promptly
following any such achievement, each of the following milestones (resulting in
up to an aggregate of [ * ] shares of Common Stock issued under this Section
2.2): (i) meeting the Schedule with respect to the Preview Site; (ii) achieving
the Usability Test with respect to the Preview Site; (iii) meeting the Schedule
with respect to the Main Site; and (iv) achieving the Usability Test with
respect to the Main Site. Issuance of the Common Stock under this Section 2.2
shall be subject to NOVO entering into mutually agreeable stock purchase
agreements containing customary investor representations and warranties. The
"Schedule" and "Usability Test" shall be defined as follows:
2.2.1. SCHEDULE. Within thirty (30) days of the date of this Agreement, NOVO and
CUSTOMER shall mutually agree upon a delivery schedule for all Work to be
delivered hereunder (the "Schedule"), which Schedule shall be in writing and
shall be signed by CUSTOMER and NOVO. If NOVO meets such Schedule in all
respects (subject to mutually agreed upon adjustments for any delay caused by
CUSTOMER'S inability to provide content or otherwise supply necessary process
input), then CUSTOMER shall issue NOVO [ * ] shares of Series B Preferred Stock
for the applicable site Schedule milestone, as described above.
2.2.2. USABILITY TEST. Within thirty (30) days of the date of this Agreement,
NOVO and CUSTOMER shall mutually agree upon usability tests which will
qualitatively measure the NOVO Work versus CUSTOMER'S named competition (the
"Usability Test"), which Usability Test shall be in writing and shall be signed
by CUSTOMER and NOVO. If NOVO satisfies the Usability Test in all respects, then
CUSTOMER shall issue NOVO [ * ] shares of Series B Preferred Stock for the
applicable site Usability Test milestone, as described above.
3. Costs and Expenses.
AN ASTERISK [ * ] INDICATES THAT CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED, PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT, AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
<PAGE> 15
CUSTOMER shall reimburse NOVO for all direct costs or expenses incurred by NOVO
in providing interactive services for CUSTOMER or otherwise incurred by NOVO on
behalf of CUSTOMER. These expenses shall be detailed separately when invoiced
and accompanied by proper supporting documentation. Provided that NOVO shall
obtain prior approval from CUSTOMER FOR all expenses in excess of One Thousand
Dollars ($1,000.00). These expenses may include, without limitation, the
following:
3.1. Travel. All travel by NOVO personnel on behalf of CUSTOMER away from
Novo's offices.
3.2. Postage and Shipping. All costs associated with the postage, mailing and
freight, including air freight and courier services for or on behalf of
CUSTOMER.
3.3. Telephone. All costs associated with telephone calls and faxes in
connection with CUSTOMER's project.
3.4. Copy and Production. All costs and expenses of copying and production work
undertaken for CUSTOMER.
3.5. Taxes. If applicable, all taxes or use taxes incurred as a result of
CUSTOMER'S use of the services of CUSTOMER or any product created by NOVO.
3.6. Software/Hardware. All costs associated with the purchasing of products
and technology necessary for CUSTOMER's project including hardware/software and
hardware/software licenses. All hardware/software purchased on behalf of
CUSTOMER shall remain the sole property of CUSTOMER.
3.7. Stock Photography. All costs associated with the royalties/purchasing of
stock photography for CUSTOMER. NOVO shall obtain prior approval from CUSTOMER
prior to purchasing said stock photography
4. Billing and Payment.
4.1. Monthly Billing and Payment Fees. Unless provided otherwise, monthly
fees are billed in advance at the beginning of each month and are due
within fifteen (15) days of the date set forth on the NOVO invoice.
4.2. Billing and Payment Expenses. Out of pocket expenses incurred by NOVO
shall be billed by NOVO to CUSTOMER on net thirty (30) days terms.
AGREED AND ACKNOWLEDGED AS OF SEPTEMBER 8, 1999
NOVO MEDIAGROUP, INC. GLOSS.COM, INC.
By: /s/ ANTHONY WESTREICH By: /s/ MICHAEL HANANEL
---------------------------------- -----------------------------------
<PAGE> 16
Name: Anthony Westreich Name: Michael Hananel
Title: Corporate Development Officer Title: Vice President, Operations
Date: Sept. 8, 1999 Date: September 3, 1999
------------------------------- ------------------------------
<PAGE> 17
novo interactive
EXHIBIT A-2
GLOSS.COM, INC.
NOVO'S HOURLY RATE STRUCTURE
1. Effective June 1, 1999, NOVO's hourly rate for NOVO personnel is as follows:
<TABLE>
<CAPTION>
TITLE HOURLY RATE
----- -----------
<S> <C>
Officer $[ * ]
Director $[ * ]
Senior Internet Business Analyst $[ * ]
Internet Business Analyst $[ * ]
Technical Strategist $[ * ]
Database Administrator $[ * ]
Senior Software Engineer $[ * ]
Engineering Manager $[ * ]
Senior Development Manager $[ * ]
Development Manager $[ * ]
Senior Art Director $[ * ]
Senior UI Designer $[ * ]
Software Engineer $[ * ]
Application Engineer $[ * ]
Senior Graphic Designer $[ * ]
Account Manager $[ * ]
Interaction Designer $[ * ]
Development Coordinator $[ * ]
Systems Administrator $[ * ]
Graphic Designer $[ * ]
Media Buyer $[ * ]
Copywriter $[ * ]
Buildmaster $[ * ]
</TABLE>
AN ASTERISK [ * ] INDICATES THAT CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED, PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT, AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
<PAGE> 18
GLOSS.COM, INC.
AGREEMENT AND MUTUAL RELEASE
This Agreement and Mutual Release (this "Mutual Release") is made by and
between Gloss.com, Inc., a Delaware corporation (the "Company"), and NOVO
MediaGroup, Inc., a California corporation ("Consultant").
RECITALS
A. Effective August 30, 1999, the Company and Consultant entered into a
Consulting and Development Agreement (the "Consulting Agreement") pursuant to
which the Company retained Consultant for the purpose of providing certain
consulting and development services related to the Company's interactive
communication and transaction systems.
B. Consultant has performed certain consulting and development services
for the Company pursuant to the Consulting Agreement.
C. The Company and Consultant (collectively referred to as the
"Parties") desire to release each other from any claims arising on or prior to
January 31, 2000, including claims arising from or relating to the Consulting
Agreement on or prior to such date, on the terms set forth below.
AGREEMENT
In consideration of the mutual promises made below, the Parties agree as
follows:
1. PAYMENT OF FEES. Upon execution of this Mutual Release, the Company
agrees to pay Consultant $[ * ] which the Parties acknowledge and agree
represents complete settlement of any claims regarding any cash remuneration or
expense payments owed by the Company to Consultant for services rendered or
costs incurred under the Consulting Agreement on or prior to January 31, 2000.
Such payment shall be made by check or wire transfer.
2. CONTINUATION OF CONSULTING AGREEMENT; CREDIT FOR FUTURE SERVICES. The
Parties agree that notwithstanding the mutual release of claims set forth in
Section 4 below and except as expressly set forth herein, the Consulting
Agreement shall remain in full force and effect and shall be enforceable in
accordance with its terms. In consideration of the mutual release of claims set
forth in Section 4 below and other consideration under this Mutual Release,
Consultant hereby grants the Company a $[ * ] credit (as a volume discount for
services in 1999) which may be applied by the Company only against services
rendered by Consultant under the Consulting Agreement on or after February 1,
2000.
3. NO EQUITY CLAIMS. Consultant acknowledges and agrees that except with
respect to [ * ] shares of the Company's Series B Preferred Stock previously
issued to Consultant effective as of December 3, 1999 pursuant to Section 2.1 of
Exhibit A-1 to the Consulting Agreement, Consultant has no right, claim, title
or interest in or to any capital stock, stock options or other equity security
of the Company under any agreement or arrangement, written or unwritten. Without
limiting the generality of the foregoing, Consultant specifically
AN ASTERISK [ * ] INDICATES THAT CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN
THIS DOCUMENT HAS BEEN OMITTED, PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT, AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
<PAGE> 19
acknowledges and agrees that Consultant is not entitled, and that Consultant
shall not become entitled, to any capital stock pursuant to Section 2.2 of
Exhibit A-1 of the Consulting Agreement.
4. RELEASE OF CLAIMS. In consideration for the promises and obligations
of the Parties set forth in this Mutual Release, the Company and Consultant, on
behalf of themselves, and their respective officers, directors, employees,
agents, attorneys, investors, stockholders, administrators, affiliates,
successors and assigns, hereby fully and forever release each other and their
respective officers, directors, employees, agents, attorneys, investors,
stockholders, administrators, affiliates, successors and assigns, of and from
any claim, duty, obligation or cause of action relating to any matters of any
kind, whether presently known or unknown, suspected or unsuspected, that any of
them may possess arising from any omissions, acts or facts that have occurred up
until and including January 31, 2000, including, without limitation:
(a) any and all claims relating to or arising from the Consulting
Agreement;
(b) any and all claims for breach of contract, both express and
implied; breach of a covenant of good faith and fair dealing, both express and
implied; negligent or intentional infliction of emotional distress; negligent
or intentional misrepresentation; negligent or intentional interference with
contract or prospective economic advantage; negligence; and defamation; and
(c) any and all claims for attorneys' fees and costs.
The Parties agree that the release set forth in this Section 4 shall be and
remain in effect in all respects as a complete general release as to the
matters released. Notwithstanding the foregoing, this release does not extend
to any obligations incurred or specified under this Mutual Release.
5. CIVIL CODE SECTION 1542. The Parties represent that they are not aware
of any claim by either of them other than the claims that are released by this
Mutual Release. Each of the Parties acknowledges that it has been advised by
legal counsel and is familiar with the provisions of California Civil Code
Section 1542 (as well as comparable provisions of the laws of any other state
that may be applicable or of any applicable common law principles), which
provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Each of the Parties, being aware of said Code section, agrees to expressly
waive any rights it may have thereunder, as well as under any other statutory
or common law principles of similar effect.
6. CONFIDENTIALITY OF MUTUAL RELEASE; NO DISPARAGEMENT. The Parties
each agree to use their best efforts to maintain in confidence the existence
of, the contents and terms of, and the consideration for this Mutual Release
(hereinafter collectively referred to as "Settlement Information"). Each Party
agrees to take every reasonable precaution to prevent disclosure of any
Settlement Information to third parties, except to the extent required by law,
and each agrees
-2-
<PAGE> 20
that there will be no publicity, directly or indirectly, concerning any
Settlement Information, except to the extent required by law. The Parties agree
to take every precaution to disclose Settlement Information only to those
employees, officers, directors, attorneys, accountants, governmental entities
and family members who have a reasonable need to know of such Settlement
Information. Each Party agrees to refrain from making any disparaging,
derogatory or slanderous statements with respect to the other Party.
7. BREACH OF CONFIDENTIALITY PROVISIONS. The Parties acknowledge that
upon breach of Section 6 of this Mutual Release, the other Party would sustain
irreparable harm from such breach and, therefore, the Parties agree that in
addition to any other remedies that each Party may have hereunder or otherwise,
each Party shall be entitled to obtain equitable relief, including specific
performance and injunctions, restraining the other Party from committing or
continuing any such violation of such sections.
8. AUTHORITY. The Company represents and warrants that the person
signing this Mutual Release on behalf of the Company has the authority to act
on behalf of the Company and to bind the Company and all who may claim through
it to the terms and conditions of this Mutual Release. Consultant represents
and warrants that the person signing this Mutual Release on behalf of
Consultant has the authority to act on behalf of Consultant and to bind
Consultant and all who may claim through it to the terms and conditions of this
Mutual Release. Each Party represents and warrants that there are no liens or
claims of lien or assignments in law or equity or otherwise of or against any
of the claims or causes of action released herein.
9. NO REPRESENTATIONS. Neither Party has relied upon any representations
or statements made by the other Party hereto which are not specifically set
forth in this Mutual Release.
10. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court or other tribunal of competent jurisdiction to be illegal,
unenforceable or void, this Mutual Release shall continue in full force and
effect, and such court or tribunal shall be empowered to substitute, to the
extent enforceable, provisions similar to said provision, or other provisions,
so as to provide to the Parties the benefits intended by said provision, to the
fullest extent permitted by applicable law.
11. ENTIRE AGREEMENT. This Mutual Release represents the entire
agreement and understanding between the Company and Consultant concerning the
matters set forth herein, and supersedes and replaces any and all prior
agreements and understandings, whether oral or written, concerning such
matters.
12. NO ORAL MODIFICATION. This Mutual Release may only be amended by
means of a writing signed by the each of the Parties.
13. GOVERNING LAW. This Mutual Release shall be governed by the laws of
the State of California, without regard to its conflicts of law provisions.
14. EFFECTIVE DATE. This Mutual Release is effective upon its execution
by each of the Parties.
-3-
<PAGE> 21
15. COUNTERPARTS. This Mutual Release may be executed in counterparts, each of
which shall be deemed an original, but all of which together will constitute
one and the same instrument.
16. ASSIGNMENT. This Mutual Release may not be assigned by either Party
without the prior written consent of the other Party; provided, however, that
the consent of a Party shall not be required with respect to an assignment of
this Mutual Release in connection with a sale of all or substantially all of
the assets of the other Party or a merger, consolidation or reorganization of
the other Party.
17. VOLUNTARY EXECUTION OF AGREEMENT. This Mutual Release is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) they have read this Mutual Release;
(b) they have been represented in the preparation, negotiation, and
execution of this Mutual Release by legal counsel of their own choice or that
they have voluntarily declined to seek such counsel;
(c) they understand the terms and consequences of this Mutual Release and
of the releases it contains; and
(d) they are fully aware of the legal and binding effect of this Mutual
Release.
[Signature Page Follows]
-4-
<PAGE> 22
The Parties have executed this Mutual Release on the respective dates set
forth below.
GLOSS.COM, INC.
Dated: 2/25/2000 /s/ MICHAEL HANANEL
--------------- ----------------------------------------
Signature
By: Michael Hananel
------------------------------------
Title: COO
---------------------------------
NOVO MEDIAGROUP, INC.
Dated: 2.25.2000 /s/ HARRY W. SCHLOUGH
--------------- ----------------------------------------
Signature
By: Harry W. Schlough
------------------------------------
Title: President and COO
---------------------------------
<PAGE> 1
EXHIBIT 10.4
NOVO MEDIAGROUP, INC.,
NOVO MERGER SUBSIDIARY, INC.
AND
IRONLIGHT DIGITAL CORPORATION
AGREEMENT AND PLAN OF MERGER
APRIL 16, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
SECTION ONE....................................................................1
1. The Merger...........................................................1
1.1 The Merger......................................................1
1.2 Closing; Effective Time.........................................2
1.3 Effect of the Merger............................................2
1.4 Articles of Incorporation; Bylaws...............................2
1.5 Directors and Officers..........................................2
1.6 Effect on Capital Stock.........................................2
1.7 Surrender of Certificates.......................................5
1.8 No Further Ownership Rights in Ironlight Capital Stock..........6
1.9 Tax and Accounting Consequences.................................7
1.10 Taking of Necessary Action; Further Action......................7
1.11 Withholding.....................................................7
1.12 Lost, Stolen or Destroyed Certificates..........................7
SECTION TWO....................................................................7
2. Representations and Warranties of Ironlight..........................7
2.1 Organization Standing and Power; Subsidiaries...................8
2.2 Articles of Incorporation and Bylaws............................8
2.3 Capital Structure...............................................8
2.4 Authority.......................................................9
2.5 No Conflicts; Required Filings and Consents....................10
2.6 Financial Statements...........................................10
2.7 Absence of Undisclosed Liabilities.............................10
2.8 Absence of Certain Changes.....................................11
2.9 Litigation.....................................................12
2.10 Restrictions on Business Activities............................13
2.11 Permits; Company Products; Regulation..........................13
2.12 Intellectual Property..........................................13
2.13 Taxes..........................................................14
2.14 Employee Benefit Plans.........................................15
2.15 Certain Agreements Affected by the Merger......................16
2.16 Material Contracts.............................................17
2.17 Interested Party Transactions..................................18
2.18 Minute Books...................................................18
2.19 Complete Copies of Materials...................................18
2.20 Accounting and Tax Matters; Pooling of Interests...............18
2.21 Brokers' and Finders' Fees.....................................18
2.22 Vote Required..................................................19
2.23 Board Approval.................................................19
2.24 Accounts Receivable............................................19
2.25 Third Party Consents...........................................19
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
2.26 Representations Complete.......................................19
SECTION THREE.................................................................19
3. Representations and Warranties of Novo and Merger Sub...............19
3.1 Organization, Standing and Power...............................19
3.2 Articles of Incorporation and Bylaws...........................20
3.3 Capital Structure..............................................20
3.4 Authority......................................................21
3.5 No Conflict; Required Filings and Consents.....................21
3.6 Financial Statements...........................................22
3.7 Absence of Undisclosed Liabilities.............................22
3.8 Absence of Certain Changes.....................................22
3.9 Litigation.....................................................24
3.10 Restrictions on Business Activities............................24
3.11 Permits; Company Products; Regulation..........................24
3.12 Intellectual Property..........................................25
3.13 Taxes..........................................................25
3.14 Employee Benefit Plans.........................................27
3.15 Certain Agreements Affected by the Merger......................28
3.16 Material Contracts.............................................28
3.17 Broker's and Finders' Fees.....................................29
3.18 Accounting and Tax Matters; Pooling of Interests...............29
3.19 Interested Party Transactions..................................30
3.20 Minute Books...................................................30
3.21 Complete Copies of Materials...................................30
3.22 Vote Required..................................................31
3.23 Board Approval.................................................31
3.24 Accounts Receivable............................................31
3.25 Third Party Consents...........................................31
3.26 Representations Complete.......................................31
SECTION FOUR..................................................................31
4. Conduct Prior to the Effective Time.................................31
4.1 Conduct of Business of Ironlight and Novo......................31
4.2 Actions with Respect to Agreement..............................32
SECTION FIVE..................................................................32
5. Additional Agreements...............................................32
5.1 Best Efforts and Further Assurances............................32
5.2 Consents; Cooperation..........................................32
5.3 Blue Sky Laws..................................................33
5.4 Shareholder's Representation Agreements........................33
5.5 Pooling Accounting.............................................33
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
5.6 Board of Directors...............................................33
5.7 Maintenance of Ironlight Indemnification Obligations.............33
5.8 Organizational Structure.........................................34
SECTION SIX.....................................................................34
6. Conditions to the Merger..............................................34
6.1 Conditions to Obligations of Each Party to Effect the Merger.....34
6.2 Additional Conditions to Obligations of Ironlight................35
6.3 Additional Conditions to the Obligations of Novo and Merger Sub..36
SECTION SEVEN...................................................................37
7. Termination, Amendment and Waiver.....................................37
7.1 Termination......................................................38
7.2 Effect of Termination............................................38
7.3 Amendment........................................................38
7.4 Extension; Waiver................................................38
SECTION EIGHT...................................................................38
8. Escrow and Indemnification............................................38
8.1 Survival of Representations and Warranties.......................39
8.2 Indemnification..................................................39
SECTION NINE....................................................................39
9. General Provisions....................................................39
9.1 Notices..........................................................40
9.2 Interpretation...................................................40
9.3 Counterparts.....................................................41
9.4 Entire Agreement; Nonassignability; Parties in Interest..........41
9.5 Severability.....................................................41
9.6 Remedies Cumulative..............................................41
9.7 Governing Law....................................................41
9.8 Rules of Construction............................................41
9.9 Amendments and Waivers...........................................42
</TABLE>
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of April 16, 1998, by and among NOVO MEDIAGROUP, INC., a California
corporation ("Novo"), NOVO MERGER SUBSIDIARY, INC., a California corporation
("Merger Sub") and wholly owned subsidiary of Novo, and IRONLIGHT DIGITAL
CORPORATION, a California corporation ("Ironlight").
RECITALS
A. The Boards of Directors of Ironlight, Novo and Merger Sub believe it
is in the best interests of their respective companies and the shareholders of
their respective companies that Ironlight and Merger Sub combine into a single
company through the merger of Merger Sub with and into Ironlight (the "Merger")
and, in furtherance thereof, have approved the Merger. Pursuant to the Merger,
among other things, the outstanding shares of capital stock of Ironlight (the
"Ironlight Capital Stock") shall be converted into shares of the Common Stock of
Novo (the "Novo Common Stock"), at the rates set forth herein.
B. Ironlight, Novo and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
D. The parties intend to cause the Merger to be accounted for as a
pooling of interests pursuant to APB Opinion No. 16, Staff Accounting Series
Releases 130, 135 and 146 and Staff Accounting Bulletins Topic Two.
AGREEMENT
The parties hereby agree as follows:
SECTION ONE
1. THE MERGER.
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Agreement
and Plan of Merger attached hereto as Exhibit A (the "Agreement of Merger") and
the applicable provisions of the California Corporations Code ("California
Law"), Merger Sub shall be merged with and into Ironlight, the separate
corporate existence of Merger Sub shall cease and Ironlight shall continue as
the surviving corporation of the Merger. Ironlight as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1
<PAGE> 6
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place as soon as
practicable, (and in no event later than three (3) business days after the
satisfaction or waiver of each of the conditions set forth in Section 4 below
or at such other time as the parties agree (the "Closing Date")). In
connection with the Closing, the parties shall cause the Merger to be
consummated by filing the Agreement of Merger, together with the required
officers' certificates, with the Secretary of State of the State of California,
in accordance with the relevant provisions of California Law (the time of such
filing being the "Effective Time"). The Closing shall take place at the offices
of Britton, Silberman & Cervantez, LLP, 461 Second Street, Suite 332, San
Francisco, California, or at such other location as the parties agree.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of California Law. At the Effective Time, all the
property, rights, privileges, powers and franchises of Ironlight and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Ironlight and Merger Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by California Law and such Articles of Incorporation.
(b) At the Effective Time, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the
Articles of Incorporation of the Surviving Corporation and such Bylaws.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation, and the officers of Merger Sub immediately prior to
the Effective Time, shall be the officers of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without
any action on the part of Merger Sub, Ironlight or any of their respective
shareholders, the following shall occur at the Effective Time:
(a) CONVERSION OF IRONLIGHT CAPITAL STOCK. All of the issued
and outstanding shares of Class A Common Stock, no par value per share, and
Class B Common Stock, no par value per share, of Ironlight (the "Ironlight Class
A Common Stock" and "Ironlight Class B Common Stock," respectively) issued and
outstanding immediately prior to the Effective Time (other than shares to be
cancelled pursuant to Section 1.6(b) and shares, if any, held by persons who
have not voted such shares for approval of the Merger and with respect to which
2
<PAGE> 7
such persons shall become entitled to exercise dissenters' rights in accordance
with Chapter 13 of California Law ("Dissenting Shares")) shall be converted and
exchanged for that number of shares of Novo Class A Common Stock and Novo Class
B Common Stock, respectively, as shall be determined in accordance with the
calculations set forth with respect to each share of Ironlight Class A Common
Stock and each share of Ironlight Class B Common Stock set forth on Exhibit B
attached hereto (the "Exchange Ratios"). All shares of Ironlight Capital Stock,
when so converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Ironlight Capital Stock shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance
with Section 1.7, without interest.
(b) CANCELLATION OF IRONLIGHT CAPITAL STOCK OWNED BY NOVO OR
IRONLIGHT. At the Effective Time, all shares of Ironlight Capital Stock that
are owned by Ironlight as treasury stock, each share of Ironlight Capital Stock
owned by Novo or any direct or indirect wholly owned subsidiary of Novo or of
Ironlight immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof.
(c) IRONLIGHT STOCK OPTIONS AND WARRANTS.
(i) (A) All options to purchase Ironlight Common Stock
(the "Ironlight Options") issued and outstanding as of the Effective Time
(whether or not exercisable, whether or not vested, and whether or not
performance-based) and granted under the Ironlight Digital Corporation 1997
Stock Incentive Plan, as amended (the "Ironlight Stock Option Plan") or
otherwise, shall remain outstanding following the Effective Time. Section 2.3
of the Ironlight Disclosure Schedule (as defined below) hereto set forth a true
and complete list as of the date of this Agreement of all holders of
outstanding options, including the number of shares of Ironlight Capital Stock
subject to each such option, the exercise or vesting schedule, the exercise
price per share and the term of each such option. On the Closing Date,
Ironlight shall deliver to Novo an updated Section 2.3 of the Ironlight
Disclosure Schedule (as defined below) hereto current as of such date.
(B) At the Effective Time, the Ironlight Options
shall, by virtue of the Merger and without any further action on the part of
the Company or the holder thereof, be assumed by Novo in accordance with this
Section 1.6(c). Each such Ironlight Option so assumed by Novo under this
Agreement shall continue to have, and be subject to, the same terms and
conditions to which such Ironlight Option was subject immediately prior to the
Effective Time, except that (i) each Ironlight Option that was exercisable for
Ironlight Class A Common Stock or Ironlight Class B Common Stock will be
exercisable for the number of whole shares of Novo Class A Common Stock or Novo
Class B Common Stock, respectively, equal to the product of the number of shares
of Ironlight Common Stock that were issuable upon exercise of such Ironlight
Option immediately prior to the Effective Time multiplied by the Exchange Ratio
applicable to the Ironlight Class A Common Stock or the Ironlight Class B Common
Stock, respectively, and rounded down to the nearest whole number of shares of
Novo Class A Common Stock or Novo Class B Common Stock, respectively, and (ii)
the per share exercise
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price for the shares of Novo Class A Common Stock or Novo Class B Common Stock,
respectively, issuable upon exercise of such assumed option will be equal to the
quotient determined by dividing the exercise price per share of Ironlight Class
A Common Stock or the Ironlight Class B Common Stock, respectively, at which
such Ironlight Option was exercisable immediately prior to the Effective Time by
the Exchange Ratio applicable to the Ironlight Class A Common Stock or the
Ironlight Class B Common Stock, respectively. Exercise prices will end up being
$.00014329 per share.
(C) Ironlight has not taken, and shall not take, any
action that would result in the accelerated vesting, exercisability or payment
of Ironlight Options as a consequence of the execution of, or consummation of
the transactions contemplated by, this Agreement. The Merger will not terminate
any of the outstanding Ironlight Options or accelerate the vesting,
exercisability or payment of such Ironlight Options or the shares of Novo Common
Stock which will be subject to those options upon the Novo's assumption of the
Ironlight Options in the Merger, and no term of the Ironlight Stock Option Plan
or other document evidencing the Ironlight Options contradicts with this Section
1.6(c)(i)(C).
(D) It is the intention of the parties that the Ironlight
Options assumed by Novo qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent such Ironlight
Options qualified as incentive stock options prior to the Effective Time. As
soon as practicable after the Effective Time, Novo will issue to each person
who, immediately prior to the Effective Time was a holder of an Ironlight
Option, a written document evidencing the foregoing assumption of such option
by Novo.
(d) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each share
of Common Stock of Merger Sub ("Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of Common Stock of
the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS. The Exchange Ratios shall be adjusted to reflect
fully the effect of any stock split, reverse split, stock dividend (including
any dividend or distribution of securities convertible into Novo Common Stock or
Ironlight Capital Stock), reorganization, recapitalization or other like change
with respect to Novo Common Stock or Ironlight Capital Stock occurring after the
date of this Agreement and prior to the Effective Time.
(f) DISSENTERS RIGHTS. Any Dissenting Shares shall not be converted
into Novo Common Stock but shall instead by converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to California Law. Ironlight agrees that, except with
the prior written consent of Novo, or as required under California Law, it will
not voluntarily make any payment with respect to, or settle or offer to settle,
any such purchase demand. Each holder of Dissenting Shares who, pursuant to
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the provisions of California Law, becomes entitled to payment of the fair value
for shares of Ironlight Capital Stock shall receive payment therefor (but only
after such value shall have been agreed upon or finally determined pursuant to
such provisions). If, after the Effective Time, any Dissenting Shares shall
lose their status as Dissenting Shares, Novo shall issue and deliver, upon
surrender by such holder of certificate or certificates representing shares of
Ironlight Capital Stock, the number of shares of Novo Common Stock to which
such holder would otherwise be entitled under this Section 1.6 and the
Agreement of Merger.
(g) FRACTIONAL SHARES. No fraction of a share of Novo Common Stock
will be issued, but in lieu thereof each holder of shares of Ironlight Capital
Stock who would otherwise be entitled to a fraction of a share of Novo Common
Stock (after aggregating all fractional shares of Novo Common Stock to be
received by such holder) shall receive from Novo an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the fair market value of a share of Novo Common Stock immediately prior to
the Effective Time, as determined in good faith by Novo's Board of Directors.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. ANTHONY WESTREICH shall act as exchange agent
(the "Exchange Agent") in the Merger.
(b) NOVO TO PROVIDE COMMON STOCK AND CASH. Promptly after the
Effective Time, Novo shall make available to the Exchange Agent for exchange in
accordance with this Section 1, through such reasonable procedures as Novo may
adopt, (i) the shares of Novo Common Stock issuable pursuant to Section 1.6(a)
and (ii) cash in the form of checks in an amount sufficient to permit payment
of cash in lieu of fractional shares pursuant to Section 1.6(g).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Ironlight Capital Stock, whose
shares were converted into the right to receive shares of Novo Common Stock (and
cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Novo may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Novo Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Novo, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Novo Common Stock and payment in lieu of fractional shares which such
holder has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be cancelled. Until so surrendered, each Certificate
shall be deemed from and after the Effective Time, for all
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corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Novo Common Stock into which such
shares of Ironlight Capital Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6.
(d) NO LIABILITY. Notwithstanding anything to the contrary
in this Section 1.7, none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to any person for any amount properly paid to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) DISSENTING SHARES. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Novo under this Section 1.7 shall commence on the date
of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Novo Common Stock
to which such holder is entitled pursuant to Section 1.6 hereof.
(f) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Novo Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Novo Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Novo Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of any
such dividends or other distributions with a record date after the Effective
Time payable (but for the provisions of this Section 1.7(f)) with respect to
such shares of Novo Common Stock.
(g) TRANSFERS OF OWNERSHIP. If any certificate for shares
of Novo Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of such issuance that the Certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Novo or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Novo Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Novo or any agent designated by it that such tax has been paid or is not
payable.
1.8 NO FURTHER OWNERSHIP RIGHTS IN IRONLIGHT CAPITAL STOCK. All
shares of Novo Common Stock issued upon the surrender for exchange of shares of
Ironlight Capital Stock in accordance with the terms hereof (including
any cash paid in lieu of fractional shares) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Ironlight
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Ironlight Capital Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the
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Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Section 1.
1.9 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code and qualify for accounting treatment as a pooling of interests.
1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Ironlight and Merger Sub, the officers and directors of
Ironlight and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
1.11 WITHHOLDING. Each of the Surviving Corporation and Novo shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Ironlight Capital Stock
such amounts as it is required to deduct and withhold with respect to the making
of such payment under the Code or any provision of applicable state, local or
foreign tax laws. To the extent that amounts are so withheld by the Surviving
Corporation or Novo, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to such holder in respect
of which such deduction and withholding was made by the Surviving Corporation or
Novo, as the case may be.
1.12 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Novo
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that Novo may, in its discretion and as a
condition precedent to such issuance require the owner of such lost, stolen or
destroyed Certificates to agree to indemnify Novo against any claim that may be
made against Novo, the Surviving Corporation or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
SECTION TWO
2. REPRESENTATIONS and WARRANTIES OF IRONLIGHT
In this Agreement and specifically with regard to Sections 2 and 3 of
this Agreement, any reference to a "Material Adverse Effect" with respect to any
entity or group of entities means any event, change or effect that, when taken
individually or together with all other adverse changes and effects, is or is
reasonably likely to be materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations, results of
operations
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or prospects of such entity and its subsidiaries, taken as a whole, or to
prevent or materially delay consummation of the Merger or otherwise to prevent
such entity and its subsidiaries from performing their obligations under this
Agreement.
In this Agreement and specifically with regard to Sections 2 and 3 of
this Agreement, any reference to a party's "knowledge" means such party's
actual knowledge after due and diligent inquiry of officers, directors and
other employees of such party reasonably believed to have knowledge of the
matter in question.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Ironlight to Novo prior to the execution and
delivery of this Agreement and attached as Exhibit F to the Agreement and
referring to the representations and warranties in this Agreement (the
"Ironlight Disclosure Schedule"), Ironlight represents and warrants to Novo and
Merger Sub as follows:
2.1 ORGANIZATION; SUBSIDIARIES. Ironlight is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. There are no subsidiaries of Ironlight. Ironlight
has the requisite corporate power and authority and all necessary government
approvals to own, lease and operate its properties and to carry on its business
as now being conducted and as proposed to be conducted, except where the
failure to have such power, authority and governmental approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Ironlight.
Ironlight is duly qualified or licensed as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its business makes
such qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on Ironlight. Ironlight does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, limited liability company, joint
venture or other business association or entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. Ironlight has delivered a
true and correct copy of the Articles of Incorporation and Bylaws or other
charter documents as applicable, of Ironlight, each as amended to date, to
Novo. Ironlight is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents.
2.3 CAPITAL STRUCTURE. As of the Effective Time, the authorized
capital stock of Ironlight will consist of 200,000 shares of Common Stock of
which 100,000 shares were designated as Class A Common Stock and 100,000 shares
were designed as Class B Common Stock, of which there are issued and outstanding
2,263 shares of Class A Common Stock (the "Class A Common Stock"), and 5,260
shares of Class B Common Stock (the "Class B Common Stock"). There are no other
outstanding shares of capital stock or voting securities and no outstanding
commitments to issue any shares of capital stock or voting securities other than
pursuant to the exercise of options outstanding as of such date set forth in
Section 2.3 of the Ironlight Disclosure Schedule. All outstanding shares of
Ironlight Capital Stock are duly
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authorized, validly issued, fully paid and non-assessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of Incorporation or Bylaws of
Ironlight or any agreement to which Ironlight is a party or by which it is
bound. All outstanding shares of Ironlight Class A Common Stock and Class B
Common Stock were issued in compliance with all applicable federal and state
securities laws. Ironlight has reserved 800 shares of Class B Common Stock for
issuance to employees and consultants pursuant to the Ironlight Stock Option
Plan, of which no shares have been issued pursuant to option exercises or direct
stock purchases, and 252 shares are subject to outstanding, unexercised options.
Ironlight has additionally granted options to purchase 997 shares of Class A
Common Stock pursuant to agreements separate from the Ironlight Stock Option
Plan. Section 2.3 of the Ironlight Disclosure Schedule sets forth the number of
outstanding Ironlight Options, and all other rights to acquire shares of
Ironlight Common Stock pursuant to the Ironlight Stock Option Plan and the
applicable exercise prices, vesting schedules and terms of such options, and the
names of all holders of such options. Except (i) for the rights created pursuant
to this Agreement, (ii) for Ironlight's right to repurchase any unvested shares
under the Ironlight Stock Option Plan and (iii) as set forth in this Section
2.3, there are no options, warrants, calls, rights, commitments, agreements or
arrangements of any character to which Ironlight is a party or by which
Ironlight is bound relating to the issued or unissued capital stock of Ironlight
or obligating Ironlight to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of capital
stock of Ironlight or obligating Ironlight to grant, extend, accelerate the
vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. Except as may be set
forth in Section 2.3 of the Ironlight Disclosure Schedule, there are no
contracts, commitments or agreements relating to voting, purchase or sale of
Ironlight's capital stock (i) between or among Ironlight and any of its
shareholders and (ii) to the best of Ironlight's knowledge, between or among any
of Ironlight's shareholders. The terms of the Ironlight Stock Option Plan and
all other Ironlight Options permit the assumption or substitution of options to
purchase Novo Common Stock as provided in this Agreement, without the consent or
approval of the holders of such securities, the Ironlight shareholders, or
otherwise and without any acceleration of the exercise schedule or vesting
provisions in effect for those options. True and complete copies of all
agreements and instruments relating to Ironlight Options, whether issued under
the Ironlight Stock Option Plan or otherwise, have been made available to Novo
and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form made available to Novo.
2.4 AUTHORITY. Ironlight has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Ironlight, subject only to the
approval of the Merger by Ironlight's shareholders as contemplated by Section
6.1(a). Ironlight's Board of Directors has unanimously approved the Merger and
this Agreement. This Agreement has been duly executed and delivered by Ironlight
and assuming due authorization, execution and delivery by Novo and Merger Sub,
constitutes the valid and binding obligation of Ironlight enforceable against
Ironlight in accordance with its terms.
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2.5 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Ironlight
does not, and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Articles of Incorporation or Bylaws of
Ironlight or any of its subsidiaries, as amended, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, degree, statue, law, ordinance, rule or
regulation applicable to Ironlight or any of its properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Ironlight in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Agreement of Merger,
together with the required officers' certificates, as provided in Section 1.2,
(ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the Securities Act of 1933, as
amended (the "Securities Act"), applicable state securities laws and the
securities laws of any foreign country; and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Ironlight and would not
prevent, or materially alter or delay any of the transactions contemplated by
this Agreement.
2.6 FINANCIAL STATEMENTS. Section 2.6 of the Ironlight Disclosure
Schedule includes a true, correct and complete copy of Ironlight's unaudited
financial statements (balance sheet, statement of income and statement of cash
flows) for the fiscal year ended June 30, 1997, and its unaudited financial
statements (balance sheet, statement of income and statement of cash flows) at,
and for the eight-month period ended February 28, 1998 (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles (except such Financial
Statements do not have notes thereto) applied on a consistent basis throughout
the periods indicated and with each other. The Financial Statements accurately
set out and describe the financial condition and operating results of Ironlight
as of the dates, and for the periods, indicated therein. Ironlight maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Ironlight has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended February 28, 1998 (the "Ironlight Balance
Sheet"), (ii) those incurred in the ordinary course of business and not required
to be set forth in the Ironlight Balance Sheet under generally accepted
accounting principles, (iii) those incurred in the ordinary course of business
since the date of the Ironlight Balance Sheet and consistent with past practice,
and (iv) those incurred in connection with the execution of this Agreement.
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2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 2.8 of the
Ironlight Disclosure Schedule, since February 28, 1998 (the "Ironlight Balance
Sheet Date") there has not been, occurred or arisen any:
(a) transaction by Ironlight except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of Ironlight;
(c) capital expenditure or commitment by Ironlight, in any
individual amount exceeding $10,000, or in the aggregate, exceeding $50,000;
(d) destruction of, damage to, or loss of any assets (including,
without limitation, intangible assets), business or customers of Ironlight
(whether or not covered by insurance) which would constitute a Material Adverse
Effect;
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates, any change in policies in
making or reversing accruals) by Ironlight or any revaluation by Ironlight of
any of its assets:
(g) revaluation by Ironlight of any of its assets;
(h) declaration, setting aside, or payment of a dividend or other
distribution in respect to the capital stock of Ironlight, or any direct or
indirect redemption, purchase or other acquisition by Ironlight of any of its
capital stock, except repurchases of Ironlight Common Stock from terminated
Ironlight employees at the original per share purchase price of such shares;
(i) increase in the salary or other compensation payable or to
become payable by Ironlight to any officers, directors, employees or advisors
of Ironlight, except in the ordinary course of business consistent with past
practice, or the declaration, payment, or commitment or obligation of any kind
for the payment by Ironlight of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement, the establishment of any bonus, insurance, deferred compensation,
pension, retirement, profit sharing, stock option (including without limitation
the granting of stock options, stock appreciation rights, performance awards),
stock purchase or other employee benefit plan;
(j) sale, lease, license of other disposition of any of the assets
or properties of Ironlight, except in the ordinary course of business and not
in excess of $10,000;
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(k) termination or material amendment of any material contract,
agreement or license (including any distribution agreement) to which Ironlight
is a party or by which it is bound;
(l) loan by Ironlight to any person or entity, or guaranty by
Ironlight of any loan, except for (x) travel or similar advances made to
employees in connection with their employment duties in the ordinary course of
business, consistent with past practices and (y) trade payables not in excess
of $25,000 in the aggregate and in the ordinary course of business, consistent
with past practices;
(m) waiver or release of any right or claim by Ironlight, including
any write-off or other compromise of any account receivable of Ironlight, in
excess of $25,000 in the aggregate;
(n) the commencement or notice or threat of commencement of any
lawsuit or proceeding against or, to the Ironlight's or Ironlight's officers'
or directors' knowledge, investigation of Ironlight or its affairs;
(o) notice of any claim of ownership by a third party of Ironlight's
Intellectual Property (as defined in Section 2.12 below) or of infringement by
Ironlight of any third party's Intellectual Property rights;
(p) issuance or sale by Ironlight of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any of its securities;
(q) event or condition of any character that has or could reasonably
be expected to have a Material Adverse Effect on Ironlight; or
(r) agreement by Ironlight, or any officer or employee of Ironlight
on behalf of Ironlight to do any of the things described in the preceding
clauses (a) through (r) (other than negotiations with Novo and its
representatives regarding the transactions contemplated by this Agreement).
2.9 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Ironlight, threatened
against Ironlight or any of its properties or any of its officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Ironlight. There is
no judgement, decree or order against Ironlight or, to the best knowledge of
Ironlight, any of its directors or officers (in their capacities as such); that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Ironlight. All litigation to which Ironlight is a
party (or, to the knowledge of Ironlight, threatened to become a party) has been
disclosed to Novo.
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2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Ironlight which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of Ironlight, any acquisition of
property by Ironlight or the overall conduct of business by Ironlight as
currently conducted or as proposed to be conducted by Ironlight. Ironlight has
not entered into any agreement under which Ironlight is restricted from
selling, licensing or otherwise distributing any of its products to any class
of customers, in any geographic area, during any period of time or in any
segment of the market.
2.11 PERMITS; COMPANY PRODUCTS; REGULATION.
(a) To its knowledge, Ironlight is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders necessary for Ironlight
to own, lease and operate its properties or to carry on its business as it is
now being conducted (the "Ironlight Authorizations") and no suspension or
cancellation of any Ironlight Authorization is pending or, to the best of
Ironlight's knowledge, threatened, except where the failure to have, or the
suspension or cancellation of, any Ironlight Authorization would not have a
Material Adverse Effect on Ironlight. To its knowledge, Ironlight is not in
conflict with, or in default or violation of, (i) any laws applicable to
Ironlight or by which any property or asset of Ironlight is bound or affected,
(ii) any Ironlight Authorization, or (iii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Ironlight is a party or by which Ironlight or any property
or asset of Ironlight is bound or affected, except for any such conflict,
default or violation that would not, individually or in the aggregate, have a
Material Adverse Effect on Ironlight.
2.12 INTELLECTUAL PROPERTY.
(a) Ironlight owns, or licenses or otherwise possesses legally
enforceable rights to use all patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, service marks, copyrights, and any
applications for any of the foregoing, net lists, schematics, inventions,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used or proposed to be used in the business
of Ironlight as currently conducted or as proposed to be conducted by
Ironlight, except to the extent that the failure to have such rights has not
had and could not reasonably be expected to have a Material Adverse Effect on
Ironlight. Except as set forth in Section 2.12 of the Ironlight Disclosure
Schedule, Ironlight is the sole and exclusive owner or licensee of, with all
right, title and interest in and to (free and clear of any liens), the
intellectual property described above, and has sole and exclusive rights (and
is not contractually obligated to pay any compensation to any third party in
respect thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect of which Intellectual
Property is being used.
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(b) All registered trademarks, service marks and copyrights held
by Ironlight are valid and existing and there is no assertion or claim (or
basis therefor) challenging the validity of any Intellectual Property of
Ironlight.
(c) Ironlight has secured valid written assignments from all
current consultants and employees who contributed to the creation or
development of Intellectual Property of the rights to such contributions that
Ironlight does not already own by operation of law.
(d) Ironlight has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, patent applications or copyright ("Confidential
Information"). Ironlight has a policy requiring each employee, consultant and
independent contractor to execute proprietary information and confidentiality
agreements substantially in Ironlight's standard forms and all current
employees, consultant and independent contractors of Ironlight have executed
such an agreement. To Ironlight's knowledge, all use, disclosure or
appropriation of Confidential Information owned by Ironlight by or to a third
party has been pursuant to the terms of a written agreement between Ironlight
and such third party. To Ironlight's knowledge, all use, disclosure or
appropriation of Confidential Information not owned by Ironlight has been
pursuant to the terms of a written agreement between Ironlight and the owner of
such Confidential Information, or is otherwise lawful.
2.13 TAXES.
(a) For purposes of this Section 2.13 and other provisions of
this Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of
any such government, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including but not limited to,
federal, state and foreign income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers' compensation,
Pension Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which are required to be paid, withheld or collected, (B) any
liability for the payment of amounts referred to in (A) as a result of
being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns required to
be filed in connection with any Taxes, including information returns with
respect to backup withholding and other payments to third parties.
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(b) All Returns required to be filed by or on behalf of Ironlight
have been duly filed on a timely basis and such Returns are true, complete and
correct in all material respects, except as may be indicated in Section 2.13 of
the Ironlight Disclosure Schedule. All Taxes shown to be payable on such Returns
or on subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of Ironlight under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis, and no other Taxes are payable by Ironlight with respect
to items or periods covered by such Returns (whether or not shown on or
reportable on such Returns). Ironlight has withheld and paid over all Taxes
required to have been withheld and paid over, and complied with all information
reporting and backup withholding in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party. There are no
liens on any of the assets of Ironlight with respect to Taxes, other than liens
for Taxes not yet due and payable or for Taxes that Ironlight is contesting in
good faith through appropriate proceedings. Ironlight has not been at any time a
member of an affiliated group of corporations filing consolidated, combined
or unitary income or franchise tax returns for a period for which the statute of
limitations for any Tax potentially applicable as a result of such membership
has not expired.
(c) The amount of Ironlight's liabilities for unpaid Taxes for all
periods through the date of the Financial Statements do not, in the aggregate,
exceed the amount of the current liability accruals for Taxes reflected on the
Financial Statements, and the Financial Statements properly accrue in
accordance with generally accepted accounting principles ("GAAP") all
liabilities for Taxes of Ironlight payable after the date of the Financial
Statements attributable to transactions and events occurring prior to such
date. No liability for Taxes of Ironlight has been incurred (or prior to
Closing will be incurred) since such date other than in the ordinary course of
business. No audit of the returns of or including Ironlight by a government or
taxing authority is in process, threatened or, to Ironlight's knowledge,
pending (either in writing or verbally, formally or informally).
(d) The Ironlight Disclosure Schedule contains accurate and complete
information regarding Ironlight's net operating losses for federal and each
state tax purposes. Ironlight has no net operating loss and credit carryovers
or other tax attributes currently subject to limitations under Sections 382,
383, or 384 of the Code.
2.14 EMPLOYEE BENEFIT PLANS.
(a) Section 2.14(a) of the Ironlight Disclosure Schedule lists, with
respect to Ironlight and any trade or business (whether or not incorporated)
which is treated as a single employer with Ironlight (an "ERISA Affiliate")
within the meaning of Section 414(b), (c), (m), (o) Of the Code (i) all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), (ii) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iii) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Ironlight and that do not
generally apply to all employees, and (iv) any current or former employment or
executive compensation or severance agreements, written or otherwise, as to
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which unsatisfied obligations of Ironlight of greater than $5,000 remain for the
benefit of, or relating to, any present or former employee, consultant or
director of Ironlight (together, the "Ironlight Employee Plans"). Ironlight has
furnished to Novo a copy of each of the Ironlight Employee Plans and related
plan documents (including trust documents, insurance policies or contracts,
employee booklets, summary plan descriptions and other authorizing documents,
and, to the extent still in its possession, any material employee communications
relating thereto).
(b) Except as set forth in Section 2.14(b) of the Ironlight
Disclosure Schedule, (i) none of the Ironlight Employee Plans promises or
provides retiree medical or other retire welfare or life insurance benefits to
any person; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Ironlight Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; (iii) each Ironlight Employee Plan has
been administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect, and Ironlight and any ERISA Affiliate have performed
all obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any
material default or violation by any other party to, any of the Ironlight
Employee Plans; (iv) neither Ironlight nor any ERISA Affiliate is subject to
any liability or penalty under the Code or ERISA with respect to any of the
Ironlight Employee Plans; and (v) all material contributions required to be
made by Ironlight and any ERISA Affiliate to any Ironlight Employee Plan have
been made on or before their due dates and a reasonable amount has been accrued
for contributions to each Ironlight Employee Plan for the current plan years.
(c) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Ironlight, or any other ERISA Affiliate to severance benefits or
any other payment (including, without limitation, unemployment compensation,
golden parachute or bonus), except as expressly provided in this Agreement, or
(ii) accelerate the time of payment or vesting of any such benefits, or
increase the amount of compensation due any such employee or service provider.
(d) There has been no amendment to, written interpretation or
announcement (whether or not written) by Ironlight, or other ERISA Affiliate
relating to, or change in participation or coverage under, any Ironlight
Employee Plan which would materially increase the expense of maintaining such
Plan above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in Ironlight's financial statements.
2.15 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Ironlight, (ii)
materially increase any benefits otherwise payable by Ironlight, or (iii) result
in the acceleration of the time of payment or vesting of any such benefits.
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2.16 MATERIAL CONTRACTS.
(a) Subsections (i) through (ix) of Section 2.16(a) of the
Ironlight Disclosure Schedule contain a list of all contracts and agreements to
which Ironlight is a party and that are material to the business, results of
operations, or condition (financial or otherwise), of Ironlight (such contracts,
agreements and arrangements as are required to be set forth in Section 2.16(a)
of the Ironlight Disclosure Schedule being referred to herein collectively as
the "Material Contracts"). Material Contracts shall include, without limitation,
the following and shall be categorized in the Ironlight Disclosure Schedule as
follows:
(i) each contract and agreement (other than routine
pricing quotes in the ordinary course of business) for the purchase of
inventory, other materials or personal property with any supplier or for the
furnishing of services (including marketing or promotional services) to
Ironlight under the terms of which Ironlight: (A) paid or otherwise gave
consideration of more than $10,000 in the aggregate during the calendar year
ended December 31, 1997, (B) is likely to pay or otherwise give consideration
of more than $10,000 in the aggregate during the calendar year ended December
31, 1998, (C) is likely to pay or otherwise give consideration of more than
$10,000 in the aggregate over the remaining term of such contract, or (D)
cannot be cancelled by Ironlight without penalty or further payment of less
than $10,000;
(ii) each customer contract and agreement (other than
routine pricing quotes with open acceptance and other tender bids, in each
case, entered into in the ordinary course of business and covering a period of
less than one year) to which Ironlight is a party which (A) involved
consideration of more than $25,000 in the aggregate during the calendar year
ended December 31, 1997, (B) is likely to involve consideration of more than
$25,000 in the aggregate during the calendar year ended December 31, 1998, (C)
is likely to involve consideration of more than $25,000 in the aggregate over
the remaining term of the contract, or (D) cannot be cancelled by Ironlight
without penalty or further payment of less than $10,000;
(iii) all management contracts with independent contractors
or consultants (or similar arrangements) to which Ironlight is a party and
which (A) involved consideration or more than $50,000 in the aggregate during
the calendar year ended December 31, 1997, (B) are likely to involve
consideration of more then $50,000 in the aggregate during the calendar year
ended December 31, 1998, or (C) are likely to involve consideration of more
than $10,000 in the aggregate over the remaining term of the contract;
(iv) all contracts and agreements (excluding routine
checking account overdraft agreements involving petty cash amounts) under which
Ironlight has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness or under which Ironlight has imposed (or may
impose) a security interest or lien on any of its assets, whether tangible or
intangible, to secure indebtedness;
(v) all contracts and agreements that limit the ability of
Ironlight or, after the Effective Time, Novo or any of its affiliates, to
compete in any line of
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business or with any person or in any geographic area or during any period of
time, or to solicit any customer or client;
(vi) all other contracts or agreements (A) which are
material to Ironlight or the conduct of its businesses, (B) the absence of which
would have a Material Adverse Effect on Ironlight, or (C) which are believed by
Ironlight to be of unique value even though not material to the business of
Ironlight.
(b) Except as would not, individually or in the aggregate, have
a Material Adverse Effect on Ironlight, each Material Contract is a legal, valid
and binding agreement, and none of the Ironlight Material Contracts is in
default by its terms or has been cancelled by the other party; Ironlight is not
in receipt of any claim of default under any such agreement; and Ironlight does
not anticipate any termination or change to, or receipt of a proposal with
respect to, any such agreement as a result of the Merger or otherwise. Ironlight
has furnished Novo with true and complete copies of all such agreements together
with all amendments, waivers or other changes thereto.
2.17 INTERESTED PARTY TRANSACTIONS. Expect for the debts listed on
Section 2.17 of the Ironlight Disclosure Schedule, Ironlight is not indebted to
any director, officer, employee or agent of Ironlight (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to Ironlight.
2.18 MINUTE BOOKS. The minute books of Ironlight made available to
Novo contain a complete summary of all meetings of directors and shareholders or
actions by written consent since the time of incorporation of Ironlight through
the date of this Agreement, and reflect all transactions referred to in such
minutes accurately in all material respects.
2.19 COMPLETE COPIES OF MATERIALS. Ironlight has delivered or made
available true and complete copies of each document which has been requested by
Novo or its counsel in connection with their legal and accounting review of
Ironlight.
2.20 ACCOUNTING AND TAX MATTERS; POOLING OF INTERESTS. Neither
Ironlight, to the knowledge of Ironlight, nor any of their respective directors,
officers or shareholders has taken any action which would interfere with Novo's
ability to account for the Merger as a pooling of interests or would prevent the
Merger from constituting a transaction qualifying under Section 368(a) of the
Code. Neither Ironlight nor, to the knowledge of Ironlight, any of its
affiliates or agents is aware of any agreement, plan or other circumstance that
would prevent the Merger from qualifying under Section 368(a) of the Code, and
to its best knowledge after due inquiry, the Merger will so qualify.
2.21 BROKERS' AND FINDERS' FEES. Ironlight has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
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2.22 VOTE REQUIRED. The consent taken by action without a meeting of
shareholders by the holders of a majority of the shares of Ironlight capital
stock outstanding on the effective date of the action by written consent is the
only action by the holders of any of Ironlight's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
2.23 BOARD APPROVAL. The Board of Directors of Ironlight has
unanimously (i) approved this Agreement and the Merger, (ii) determined that
the Merger is in the best interests of the shareholders of Ironlight and is on
terms that are fair to such shareholders and (iii) recommended that the
shareholders of Ironlight approve this Agreement and the Merger.
2.24 ACCOUNTS RECEIVABLE.
(a) Ironlight has made available to Novo a list of all accounts
receivable of Ironlight reflected on the Financial Statements ("Accounts
Receivable") along with a range of days elapsed since invoice.
(b) All Accounts Receivable of Ironlight arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied. No person has any lien on any of such Accounts Receivable
and no request or agreement for deduction or discount has been made with
respect to any of such Accounts Receivable.
2.25 THIRD PARTY CONSENTS. Except as set forth in Section 2.25 of
the Ironlight Disclosure Schedule, no consent or approval is needed from any
third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
2.26 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Ironlight herein or in any Schedule hereto, including the
Ironlight Disclosure Schedule, or certificate furnished by Ironlight pursuant
to this Agreement, when all such documents are read together in their entirety,
contains or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
SECTION THREE
3. REPRESENTATIONS AND WARRANTIES OF NOVO AND MERGER SUB.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Novo to Ironlight prior to the execution and delivery
of this Agreement and referring to the representations and warranties in this
Agreement and attached as Exhibit G hereto (the "Novo Disclosure Schedule"),
Novo and Merger Sub hereby jointly and severally represent and warrant to
Ironlight as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Novo and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of its
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jurisdiction of organization. Novo has no other subsidiaries. Each of Novo and
Merger Sub has the corporate power and authority to own its properties and to
carry on its business as now being conducted and as proposed to be conducted.
Novo is duly qualified or licensed as a foreign corporation to do business, and
is in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on Novo. Novo does not directly
or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, limited liability company, joint
venture or other business association or entity.
3.2 ARTICLES OF INCORPORATION AND BYLAWS. Novo has delivered a true
and correct copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Novo and Merger Sub, each as amended to date, to
Ironlight. Neither Novo nor any of its subsidiaries is in violation of any
material provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents.
3.3 CAPITAL STRUCTURE.
(a) As of the Effective Time, the authorized capital stock of
Novo will consist of 20,000,000 shares of Common Stock, no par value, of which
15,000,000 are designated as Class A Common Stock of which 4,750,614 shares are
issued and outstanding and 5,000,000 shares of Common Stock are designated
Class B Common Stock, of which there are no shares issued and outstanding, and
5,000,000 shares of Preferred Stock, no par value, of which no shares are
issued and outstanding. 1,147,022 shares of the 4,750,614 outstanding shares
of Common Stock have been issued pursuant to option exercises, and 1,100,876
shares are subject to outstanding, unexercised options. There are no other
outstanding shares of capital stock or voting securities of Novo. 270,316
shares are subject to outstanding unexercised warrants. All outstanding shares
of Novo Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not
subject to preemptive rights or rights of first refusal created by statute, the
Articles of Incorporation or Bylaws of Novo or any agreement to which Novo is a
party or by which it is bound. All outstanding shares of Novo Common Stock were
issued in compliance with all applicable federal and state securities laws.
Other than as contemplated under this Agreement, there are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Novo or Merger Sub is a party, or by which either of them is bound obligating
Novo or Merger Sub to issue deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Novo or obligating Novo or Merger Sub to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement. The shares of
Novo Common Stock to be issued pursuant to the Merger will be duly authorized,
validly issued, fully paid, and non-assessable. Except as may be set forth in
Section 3.3 of the Novo Disclosure Schedule, there are no contracts, commitments
or agreements relating to voting, purchase or sale of Novo's capital
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stock (i) between or among Novo and any of its shareholders and (ii) to the
best of Novo's knowledge, between or among any of Novo's shareholders.
(b) The authorized capital stock of Merger Sub consists of 100
shares of Common Stock all of which are issued and outstanding and are held by
Novo. All outstanding shares of Merger Sub have been duly authorized, validly
issued, fully paid and are nonassessable and free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof. There are no options, warrants, calls, rights, commitments or
agreements of any character to which Novo or Merger Sub is a party or by which
either of them is bound obligating Novo or Merger Sub to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of Merger Sub or obligating Novo or
Merger Sub to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement.
3.4 AUTHORITY. Novo and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Novo and Merger Sub, subject
only to the approval of the Merger by Novo's shareholders as contemplated by
Section 6.1(a) and the filing and recordation of appropriate merger documents
as required by California law. Novo's Board of Directors has unanimously
approved the Merger and this Agreement and Novo as the sole shareholder of
Merger Sub has approved the Merger. This Agreement has been duly executed and
delivered by Novo and Merger Sub and assuming due authorization, execution and
delivery by Ironlight, constitutes the valid and binding obligation of each of
Novo and Merger Sub, respectively, enforceable against both in accordance with
its terms.
3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of a benefit under (i) any provision
of the Articles of Incorporation or Bylaws of Novo or Merger Sub, as amended,
or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Novo or Merger Sub or
their properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Government Entity, is required by
or with respect to Novo or Merger Sub in connection with the execution and
delivery of this Agreement by Novo and Merger Sub or the consummation by Novo
and Merger Sub of the transactions contemplated hereby, except for (i) the
filing of appropriate merger documents as required by California Law, (ii) any
filings as may be required under the Securities Act, applicable state securities
laws and the securities laws of any foreign country, and (iii) such other
consents, authorizations, filings,
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approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Novo and would not prevent, materially alter or
delay any the transactions contemplated by this Agreement.
3.6 FINANCIAL STATEMENTS. Section 3.6 of the Novo Disclosure Schedule
includes a true, correct and complete copy of Novo's unaudited financial
statements (balance sheet, statement of income and statement of cash flows) for
the fiscal year ended December 31, 1997, and its unaudited financial statements
(balance sheet, statement of income and statement of cash flows) at, and for
the two-month period ended February 28, 1998 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles (except such Financial Statements do
not have notes thereto) applied on a consistent basis throughout the periods
indicated and with each other. The Financial Statements accurately set out and
describe the financial condition and operating results of Novo as of the dates,
and for the periods indicated therein. Novo maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Novo has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the Balance Sheet for the
period ended February 28, 1998 (the "Novo Balance Sheet"), (ii) those incurred
in the ordinary course of business and not required to be set forth in the Novo
Balance Sheet under generally accepted accounting principles, (iii) those
incurred in the ordinary course of business since the date of the Novo Balance
Sheet and consistent with past practice, and (iv) those incurred in connection
with the execution of this Agreement.
3.8 ABSENCE OF CERTAIN CHANGES. Except as may be set forth in the Novo
Disclosure Schedule and except for events and transactions that have occurred
in connection with the Merger, since February 28, 1998 (the "Novo Balance Sheet
Date") there has not been, occurred or arisen any:
(a) transaction by Novo except in the ordinary course of business as
conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of Novo;
(c) capital expenditures or commitment by Novo, in any individual
amount exceeding $10,000, or in the aggregate, exceeding $50,000;
(d) destruction of, damage to, or loss of any assets (including,
without limitation, intangible assets), business or customers of Novo (whether
or not covered by insurance) which would constitute a Material Adverse Effect;
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
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(f) change in accounting methods or practices (including
any change in depreciation or amortization policies or rates, any change in
policies in making or reversing accruals) by Novo or any revaluation by Novo of
any of its assets;
(g) revaluation by Novo of any of its assets;
(h) declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of Novo, or any direct or
indirect redemption, purchase or other acquisition by Novo of any of its
capital stock, except repurchases of Novo Common Stock from terminated Novo
employees at the original per share purchase price of such shares;
(i) increase in the salary or other compensation payable or
to become payable by Novo to any officers, directors, employees or advisors of
Novo, except in the ordinary course of business consistent with past practice,
or the declaration, payment or commitment or obligation of any kind for the
payment by Novo of a bonus or other additional salary or compensation to any
such person except as otherwise contemplated by this Agreement, the
establishment of any bonus, insurance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation, the
granting of stock options, stock appreciation rights, performance awards),
stock purchase or other employee benefit plan;
(j) sale, lease, license of other disposition of any of the
assets or properties of Novo, except in the ordinary course of business and not
in excess of $10,000;
(k) termination or material amendment of any material
contract, agreement or license (including any distribution agreement) to which
Novo is a party or by which it is bound;
(l) loan by Novo to any person or entity, or guaranty by
Novo of any loan, except for (x) travel or similar advances made to employees
in connection with their employment duties in the ordinary course of business,
consistent with the past practices and (y) trade payables not in excess of
$25,000 in the aggregate and in the ordinary course of business, consistent
with past practices;
(m) waiver or release of any right or claim of Novo,
including any write-off or other compromise of any account receivable of Novo,
in excess of $25,000 in the aggregate;
(n) the commencement or notice or threat of commencement of
any lawsuit or proceeding against or, to the Novo's or Novo's officers' or
directors' knowledge, investigation of Novo or its affairs;
(o) notice of any claim of ownership by a third party of
Novo's Intellectual Property (as defined in Section 3.12 below) or of
infringement by Novo of any third party's Intellectual Property rights;
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(p) issuance or sale by Novo of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(q) event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect on Novo; or
(r) agreement by Novo, or any officer or employee of Novo
on behalf of Novo to do any of the things described in the preceding clauses
(a) through (r) (other than negotiations with Ironlight and its representatives
regarding the transactions contemplated by this Agreement).
3.9 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Novo or any of
its subsidiaries, threatened against Novo or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Novo. There is no
judgment, decree or order against Novo or any of its subsidiaries or, to the
knowledge of Novo or any of its subsidiaries, any of their respective directors
or officers (in their capacities as such) that could prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Novo. All litigation to which Novo is a party (or, to the knowledge
of Novo, threatened to become a party) has been disclosed to Ironlight.
3.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Novo, which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any current or future business practice by Novo as currently conducted
or as proposed to be conducted by Novo. Novo has not entered into any agreement
under which Novo is not restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
3.11 PERMITS; COMPANY PRODUCTS; REGULATION.
(a) To its knowledge, Novo is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders necessary for Novo, to
own, lease and operate its properties or to carry on its business as it is now
being conducted (the "Novo Authorizations") and no suspension or cancellation of
any Novo Authorization is pending or, to the best of Novo's knowledge,
threatened, except where the failure to have, or the suspension or cancellation
of, any Novo Authorization would not have a Material Adverse Effect on Novo. To
its knowledge, Novo is not in conflict with, or in default or violation of, (i)
any laws applicable to Novo or by which any property or asset of Novo is bound
or affected, (ii) any Novo Authorization, or (iii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Novo is a party or by which Novo or any
property or asset of
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Novo is bound or affected, except for any such conflict, default or violation
that would not, individually or in the aggregate, have a Material Adverse
Effect on Novo.
3.12 INTELLECTUAL PROPERTY.
(a) Novo owns, or licenses or otherwise possesses legally
enforceable rights to use all patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, service marks, copyrights, and any
applications for any of the foregoing, net lists, schematics, inventions,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used or proposed to be used in the business
of Novo as currently conducted or as proposed to be conducted by Novo, except to
the extent that the failure to have such rights has not had and could not
reasonably be expected to have a Material Adverse Effect on Novo. Except as set
forth in Section 3.12 of the Novo Disclosure Schedule, Novo is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens), the Intellectual Property described above, and
has sole and exclusive rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to the use thereof or the
material covered thereby in connection with the services or products in respect
of which Intellectual Property is being used.
(b) All registered trademarks, service marks and copyrights
held by Novo are valid and existing and there is no assertion or claim (or
basis therefor) challenging the validity of any Intellectual Property of Novo.
(c) Novo has secured valid written assignments from all current
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Novo does not
already own by operation of law.
(d) Novo has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, patent applications or copyright ("Confidential
Information"). Novo has a policy requiring each employee, consultant and
independent contractor to execute proprietary information and confidentiality
agreements substantially in Novo's standard forms and all current employees,
consultant and independent contractors of Novo have executed such an agreement.
To Novo's knowledge, all use, disclosure or appropriation of Confidential
Information owned by Novo by or to a third party has been pursuant to the terms
of a written agreement between Novo and such third party. To Novo's knowledge,
all use, disclosure or appropriation of Confidential Information not owned by
Novo has been pursuant to the terms of a written agreement between Novo and the
owner of such Confidential Information, or is otherwise lawful.
3.13 TAXES.
(a) For purposes of this Section 3.13 and other provisions of
this Agreement relating to Taxes, the following definitions shall apply:
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(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of
any such government, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including but not limited to,
federal, state and foreign income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers' compensation,
Pension Benefit Guaranty corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which are required to be paid, withheld or collected, (B) any
liability for the payment of amounts referred to in (A) as a result of being a
member of any affiliated, consolidated, combined or unitary group, or (C) any
liability for amounts referred to in (A) or (B) as a result of any obligations
to indemnify another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns required to
be filed in connection with any Taxes, including information returns with
respect to backup withholding and other payments to third parties.
(b) All Returns required to be filed by or on behalf of Novo
have been duly filed on a timely basis and such Returns are true, complete and
correct in all material respects, except as may be indicated in Section 3.13 of
the Novo Disclosure Schedule. All Taxes shown to be payable on such Returns or
on subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of Novo under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis, and no other Taxes are payable by Novo with respect to
items or periods covered by such Returns (whether or not shown on or reportable
on such Returns). Novo has withheld and paid over all Taxes required to have
been withheld and paid over, and complied with all information reporting and
backup withholding in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no liens on
any of the assets of Novo with respect to Taxes, other than liens for Taxes not
yet due and payable or for Taxes that Novo is contesting in good faith through
appropriate proceedings. Novo has not been at any time a member of an
affiliated group of corporations filing consolidated, combined or unitary
income or franchise tax returns for a period for which the statute of
limitations for any Tax potentially applicable as a result of such membership
has not expired.
(c) The amount of Novo's liabilities for unpaid Taxes for all
periods through the date of the Financial Statements do not in the aggregate
exceed the amount of the current liability accruals for Taxes reflected on the
Financial Statements, and the Financial Statements properly accrue in accordance
with generally accepted accounting principles ("GAAP") all liabilities for Taxes
of Novo payable after the date of the Financial Statements attributable to
transactions and events occurring prior to such date. No liability for Taxes of
Novo has been incurred (or prior to Closing will be incurred) since such date
other than in the ordinary course of business. No audit of the returns of or
including Novo by a government or
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taxing authority is in process, threatened or, to Novo's knowledge, pending
(either in writing or verbally, formally or informally).
(d) The Novo Disclosure Schedule contains accurate and complete
information regarding Novo's net operating losses for federal and each state
tax purposes. Novo has no net operating losses and credit carryovers or other
tax attributes currently subject to limitation under Sections 382, 383, or 384
of the Code.
3.14 EMPLOYEE BENEFIT PLANS.
(a) Section 3.14(a) of the Novo Disclosure Schedule lists,
with respect to Novo and any trade or business (whether or not incorporated)
which is treated as a single employer with Novo (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (ii) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iii) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Novo and that do not generally
apply to all employees, and (iv) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations of Novo of greater than $5,000 remain for the benefit
of, or relating to, any present or former employee, consultant or director of
Novo (together, the "Novo Employee Plans"). Novo has furnished to Ironlight a
copy of each of the Novo Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets, summary
plan descriptions and other authorizing documents, and, to the extent still in
its possession, any material employee communications relating thereto).
(b) Except as set forth in Section 3.14(b) of the Novo
Disclosure Schedule, (i) none of the Novo Employee Plans promises or provides
retiree medical or other retiree welfare or life insurance benefits to any
person; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Novo Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; (iii) each Novo Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect, and Novo and any ERISA Affiliate have performed all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the Novo Employee Plans; (iv)
neither Novo nor any ERISA Affiliate is subject to any liability or penalty
under the Code or ERISA with respect to any of the Novo Employee Plans; and (v)
all material contributions required to be made by Novo and any ERISA Affiliate
to any Novo Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Novo Employee Plan
for the current plan years.
(c) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Novo,
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or any other ERISA Affiliate to severance benefits or any other payment
(including, without limitation, unemployment compensation, golden parachute or
bonus), except as expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting of any such benefits, or increase the amount of
compensation due any such employee or service provider.
(d) There has been no amendment to, written interpretation or
announcement (whether or not written) by Novo, or other ERISA Affiliate relating
to, or change in participation or coverage under, any Novo Employee Plan which
would materially increase the expense of maintaining such Plan above the level
of expense incurred with respect to that Plan for the most recent fiscal year
included in Novo's financial statements.
3.15 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Novo, (ii) materially
increase any benefits otherwise payable by Novo, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
3.16 MATERIAL CONTRACTS.
(a) Subsections (i) through (ix) of Section 3.16(a) of the Novo
Disclosure Schedule contain a list of all contracts and agreements to which Novo
is a party and that are material to the business, results of operations, or
condition (financial or otherwise), of Novo (such contracts, agreements and
arrangements as are required to be set forth in Section 3.16(a) of the Novo
Disclosure Schedule being referred to herein collectively as the "Material
Contracts"). Material Contracts shall include, without limitation, the following
and shall be categorized in the Novo Disclosure Schedule as follows:
(i) each contract and agreement (other than routine pricing
quotes in the ordinary course of business) for the purchase of inventory, other
materials or personal property with any supplier or for the furnishing of
services (including marketing or promotional services) to Novo under the terms
of which Novo: (A) paid or otherwise gave consideration of more than $10,000 in
the aggregate during the calendar year ended December 31, 1997, (B) is likely to
pay or otherwise give consideration of more than $10,000 in the aggregate during
the calendar year ended December 31, 1998, (C) is likely to pay or otherwise
give consideration of more than $10,000 in the aggregate over the remaining term
of such contract, or (D) cannot be cancelled by Novo without penalty or further
payment of less than $10,000;
(ii) each customer contract and agreement (other than
routine pricing quotes with open acceptance and other tender bids, in each case,
entered into in the ordinary course of business and covering a period of less
than one year) to which Novo is a party which (A) involved consideration of more
than $25,000 in the aggregate during the calendar year ended December 31, 1997,
(B) is likely to involve consideration of more than $25,000 in the aggregate
during the calendar year ended December 31, 1998, (C) is likely to involve
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consideration of more than $25,000 in the aggregate over the remaining term of
the contract, or (D) cannot be cancelled by Novo without penalty or further
payment of less than $10,000;
(iii) all management contracts with independent contractors or
consultants (or similar arrangements) to which Novo is a party and which (A)
involved consideration or more than $50,000 in the aggregate during the calendar
year ended December 31, 1997, (B) are likely to involve consideration of more
than $50,000 in the aggregate during the calendar year ended December 31, 1998,
or (C) are likely to involve consideration of more than $100,000 in the
aggregate over the remaining term of the contract;
(iv) all contracts and agreements (excluding routine checking
account overdraft agreements involving petty cash amounts) under which Novo has
created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness or under which Novo has imposed (or may impose) a
security interest or lien on any of its assets, whether tangible or intangible,
to secure indebtedness;
(v) all contracts and agreements that limit the ability of Novo
or after the Effective Time any of its affiliates, to compete in any line of
business or with any person or in any geographic area or during any period of
time, or to solicit any customer or client;
(vi) all other contracts or agreements (A) which are material to
Novo or the conduct of its businesses, (B) the absence of which would have a
Material Adverse Effect on Novo, or (C) which are believed by Novo to be of
unique value even though not material to the business of Novo.
(b) Except as would not, individually or in the aggregate, have a
Material Adverse Effect on Novo, each Material Contract is a legal, valid and
binding agreement, and none of the Novo Material Contracts is in default by its
terms or has been cancelled by the other party; Novo is not in receipt of any
claim of default under any such agreement; and Novo does not anticipate any
termination or change to, or receipt of a proposal with respect to, any such
agreement as a result of the Merger or otherwise. Novo has furnished Ironlight
with true and complete copies of all such agreements together with all
amendments, waivers or other changes thereto.
3.17 BROKER'S AND FINDER'S FEES. Novo has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.18 ACCOUNTING AND TAX MATTERS; POOLING OF INTERESTS.
(a) Neither Novo nor, to the knowledge of Novo, any of their
respective affiliates or agents has taken any action or is aware of any
agreement, plan or other circumstance that would prevent the Merger from
constituting a transaction under Section 368(a) of the Code.
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(b) Neither Novo nor, to the knowledge of Novo, any of their
respective directors, officers or shareholders has taken any action which would
interfere with Novo's ability to account for the Merger as a
"pooling-of-interests."
(c) Merger Sub is a wholly-owned subsidiary of Novo, formed
solely for the purpose of engaging in the Merger, and has carried on no
business prior to the Merger.
(d) Immediately prior to the Merger, Novo will be in control of
Merger Sub within the meaning of Section 368(c) of the Code.
(e) Novo has no plan or intention (a "Plan") to cause Ironlight
to issue additional shares of Ironlight stock following the Merger that would
result in Novo losing control of Ironlight, within the meaning of Section
368(c) of the Code.
(f) Novo has no Plan to reacquire any of the shares of Novo
Common Stock issued in the Merger.
(g) Novo has no Plan to liquidate Ironlight following the
Merger; to merge Ironlight with or into another corporation (other than
pursuant to a reincorporation of Ironlight in a transaction qualifying as a
reorganization under Section 368(a)(1)(F) of the Code); to engage in a sale,
exchange or other disposition of the then-outstanding Ironlight stock (other
than a transfer of the then-outstanding Ironlight stock to a corporation
controlled by Novo); or to cause Ironlight to sell or otherwise dispose of any
of its assets, including any assets acquired from Merger Sub, except for
dispositions made in the ordinary course of business or transfers of assets to
any corporations controlled by Ironlight.
(h) Merger Sub will have no liabilities assumed by Ironlight
and will not transfer to Ironlight in the Merger any assets subject to
liabilities.
(i) Following the Merger, Novo will take no action to prevent
Ironlight from continuing its historic business or from using a significant
portion of its historic business assets in a business as required by Treasury
Regulation Section 1.368-1(d).
3.19 INTERESTED PARTY TRANSACTIONS. Except for the debts listed in
Section 3.19 of the Novo Disclosure Schedule, Novo is not indebted to any
director, officer, employee or agent of Novo (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to Novo.
3.20 MINUTE BOOKS. The minute books of Novo made available to
Ironlight contain a complete summary of all meetings of directors and
shareholders or actions by written consent since the time of incorporation of
Novo through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
3.21 COMPLETE COPIES OF MATERIALS. Novo has delivered or made
available true and complete copies of each document which has been requested by
Ironlight or its counsel in connection with their legal and accounting review
of Novo.
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3.22 VOTE REQUIRED. The consents taken by action without a meeting of
shareholders by the holders of a majority of the shares of Novo capital stock
and of all of the shares of Merger Sub capital stock outstanding on the
effective date of the action by written consent are the only actions by the
holders of any of Novo's capital stock and any of Merger Sub's capital stock,
respectively, necessary to approve this Agreement and the transactions
contemplated hereby.
3.23 BOARD APPROVAL. The Board of Directors of Novo and Merger Sub have
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the shareholders of Novo and Merger Sub,
respectively, and is on terms that are fair to such shareholders and (iii)
recommended that the shareholders of Novo and Merger Sub, respectively, approve
this Agreement and the Merger.
3.24 ACCOUNTS RECEIVABLE.
(a) Novo has made available to Ironlight a list of all accounts
receivable of Novo reflected on the Financial Statements ("Accounts
Receivable").
(b) All Accounts Receivable of Novo arose in the ordinary course of
business, are carried at values determined in accordance with GAAP consistently
applied. No person has any lien on any of such Accounts Receivable and no
request or agreement for deduction or discount has been made with respect to any
of such Accounts Receivable.
3.25 THIRD PARTY CONSENTS. Except as set forth in the Novo Disclosure
Schedule, no consent or approval is needed from any third party in order to
effect the Merger, this Agreement or any of the transactions contemplated
hereby.
3.26 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Novo herein or in any Schedule or Exhibit hereto, or certificate
furnished by Novo pursuant to this Agreement, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
SECTION FOUR
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.
4.1 CONDUCT OF BUSINESS OF IRONLIGHT AND NOVO. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of Ironlight and Novo
agrees (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted. Each of Ironlight and Novo agrees to promptly notify the other of
any event or
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occurrence not in the ordinary course of its business, and of any event which
could have a Material Adverse Effect.
4.2 ACTIONS WITH RESPECT TO AGREEMENT. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, except as expressly contemplated by this
Agreement, each of Ironlight and Novo agrees that it shall not do, cause or
permit any action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect or prevent it from performing
or cause it not to perform its covenants hereunder, without the prior written
consent of the other party.
SECTION FIVE
5. ADDITIONAL AGREEMENTS.
5.1 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to
this Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.2 CONSENTS; COOPERATION.
(a) Each of Novo and Ironlight shall use its reasonable
best efforts to promptly (i) obtain from any Governmental Entity any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by Novo or Ironlight or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereunder, and (ii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under the Securities Act and
any other applicable federal, state or foreign securities laws.
(b) Each of Novo and Ironlight shall give or cause to be
given any required notices to third parties, and use its reasonable best
efforts to obtain all consents, waivers and approvals from third parties (i)
necessary, proper or advisable to consummate the transactions contemplated
hereunder, (ii) disclosed or required to be disclosed in the Ironlight
Disclosure Schedule or the Novo Disclosure Schedule, or (iii) required to
prevent a Material Adverse Effect on Ironlight or Novo from occurring prior or
after the Effective Time. In the event that Novo or Ironlight shall fail to
obtain any third party consent, waiver or approval described in this Section
5.2(b), it shall use its reasonable best efforts, and shall take any such
actions reasonably requested by the other party, to minimize any adverse effect
upon Novo and Ironlight, their respective subsidiaries and their respective
businesses resulting (or which could reasonably be expected to result after the
Effective Time) from the failure to obtain such consent, waiver or approval.
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5.3 BLUE SKY LAWS. Novo shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Novo Common Stock to Ironlight shareholders in
connection with the Merger. Ironlight shall use its best efforts to assist Novo
as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Novo
Common Stock in connection with the Merger.
5.4 SHAREHOLDER'S REPRESENTATION AGREEMENTS. Ironlight will use its best
efforts to cause each Ironlight shareholder to execute and deliver to Novo a
Shareholder Representation Agreement substantially in the form attached hereto
as Exhibit C (the "Shareholder's Representation Agreement") which imposes
certain restrictions regarding the resale of Novo Common Stock received in the
Merger.
5.5 POOLING ACCOUNTING. Novo and Ironlight shall each use its best efforts
to cause the business combination to be effected by the Merger to be accounted
for as a pooling of interests. Each of Novo and Ironlight shall use its best
efforts to cause its "Affiliates" (as defined as those persons deemed affiliates
within the meaning of Rule 145 promulgated under the Securities Act.) not to
take any action that would adversely affect the ability of Novo to account for
the business combination to be effected by the merger as a pooling of interest.
5.6 BOARD OF DIRECTORS. Immediately following the Effective Time, the
Board of Directors of Novo will consist of Kelly Rodriques, John Gaulding and
Anthony Westreich and John Gaulding shall be the chairman of the Board of
Directors. The number of authorized directors shall be five (5). The initial
directors shall elect the remaining directors, and such directors shall be
outside directors with relevant industry experience. Immediately prior to the
Effective time the directors of Novo, other than Kelly Rodriques and John
Gaulding shall resign from the Board of Directors.
5.7 MAINTENANCE OF IRONLIGHT INDEMNIFICATION OBLIGATIONS.
(a) Subject to and following the Effective Time, the Surviving
Corporation shall, and Novo shall cause the Surviving Corporation to, indemnify
and hold harmless the Indemnified Ironlight Parties (as defined below) to the
extent provided in the Bylaws or Articles of Incorporation of Ironlight, in each
case as in effect as of the date of this Agreement. The Surviving Corporation
shall, and Novo shall cause the Surviving Corporation to, keep in effect such
provisions, which shall not be amended except as required by applicable law or
to make changes permitted by California Law that would enlarge the rights to
indemnification available to the Indemnified Ironlight Parties and changes to
provide for exculpation of director and officer liability to the fullest extent
permitted by California Law. For purposes of this Section 5.7, "Indemnification
Ironlight Parties" shall mean the individuals who were officers, directors,
employees and agents of Ironlight on or prior to the Effective Time.
(b) Subject to and following the Effective Time, Novo and the
Surviving Corporation shall be jointly and severally obligated to pay the
reasonable expenses, including reasonable attorney's fees, that may be incurred
by any Indemnified Ironlight Party in enforcing the rights provided in this
Section 5.7 and shall make any advances of such expenses to
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the Indemnified Ironlight Party that would be available under the Bylaws or
Articles of Incorporation of Ironlight (in each case as in effect as of the
date of this Agreement) with regard to the advancement of indemnifiable
expenses, subject to the undertaking of such party to repay such advances in
the event that it is ultimately determined that such party is not entitled to
indemnification.
(c) The provisions of this Section 5.7 shall be in addition to any
other rights available to the Indemnified Ironlight Parties, shall survive the
Effective Time of the Merger, and are expressly intended for the benefit of the
Indemnified Ironlight Parties.
5.8 ORGANIZATIONAL STRUCTURE. Novo and Ironlight agree that the
organizational structure of Novo and Ironlight shall be integrated and combined
in the manner set forth in Exhibit H attached hereto, effective as soon as
practicable.
SECTION SIX
6. CONDITIONS TO THE MERGER.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction on or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been duly approved and adopted by the holders of a majority of the shares of
the capital stock of Ironlight and Novo outstanding prior to the Effective Time.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(c) GOVERNMENTAL APPROVAL. Novo, Ironlight and Merger Sub shall have
timely obtained from each Governmental Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the several transactions contemplated hereby, including, without
limitation, such approvals, waivers and consents as may be required under the
Securities Act and under any state securities laws.
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6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF IRONLIGHT. The
obligations of Ironlight to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Ironlight:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS (i) Each of
the representations and warranties of Novo and Merger Sub in this Agreement
that is expressly qualified by a reference to materiality shall be true in all
respects as so qualified, and each of the representations and warranties of
Novo and Merger Sub in this Agreement that is not so qualified shall be true
and correct in all material respects, on and as of the Effective Time as though
such representation or warranty had been made on and as of such time (except
that those representations and warranties which address matters only as of
particular date shall remain true and correct as of such date), and (ii) Novo
and Merger Sub shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by them as of the Effective Time.
(b) CERTIFICATES OF NOVO.
(i) COMPLIANCE CERTIFICATE OF NOVO. Ironlight shall
have been provided with a certificate executed on behalf of Novo by its
President or its Chief Financial Officer to the effect that, as of the
Effective Time, each of the conditions set forth in Section 6.2(a)(i) and (ii)
above has been satisfied with respect to Novo.
(ii) CERTIFICATE OF SECRETARY OF NOVO. Ironlight
shall have been provided with a certificate executed by the Secretary or
Assistant Secretary of Novo certifying:
(A) Resolutions duly adopted by the Board
of Directors and the shareholders of Novo authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and
(B) the incumbency of the officers of Novo
executing this Agreement and all agreements and documents contemplated hereby.
(c) CERTIFICATES OF MERGER SUB.
(i) COMPLIANCE CERTIFICATE OF MERGER SUB. Ironlight
shall have been provided with a certificate executed on behalf of Merger Sub by
its President or its Chief Financial Officer to the effect that, as of the
Effective Time, each of the conditions set forth in Section 6.2(a)(i) and (ii)
above has been satisfied with respect to Merger Sub.
(ii) CERTIFICATE OF SECRETARY OF MERGER SUB.
Ironlight shall have been provided with a certificate executed by the Secretary
or Assistant Secretary of Merger Sub certifying:
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(A) Resolutions duly adopted by the Board of
Directors and the sole shareholder of Merger Sub authorizing the execution of
this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and
(B) the incumbency of the officers of Merger
Sub executing this Agreement and all agreements and documents contemplated
hereby.
(d) LEGAL OPINION. Ironlight shall have received a legal
opinion from Novo's legal counsel substantially in the form of Exhibit D hereto.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Novo and its subsidiaries,
taken as a whole.
(f) GOOD STANDING. Ironlight shall have received a
certificate or certificates of the Secretary of State of the State of
California and any applicable franchise tax authority of such state, certifying
as of a date no more than 5 business days prior to the Effective Time that
Merger Sub has filed all required reports, paid all required fees and taxes and
is, as of such date, in good standing and authorized to transact business as a
domestic corporation.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF NOVO AND MERGER SUB.
The obligations of Novo and Merger Sub to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, by Novo:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) each of
the representations and warranties of Ironlight in this Agreement that is
expressly qualified by a reference to materiality shall be true in all respects
as so qualified, and each of the representations and warranties of Ironlight in
this Agreement that is not so qualified shall be true and correct in all
material respects, on and as of the Effective Time as though such
representation or warranty had been made on and as of such time (except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date), and (ii)
Ironlight shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) NO MATERIAL ADVERSE CHANGES. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Ironlight.
(c) CERTIFICATES OF IRONLIGHT.
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(i) COMPLIANCE CERTIFICATE OF IRONLIGHT. Novo and
Merger Sub shall have been provided with a certificate executed on behalf of
Ironlight by its President or its Chief Financial Officer to the effect that,
as of the Effective Time, each of the conditions set forth in Section 6.3(a)(i)
and (ii) above has been satisfied.
(ii) CERTIFICATE OF SECRETARY OF IRONLIGHT. Novo and
Merger Sub shall have been provided with a certificate executed by the
Secretary of Ironlight certifying:
(A) Resolutions duly adopted by the Board of
Directors and the shareholders of Ironlight authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(B) The Articles of Incorporation and Bylaws of
Ironlight, as in effect immediately prior to the Effective Time, including all
amendments thereto; and
(C) the incumbency of the officers of Ironlight
executing this Agreement and all agreements and documents contemplated hereby.
(d) THIRD PARTY CONSENTS. Novo shall have been furnished
with evidence satisfactory to it that Ironlight has obtained those consents,
waivers, approvals or authorizations of those Governmental Entities and third
parties whose consent or approval are required in connection with the Merger as
set forth in Sections 5.2(a) and (f).
(e) LEGAL OPINION. Novo shall have received a legal opinion
from Ironlight's legal counsel, in substantially the form of Exhibit E.
(f) SHAREHOLDER'S REPRESENTATION AGREEMENTS. Novo shall
have received from the holders of at least 75% of the Ironlight Capital Stock,
outstanding immediately prior to the Effective Time, duly executed and
delivered Shareholder's Representation Agreements in substantially the form
attached hereto as Exhibit C.
(g) RESIGNATION OF DIRECTORS AND OFFICERS. Novo shall have
received letters of resignation from each of the directors and officers of
Ironlight in office immediately prior to the Effective Time, which resignations
in each case shall be effective as of the Effective Time.
(h) SHAREHOLDER APPROVAL. Ironlight shall deliver
appropriate documentation to the effect that holders of greater than 80% of the
Capital Stock have voted in favor of the Merger.
SECTION SEVEN
7. TERMINATION, AMENDMENT AND WAIVER.
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7.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Ironlight, this Agreement may be terminated and the
Merger may be abandoned:
(a) by mutual consent duly authorized by the Boards of
Directors of each of Novo and Ironlight;
(b) by either Novo or Ironlight, if, without fault of the
terminating party,
(i) the Effective Time shall not have occurred on or
before May 15, 1998 (or such later date as may be agreed upon in writing by
the parties);
(ii) there shall be any applicable federal or state law that
makes consummation of the Merger illegal or otherwise prohibited or if any
court of competent jurisdiction or Governmental Entity shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable;
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Novo, Merger Sub or
Ironlight or their respective officers, directors, shareholders or affiliates.
7.3 AMENDMENT. The boards of directors of the parties may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the parties; provided that an amendment made
subsequent to adoption of the Agreement by the shareholders of Ironlight or
Merger Sub shall not (i) alter or change the amount or kind of consideration to
be received on conversion of the Ironlight Capital Stock, (ii) alter or change
any term of the Articles of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the
shareholders of Ironlight or Merger Sub.
7.4 EXTENSION; WAIVER. At any time prior to the Effective Time any
party may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
SECTION EIGHT
8. INDEMNIFICATION.
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8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Effective Time, and all representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Merger and continue until one year after
consummation of Merger (the "Survival Date"); provided that if any claims for
indemnification have been asserted with respect to any such representations and
warranties prior to the Survival Date, the representations and warranties on
which any such claims are based shall continue in effect until final resolution
of any claims. All covenants to be performed after the Effective Time shall
continue indefinitely.
8.2 INDEMNIFICATION.
(a) INDEMNITY BY IRONLIGHT. From and after the Effective Date,
Ironlight and Ironlight Shareholders shall severally, indemnify and hold Novo
harmless from and against all losses, damages, liabilities, costs and expenses
including, without limitation, interest, penalties and reasonable attorneys'
fees and shall pay the Novo on demand the full amount of any and all sums that
Novo may pay or become obligated to pay, in either case, on account of or
arising out of or resulting from any untruth or breach of any of the
representations, warranties, covenants or agreements made by Ironlight and/or
Ironlight Shareholders in this Agreement. As to untruths or breaches of
representations and warranties in Section 2 hereof, this indemnification shall
be only for claims submitted in writing by the Survival Date. No Ironlight
Shareholder's liability shall exceed such Shareholder's pro rata share of the
Merger Consideration assessed at the valuation used to determine the Exchange
Ratio, nor shall Ironlight's liability exceed the aggregate value of such
Merger Consideration.
(b) INDEMNITY BY NOVO. From and after the Effective Date, Novo shall
indemnify and hold Ironlight and Ironlight Shareholders harmless from and
against all losses, damages, liabilities, costs and expenses including, without
limitation, interest, penalties and reasonable attorneys' fees and shall pay
Ironlight Shareholders on demand the full amount of any and all sums that
Ironlight or any Ironlight Shareholder may pay or become obligated to pay, in
either case, on account of or arising out of or resulting from any untruth or
breach of any of the representations, warranties, covenants or agreements made
by Novo in this Agreement. As to untruths or breaches of representations and
warranties in Section 3 hereof, this indemnification shall be only for claims
submitted in writing by the Survival Date. The liability of the Novo shall in no
case exceed the aggregate value of the Merger Consideration, determined as of
the Effective Time.
(c) Notwithstanding any of the foregoing, neither Ironlight nor
Ironlight Shareholders shall be required to indemnify Novo, nor shall Novo be
required to indemnify Ironlight or Ironlight Shareholders, unless and until the
aggregate amount of damages subject to indemnification pursuant to this Section
8 exceeds $25,000, at which point the indemnifying party shall indemnify the
full amount of all such damages and all claims thereafter, subject to the other
limitations on indemnification set forth in this Section 8.
SECTION NINE
9. GENERAL PROVISIONS.
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9.1 NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
48 hours after being deposited in the regular mail as certified or registered
mail (airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party's address or facsimile
number as set forth below, or as subsequently modified by written notice,
(a) if to Novo or Merger Sub, to:
Kelly A. Rodriques
Novo MediaGroup, Inc.
222 Sutter Street, 6th Floor
San Francisco, CA 94108
Facsimile No.: (415) 646-7001
Telephone No.: (415) 646-7000
with a copy to:
Britton Silberman & Cervantez LLP
461 Second Street
San Francisco, CA 94107
Attention: Thomas Cervantez
Facsimile No.: (415) 538-9001
Telephone No.: (415) 538-9000
(b) if to Ironlight, to:
Anthony Westreich
Ironlight Digital Corporation
222 Sutter Street, 6th Floor
San Francisco, CA 94108
Facsimile No.: (415) 646-7001
Telephone No.: (415) 646-7022
with a copy to:
Morrison & Foerster, LLP
425 Market Street
San Francisco, CA 94105
Attention: John Campbell
Facsimile No.: (415) 268-7522
Telephone No.: (415) 268-7000
9.2 INTERPRETATION. When a reference is made in this Agreement to Exhibits
or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be
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deemed in each case to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. The phrases "the date of this Agreement," "the date hereof,"
and terms of similar import, unless the context otherwise requires, shall be
deemed to refer to April 16, 1998. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.4 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Ironlight Disclosure Schedule (a) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth in Sections 1.6(a)-(c) and (g), 1.7, 1.8, 1.12, and any
provision providing for assumption of Ironlight Options by Novo shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
9.5 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 order to maintain the economic position
enjoyed by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (I) such provision shall
be excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
9.6 REMEDIES CUMULATIVE. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties 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 law. Each of
the parties to this Agreement consents to the exclusive jurisdiction and venue
of the courts of the state and federal courts of San Francisco County,
California.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing
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that ambiguities in an agreement or other document will be construed against
the party drafting such agreement or document.
9.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected in
accordance with this Section 9.9 shall be binding upon the parties and their
respective successors and assigns.
[Signature page immediately follows]
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Ironlight, Novo and Merger Sub have executed this Agreement as of the
date first written above.
IRONLIGHT
IRONLIGHT DIGITAL CORPORATION
By: /s/ ANTHONY WESTREICH
------------------------------
Name: Anthony Westreich
----------------------------
(Print)
Title: President
---------------------------
Address:
-------------------------
NOVO
NOVO MEDIAGROUP, INC.
By: /s/ KELLY RODRIGUES
------------------------------
Name: Kelly Rodrigues
----------------------------
(Print)
Title: CEO
---------------------------
Address:
-------------------------
MERGER SUB
NOVO MERGER SUBSIDIARY, INC.
By: /s/ KELLY RODRIGUES
------------------------------
Name: Kelly Rodrigues
----------------------------
(Print)
Title: CEO
---------------------------
Address:
-------------------------
<PAGE> 1
EXHIBIT 10.14
NOVO MEDIAGROUP, INC.
1998 NOVO CLASS B COMMON STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, California corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(c) "Award" means the grant of an Option, Restricted Stock or other
right or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means any committee appointed by the Board to
administer the Plan.
(h) "Common Stock" means the Class B Common Stock of the Company.
(i) "Company" means Novo MediaGroup, Inc.
(j) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services as an
independent contractor and is compensated for such services.
(k) "Continuous Status as an Employee, Director or Consultant" means
that the employment, director or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an
Employee, Director or Consultant shall not be considered interrupted in the case
of (i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor. A leave of absence approved by the Company shall
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include sick leave, military leave, or any other personal leave approved by an
authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
(l) "Corporate Transaction" means any of the following
shareholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(m) "Director" means a member of the Board.
(n) "Employee" means any person, including an Officer or Director,
who is an employee of the Company or any Parent or Subsidiary of the Company
for purposes of Section 422 of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market,
whichever is applicable or (B) if the Common Stock is not traded on any such
exchange or national market system, the average of the closing bid and asked
prices of a Share on the Nasdaq Small Cap Market for the day prior to the time
of the determination (or, if no such prices were reported on that date, on the
last date on which such prices were reported), in each case, as reported in The
Wall Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the
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Administrator in good faith and in a manner consistent with Section 260.140.50
of Title 10 of the California Code of Regulations.
(q) "Grantee" means an Employee, Director or Consultant who receives an
Award under the Plan.
(r) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(s) "Non-Qualified Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(t) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1998 Novo Class B Common Stock Incentive Plan.
(x) "Registration Date" means the closing of the first sale of Common
Stock to the general 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.
(y) "Restricted Stock" means Shares issued under the Plan to the Grantee
for such consideration, if any, and subject to such restrictions on transfer,
rights of first refusal, repurchase provisions, forfeiture provisions, and
other terms and conditions as established by the Administrator.
(z) "Share" means a share of the Class B Common Stock.
(aa) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a), below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is 600,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock. Notwithstanding the
foregoing, the total number of Shares which is equal to 30% of the then
outstanding shares of the Company, as calculated in accordance with the
conditions and exclusions of California Corporate Securities Rule 260.140.45.
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(b) If an Award expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Award exchange program, or
if any unissued Shares are retained by the Company upon exercise of an Award in
order to satisfy the exercise price for such Award or any withholding taxes due
with respect to such Award, such unissued or retained Shares shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to
an Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Awards to Employees,
Directors, Officers or Consultants, the Plan shall be administered by (A) the
Board or (B) a Committee (or a subcommittee of the Committee) designated by the
Board, which Committee shall be constituted in such a manner as to satisfy
Applicable Laws. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board.
(b) Multiple Administrative Bodies. The Plan may be administered by
different bodies with respect to Directors, Officers, Consultants, and
Employees who are neither Directors nor Officers.
(c) Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions and to
afford Grantees favorable treatment under such laws; provided, however, that no
Award shall be granted under
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<PAGE> 5
any such additional terms, conditions, rules or procedures with terms or
conditions which are inconsistent with the provisions of the Plan;
(vii) to amend the terms of any outstanding Award granted
under the Plan, including a reduction in the exercise price (or base amount on
which appreciation is measured) of any Award to reflect a reduction in the Fair
Market Value of the Common Stock since the grant date of the Award, provided
that any amendment that would adversely affect the Grantee's rights under an
outstanding Award shall not be made without the Grantee's written consent;
(viii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee, Director or Consultant who has been granted an
Award may, if otherwise eligible, be granted additional Awards. Awards may be
granted to such Employees of the Company and its subsidiaries who are residing
in foreign jurisdictions as the Administrator may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the Plan
to award any type of arrangement to an Employee, Director or Consultant that is
not inconsistent with the provisions of the Plan and that by its terms involves
or might involve the issuance of (i) Shares, (ii) an Option or (iii) any other
security with the value derived from the value of the Common Stock. Such awards
include, without limitation, Options, or sales or bonuses of Restricted Stock,
and an Award may consist of one such security or benefit, or two or more of
them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
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<PAGE> 6
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total shareholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or
vesting corresponding to the degree of achievement as specified in the Award
Agreement.
(d) Term of Award. The term of each Award shall be the term stated
in the Award Agreement, provided however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Award Agreement.
(e) Non-Transferability of Awards. Awards may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Grantee, only by the Grantee.
(f) Time of Granting Awards. The date of grant of an Award shall for
all purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The exercise or purchase price, if
any, for an Award shall be as follows:
(i) In the case of Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be not less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant.
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<PAGE> 7
(B) granted to any Employee other than an Employee described in
the preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be not less than one hundred ten percent (110%) of
the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person described in the
preceding paragraph, the per Share exercise price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the grant of such
Award, or at the time the purchase is consummated, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share purchase price shall be not
less than one hundred percent (100%) of the Fair Market Value per share on the
date of grant.
(B) granted to any person other than a person described in the
preceding paragraph, the per Share purchase price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(iv) In the case of other Awards, such price as is determined by the
Administrator.
(b) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for
Shares issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines
as appropriate;
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<PAGE> 8
(iv) if the exercise occurs on or after the Registration Date,
surrender of Shares (including withholding of Shares otherwise deliverable upon
exercise of the Award) which have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised (but only to the extent that such exercise of the Award would not
result in an accounting compensation charge with respect to the Shares used to
pay the exercise price unless otherwise determined by the Administrator);
(v) if the exercise occurs on or after the Registration Date,
delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Award the Company shall withhold or
collect from Grantee an amount sufficient to satisfy such tax obligations.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Shareholder.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement, but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to Shares subject to an Award, notwithstanding the exercise of an Option or
other Award. The Company shall issue (or cause to be issued) such stock
certificate promptly upon exercise of the Award. No adjustment will be made for
a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in the Award Agreement or
Section 11(a), below.
(b) Exercise of Award Following Termination of Employment, Director
or Consulting Relationship. In the event of termination of a Grantee's
Continuous Status as an Employee, Director or Consultant with the Company for
any reason other than disability or death
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<PAGE> 9
(but not in the event of a Grantee's change of status from Employee to
Consultant or from Consultant to Employee), such Grantee may, but only within
three (3) months after the date of such termination (but in no event later than
the expiration date of the term of such Award as set forth in the Award
Agreement), exercise his or her Award to the extent that the Grantee was
entitled to exercise it at the date of such termination or to such other extent
as may be determined by the Administrator. If the Grantee should die within
three (3) months after the date of such termination, the Grantee's estate or the
person who acquired the right to exercise the Award by bequest or inheritance
may exercise the Award to the extent that the Grantee was entitled to exercise
it at the date of such termination within twelve (12) months of the Grantee's
date of death, but in no event later than the expiration date of the term of
such Award as set forth in the Award Agreement. In the event of a Grantee's
change of status from Employee to Consultant, an Employee's Incentive Stock
Option shall convert automatically to a Non-Qualified Stock Option on the
ninety-first (91) day following such change of status. If the Grantee does not
exercise such Award to the extent so entitled within the time specified herein,
the Award shall terminate.
(c) Disability of Grantee. In the event of termination of a
Grantee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Grantee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date of
the term of such Award as set forth in the Award Agreement), exercise the Award
to the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a
Non-Qualified Stock Option on the day three (3) months and one day following
such termination. To the extent that Grantee is not entitled to exercise the
Award at the date of termination, or if Grantee does not exercise such Award to
the extent so entitled within the time specified herein, the Award shall
terminate.
(d) Death of Grantee. In the event of the death of a Grantee, the
Award may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Award as
set forth in the Award Agreement), by the Grantee's estate or by a person who
acquired the right to exercise the Award by bequest or inheritance, but only to
the extent that the Grantee was entitled to exercise the Award at the date of
death. If, at the time of death, the Grantee was not entitled to exercise his or
her entire Award, the Shares covered by the unexercisable portion of the Award
shall immediately revert to the Plan. If, after death, the Grantee's estate or a
person who acquired the right to exercise the Award by bequest or inheritance
does not exercise the Award within the time specified herein, the Award shall
terminate.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
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<PAGE> 10
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to
the Company the right to repurchase Shares upon termination of the Grantee's
Continuing Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:
(a) The higher of the original purchase price or Fair Market Value
on the date of termination of the Grantee's Continuous Status as an Employee,
Director or Consultant, if the right to repurchase must be exercised for cash or
cancellation of purchase money indebtedness for the Shares within ninety (90)
days of the termination of the Grantee's Continuous Status as an Employee,
Director or Consultant, and the right terminates when the Company's securities
become publicly traded; or
(b) The original purchase price, provided (i) the right to
repurchase at the original purchase price lapses at the rate of at least twenty
percent (20%) per year over five (5) years from the date the Award is granted
(without respect to the date the Award was exercised or became exercisable),
which right must be exercised for cash or cancellation of purchase money
indebtedness for the Shares within ninety (90) days of termination of the
Grantee's Continuous Status as an Employee, Director or Consultant, and (ii) if
the repurchase right is assignable, the assignee must pay the Company upon
assignment of the right, (unless the assignee is a one hundred percent (100%)
owned subsidiary of the Company or is the parent of the Company owning one
hundred percent (100%) of the stock of the Company) cash equal to the difference
between the original purchase price and Fair Market Value if the original
purchase price is less than Fair Market Value.
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Award, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or
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reclassification of the Common Stock, or any other similar event resulting in an
increase or decrease in the number of issued shares of Common Stock. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
(b) Corporate Transaction. In the event of a proposed Corporate
Transaction, the Administrator shall notify the Grantee at least five (5) days
prior to such proposed Corporate Transaction. To the extent it has not been
previously exercised, the Award will terminate and any restricted stock shall be
reconveyed or repurchased by the Company immediately prior to the consummation
of such proposed Corporate Transaction, unless the Award is assumed or an
equivalent Award is substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation. For the purposes of this subsection,
the Award shall be considered assumed if, following the Corporate Transaction,
the Award confers, for each Share subject to the Award immediately prior to the
Corporate Transaction, (i) the consideration (whether stock, cash, or other
securities or property) received in the Corporate Transaction by holders of
Common Stock for each Share subject to the Award held on the effective date of
the Corporate Transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares), or (ii) the right to purchase such consideration in the
case of an Option or similar Award; provided, however, that if such
consideration received in the Corporate Transaction was not solely common stock
of the successor corporation or its Parent, the Administrator may, with the
consent of the successor corporation, provide for the consideration to be
received upon the exercise or exchange of the Award for each Share subject to
the Award to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the Corporate Transaction.
12. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan.
To the extent necessary to comply with Applicable Laws, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Awards already granted, and such Award shall remain in full force and
effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
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14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT. THE PLAN SHALL NOT CONFER UPON ANY
GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTING
RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS OR HER
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS OR HER EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Award exercised
before shareholder approval is obtained shall be rescinded if shareholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Award shall not be counted in determining whether
shareholder approval is obtained.
17. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually and all annual reports and
other information which is provided to all shareholders of the Company.
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NOVO MEDIAGROUP, INC.
1998 NOVO CLASS B COMMON STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address: ____________________________________
____________________________________
____________________________________
You have been granted an option to purchase shares of Common Stock of
the Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number ____________________________________
Date of Grant ____________________________________
Vesting Commencement Date ____________________________________
Exercise Price per Share ____________________________________
Total Number of Shares Granted ____________________________________
Total Exercise Price ____________________________________
Type of Option: Incentive Stock Option (ISO)
Vesting Schedule:
Subject to other limitations set forth in this Agreement, this Option
may be exercised, in whole or in part, in accordance with the following
schedule:
- As to 25% of the Shares, at any time after one (1) year from the
Vesting Commencement Date.
- As to an additional approximately 2.777% of the remaining number
of the Shares (after deduction of the initial vesting amount of 25%) on each
monthly anniversary of the Vesting Commencement Date such that the Option shall
be fully exercisable (4) years after the Vesting Commencement Date.
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Termination Period:
This Option may be exercised only during the Option Period, and during
such Option Period, the exercisability of the Option shall be subject to the
limitations of Sections 6-8 and the vesting schedule set forth above. The Option
Period shall commence on the Date of Grant and except as provided in Sections
6-8, shall terminate (the "Term/Expiration Date") ten (10) years from the Date
of Grant; provided, however, that the Option Period for a person possessing more
than ten percent (10%) of the combined voting power of the Company shall
terminate five (5) years from the Date of Grant; provided further that if an
Optionee shall be terminated or otherwise leave the service of the Company for
any reason other than death or disability, then this Option shall terminate 90
days following the last day of employment of Optionee with the Company.
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<PAGE> 15
II. AGREEMENT
1. Grant of Option. Novo MediaGroup, Inc., a California corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant (the "Optionee"), an option (the "Option") to purchase the total number of
shares of Class B Common Stock (the "Shares") set forth in the Notice of Stock
Option Grant, at the exercise price per share set forth in the Notice of Stock
Option Grant (the "Exercise Price") subject to the terms, definitions and
provisions of the 1998 Novo Class B Common Stock Incentive Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option Agreement.
If designated in the Notice of Stock Option Grant as an Incentive Stock
Option, this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Section 422(d) of the Code, this Option shall be treated as
a Non-Qualified Stock Option.
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the applicable provisions of the Plan and this Option
Agreement. In the event of termination of Optionee's Continuous Status as an
Employee, Director or Consultant, this Option shall be exercisable in accordance
with the applicable provisions of the Plan and this Option Agreement. This
Option shall be subject to the provisions of Section 11 of the Plan relating to
the exercisability or termination of the Option in the event of a Corporate
Transaction.
(b) Method of Exercise. This Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Administrator. Such Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) Taxes. No Shares will be issued to the Optionee or other
person pursuant to the exercise of the Option until the Optionee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
foreign, federal, state and local income and employment tax withholding
obligations.
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3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate an Applicable
Law:
(a) cash;
(b) check;
(c) if the exercise occurs on or after the Registration Date,
surrender of shares of Common Stock of the Company (including withholding of
Shares otherwise deliverable upon exercise of this Option) which have a Fair
Market Value on the date of surrender equal to the Exercise Price of the Shares
as to which the Option is being exercised (but only to the extent that such
exercise of the Option would not result in an accounting compensation charge
with respect to the shares used to pay the exercise price unless otherwise
determined by the Administrator);
(d) if the exercise occurs on or after the Registration Date,
delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(e) any combination of the foregoing methods of payment.
4. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company. In
addition, this Option may not be exercised if the issuance of the Shares subject
to the Option upon such exercise would constitute a violation of any Applicable
Laws.
5. Termination of Relationship. In the event the Optionee's Continuous
Status as an Employee, Director or Consultant terminates, the Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Stock Option Grant. Except as provided in Sections 6 and 7,
below, to the extent that the Optionee was not entitled to exercise this Option
on the Termination Date, or if the Optionee does not exercise this Option within
the Termination Period, the Option shall terminate.
6. Disability of Optionee. In the Optionee's Continuous Status as an
Employee, Director or Consultant terminates as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Term/Expiration Date), exercise
the Option to the extent otherwise entitled to exercise it on the Termination
Date; provided, however, that if such disability is not a "disability" as such
term is defined in Section 22(e)(3) of the Code and the Option is an Incentive
Stock Option, such Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the day three (3) months and one day following the Termination Date. To the
extent that the Optionee was not entitled to exercise the Option on the
Termination Date, or if the Optionee does not exercise such Option to the extent
so entitled within the time specified herein, the Option shall terminate.
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<PAGE> 17
7. Death of Optionee. In the event of the Optionee's death, the Option
may be exercised at any time within twelve (12) months following the date of
death (and in no event later than the Term/Expiration Date), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
8. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.
9. Term of Option. This Option may be exercised only within the term set
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option Agreement.
10. Company's Repurchase Right.
(a) Grant of Repurchase Right. The Company is hereby granted the right
(the "Repurchase Right"), exercisable at any time (i) during the sixty (60) day
period following the Termination Date, (ii) during the sixty (60) day period
following an exercise of the Option that occurs after the Termination Date, or
(iii) during the sixty (60) day period immediately prior to a Corporate
Transaction, or the merger of the Company into or with a corporation that is a
member of a "controlled group" (within the meaning of Section 267(f) of the
Code) of which the Company is a member, to repurchase all or (at the discretion
of the Company and with the consent of the Optionee) any portion of the Shares.
(b) Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to each Holder of the Shares prior to
the expiration of the applicable sixty (60) day period specified above. The
notice shall indicate the number of Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of notice. On the date on which the repurchase is to be
effected, the Company and/or its assigns shall pay to the Holder in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness) an
amount equal to the greater of the Fair Market Value of the Shares on the
Termination Date, if any, or the Exercise Price previously paid for the Shares
which are to be repurchased from the Holder. Upon such payment or into escrow
for the benefit of the Holder, the Company and/or its assigns shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interest thereon or related thereto, and the Company shall have the right to
transfer to its own name or its assigns the number of Shares being repurchased,
without further action by the Holder.
(c) Assignment. Whenever the Company shall have the right to purchase
Shares under this Repurchase Right, the Company may designate and assign one or
more employees, officers, directors or shareholders of the Company or other
persons or organizations, to exercise all or a part of the Company's Repurchase
Right.
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(d) Termination of the Repurchase Right. The Repurchase Right shall
terminate with respect to any Shares for which it is not timely exercised. In
addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to all Shares upon the Registration Date.
(e) Additional Shares or Substituted Securities. In the event of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
effected without the Company's receipt of consideration, any new, substituted or
additional securities or other property (including money paid other than as a
regular cash dividend) which is by reason of any such transaction distributed
with respect to the Shares shall be immediately subject to the Repurchase Right,
but only to the extent the Shares are at the time covered by such right.
Appropriate adjustments to reflect the distribution of such securities or
property shall be made to the price per share to be paid upon the exercise of
the Repurchase Right in order to reflect the effect of any such transaction upon
the Company's capital structure.
(f) Corporate Transaction. Immediately prior to the consummation of a
Corporate Transaction, the Repurchase Right shall automatically lapse in its
entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction, the right shall apply to the new capital stock or other property
(including cash paid other than as a regular cash dividend) received in exchange
for the Shares in consummation of the Corporate Transaction, but only to the
extent the Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Company's
capital structure.
11. Stop-Transfer Notices. In order to ensure compliance with the
restrictions on transfer referred to in the legends placed upon certificates
evidencing ownership of the Shares, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
12. Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Option Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
13. Lock-Up Agreement.
(a) Agreement. Optionee, if requested by the Company and the lead
underwriter of any public offering of the Common Stock or other securities of
the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after
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<PAGE> 19
such offering) during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
Optionee further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock subject until the
end of such period. The Company and Optionee acknowledge that each Lead
Underwriter of a public offering of the Company's stock, during the period of
such offering and for the 180-day period thereafter, is an intended beneficiary
of this Section 13.
(b) Permitted Transfers. Notwithstanding the foregoing, Section 13(a)
shall not prohibit Optionee from transferring any shares of Common Stock or
securities convertible into or exchangeable or exercisable for the Company's
Common Stock to the extent such transfer is not otherwise prohibited by this
Agreement, either during Optionee's lifetime or on death by will or intestacy to
Optionee's immediate family or to a trust the beneficiaries of which are
exclusively Optionee and/or a member or members of Optionee's immediate family;
provided, however, that prior to any such transfer, each transferee shall
execute an agreement pursuant to which each transferee shall agree to receive
and hold such securities subject to the provisions of Section 13 hereof. For the
purposes of this subsection, the term "immediate family" shall mean spouse,
lineal descendant, father, mother, brother or sister of the transferor.
(c) No Amendment Without Consent of Underwriter. During the period from
identification as a Lead Underwriter in connection with any public offering of
the Company's Common Stock until the earlier of (i) the expiration of the
lock-up period specified in Section 16(a) in connection with such offering or
(ii) the abandonment of such offering by the Company and the Lead Underwriter,
the provisions of this Section 13 may not be amended or waived except with the
consent of the Lead Underwriter.
14. Entire Agreement: Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Optionee
with respect to the subject matter hereof, and may not be modified adversely to
the Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
15. Headings. The captions used in this Agreement are inserted for
convenience and shall not be deemed a part of this Agreement for construction or
interpretation.
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<PAGE> 20
16. Interpretation. Any dispute regarding the interpretation of this
Option Agreement shall be submitted by the Optionee or by the Company forthwith
to the Board or the Administrator that administers the Plan, which shall review
such dispute at its next regular meeting. The resolution of such dispute by the
Board or the Administrator shall be final and binding on all persons.
NOVO MEDIAGROUP, INC.
By
-----------------------------------
Name:
Title
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1999 NOVO CLASS A COMMON
STOCK INCENTIVE PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER
UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR
CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY
AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option Agreement subject to all of the terms and provisions thereof. Optionee
has reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Option Agreement. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the
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<PAGE> 21
Administrator upon any questions arising under the Plan or this Option
Agreement. Optionee further agrees to notify the Company upon any change in the
residence address indicated below.
Dated: Signed:
-------------------------- -------------------------------
Optionee
Residence Address:
-----------------------------------
-----------------------------------
-----------------------------------
9
<PAGE> 22
EXHIBIT A
NOVO MEDIAGROUP, INC.
1998 NOVO CLASS B COMMON STOCK INCENTIVE PLAN
EXERCISE NOTICE
Novo MediaGroup, Inc.
222 Sutter Street, Sixth Floor
San Francisco, CA 94108
Attention: Secretary
- -----------------------
(date)
____ Incentive Stock Option Exercise
____ Non-Qualified Stock Option Exercise
I hereby notify Novo MediaGroup, Inc. (the "Company") that I elect to
exercise the following stock options:
<TABLE>
<CAPTION>
GRANT GRANT # OF PRICE/ TOTAL EXERCISE COST
NUMBER DATE SHARES SHARE (EXCLUDING TAXES)
------ ---- ------ ----- -------------------
<S> <C> <C> <C> <C>
------ ---- ------ -----
------ ---- ------ -----
</TABLE>
Concurrently with the delivery of this Exercise Notice to the Company, I
shall hereby pay to the Company the Total Exercise Cost for the shares purchased
in accordance with the provisions of my agreement with the Company evidencing
the option(s) specified above. Furthermore, I understand that any taxes which
may be due at the time of this exercise will be calculated and added to the
Total Exercise Cost listed above.
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<PAGE> 23
The payment of the Total Exercise Price will be made via Check no___________.
Please note the following:
____ (Please Initial) Taxes have not been withheld above the
minimum requirement (if any).
Signature of Optionee
------------------------------------
Please print
Optionee's Name:
------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Social Security Number:
------------------------------------
2
<PAGE> 24
NOVO MEDIAGROUP, INC.
1998 NOVO CLASS B COMMON STOCK INCENTIVE PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
------------------------------------
COMPANY : NOVO MEDIAGROUP, INC.
SECURITY : COMMON STOCK
AMOUNT :
------------------------------------
DATE :
------------------------------------
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon among other things, the bona fide nature
of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.
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<PAGE> 25
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee hereby agrees that if so requested by the Company
or any representative of the underwriters in connection with any registration of
the offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Securities or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to public offerings which include securities
to be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and
2
<PAGE> 26
that such persons and their respective brokers who participate in such
transactions do so at their own risk. Optionee understands that no assurances
can be given that any such other registration exemption will be available in
such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
------------------------------------
Date:
-------------------------, --------
3
<PAGE> 1
EXHIBIT 10.15
NOVO MEDIAGROUP, INC.
1999 NOVO CLASS A COMMON STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, California corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(c) "Award" means the grant of an Option, Restricted Stock or other
right or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means any committee appointed by the Board to
administer the Plan.
(h) "Common Stock" means the Class A Common Stock of the Company.
(i) "Company" means Novo MediaGroup, Inc.
(j) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services as an
independent contractor and is compensated for such services.
(k) "Continuous Status as an Employee, Director or Consultant" means
that the employment, director or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as
an Employee, Director or Consultant shall not be considered interrupted in the
case of (i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company shall
include sick
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<PAGE> 2
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed ninety (90) days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.
(l) "Corporate Transaction" means any of the following
shareholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company (including the capital stock of the Company's
subsidiary corporations) in connection with the complete liquidation or
dissolution of the Company; or
(iii) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(m) "Director" means a member of the Board.
(n) "Employee" means any person, including an Officer or Director, who is
an employee of the Company or any Parent or Subsidiary of the Company for
purposes of Section 422 of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(p) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of
a Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market of the type described
in (i), above, for the Common Stock, the Fair Market Value thereof shall be
determined by the Administrator in good faith and in a manner consistent with
Section 260.140.50 of Title 10 of the California Code of Regulations.
2
<PAGE> 3
(q) "Grantee" means an Employee, Director or Consultant who receives
an Award under the Plan.
(r) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(s) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(t) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1999 Novo Class A Common Stock Incentive Plan.
(x) "Registration Date" means the closing of the first sale of
Common Stock to the general 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.
(y) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as established by the Administrator.
(z) "Share" means a share of the Class A Common Stock.
(aa) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a), below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is 2,000,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock. Notwithstanding the
foregoing, the total number of Shares issuable upon exercise of all outstanding
Awards shall not exceed a number of Shares which is equal to 30% of the then
outstanding shares of the Company, as calculated in accordance with the
conditions and exclusions of California Corporate Securities Rule 260.140.45.
(b) If an Award expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Award exchange program, or
if any unissued Shares are retained by the Company upon exercise of an Award in
order to satisfy the exercise
3
<PAGE> 4
price for such Award or any withholding taxes due with respect to such Award,
such unissued or retained Shares shall become available for future grant or sale
under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future distribution under the Plan, except that
if unvested Shares are forfeited, or repurchased by the Company at their
original purchase price, such Shares shall become available for future grant
under the Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Awards to
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board.
(b) Multiple Administrative Bodies. The Plan may be administered by
different bodies with respect to Directors, Officers, Consultants, and Employees
who are neither Directors nor Officers.
(c) Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
(vii) to amend the terms of any outstanding Award granted under
the Plan, including a reduction in the exercise price (or base amount on which
appreciation is
4
<PAGE> 5
measured) of any Award to reflect a reduction in the Fair Market Value of the
Common Stock since the grant date of the Award, provided that any amendment
that would adversely affect the Grantee's rights under an outstanding Award
shall not be made without the Grantee's written consent;
(viii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee, Director or Consultant who has been granted an
Award may, if otherwise eligible, be granted additional Awards. Awards may be
granted to such Employees of the Company and its subsidiaries who are residing
in foreign jurisdictions as the Administrator may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the Plan to
award any type of arrangement to an Employee, Director or Consultant that is
not inconsistent with the provisions of the Plan and that by its terms involves
or might involve the issuance of (i) Shares, (ii) an Option or (iii) any other
security with the value derived from the value of the Common Stock. Such awards
include, without limitation, Options, or sales or bonuses of Restricted Stock,
and an Award may consist of one such security or benefit, or two or more of
them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be designated as either
an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
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<PAGE> 6
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total shareholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Term of Award. The term of each Award shall be the term stated
in the Award Agreement, provided, however, that the terms shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Award Agreement.
(e) Non-Transferability of Awards. Awards may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of Grantee, only by the Grantee.
(f) Time of Granting Awards. The date of grant of an Award shall for
all purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The exercise or purchase price, if
any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be not less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Non-Qualified Stock Option:
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<PAGE> 7
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be not less than one hundred ten percent (110%)
of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person described in
the preceding paragraph, the per Share exercise price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the grant of
such Award, or at the time the purchase is consummated, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share purchase price shall be not
less than one hundred percent (100%) of the Fair Market Value per share on the
date of grant.
(B) granted to any person other than a person described in
the preceding paragraph, the per Share purchase price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(iv) In the case of other Awards, such price as is determined by
the Administrator.
(b) Consideration. Subject to Applicable Laws, the consideration to
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines
as appropriate;
(iv) if the exercise occurs on or after the Registration Date,
surrender of Shares (including withholding of Shares otherwise deliverable upon
exercise of the Award) which have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Award
shall be exercised (but only to the extent that such exercise of the Award
would not result in an accounting compensation charge with respect to the Shares
used to pay the exercise price unless otherwise determined by the
Administrator);
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<PAGE> 8
(v) if the exercise occurs on or after the Registration Date,
delivery of a properly exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall require to effect an
exercise of the Award and delivery to the Company of the sale or loan proceeds
required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Shareholder.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement, but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted.
(ii) An Award shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Award by the person entitled to exercise the Award and full payment for the
Shares with respect to which the Award is exercised has been received by the
Company. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to Shares subject
to an Award, notwithstanding the exercise of an Option or other Award. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Award. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in the Award Agreement or Section 11(a), below.
(b) Exercise of Award Following Termination of Employment, Director
or Consulting Relationship. In the event of termination of a Grantee's
Continuous Status as an Employee, Director or Consultant with the Company for
any reason other than disability or death (but not in the event of a Grantee's
change of status from Employee to Consultant or from Consultant to Employee),
such Grantee may, but only within three (3) months after the date of such
termination (but in no event later than the expiration date of the term of such
Award as set forth in the Award Agreement), exercise his or her Award to the
extent that the Grantee was entitled to exercise it at the date of such
termination or to such other extent as may be determined by the Administrator.
If the Grantee should die within three (3) months after the date of such
termination, the Grantee's estate or the person who acquired the right to
exercise the Award by
8
<PAGE> 9
bequest or inheritance may exercise the Award to the extent that the Grantee
was entitled to exercise it at the date of such termination within twelve (12)
months of the Grantee's date of death, but in no event later than the
expiration date of the term of such Award as set forth in the Award Agreement.
In the event of a Grantee's change of status from Employee to Consultant, an
Employee's Incentive Stock Option shall convert automatically to a
Non-Qualified Stock Option on ninety-first (91) day following such change of
status. If the Grantee does not exercise such Award to the extent so entitled
within the time specified herein, the Award shall terminate.
(c) Disability of Grantee. In the event of termination of a
Grantee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Grantee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date of
the term of such Award as set forth in the Award Agreement), exercise the Award
to the extent otherwise entitled to exercise it at the date of such
termination; provided, however, that if such disability is not a "disability"
as such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically convert
to a Non-Qualified Stock Option on the day three (3) months and one day
following such termination. To the extent that Grantee is not entitled to
exercise the Award at the date of termination, or if Grantee does not exercise
such Award to the extent so entitled within the time specified herein, the
Award shall terminate.
(d) Death of Grantee. In the event of the death of a Grantee, the
Award may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Award
as set forth in the Award Agreement), by the Grantee's estate or by a person
who acquired the right to exercise the Award by bequest or inheritance, but
only to the extent that the Grantee was entitled to exercise the Award at the
date of death. If, at the time of death, the Grantee was not entitled to
exercise his or her entire Award, the Shares covered by the unexercisable
portion of the Award shall immediately revert to the Plan. If, after death, the
Grantee's estate or a person who acquired the right to exercise the Award by
bequest or inheritance does not exercise the Award within the time specified
herein, the Award shall terminate.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute
9
<PAGE> 10
such Shares if, in the opinion of counsel for the Company, such a
representation is required by any Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to
the Company the right to repurchase Shares upon termination of the Grantee's
Continuing Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:
(a) The higher of the original purchase price or Fair Market Value
on the date of termination of the Grantee's Continuous Status as an Employee,
Director or Consultant, if the right to repurchase must be exercised for cash
or cancellation of purchase money indebtedness for the Shares within ninety
(90) days of the termination of the Grantee's Continuous Status as an Employee,
Director or Consultant, and the right terminates when the Company's securities
become publicly traded; or
(b) The original purchase price, provided (i) the right to repurchase
at the original purchase price lapses at the rate of at least twenty percent
(20%) per year over five (5) years from the date the Award is granted (without
respect to the date the Award was exercised or became exercisable), which right
must be exercised for cash or cancellation of purchase money indebtedness for
the Shares within ninety (90) days of termination of the Grantee's Continuous
Status as an Employee, Director or Consultant, and (ii) if the repurchase
right is assignable, the assignee must pay the Company upon assignment of the
right, (unless the assignee is a one hundred percent (100%) owned subsidiary of
the Company or is the parent of the Company owning one hundred percent (100%) of
the stock of the Company) cash equal to the difference between the original
purchase price and Fair Market Value if the original purchase price is less
than Fair Market Value.
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of Shares
covered by each outstanding Award, and the number of Shares which have been
authorized for issuance upon the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan, as well as the price per share
of Common Stock covered by each such outstanding Award, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other similar event resulting in an increase or decrease in the number of
issued shares of Common Stock. Except as expressly provided herein, no issuance
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason hereof
shall be made with respect to, the number or price of Shares subject to an
Award.
(b) Corporate Transaction. In the event of a proposed Corporate
Transaction, the Administrator shall notify the Grantee at least five (5) days
prior to such proposed Corporate Transaction. To the extent it has not been
previously exercised, the Award will terminate and any restricted stock shall
be reconveyed or repurchased by the Company immediately prior to the
10
<PAGE> 11
consummation of such proposed Corporate Transaction, unless the Award is
assumed or an equivalent Award is substituted by the successor corporation or a
Parent or Subsidiary of such successor corporation. For the purposes of this
subsection, the Award shall be considered assumed if, following the Corporate
Transaction, the Award confers, for each Share subject to the Award immediately
prior to the Corporate Transaction, (i) the consideration (whether stock, cash,
or other securities or property) received in the Corporate Transaction by
holders of Common Stock for each Share subject to the Award held on the
effective date of the Corporate Transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares), or (ii) the right to purchase such
consideration in the case of an Option or similar Award; provided, however,
that if such consideration received in the Corporate Transaction was not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise or exchange of the Award for each Share subject
to the Award to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the Corporate Transaction.
12. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan.
To the extent necessary to comply with Applicable Laws, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Awards already granted, and such Awards shall remain in full force and
effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in
11
<PAGE> 12
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT. THE PLAN SHALL NOT CONFER UPON ANY
GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTING
RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS OR
HER RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS OR HER EMPLOYMENT OR
CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Award exercised
before shareholder approval is obtained shall be rescinded if shareholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Award shall not be counted in determining whether
shareholder approval is obtained.
17. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually and all annual reports and
other information which is provided to all shareholders of the Company.
12
<PAGE> 13
NOVO MEDIAGROUP, INC.
1999 NOVO CLASS A COMMON STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address: ____________________________________
____________________________________
____________________________________
You have been granted an option to purchase shares of Common Stock of
the Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number ____________________________________
Date of Grant ____________________________________
Vesting Commencement Date ____________________________________
Exercise Price per Share ____________________________________
Total Number of Shares Granted ____________________________________
Total Exercise Price ____________________________________
Type of Option: Incentive Stock Option (ISO)
Vesting Schedule:
Subject to other limitations set forth in this Agreement, this Option
may be exercised, in whole or in part, in accordance with the following
schedule:
- As to 25% of the Shares, at any time after one (1) year from the
Vesting Commencement Date.
- As to an additional approximately 2.777% of the remaining number
of the Shares (after deduction of the initial vesting amount of 25%) on each
monthly anniversary of the Vesting Commencement Date such that the Option shall
be fully exercisable (4) years after the Vesting Commencement Date.
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<PAGE> 14
Termination Period:
This Option may be exercised only during the Option Period, and during
such Option Period, the exercisability of the Option shall be subject to the
limitations of Sections 6-8 and the vesting schedule set forth above. The Option
Period shall commence on the Date of Grant and except as provided in Sections
6-8, shall terminate (the "Term/Expiration Date") ten (10) years from the Date
of Grant; provided, however, that the Option Period for a person possessing more
than ten percent (10%) of the combined voting power of the Company shall
terminate five (5) years from the Date of Grant; provided further that if an
Optionee shall be terminated or otherwise leave the service of the Company for
any reason other than death or disability, then this Option shall terminate 90
days following the last day of employment of Optionee with the Company.
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<PAGE> 15
II. AGREEMENT
1. Grant of Option. Novo MediaGroup, Inc., a California corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant (the "Optionee"), an option (the "Option") to purchase the total number of
shares of Class A Common Stock (the "Shares") set forth in the Notice of Stock
Option Grant, at the exercise price per share set forth in the Notice of Stock
Option Grant (the "Exercise Price") subject to the terms, definitions and
provisions of the 1999 Novo Class A Common Stock Incentive Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option Agreement.
If designated in the Notice of Stock Option Grant as an Incentive Stock
Option, this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Section 422(d) of the Code, this Option shall be treated as
a Non-Qualified Stock Option.
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the applicable provisions of the Plan and this Option
Agreement. In the event of termination of Optionee's Continuous Status as an
Employee, Director or Consultant, this Option shall be exercisable in accordance
with the applicable provisions of the Plan and this Option Agreement. This
Option shall be subject to the provisions of Section 11 of the Plan relating to
the exercisability or termination of the Option in the event of a Corporate
Transaction.
(b) Method of Exercise. This Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Administrator. Such Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) Taxes. No Shares will be issued to the Optionee or other
person pursuant to the exercise of the Option until the Optionee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
foreign, federal, state and local income and employment tax withholding
obligations.
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<PAGE> 16
3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate an Applicable
Law:
(a) cash;
(b) check;
(c) if the exercise occurs on or after the Registration Date,
surrender of shares of Common Stock of the Company (including withholding of
Shares otherwise deliverable upon exercise of this Option) which have a Fair
Market Value on the date of surrender equal to the Exercise Price of the Shares
as to which the Option is being exercised (but only to the extent that such
exercise of the Option would not result in an accounting compensation charge
with respect to the shares used to pay the exercise price unless otherwise
determined by the Administrator);
(d) if the exercise occurs on or after the Registration Date,
delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(e) any combination of the foregoing methods of payment.
4. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company. In
addition, this Option may not be exercised if the issuance of the Shares subject
to the Option upon such exercise would constitute a violation of any Applicable
Laws.
5. Termination of Relationship. In the event the Optionee's Continuous
Status as an Employee, Director or Consultant terminates, the Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Stock Option Grant. Except as provided in Sections 6 and 7,
below, to the extent that the Optionee was not entitled to exercise this Option
on the Termination Date, or if the Optionee does not exercise this Option within
the Termination Period, the Option shall terminate.
6. Disability of Optionee. In the Optionee's Continuous Status as an
Employee, Director or Consultant terminates as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Term/Expiration Date), exercise
the Option to the extent otherwise entitled to exercise it on the Termination
Date; provided, however, that if such disability is not a "disability" as such
term is defined in Section 22(e)(3) of the Code and the Option is an Incentive
Stock Option, such Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the day three (3) months and one day following the Termination Date. To the
extent that the Optionee was not entitled to exercise the Option on the
Termination Date, or if the Optionee does not exercise such Option to the extent
so entitled within the time specified herein, the Option shall terminate.
4
<PAGE> 17
7. Death of Optionee. In the event of the Optionee's death, the Option
may be exercised at any time within twelve (12) months following the date of
death (and in no event later than the Term/Expiration Date), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
8. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.
9. Term of Option. This Option may be exercised only within the term set
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option Agreement.
10. Company's Repurchase Right.
(a) Grant of Repurchase Right. The Company is hereby granted the right
(the "Repurchase Right"), exercisable at any time (i) during the sixty (60) day
period following the Termination Date, (ii) during the sixty (60) day period
following an exercise of the Option that occurs after the Termination Date, or
(iii) during the sixty (60) day period immediately prior to a Corporate
Transaction, or the merger of the Company into or with a corporation that is a
member of a "controlled group" (within the meaning of Section 267(f) of the
Code) of which the Company is a member, to repurchase all or (at the discretion
of the Company and with the consent of the Optionee) any portion of the Shares.
(b) Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to each Holder of the Shares prior to
the expiration of the applicable sixty (60) day period specified above. The
notice shall indicate the number of Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of notice. On the date on which the repurchase is to be
effected, the Company and/or its assigns shall pay to the Holder in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness) an
amount equal to the greater of the Fair Market Value of the Shares on the
Termination Date, if any, or the Exercise Price previously paid for the Shares
which are to be repurchased from the Holder. Upon such payment or into escrow
for the benefit of the Holder, the Company and/or its assigns shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interest thereon or related thereto, and the Company shall have the right to
transfer to its own name or its assigns the number of Shares being repurchased,
without further action by the Holder.
(c) Assignment. Whenever the Company shall have the right to purchase
Shares under this Repurchase Right, the Company may designate and assign one or
more employees, officers, directors or shareholders of the Company or other
persons or organizations, to exercise all or a part of the Company's Repurchase
Right.
5
<PAGE> 18
(d) Termination of the Repurchase Right. The Repurchase Right shall
terminate with respect to any Shares for which it is not timely exercised. In
addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to all Shares upon the Registration Date.
(e) Additional Shares or Substituted Securities. In the event of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
effected without the Company's receipt of consideration, any new, substituted or
additional securities or other property (including money paid other than as a
regular cash dividend) which is by reason of any such transaction distributed
with respect to the Shares shall be immediately subject to the Repurchase Right,
but only to the extent the Shares are at the time covered by such right.
Appropriate adjustments to reflect the distribution of such securities or
property shall be made to the price per share to be paid upon the exercise of
the Repurchase Right in order to reflect the effect of any such transaction upon
the Company's capital structure.
(f) Corporate Transaction. Immediately prior to the consummation of a
Corporate Transaction, the Repurchase Right shall automatically lapse in its
entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction, the right shall apply to the new capital stock or other property
(including cash paid other than as a regular cash dividend) received in exchange
for the Shares in consummation of the Corporate Transaction, but only to the
extent the Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Company's
capital structure.
11. Stop-Transfer Notices. In order to ensure compliance with the
restrictions on transfer referred to in the legends placed upon certificates
evidencing ownership of the Shares, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
12. Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Option Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
13. Lock-Up Agreement.
(a) Agreement. Optionee, if requested by the Company and the lead
underwriter of any public offering of the Common Stock or other securities of
the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after
6
<PAGE> 19
such offering) during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
Optionee further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock subject until the
end of such period. The Company and Optionee acknowledge that each Lead
Underwriter of a public offering of the Company's stock, during the period of
such offering and for the 180-day period thereafter, is an intended beneficiary
of this Section 13.
(b) Permitted Transfers. Notwithstanding the foregoing, Section 13(a)
shall not prohibit Optionee from transferring any shares of Common Stock or
securities convertible into or exchangeable or exercisable for the Company's
Common Stock to the extent such transfer is not otherwise prohibited by this
Agreement, either during Optionee's lifetime or on death by will or intestacy to
Optionee's immediate family or to a trust the beneficiaries of which are
exclusively Optionee and/or a member or members of Optionee's immediate family;
provided, however, that prior to any such transfer, each transferee shall
execute an agreement pursuant to which each transferee shall agree to receive
and hold such securities subject to the provisions of Section 13 hereof. For the
purposes of this subsection, the term "immediate family" shall mean spouse,
lineal descendant, father, mother, brother or sister of the transferor.
(c) No Amendment Without Consent of Underwriter. During the period from
identification as a Lead Underwriter in connection with any public offering of
the Company's Common Stock until the earlier of (i) the expiration of the
lock-up period specified in Section 16(a) in connection with such offering or
(ii) the abandonment of such offering by the Company and the Lead Underwriter,
the provisions of this Section 13 may not be amended or waived except with the
consent of the Lead Underwriter.
14. Entire Agreement: Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Optionee
with respect to the subject matter hereof, and may not be modified adversely to
the Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
15. Headings. The captions used in this Agreement are inserted for
convenience and shall not be deemed a part of this Agreement for construction or
interpretation.
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<PAGE> 20
16. Interpretation. Any dispute regarding the interpretation of this
Option Agreement shall be submitted by the Optionee or by the Company forthwith
to the Board or the Administrator that administers the Plan, which shall review
such dispute at its next regular meeting. The resolution of such dispute by the
Board or the Administrator shall be final and binding on all persons.
NOVO MEDIAGROUP, INC.
By
----------------------------------
Name:
Title
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1999 NOVO CLASS A COMMON
STOCK INCENTIVE PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER
UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR
CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY
AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option Agreement subject to all of the terms and provisions thereof. Optionee
has reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Option Agreement. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the
8
<PAGE> 21
Administrator upon any questions arising under the Plan or this Option
Agreement. Optionee further agrees to notify the Company upon any change in the
residence address indicated below.
Dated: Signed:
-------------------------- ---------------------------------
Optionee
Residence Address:
------------------------------------
------------------------------------
------------------------------------
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<PAGE> 22
EXHIBIT A
NOVO MEDIAGROUP, INC.
1999 NOVO CLASS A COMMON STOCK INCENTIVE PLAN
EXERCISE NOTICE
Novo MediaGroup, Inc.
222 Sutter Street, Sixth Floor
San Francisco, CA 94108
Attention: Secretary
- -----------------------
(date)
____ Incentive Stock Option Exercise
____ Non-Qualified Stock Option Exercise
I hereby notify Novo MediaGroup, Inc. (the "Company") that I elect to
exercise the following stock options:
<TABLE>
<CAPTION>
GRANT GRANT # OF PRICE/ TOTAL EXERCISE COST
NUMBER DATE SHARES SHARE (EXCLUDING TAXES)
------ ---- ------ ----- -------------------
<S> <C> <C> <C> <C>
------ ---- ------ -----
------ ---- ------ -----
</TABLE>
Concurrently with the delivery of this Exercise Notice to the Company, I
shall hereby pay to the Company the Total Exercise Cost for the shares purchased
in accordance with the provisions of my agreement with the Company evidencing
the option(s) specified above. Furthermore, I understand that any taxes which
may be due at the time of this exercise will be calculated and added to the
Total Exercise Cost listed above.
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<PAGE> 23
The payment of the Total Exercise Price will be made via Check no__________.
Please note the following:
____ (Please Initial) Taxes have not been withheld above the
minimum requirement (if any).
Signature of Optionee
-----------------------------------
Please print
Optionee's Name:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Social Security Number:
-----------------------------------
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NOVO MEDIAGROUP, INC.
1999 NOVO CLASS A COMMON STOCK INCENTIVE PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
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COMPANY : NOVO MEDIAGROUP, INC.
SECURITY : CLASS A COMMON STOCK
AMOUNT :
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DATE :
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In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon among other things, the bona fide nature
of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.
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(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee hereby agrees that if so requested by the Company
or any representative of the underwriters in connection with any registration of
the offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Securities or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to public offerings which include securities
to be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and
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that such persons and their respective brokers who participate in such
transactions do so at their own risk. Optionee understands that no assurances
can be given that any such other registration exemption will be available in
such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
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Date:
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EXHIBIT 10.21
Novo Mediagroup, Inc.
222 Sutter Street, 6th Floor
San Francisco, CA 94108
March 1, 2000
BDM, Inc.
1675 Broadway
New York, NY 10019
Gentlemen:
This letter is to memorialize our agreements concerning certain matters
relating to our relationship. For the purposes of this letter agreement,
references to "NOVO" will refer to Novo Mediagroup, Inc. and references to BDM
will refer to BDM, Inc. For good and valuable consideration, we have agreed as
follows:
1. Novo is a preferred provider of Internet professional services to The
MacManus Group's operating companies and their clients under that certain
Acknowledgment dated August 31, 1999 (the "Acknowledgment"). BDM, as the parent
company of The MacManus Group, has agreed to further define and develop the
"preferred provider" relationship with NOVO, and in doing so give NOVO certain
assurance that it will obtain a minimum level of revenue from BDM clients over
the next several years, as described below:
(a) BDM will use its best efforts to refer to and maintain at NOVO
BDM Client relationships sufficient to generate at least $30,000,000 of total
revenue for NOVO (the "Base Revenue Amount") during the period from January 1,
2000 through December 31, 2002 (the "Measuring Period"). A "BDM Client" refers
to an entity that retains NOVO to provide services (i) at time when such
entity is also a client of BDM or any BDM affiliated companies (i.e., entities
controlled by, controlling or under common control with BDM), or (ii) as a
direct result of an introduction made to NOVO by BDM or any BDM affiliated
companies. In no event will "BDM Client" include any client who was a client of
NOVO within the one year period prior to such entity first becoming a client of
BDM or its affiliated companies. It is understood in any case that each of the
clients listed on Annex A hereto constitute BDM Clients for purposes of this
agreement.
(b) If, during the Measuring Period, (i) a BDM Client terminates its
relationship with NOVO for any reason related to NOVO's failure to provide
services to that client's satisfaction, as determined in the client's sole
discretion, or (ii) NOVO terminates its relationship with a BDM Client for any
reason, the Base Revenue Amount will be reduced by the greater of (x) the
revenue projected in good faith to be earned by NOVO from such BDM Client
through the then remaining portion of the Measuring Period (based on client
budgets, project proposals and/or other objective criteria), and (y) the
average monthly revenue actually generated by such BDM Client for NOVO during
the 12-month period immediately preceding such termination multiplied by the
number of months then remaining until the end of the
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Measuring Period. If the BDM Client relationship is terminated in part and not
in its entirety, such as with respect to only a particular project or projects,
the foregoing adjustment in the Base Revenue Amount will be calculated on a
proportionate basis, using the greater of the projected or actual revenue (as
described above) generated in respect of the portion of the relationship so
terminated. In addition, if during the Measuring Period a bona fide client
project or relationship is referred to NOVO by BDM or any BDM affiliated
company, or from any then existing BDM Client, and such project or relationship
is declined by NOVO, the Base Revenue Amount will be reduced by the amount of
revenue which could reasonably be expected to be earned by NOVO from such client
project or relationship through the then remaining portion of the Measuring
Period. (It is understood that NOVO's declining an invitation to submit a
request for proposal for a prospective client project, where NOVO would be
competing against several other agencies for such project, will not, in and of
itself, result in an adjustment of the Base Revenue Amount under the
immediately preceding sentence.)
(c) If the total amount of revenue generated from BDM Clients during
the Measuring Period is less than the Base Revenue Amount, as computed under
(a) and (b) above, BDM will pay NOVO an amount equal to 15% of the amount by
which such cumulative revenue is less than $30,000,000. Such payment, if any,
will be due on March 31, 2003, and will represent satisfaction in full of any
and all obligations of BDM under paragraph 1 of this letter agreement, and the
sole recourse of NOVO for any violation by BDM of this letter agreement.
(d) Each time NOVO is retained by a BDM Client, NOVO will provide BDM
the identity of the BDM Client and the expected revenue to be generated from
such client. NOVO will provide BDM with a report within 30 days after the end
of each calendar quarter during the Measuring Period showing the amount of
revenue earned by NOVO from BDM Clients during the quarter then ended, and on a
cumulative basis since the commencement of the Measuring Period.
2. In connection with NOVO's anticipated reincorporation to Delaware and
possible Initial Public Offering, NOVO anticipates adopting a Board structure
involving three year staggered terms. In such event, NOVO covenants that BDM's
current two Board representatives will be installed in the last to expire Board
terms. In any case, should BDM cease, without its consent, to have two
representatives on the Company's Board at any time during the three-year period
commencing as of the date of this agreement, BDM shall have the right to
terminate this agreement upon written notice to NOVO (it being understood that
should a BDM Board representative cease to be a director due to his death,
disability or resignation from the Board, BDM's right to so terminate this
agreement will not come into effect unless a new BDM Board representative shall
not have been elected or appointed to the Board within 30 days following such
vacancy).
3. NOVO will permit BDM and its representatives, at BDM's expense, to
visit and inspect NOVO's properties, to examine its books of account and
records (including but not limited to all such records relating to NOVO's
servicing of BDM Clients) and to discuss NOVO's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by BDM
(it being understood that any material non-public information concerning
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NOVO or its operations shall be subject to the existing non-disclosure
undertakings of the parties).
4. This letter agreement is intended to be a legally binding
agreement. The provisions of Section 5 of the Acknowledgment are incorporated
into this letter agreement. Nothing herein shall be deemed to modify the terms
of the Acknowledgment, which remains in effect.
[Remainder of page intentionally left blank]
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5. Each of the parties agrees to execute such additional documents and
take such further actions as may be reasonably requested by the other party to
effectuate the provisions of this letter agreement.
Very truly yours,
NOVO MEDIAGROUP, INC.
By: /s/ KELLY RODRIQUES
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Its: CEO
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Agreed and Acknowledged:
BDM, INC.
By: /s/ CRAIG D. BROWN
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Its: Chief Operating Officer
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<PAGE> 5
ANNEX A
BDM CLIENTS
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[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
AN ASTERISK [ * ] INDICATES THAT CERTAIN
CONFIDENTIAL INFORMATION CONTAINED IN THIS
DOCUMENT, HAS BEEN OMITTED, PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT, AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No.2 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 30, 2000
