<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
IMAGEX.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
WASHINGTON 2752 91-1727170
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
10800 N.E. 8TH STREET, SUITE 200
BELLEVUE, WASHINGTON 98004
(425) 452-0011
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
---------------------
RICHARD P. BEGERT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMAGEX.COM, INC.
10800 N.E. 8TH STREET, SUITE 200
BELLEVUE, WASHINGTON 98004
(425) 452-0011
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
COPIES TO:
DAVID C. CLARKE BARRY E. TAYLOR
ALAN C. SMITH PATRICK J. SCHULTHEIS
Perkins Coie LLP RAMSEY HANNA
1201 Third Avenue, 40th Floor Wilson Sonsini Goodrich & Rosati, P.C.
Seattle, Washington 98101-3099 650 Page Mill Road
(206) 583-8888 Palo Alto, California 94304-1050
(650) 493-9300
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------
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, 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, 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. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share......................... $50,000,000 $13,900
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
---------------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS
EFFECTIVE AND THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PRELIMINARY
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.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 12, 1999
SHARES
[LOGO]
COMMON STOCK
--------------
ImageX.com, Inc. is offering shares of its common stock. This is our
initial public offering, and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $ and
$ per share.
-------------------
We intend to list our common stock on the Nasdaq National Market under the
symbol "IMGX."
-------------------
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT CERTAIN RISKS
THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
-----------------
PRICE $ PER SHARE
-----------------
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<CAPTION>
PER SHARE TOTAL
------------ ------------
<S> <C> <C>
Public offering price............................................................... $ $
Underwriting discounts and commissions.............................................. $ $
Proceeds, before expenses, to ImageX.com............................................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES COMMISSIONS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase a maximum of
additional shares to cover over-allotments of shares. Delivery of the
shares of common stock will be made on or about , 1999, against
payment in immediately available funds.
-------------------
VOLPE BROWN WHELAN & COMPANY
PRUDENTIAL SECURITIES
The date of this prospectus is , 1999
<PAGE>
- --------------------------------------------------------------------------------
INSIDE FRONT LEFT
IMAGEX.COM: LEADING INTERNET-BASED BUSINESS-TO-BUSINESS INTERMEDIARY IN THE $55
BILLION COMMERCIAL PRINTING INDUSTRY
ImageX.com is a leading provider of electronic commerce solutions that enable
businesses to modify, proof, procure and manage custom printed business
materials over the Internet.
ImageX.com harnesses the power and efficiencies of the Internet to automate
the complex, error-prone procedures of the commercial printing industry. To
address the challenges of producing custom-made materials online,
ImageX.com's technology employs individual Web sites created for each
customer. These secure sites contain a comprehensive digital catalog of each
customer's printed materials - from marketing brochures to stationery and
business cards. From any Internet-enabled personal computer, customers can
modify and order printed materials in a fraction of the time required by
traditional print methods.
[GRAPHIC - PHOTO MONTAGE OF CUSTOMERS' SAMPLE PRINTED PRODUCTS]
LABELS WITHIN MONTAGE:
Marketing Materials Office Stationery Business Cards
SUB-TEXT BELOW MONTAGE:
All items shown were produced by ImageX.com for our customers
<PAGE>
INSIDE FRONT GATEFOLD
BUSINESSES CLICK ON IMAGEX.COM FOR THEIR PRINTING NEEDS.
Productivity, control and convenience. ImageX.com has transformed the way
businesses order and manage their printing.
1. CUSTOMER LOGS IN TO CUSTOM WEB SITE.
[GRAPHIC - SCREEN SHOT]
The customer's secure Online Printing Center has a digital catalog of the
customer's graphic materials and a database of names, addresses and more.
Ordering online takes minutes instead of days.
2. CUSTOMER MODIFIES AND PROOFS PRINT ORDER.
[GRAPHIC - SCREEN SHOT]
With custom preset rules, businesses can now let remote offices place their
own orders, while controlling which areas on a printed piece can and cannot be
modified. Customers can modify and instantly proof orders online.
3. CUSTOMER APPROVES AND RELEASES PRINT ORDER.
[GRAPHIC - SCREEN SHOT]
Secure order authorization provides the power to manage and release orders
online. Customers can batch their orders online for cost efficiency.
4. CUSTOMER'S PRINT ORDER IS FULFILLED.
[GRAPHIC - SCREEN SHOT]
ImageX.com prints and distributes sell sheets, brochures, letterhead, business
cards and more nationwide. Print specifications are locked in for consistent
quality.
5. ONLINE REPORTS AVAILABLE ANYTIME.
[GRAPHIC - SCREEN SHOT]
Each customer's online reports provide instant order history. Orders in
production are also tracked and displayed. Customers now have powerful reporting
tools for visibility and tracking.
<PAGE>
IMAGEX.COM COMPETITIVE ADVANTAGES
- - FIRST MOVER ADVANTAGE. A leader in the business-to-business electronic
commerce field, ImageX.com has delivered the first integrated corporate
online printing solution of its kind.
- - TRANSFORMING A LARGE, TRADITIONAL BUSINESS. The commercial printing industry
is ripe for major innovation, and ImageX.com has developed a solution for
automating the way businesses manage printing.
- - GROWING CUSTOMER BASE AND PRINT VOLUME. ImageX.com's customers reprint
regularly and continue to add new pieces to their ImageX Online Printing
Centers.
- - PROPRIETARY AUTOMATION TECHNOLOGY. ImageX.com has made a significant
investment in its proprietary technology, developing an integrated print
procurement, manufacturing and management system.
- - HIGH-QUALITY PRODUCTS AND SERVICES. With a growing customer base and a
commitment to customer satisfaction, ImageX.com has demonstrated its ability
to consistently deliver outstanding products and services.
- - CUSTOM PRODUCTS ONLINE. Most online vendors offer only stock items like
office supplies, computer supplies and computer hardware. In contrast,
ImageX.com builds a branded, custom-printed product every time an order
is placed.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 19
Selected Financial Data for ImageX.com......... 21
Selected Financial Data for Fine Arts
Graphics..................................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 35
Management..................................... 50
Certain Transactions........................... 58
Principal Shareholders......................... 61
Description of Capital Stock................... 63
Shares Eligible for Future Sale................ 66
Underwriting................................... 68
Legal Matters.................................. 70
Experts........................................ 70
Where You Can Find More Information............ 70
Index to Financial Statements.................. F-1
</TABLE>
-------------------
Our executive offices are located at 10800 N.E. 8th Street, Suite 200,
Bellevue, Washington 98004, and our telephone number is (425) 452-0011. Our Web
site is located at http://www.imagex.com. Any information that is included on or
linked to our Web site is not a part of this prospectus.
Except where we state otherwise, we present information in this prospectus
(1) assuming the conversion of all shares of our convertible preferred stock
into an aggregate of 22,691,511 shares of common stock upon the closing of this
offering, (2) assuming the conversion of all outstanding warrants to purchase
our preferred stock into warrants to purchase shares of common stock, (3)
assuming no exercise of the underwriters' over-allotment option and (4) giving
effect to the -for- reverse stock split on , 1999.
We have registered the trademark "ImageX" in the United States and have
applied for the same mark in Japan and the European Union. This prospectus also
contains product names, trade names and trademarks that belong to other
organizations.
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS SELLING SHARES OF OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE PRESENT MORE FULLY ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE, AND YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION.
IMAGEX.COM, INC.
OUR BUSINESS
ImageX.com is a leading Internet-based business-to-business intermediary in
the $55 billion U.S. commercial printing industry. We believe we offer the first
integrated electronic commerce solution that automates the error-prone,
time-consuming and labor-intensive traditional commercial printing process. With
the ImageX.com solution, businesses access a customized, secure Web site, called
the "Online Printing Center," that contains a digital catalog of all of their
custom-printed business materials--from marketing brochures to stationery and
business cards. Through its Online Printing Center, each business can modify,
proof, procure and manage its printed business materials from any Internet-
enabled personal computer. We reduce the time associated with procuring printed
business materials from several days to a few minutes and virtually eliminate
the possibility of print errors. Through a combination of our extensive network
of commercial printing vendors and two facilities that we own, we deliver
high-quality printed business materials nationwide.
OUR MARKET
The growth of the Internet sector initially was driven by developers of
search engines and portals. More recently, consumer-oriented electronic commerce
has become widespread, driven by online retailers such as Amazon.com. Industry
observers predict the next phase in the Internet revolution will be
business-to-business electronic commerce. Forrester Research estimates that
businesses bought and sold $43 billion in goods over the Internet last year, as
opposed to $8 billion bought by consumers. In addition, they predict that
business-to-business electronic commerce will grow to $1.3 trillion by 2003, or
more than 90% of the total projected electronic commerce market.
Based on data provided by CAP Ventures, sales in the U.S. commercial
printing industry totaled $55 billion in 1997. This large industry is
fragmented, with over 40,000 local and regional printers operating nationwide,
typically offering a limited product range within a limited geographic reach.
The traditional printing process used by these local and regional printers often
is error-prone, time-consuming and labor-intensive. Because of the industry's
large and fragmented nature and the inefficiencies of the traditional printing
process, we believe the commercial printing industry presents an attractive
market opportunity for an Internet-based customized solution.
OUR SOLUTION
We enable customers to rapidly and efficiently modify, proof, procure and
manage a wide variety of high-quality, custom-printed business materials through
their Online Printing Centers. Our solution
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<S> <C>
REDUCES TIME AND COST We streamline the time-consuming and iterative traditional
process for modifying and proofing printed business materials.
ENHANCES CONTROL AND From the password-protected Online Printing Center, authorized
SCALABILITY customer employees can individually modify, proof, procure and
manage a wide variety of printed business materials within the
centralized parameters and preset rules established by the
customer.
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3
<PAGE>
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REDUCES ERROR RATES By permanently storing company and employee data and
automating the traditional, manual method of typesetting and
proofing, our Internet-enabled solution reduces errors in the
printing and procurement process.
ENABLES SINGLE-SOURCING We provide a wide range of printed business materials through
our extensive network of commercial printing vendors and two
facilities that we own.
STREAMLINES By electronically delivering a print-ready digital file
MANUFACTURING directly into the print manufacturing process, we bypass the
manufacturing steps where delays and errors most commonly
occur, thereby reducing costs.
</TABLE>
OUR BUSINESS STRATEGY
Our objective is to be the leading Internet-based provider of printed
business materials. The following are the key components of our strategy:
- rapidly add new customers through direct sales, acquisitions and strategic
alliances;
- increase revenues from existing customers;
- build brand name awareness and exploit first-mover advantage; and
- maintain product and technology leadership.
Our customer and revenue base has grown rapidly since we introduced the
ImageX.com solution in October 1997. As a result of our sales and marketing
efforts and our recent acquisition of Fine Arts Graphics, an Oregon- and New
Jersey-based commercial printer, we have customers such as Amazon.com, Bell
Atlantic Mobile, CB Richard Ellis, CIBC Oppenheimer, Concur Technologies,
Donaldson, Lufkin & Jenrette, Merck & Co., Silicon Graphics (SGI) and Visio.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock that will be outstanding after
this offering.............................. shares
Use of proceeds.............................. For working capital, acquisitions of
businesses, repayment of debt and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... IMGX
</TABLE>
The amount of common stock that will be outstanding after this offering is
based on shares outstanding on April 30, 1999. It excludes
- 2,041,737 shares of common stock issuable upon exercise of options
outstanding as of April 30, 1999, of which 350,877 shares were
exercisable, under our stock option plan at a weighted average exercise
price of $1.21 per share and 2,245,073 shares available for issuance under
our stock option plan pursuant to options that have not yet been granted;
- 2,870,114 shares issuable upon exercise of warrants outstanding as of
April 30, 1999, all of which are currently exercisable at a weighted
average exercise price of $2.04 per share; and
- 500,000 shares available for future issuance under our employee stock
purchase plan.
4
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes certain financial data for our business. When
you read this summary financial data, it is important that you also read the
historical financial statements and related notes included in this prospectus,
as well as the section of this prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The pro forma
statement of operations data give effect to the acquisition of Fine Arts
Graphics as if it had occurred at the beginning of each of the periods
presented. See Unaudited Pro Forma Condensed Financial Statements.
<TABLE>
<CAPTION>
ACTUAL
----------------------------------------------------- PRO FORMA
THREE MONTHS ----------------------------
YEAR ENDED ENDED THREE MONTHS
DECEMBER 31, MARCH 31, YEAR ENDED ENDED
------------------------------- -------------------- DECEMBER 31, MARCH 31,
1996 1997 1998 1998 1999 1998 1999
--------- --------- --------- --------- --------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN
THOUSANDS):
Revenues................................. $ 79 $ 87 $ 968 $ 110 $ 485 $ 11,428 $ 2,706
Cost of sales............................ 99 100 998 127 375 8,276 2,007
--------- --------- --------- --------- --------- ------------- -------------
Gross profit............................. (20) (13) (30) (17) 110 3,152 699
Operating expenses:
Sales and marketing.................... -- 1,018 2,182 614 596 2,711 714
Product development.................... 300 1,316 2,551 660 395 2,551 395
General and administrative............. 146 1,285 3,413 555 1,045 5,857 1,618
Amortization of unearned
compensation......................... -- -- 379 25 398 379 398
Amortization of goodwill............... -- -- -- -- -- 138 35
--------- --------- --------- --------- --------- ------------- -------------
Total operating expenses............. 446 3,619 8,525 1,854 2,434 11,636 3,160
Loss from operations..................... (466) (3,632) (8,555) (1,871) (2,324) (8,484) (2,461)
--------- --------- --------- --------- --------- ------------- -------------
Net loss................................. $ (463) $ (3,570) $ (8,601) $ (1,872) $ (2,340) $ (8,791) $ (2,531)
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Cash and cash equivalents.......................................... $ 124 $ 19,301 $
Working capital (deficit).......................................... (1,905) 19,570
Total assets....................................................... 2,045 27,319
Total debt......................................................... 1,864 666
Mandatorily redeemable convertible preferred stock................. 12,217 --
Accumulated deficit................................................ (14,974) (14,974)
Convertible preferred stock........................................ 15 --
Total shareholders' equity (deficit)............................... (12,820) 24,771
</TABLE>
The preceding balance sheet data summarizes
- actual balance sheet data at March 31, 1999;
- pro forma balance sheet data, after giving effect to (1) the conversion of
all shares of convertible preferred stock outstanding at March 31, 1999
into 10,786,750 shares of common stock, (2) the issuance and conversion
into common stock of 11,904,761 shares of convertible preferred stock we
issued on April 8 and 15, 1999 at $2.10 per share as if these shares had
been issued on March 31, 1999 and (3) the acquisition of Fine Arts
Graphics on April 13, 1999 and the issuance of 187,500 shares of common
stock in connection therewith as if the acquisition had occurred on March
31, 1999; and
- pro forma balance sheet data, as adjusted to reflect the sale of
shares of common stock in this offering, assuming an initial public
offering price of $ per share less estimated underwriting discounts and
commissions and estimated offering expenses we expect to pay in connection
with this offering. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
BEFORE MAKING AN INVESTMENT DECISION. THEY ARE NOT THE ONLY ONES WE FACE.
ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE NOT AWARE OF OR THAT WE CURRENTLY
DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART
OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. WE USE WORDS SUCH AS "ANTICIPATE," "BELIEVE," "EXPECT," "FUTURE" AND
"INTEND" AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS FOR MANY REASONS, INCLUDING THE FACTORS DESCRIBED
BELOW AND ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS
PROSPECTUS.
WE HAVE AN EXTREMELY LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS OF
NEW ENTERPRISES.
We began operations in 1996 and commercially introduced our Internet-enabled
printing services in October 1997. We have had limited revenues to date, and our
customers have been doing business with us for only a short time. Our extremely
limited operating history and the uncertain and emerging nature of the market in
which we compete make it difficult to assess our prospects or predict our future
operating results. Therefore, you should not consider our recent revenue growth
as an indication of our future rate of revenue growth, if any. Our prospects are
subject to the risks and uncertainties frequently encountered in the
establishment of a new business enterprise, particularly in the new and rapidly
evolving markets for Internet products and services. To be successful, we must,
among other things,
- obtain substantial numbers of new customers rapidly and efficiently
through direct sales efforts, acquisitions of printers and print brokers
and strategic alliances;
- significantly expand our sales and marketing organization;
- convert customers of businesses we may acquire to the ImageX.com online
system;
- retain our existing customers and increase sales to these customers;
- significantly increase our gross margins;
- manage our growth effectively, assuming we succeed in expanding our
business;
- raise additional capital;
- anticipate and respond to competitive developments;
- enhance our product and service offerings;
- develop and upgrade our internal control systems; and
- identify, attract, retain and motivate qualified personnel.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES WILL CONTINUE.
We have never been profitable, and we anticipate that we will continue to
incur net losses in future periods. To become profitable, we must significantly
increase our revenues by obtaining new customers and generating additional
revenues from existing customers, control our costs and improve
6
<PAGE>
our gross margins. As of March 31, 1999, we had an accumulated deficit of $15.0
million. Although we have experienced revenue growth in recent periods, our
revenues may not continue at their current level or increase in the future. We
expect to continue to incur operating losses for the foreseeable future.
Moreover, we currently expect to increase our operating expenses significantly
in connection with
- expanding our sales and marketing organization;
- continuing to develop our services and technology;
- hiring additional personnel;
- upgrading our information and internal control systems; and
- pursuing acquisitions as part of our growth strategy.
If we are unable to rapidly increase our revenues and operating margins, our
operating losses may continue to increase in future periods. Increased
competition or other changes in printing industry economics may also adversely
affect our ability to eventually become profitable. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
OUR QUARTERLY RESULTS ARE DIFFICULT TO PREDICT AND ARE LIKELY TO FLUCTUATE,
WHICH MAY HAVE AN IMPACT ON OUR STOCK PRICE.
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. We compete in the general commercial printing sector,
which is characterized by individual orders from customers for specific printing
projects rather than long-term contracts. Continued engagement for successive
jobs depends on the customers' satisfaction with the services provided. As a
result, we cannot predict the number, size and profitability of printing jobs in
a given period. Our operating results will fall below market analysts'
expectations in some future quarters, which could lead to a significant decline
in the market price of our stock. In addition to the risk factors described
elsewhere, quarterly fluctuations may also result from
- our ability to obtain new customers and cause acquired customers to
upgrade to the ImageX.com online system;
- changes in our operating expenses and capital expenditure requirements;
- our ability to retain our existing customers and increase sales to them;
- the timing of announcement and completion of any acquisitions we pursue;
- changes in the mix of printing services we sell;
- the timing of customer orders;
- increased competition; and
- general or industry-specific economic conditions.
Based on all these factors, we believe that our quarterly revenues, expenses
and operating results will be difficult to predict. Moreover, because of our
short operating history and our acquisition of Fine Arts Graphics in April 1999,
period-to-period comparisons of our operating results are not necessarily
meaningful. As a result, you should not rely on such comparisons as indications
of our future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
7
<PAGE>
TO OBTAIN NEW CUSTOMERS, WE MUST OVERCOME LONG-STANDING CUSTOMER RELATIONSHIPS
AND LONG SALES CYCLES.
Many of the potential customers that we pursue through our direct sales
process have long-standing business relationships and personal ties with their
existing printers, which they are reluctant to disrupt. Customers are also often
reluctant to change their existing ordering and production processes to take
advantage of our Internet-based printing services. To successfully sell our
products, we generally must educate our potential customers on the use and
benefits of our system, which can require significant time and resources.
Consequently, we must incur substantial expenses in acquiring new customers. The
period between initial contact and the purchase of our products is often long
and subject to delays associated with the lengthy approval and competitive
evaluation processes that typically accompany a customer's decision to change
its outsourcing relationships. For typical customers, the sales cycle takes
between two to twelve weeks, but for large customers, the sales cycle may
require more than one year. See "Business--Sales and Marketing."
WE ARE SUBJECT TO RISKS ASSOCIATED WITH BUSINESS ACQUISITIONS.
In April 1999, we acquired the assets of Fine Arts Graphics, a commercial
printing company. To expand our business and our customer base, we intend to
pursue acquisitions of other commercial printers and print brokers. Our goal is
to rapidly acquire customers by acquiring printing services providers with
strong customer relationships and to convert their key customers to the
ImageX.com online printing system. We may continue to operate the printing
facilities of some of the printing businesses that we acquire, and sell the
production operations of others.
We are currently in discussions with several acquisition candidates, but we
have not entered into any definitive acquisition agreements at this time. We may
not be able to successfully negotiate definitive agreements with, or to
successfully complete and integrate any acquisitions of, these or any other
acquisition candidates.
Because we only recently completed our first acquisition, we cannot assure
you that our strategy of achieving customer and revenue growth through
acquisitions of businesses will be successful. To be successful we must be able
to
- identify printing businesses with strong customers and sound economics and
operations;
- effectively compete with numerous other potential acquirers, particularly
a number of large companies that are aggressively seeking to consolidate
segments of the printing industry;
- succeed in converting key acquired customers to the ImageX.com system, to
increase their purchases of print products and services and to minimize
customer attrition;
- motivate, train and retain the sales force and other key personnel of
acquired businesses;
- maintain or improve the profit margins and cash flow of acquired
businesses;
- integrate the operations, procedures and technologies of acquired
businesses with our own systems and infrastructure;
- minimize disruptions to our operations and distractions to our management;
- maintain consistent product standards and policies, and adequate internal
controls; and
- successfully dispose of or find alternative uses for excess facilities and
manufacturing capacity.
We cannot predict whether pursuing business acquisitions will allow us to
grow rapidly enough to recover the large investments we have made, and must
continue to make, in our technology and systems. Our business model depends on
rapid growth of revenues to achieve profitability. The integration of acquired
businesses is often difficult, time consuming and expensive. If acquiring
8
<PAGE>
businesses proves too costly or time-consuming, or if we are unable to
successfully retain the customers or personnel of acquired businesses, our
growth rate may not be sufficient to achieve profitability in the foreseeable
future, if ever. In addition, the amortization of goodwill and other intangible
assets, or other charges resulting from the cost of business acquisitions, could
adversely affect our operating results.
WE NEED TO EXPAND OUR SALES AND CUSTOMER SUPPORT INFRASTRUCTURE.
To date, we have sold our products primarily through our direct sales force
and have supported our customers with our customer support personnel. Our
ability to expand our business will depend in part on recruiting and training
additional direct sales and customer support personnel. Competition for
qualified personnel in these areas is intense. We may not be able to
successfully expand our direct sales force, which would limit our ability to
expand our customer base. We may be unable to hire highly trained customer
support personnel, which would make it difficult for us to meet customer
demands. In addition, we plan to rely on our sales and marketing and customer
support personnel to retain the customers of printers and print brokers that we
may acquire in the future, and convert these customers to our online printing
system. As a result, any difficulties we may have in expanding our sales and
marketing or customer support organizations will have a negative impact on our
ability to successfully capitalize on any acquisitions we may complete. See
"Business--Sales and Marketing."
WE WILL NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, WHICH CAN CAUSE
DILUTION.
We expect that we will need to raise additional capital in the future in
order to fund our operations. Our future capital requirements will depend on
many factors that are difficult to predict, including acquisitions of
businesses, assets and technologies, our rate of revenue growth, our operating
cash flow, the cost of obtaining new customers and technical capabilities, and
the cost of upgrading and maintaining our network infrastructure and other
systems. As a result, we cannot predict the timing or amount of our future
capital needs. We have no commitments for additional financing, and we may
experience difficulty in obtaining additional funding on favorable terms, if at
all. Any difficulty in obtaining additional financial resources could force us
to curtail our operations or prevent us from pursuing our growth strategy.
Any future funding may dilute the ownership of our shareholders.
Shareholders could experience additional dilution if we issue shares of our
stock to pay for acquisitions of other businesses or assets. In addition, our
board of directors has broad discretion to determine the rights and preferences
of securities issued to investors or shareholders of acquired businesses in the
future. If we issue securities with senior or superior rights and powers,
existing shareholders may be adversely affected.
WE MAY HAVE DIFFICULTY IN MANAGING GROWTH.
Our business has grown rapidly in the last year and must continue to do so
for us to become profitable. Our recent rapid growth has placed and, if
sustained, will continue to place, a significant strain on our management and
operations. Accordingly, our future operating results will depend on the ability
of our officers and other key employees to continue to implement and improve our
operational, customer service and internal control systems, and to effectively
expand, train and manage our employee base. We are implementing new financial
and reporting enterprise application systems on a company-wide basis to support
our anticipated growth and integrate the operations of Fine Arts Graphics with
those of ImageX.com. Our belief that these systems will be adequate for our
immediate needs may prove inaccurate. In addition, we may encounter problems,
delays or additional costs in implementing these systems. We cannot be certain
that we will be able to manage any future expansion. If we fail to effectively
plan and manage future growth in our business, we could face a loss of business
and customers, and a deterioration of our financial outlook.
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<PAGE>
WE MAY NOT BE ABLE TO ESTABLISH OUR BRAND NAME.
We have not yet developed a strong brand name on a national basis. We
believe that establishing and maintaining a strong brand name is a critical
aspect of attracting and expanding our customer base. Strong branding is also
critical to maintaining and building on the competitive advantage of being the
first company to provide businesses with an integrated, Internet-based
commercial printing solution. The importance of brand name recognition will
increase with competition. We will need to devote substantial financial and
management resources to promoting and enhancing our brand. There is a risk that
the costs associated with our brand promotion strategy may exceed the benefits
we may receive from those efforts. If we select the wrong channels to promote
the ImageX.com brand, fail to develop and target an effective customer message
or otherwise fail to successfully promote and maintain our brand name, we will
not be able to realize the benefits of strong brand recognition. Any failure to
develop a strong brand will prevent us from exploiting our first-mover advantage
in our market and will leave us more susceptible to competition from other
Internet-based printing services providers. See "Business--Business Strategy."
WE ARE SUBJECT TO RISKS AND REGULATIONS ASSOCIATED WITH THE PRINTING INDUSTRY.
We are subject to a number of risks associated with the commercial printing
industry that may from time to time adversely affect our operating results or
expose us to liability. The cost of paper is a principal factor in the pricing
we receive from our commercial printing vendors and our own pricing through our
two production facilities. We are generally able to pass increases in the cost
of paper to customers, while decreases in paper costs generally result in lower
prices to customers. In the last three years, paper prices have fluctuated
dramatically. If we are unable to pass future paper cost increases on to our
customers, or if our customers reduce their order volume, our profit margins and
cash flows could be adversely affected.
In recent years, increases or decreases in demand for paper have led to
corresponding pricing changes. In periods of high demand, certain paper grades
have been in short supply, including grades we and our commercial printing
vendors use. Any loss of the sources for paper supply or any disruption in our
suppliers' businesses or their failure to meet our product needs on a timely
basis could cause, at a minimum, temporary shortages in needed materials, which
could have a material adverse effect on our operating results, sales, profit
margins and cash flows.
The printing business generates substantial quantities of inks, solvents and
other waste products requiring disposal. The printing facilities that we operate
are subject to federal and state environmental laws and regulations concerning
emissions into the air, discharges into waterways and the generation, handling
and disposal of waste materials. We believe our facilities are in substantial
compliance with these laws and regulations at this time. However, changes to
these laws and regulations could increase the cost of our doing business or
otherwise have a material adverse effect on our business, financial condition
and operating results. In addition, although we maintain commercial property
insurance at all of our facilities, this insurance may not be adequate to cover
any claims against us for environmental liabilities.
In recent years, the market for printed business materials has experienced
significant changes due to advances in computer and communication technologies.
Certain products that were once commercially printed are now generated on
computers through word processing or desktop publishing software. In addition,
some information is now disseminated in a digital or electronic format rather
than in a paper format. These trends could continue in the future, resulting in
decreased demand for our products and services.
10
<PAGE>
OUR FUTURE SUCCESS DEPENDS ON THE SERVICES OF A SMALL NUMBER OF KEY PERSONNEL.
Our future success depends on the continued services of certain key
management personnel, particularly our President and Chief Executive Officer,
Richard P. Begert and our Chief Technology Officer, Cory E. Klatt. We also must
identify, attract and retain additional qualified management and technical
personnel to manage and support our business. Competition for top management and
technical personnel is intense, and we may not be able to recruit and retain the
personnel we need. Many of our existing management personnel have been employed
at ImageX.com for less than a year, including our President and Chief Executive
Officer, who joined us in November 1998. Our future success depends to a
significant extent on the ability of our executive officers and other members of
our management team to operate effectively, both individually and as a group. We
cannot be certain that we will be able to satisfactorily allocate
responsibilities and that the new members of our executive team will succeed in
their roles. The loss of any one of our key management personnel, particularly
Mr. Begert, or the inability to attract, retain and integrate additional
qualified personnel would make it difficult for us to successfully manage our
operations and pursue our strategic objectives. See "Management."
THE ELECTRONIC COMMERCE PRINTING MARKET IS NEW AND HIGHLY UNCERTAIN.
For us to succeed, the Internet must continue to be adopted as an important
means of buying and selling products and services. In particular, Internet
electronic commerce must evolve beyond its current role as a consumer retail
channel and become a leading business-to-business purchasing tool. Because
online procurement of business products and services is still in its nascent
stage, it is difficult to estimate the size of this market and its growth rate,
if any. To date, many businesses have been deterred from using the Internet for
procurement for a number of reasons, including
- security concerns;
- unavailability of cost-effective, high-speed Internet access;
- inconsistent quality of service;
- potentially inadequate development of the global Internet infrastructure;
and
- the difficulty of integrating existing business software applications with
online purchasing systems.
Even if the Internet is widely adopted for business procurement, it may not
achieve broad market acceptance for printing services procurement. Companies
that have already invested substantial resources in traditional methods of
printed business materials procurement may be reluctant to adopt new
Internet-based ordering systems.
We have expended, and will continue to expend, significant resources
educating potential customers about our services, capabilities and benefits. We
may not be successful in achieving market acceptance of the ImageX.com system,
or in achieving significant market share before competitors offer products,
applications or services with features similar or superior to our current or
proposed offerings.
WE FACE INTENSE COMPETITION FROM PRINTING COMPANIES AND COULD FACE ADDITIONAL
COMPETITION FROM OTHER BUSINESSES OFFERING INTERNET-BASED PRINTING SERVICES.
The market for printed business materials is intensely competitive. We
compete primarily with local and regional printers, which are either independent
or owned by print industry consolidators. The U.S. commercial printing industry
is highly fragmented, with over 40,000 local and regional commercial printers
operating nationwide. These local and regional printers typically have
significant excess production capacity. Therefore, they compete aggressively for
business printing orders in the markets they serve.
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<PAGE>
Traditional commercial printers often have long-standing relationships with
customers. We face substantial challenges in convincing businesses to consider
alternatives to their traditional printers. In addition, printers typically have
extensive local sales forces that regularly canvass and solicit businesses in
the areas they serve. Commercial printers compete primarily on product pricing,
product and service quality and, to a lesser extent, on innovation in printing
technologies and techniques. To attract new customers and retain our existing
customers, we must compete effectively in each of these areas.
We also face substantial competition from printing services
brokers--companies that contract with businesses to select and procure printing
services from a variety of printers. Brokers are able to offer customers a
relatively wide variety of products and services, and are often able to obtain
favorable pricing for their customers by soliciting bids from a variety of
printers. Like local and regional printers, printing services brokers often have
long-standing customer relationships and extensive local direct sales forces.
We may in the future also face direct competition from other companies that
may develop and market integrated Internet-based business printing services
similar to ours. Potential developers of competing electronic commerce services
may include
- consumer printing service providers, including Internet-based providers;
- office services providers; and
- equipment manufacturers.
Many of our current and potential future competitors have substantially
greater financial, marketing and other resources than we do. As a result, they
may be able to market their products, services and branding more aggressively
than we are able to, and may be able to significantly undercut our pricing for
extended periods of time. They may also be able to respond more quickly and
effectively to emerging new technologies and to changes in customer requirements
and preferences. See "Business--Competition."
WE RELY ON A SMALL NUMBER OF CUSTOMERS AND INDUSTRIES FOR SUBSTANTIALLY ALL OUR
REVENUES.
A small number of our customers account for a substantial percentage of our
revenues. We have not entered into long-term agreements with any of our
customers. Any of our significant customers could stop purchasing printing
services from us, or significantly reduce their purchases, at any time. Our two
largest customers following our recent acquisition of Fine Arts Graphics, CB
Richard Ellis and PricewaterhouseCoopers, each accounted for more than 10% of
our pro forma revenues in 1998 and in the first quarter of 1999. In addition,
our combined top 10 customers accounted for over 50% of our pro forma revenues
in 1998 and in the first quarter of 1999.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO CONTINUOUSLY ENHANCE OUR TECHNOLOGY
AND SERVICES.
Our future success will depend on our ability to maintain and develop
competitive technologies, to continue to enhance our current services, and to
develop and introduce new services in a timely and cost-effective manner. We
must be able to continuously adapt to changing conditions, including evolving
customer needs, new competitive service offerings, emerging industry standards
and rapidly changing technology. Both the business printing services market and
the general Internet commerce sector are subject to rapidly changing technology
and standards, changes in customer requirements and frequent new product
introductions and enhancements. We may be unable to develop and market, on a
timely basis, if at all, service enhancements or new services that respond to
changing market conditions or that will be accepted by buyers of printed
business materials. Any failure by us to anticipate or to respond quickly to
changing market conditions, or any significant delays in service development or
introduction, could cause customers to delay or decide against purchasing our
services.
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<PAGE>
WE DEPEND ON THIRD-PARTY SERVICES AND TECHNOLOGY AND MUST CONTINUE TO IMPROVE
OUR SYSTEMS AND INFRASTRUCTURE.
Our success in attracting and retaining customers and convincing them to
increase their reliance on our Internet-based printing services depends on our
ability to offer customers reliable, secure and continuous service. This in turn
requires us to ensure continuous and error-free operation of our systems and
network infrastructure. We rely on third parties to provide key components of
our networks and systems. For instance, we rely on a third-party Internet
services provider for the high-speed connections that link our Web servers and
office systems to the Internet. We also rely on third-party communications
services providers to provide secure connections to relay customer order
information to our network of commercial printing vendors. Few of our systems
have redundant backup systems capable of mitigating the effect of service
disruptions. Any Internet or communications systems failure or interruption
could result in disruption of our service or loss or compromise of customer
orders and data. Such failures, especially if they are prolonged or repeated,
would make our services less attractive to customers and tarnish our reputation.
As the volume of data traffic on our Web site, network and other systems
increases, we must continuously upgrade and enhance our technical infrastructure
to accommodate the increased demands placed on our systems. If we fail to
rapidly scale up the speed and data capacity of our systems, our customers may
experience a deterioration of response times from our systems or periodic
systems failures. Such difficulties would reduce customer loyalty and use of our
services.
In addition, significant components of the technologies employed in our
software and systems, including our Online Printing Center, are licensed from
third parties. We may be required to license additional software and
technologies from others as we expand and enhance our services. We cannot ensure
that the third-party technologies that we need will be made available to us on
reasonable terms, if at all. We also cannot predict whether the technologies
that we license from others will prove to have defects and errors that could
disrupt our business. Third-party technologies could also be subject to claims
of infringement of proprietary rights of others, which could force us to
discontinue using these technologies and force an interruption or reduction in
the scope of our services until alternative technologies are identified and
implemented.
POSSIBLE ELECTRONIC COMMERCE SECURITY BREACHES, SYSTEMS FAILURES OR DAMAGE TO
OUR FACILITIES COULD HARM OUR BUSINESS.
We rely on encryption and authentication technology to effect secure
transmission of confidential information, such as payment instruction sets. It
is possible that advances in computer capabilities, new discoveries in the field
of cryptography, or other events or developments will result in a compromise or
breach of the codes used by us to protect customer transaction data. If any such
compromise of our security were to occur, it could have a material adverse
effect on our reputation and on our ability to conduct business. It also could
expose us to a risk of loss or litigation and possible liability. It is possible
that our security measures will not prevent security breaches.
The performance of our computer and telecommunications equipment is critical
to our reputation and to our ability to achieve market acceptance of our
services. Any system failure, including any network, software or hardware
failure, that causes interruption or an increase in response time of our online
services could decrease usage of our services. Frequent systems failures could
reduce the attractiveness of our services to our customers. An increase in the
volume of printing orders could strain the capacity of our hardware, which could
lead to slower response time or systems failures. Our operations also depend in
part on our ability to protect our operating systems against physical damage
from fire, earthquakes, power loss, telecommunications failures, computer
viruses, hacker attacks, physical break-ins and similar events.
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<PAGE>
All our databases, servers and other information and communications systems
are located at our headquarters in Bellevue, Washington. Although we have
limited backup systems, significant damage to or destruction of our main
facilities could interrupt service to our customers for several days. Our
property and business interruption insurance has relatively low coverage limits
and may not be adequate to compensate us for all losses that may occur.
We are contemplating moving our information and communications systems to an
offsite location. If we undertake this move and fail to manage it effectively,
it could interrupt service to our customers, which could tarnish our reputation
and decrease usage of our services.
WE MAY NOT BE ABLE TO PROVIDE SERVICES IF THE SYSTEMS THAT WE RELY ON ARE NOT
YEAR 2000 COMPLIANT.
We are in the process of assessing and remediating any year 2000 issues
associated with our computer systems and software and other property and
equipment. Despite our testing and remediation, our systems and those of third
parties, including the manufacturing systems of our vendors or the systems our
customers use to order our services, may contain certain year 2000 errors or
faults. Known or unknown errors and defects that affect the operation of our
software and systems and those of third parties could result in delay or loss of
revenues, interruption of services, damage to our reputation and litigation, any
of which could harm our business. Our efforts to address this issue are
described in more detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
POTENTIAL IMPOSITION OF GOVERNMENT REGULATION ON ELECTRONIC COMMERCE AND LEGAL
UNCERTAINTIES COULD LIMIT OUR GROWTH.
The adoption of new laws or the adaptation of existing laws to the Internet
may decrease the growth in the use of the Internet, which could in turn decrease
the demand for our services, increase our cost of doing business or otherwise
have a material adverse effect on our business, financial condition and
operating results. Few laws or regulations currently directly apply to access to
commerce on the Internet. Federal, state, local and foreign governments are
considering a number of legislative and regulatory proposals relating to
Internet commerce. As a result, a number of laws or regulations may be adopted
regarding Internet user privacy, taxation, pricing, quality of products and
services, and intellectual property ownership. How existing laws will be applied
to the Internet in areas such as property ownership, copyright, trademark, trade
secret, obscenity and defamation is uncertain. The recent growth of Internet
commerce has been attributed by some to the lack of sales and value-added taxes
on interstate sales of goods and services over the Internet. Numerous state and
local authorities have expressed a desire to impose such taxes on sales to
consumers and businesses in their jurisdictions. The Internet Tax Freedom Act of
1998 prevents imposition of such taxes through October 2001. If the federal
moratorium on state and local taxes on Internet sales is not renewed, or if it
is terminated before its expiration, sales of goods and services over the
Internet could be subject to multiple overlapping tax schemes, which could
substantially hinder the growth of Internet-based commerce, including sales of
our products and services.
POSSIBLE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS.
Legal standards relating to the protection of intellectual property rights
in Internet-related industries are uncertain and still evolving. As a result,
the future viability or value of our intellectual property rights, as well as
those of other companies in the Internet industry, is unknown. We currently have
no issued patents. We have one U.S. patent pending, but we cannot be certain
that any patent will ultimately be issued. We have registered the trademark
"ImageX" in the United States and have applied for the same mark in Japan and
the European Union. We have additional trademark applications pending.
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<PAGE>
We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights, nor can we be sure that
competitors will not independently develop technologies that are substantially
equivalent or superior to the proprietary technologies employed in our Web-based
services. In addition, we cannot be certain that our business activities will
not infringe on the proprietary rights of others, or that other parties will not
assert infringement claims against us. Any claim of infringement of proprietary
rights of others, even if ultimately decided in our favor, could result in
substantial costs and diversion of resources. If a claim is asserted that we
infringed the intellectual property of a third party, we may be required to seek
licenses to such third-party technology. We cannot be sure that licenses to
third-party technology will be available to us at a reasonable cost, if at all.
See "Business--Intellectual Property."
OUR STOCK PRICE MAY BE VOLATILE.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock will be determined
through negotiations between ImageX.com and the representatives of the
underwriters. We cannot predict whether the market price of our common stock
following this offering will remain at or above its initial offering price. We
also cannot be certain whether an active trading market in the common stock will
evolve following this offering and how liquid that market will be. As a result,
if you decide to purchase our shares, you may not be able to resell your shares
at or above the initial public offering price.
The market price for our shares of common stock is likely to be very
volatile due to a number of factors, including
- actual or anticipated variations in quarterly operating results;
- the gain or loss of significant customers;
- the timing of any acquisitions we may complete;
- changes in revenue and earning estimates by analysts;
- announcements of technological innovations or new products by us or our
competitors;
- general conditions in the Internet commerce and printing industries; and
- other events or factors that negatively affect the stock market.
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have been unrelated to the operating performance of
particular companies. This is particularly characteristic of many companies in
the technology and emerging growth sectors. These broad market fluctuations
could materially adversely affect the market price of our common stock.
In the past, companies that have experienced volatility in the market price
of their stock have been subject to securities class-action litigation. If we
were the subject of securities class-action litigation, it could be costly and
divert our management's attention and resources.
WE HAVE NO SPECIFIC PLAN FOR ANY SIGNIFICANT PORTION OF THE NET PROCEEDS AND OUR
INVESTMENT OF THE NET PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
We currently have no specific plans for any significant portion of the net
proceeds of this offering. As a consequence, our management will have the
discretion to allocate the net proceeds to uses the shareholders may not deem
desirable. We may not be able to invest these proceeds to yield a significant
return. Substantially all of the net proceeds of this offering will be invested
in short-term, interest-bearing, investment-grade securities for an indefinite
period of time.
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<PAGE>
AFTER THIS OFFERING WE WILL CONTINUE TO BE CONTROLLED BY EXISTING SHAREHOLDERS
WHOSE INTERESTS MAY CONFLICT WITH YOURS.
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately % of the
outstanding shares of our common stock. As a result, these shareholders will be
able to control all matters requiring shareholder approval and, thereby, our
management and affairs. Matters that typically require shareholder approval
include
- election of directors;
- amendments to articles of incorporation;
- mergers, acquisitions or asset sales; and
- other significant corporate transactions.
This concentration of ownership may delay, deter or prevent actions that
would result in a change of control, which in turn could reduce the market price
of our common stock. See "Principal Shareholders" for further information on the
share ownership of our officers, directors and affiliates.
OUR ARTICLES OF INCORPORATION AND BYLAWS AND WASHINGTON LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER.
Certain provisions of our articles of incorporation, our bylaws and
Washington law could make it more difficult for a third party to obtain control
of ImageX.com, even if doing so might be beneficial to our shareholders. See
"Description of Capital Stock."
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, we will have outstanding shares of common stock.
Sales of a substantial number of shares of common stock in the public market
following this offering could materially adversely affect the market price for
our common stock. All the shares sold in this offering will be freely tradable.
Pursuant to certain lock-up agreements, all the executive officers, directors
and shareholders of ImageX.com, who collectively hold an aggregate of
restricted shares, have agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any such shares for a period of 180
days from the date of this prospectus. On the expiration date of the lock-up
agreements, restricted shares will be eligible for immediate sale (of
which shares will be subject to certain volume, manner of sale and other
limitations under Rule 144 under the Securities Act). Approximately remaining
restricted shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following the
expiration of the lock-up period. Volpe Brown Whelan & Company LLC may, in its
sole discretion and at any time without prior notice, release all or any portion
of the common stock subject to lock-up agreements.
Shortly after the closing of this offering, we intend to file a registration
statement to register for resale 9,186,810 shares of common stock issuable under
our stock option and employee stock purchase plans. Of that number of shares,
approximately shares are subject to options that will be exercisable
immediately following the closing of this offering based on options that were
outstanding on April 30, 1999. See "Shares Eligible for Future Sale" and
"Underwriting."
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USE OF PROCEEDS
We expect to receive approximately $ million in net proceeds from
the sale of the shares of common stock in this offering, assuming an
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses we expect
to pay in connection with this offering (approximately $ million if the
underwriters' over-allotment option is exercised in full).
We intend to use the net proceeds of this offering primarily for working
capital, acquisitions of businesses, repayment of debt and other general
corporate purposes, including expanding our sales and marketing organization,
developing new technologies and expanding our line of products and services. We
are currently in discussions with several acquisition candidates, but we have
not entered into any definitive agreements at this time. Because of the nature
of our industry and the expectations of our potential business targets, we
expect to use cash as the primary currency for any future acquisitions. As a
result of our acquisition strategy, we may use a substantial portion of the net
proceeds of this offering for acquisitions.
We also plan to use a portion of the net proceeds to repay the outstanding
balance on our credit facilities. As of May 10, 1999, we had the following
outstanding balances on our credit facilities:
<TABLE>
<CAPTION>
AMOUNT
FACILITY OUTSTANDING INTEREST RATE AS OF MAY 10, 1999
- ----------------------------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
Silicon Valley Bank:
Term loans................................... $ 528,000 Prime + 2% = 9.75%
Working capital line......................... $ -- Prime + 1% = 8.75%
Bank of America:
Term loan.................................... $ 1.5 million Prime + 1% = 8.75%
Working capital line......................... $ 500,000 Prime + 0.5% = 8.25%; plus 0.25% fee on the
undrawn amount
----------------
Total...................................... $2.528 million
----------------
----------------
</TABLE>
The amounts that we actually expend for working capital and general
corporate purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash we generate from
operations. As a result, we will retain broad discretion in allocating the net
proceeds of this offering. Pending the uses described above, we will invest the
net proceeds in short-term, interest-bearing, investment-grade securities. See
"Risk Factors--We have no specific plan for any significant portion of the net
proceeds and our investment of the net proceeds may not yield a favorable
return."
DIVIDEND POLICY
We have never paid dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate declaring or paying any cash dividends
in the foreseeable future. In addition, the terms of our current credit
facilities prohibit us from paying dividends without our lenders' consent.
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CAPITALIZATION
The following table sets forth at March 31, 1999:
- the actual capitalization of ImageX.com;
- the pro forma capitalization of ImageX.com, after giving effect to (1) the
conversion of all shares of convertible preferred stock outstanding at
March 31, 1999 into 10,786,750 shares of common stock, (2) the issuance
and conversion into common stock of 11,904,761 shares of convertible
preferred stock we issued on April 8 and 15, 1999 at $2.10 per share, as
if these shares had been issued on March 31, 1999, and (3) the acquisition
of Fine Arts Graphics on April 13, 1999 and the issuance of 187,500 shares
in connection therewith, as if the acquisition had occurred on March 31,
1999; and
- the pro forma capitalization of ImageX.com, as adjusted to reflect the
sale of shares of common stock in this offering, assuming an initial
public offering price of $ per share less estimated underwriting
discounts and commissions and estimated offering expenses we expect to pay
in this offering.
This information should be read in conjunction with our financial statements
and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
AS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) ACTUAL PRO FORMA ADJUSTED
--------- ----------- -----------
Long-term obligations, net of current portion.............. $ 268 $ 268 $
<S> <C> <C> <C>
--------- ----------- -----------
Mandatorily redeemable convertible preferred stock, $0.01
par value per share; 9,465,000 shares authorized;
9,286,750 shares issued and outstanding, actual; no
shares issued and outstanding, pro forma and pro forma as
adjusted................................................. 12,217 -- --
--------- ----------- -----------
Shareholders' equity (deficit):
Series A convertible preferred stock, $0.01 par value per
share; 1,500,000 shares authorized, issued and
outstanding, actual; no shares issued and outstanding,
pro forma or pro forma as adjusted..................... 15 -- --
Common stock, $0.01 par value per share; 100,000,000
shares authorized; 3,173,150 shares issued and
outstanding, actual; 26,052,161 shares issued and
outstanding, pro forma; shares issued and
outstanding, pro forma as adjusted..................... 32 261
Additional paid-in capital............................... 3,968 41,345
Unearned compensation.................................... (1,641) (1,641)
Notes receivable from shareholders....................... (220) (220)
Accumulated deficit...................................... (14,974) (14,974)
--------- ----------- -----------
Total shareholders' equity (deficit)................. (12,820) 24,771
--------- ----------- -----------
Total capitalization............................... $ (335) $ 25,039 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The outstanding share information set forth above excludes:
- 1,370,357 shares of common stock issuable upon exercise of options
outstanding as of March 31, 1999, of which 349,347 shares are exercisable,
under our stock option plan at a weighted average exercise price of $0.28
per share and 2,954,553 shares available for future issuance under our
stock option plan pursuant to options that had not yet been granted;
- 2,870,114 shares issuable upon exercise of warrants outstanding as of
March 31, 1999, all of which are currently exercisable at a weighted
average exercise price of $2.04 per share; and
- 500,000 shares available for future issuance under our employee stock
purchase plan.
In April 1999, we granted (1) options to purchase 50,000 shares of common stock
at an exercise price of $2.10 per share and options to purchase 660,250 shares
of common stock at an exercise price of $3.00 per share and (2) warrants to
purchase 181,864 shares of common stock at an exercise price of $2.10 per share.
18
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share and the
adjusted pro forma net tangible book value per share after this offering. We
calculate pro forma net tangible book value per share by dividing the pro forma
net tangible book value (total assets less intangible assets and total
liabilities) by the number of outstanding shares of common stock.
The pro forma net tangible book value of ImageX.com at March 31, 1999 was
$23.4 million, or $0.90 per share of common stock, after giving effect to the
acquisition of Fine Arts Graphics on April 13, 1999 and the issuance of 187,500
shares of common stock in connection therewith, as if the acquisition had
occurred on March 31, 1999, and the issuance of 11,904,761 shares of convertible
preferred stock at $2.10 per share on April 8 and 15, 1999, as if these shares
had been issued on March 31, 1999. After giving effect to the sale of
shares of common stock in this offering at an assumed initial public offering
price of $ per share (less estimated underwriting discounts and
commissions and estimated offering expenses we expect to pay in connection with
this offering), the adjusted pro forma net tangible book value of ImageX.com at
March 31, 1999 would be $ million, or $ per share. This represents an
immediate increase in the adjusted pro forma net tangible book value of $
per share to existing shareholders and an immediate and substantial dilution of
$ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share at March 31, 1999...... $ 0.90
Increase per share attributable to new investors...................
---------
Pro forma net tangible book value per share after this offering......
---------
Dilution per share to new investors.................................. $
---------
---------
</TABLE>
The following table shows on a pro forma basis at March 31, 1999 the number
of shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by existing shareholders and by new
investors, after giving effect to the acquisition of Fine Arts Graphics on April
13, 1999 and the issuance of 187,500 shares of common stock in connection
therewith as if the acquisition had occurred on March 31, 1999, and the issuance
of 11,904,761 shares of convertible preferred stock at $2.10 per share on April
8 and 15, 1999 as if these shares had been issued on March 31, 1999:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................... 26,052,161 % $ 38,454,200 % $ 1.48
New investors............................
------------ ----- ------------- -----
Total................................ 100.0% $ 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
At March 31, 1999, we had outstanding options and warrants to purchase
shares of common stock as follows, after giving effect to the issuance in
connection with our acquisition of Fine Arts Graphics on April 13, 1999 of
warrants to purchase 150,000 shares of common stock at an exercise price of
$2.00 per share, as if the acquisition had occurred on March 31, 1999, and the
issuance in connection with our convertible preferred stock financing on April 8
and 15, 1999 of warrants to purchase 181,864
19
<PAGE>
shares of common stock at an exercise price of $2.10 per share, as if these
warrants had been issued on March 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO WEIGHTED AVERAGE
OPTIONS/WARRANTS EXERCISE PRICE
----------------- -----------------
<S> <C> <C>
Stock option plan.................................................. 1,370,357 $ 0.28
Warrants........................................................... 2,870,114 $ 2.04
-----------------
Total.............................................................. 4,240,471 $ 1.47
-----------------
-----------------
</TABLE>
Additionally, as of March 31, 1999, there were 2,954,553 options available
for future grant under our 1996 option plan. Also in April 1999, our board of
directors approved our employee stock purchase plan and reserved 500,000 shares
of common stock for issuance under that plan. In April 1999, we granted (1)
options to purchase 50,000 shares of common stock at an exercise price of $2.10
per share and options to purchase 660,250 shares of common stock at an exercise
price of $3.00 per share and (2) warrants to purchase 181,864 shares of common
stock at an exercise price of $2.10 per share. To the extent the option holders
exercise these outstanding options, or any options we grant in the future, there
will be further dilution to new investors.
20
<PAGE>
SELECTED FINANCIAL DATA FOR IMAGEX.COM
You should read the selected financial data below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes of
ImageX.com and Fine Arts Graphics included elsewhere in this prospectus.
Historical results are not necessarily indicative of future results. The balance
sheet data as of December 31, 1997 and 1998 and the statement of operations data
for the three years ended December 31, 1998 are derived from the financial
statements of ImageX.com included elsewhere in this prospectus and have been
audited by PricewaterhouseCoopers LLP, independent accountants. The balance
sheet data as of December 31, 1996 are derived from the financial statements of
ImageX.com not included in this prospectus and have been audited by
PricewaterhouseCoopers LLP. The balance sheet data as of March 31, 1999 and the
statement of operations data for the three months ended March 31, 1998 and 1999
have been derived from the unaudited financial statements of ImageX.com and have
been prepared on a basis consistent with the audited financial statements of
ImageX.com and the related notes and include all adjustments (consisting of
normal recurring adjustments) which we consider necessary for a fair
presentation of the information. The unaudited pro forma statement of operations
data for the year ended December 31, 1998 and the three months ended March 31,
1999 give effect to the acquisition of Fine Arts Graphics on April 13, 1999 as
if the acquisition had occurred at the beginning of each period. The unaudited
pro forma balance sheet data as of March 31, 1999 give effect to the conversion
of all shares of convertible preferred stock outstanding as of March 31, 1999,
the issuance and conversion of shares of convertible preferred stock on April 8
and 15, 1999, as if these shares had been issued on March 31, 1999, and the
acquisition of Fine Arts Graphics, as if it had occurred on March 31, 1999.
Although ImageX.com was incorporated in 1995, we had no operations during that
year. This pro forma condensed financial information has been prepared from, and
you should read it together with, the historical financial statements and
related notes of ImageX.com and Fine Arts Graphics. We have provided this pro
forma condensed financial information for illustrative purposes only. The
information does not necessarily represent what our actual results of operations
would have been had we acquired Fine Arts Graphics on the date assumed, nor is
it necessarily indicative of our future operating results.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
----------------------------------------------------- ------------------------
THREE
YEAR ENDED THREE MONTHS ENDED MONTHS
DECEMBER 31, MARCH 31, YEAR ENDED ENDED
------------------------------- -------------------- DECEMBER 31, MARCH 31,
1996 1997 1998 1998 1999 1998 1999
--------- --------- --------- --------- --------- ------------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA):
Revenues..................................... $ 79 $ 87 $ 968 $ 110 $ 485 $ 11,428 $ 2,706
Cost of sales................................ 99 100 998 127 375 8,276 2,007
--------- --------- --------- --------- --------- ------------ ---------
Gross profit................................. (20) (13) (30) (17) 110 3,152 699
Operating expenses:
Sales and marketing........................ -- 1,018 2,182 614 596 2,711 714
Product development........................ 300 1,316 2,551 660 395 2,551 395
General and administrative................. 146 1,285 3,413 555 1,045 5,857 1,618
Amortization of unearned compensation...... -- -- 379 25 398 379 398
Amortization of goodwill................... -- -- -- -- -- 138 35
--------- --------- --------- --------- --------- ------------ ---------
Total operating expenses............... 446 3,619 8,525 1,854 2,434 11,636 3,160
Loss from operations......................... (466) (3,632) (8,555) (1,871) (2,324) (8,484) (2,461 )
Other income (expense), net.................. 3 62 (46) (1) (16) (292) (75 )
--------- --------- --------- --------- --------- ------------ ---------
Net loss before income taxes................. (463) (3,570) (8,601) (1,872) (2,340) (8,776) (2,536 )
State income tax provision (benefit)......... -- -- -- -- -- 15 (5 )
--------- --------- --------- --------- --------- ------------ ---------
Net loss..................................... (463) (3,570) (8,601) (1,872) (2,340) (8,791) (2,531 )
Preferred stock accretion.................... -- -- (221) (31) (73) (221) (73 )
--------- --------- --------- --------- --------- ------------ ---------
Net loss used in calculating loss per
share...................................... $ (463) $ (3,570) $ (8,822) $ (1,903) $ (2,413) $ (9,012) $ (2,604 )
--------- --------- --------- --------- --------- ------------ ---------
--------- --------- --------- --------- --------- ------------ ---------
Basic and diluted net loss per share(1)...... $ (2.00) $ (1.57) $ (3.63) $ (0.79) $ (0.76) $ (3.45) $ (0.78 )
--------- --------- --------- --------- --------- ------------ ---------
--------- --------- --------- --------- --------- ------------ ---------
Shares used in computation of basic and
diluted net loss per share(1).............. 231,896 2,274,521 2,427,183 2,400,000 3,160,507 2,614,683 3,348,007
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
ACTUAL
------------------------------------------------
PRO FORMA
DECEMBER 31, MARCH 31, ------------
---------------------------- ------------------ MARCH 31,
1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Cash and cash equivalents......................... $ 3,453 $ 186 $ 883 $ 1,032 $ 124 $ 19,301
Working capital (deficit)......................... 3,367 (616) (418) 241 (1,905) 19,570
Total assets...................................... 3,471 938 2,319 2,101 2,045 27,319
Long-term obligations, net of current portion..... -- 300 313 300 268 268
Mandatorily redeemable convertible preferred
stock........................................... 3,459 3,459 11,350 5,888 12,217 --
Accumulated deficit............................... (463) (4,033) (12,634) (5,905) (14,974) (14,974)
Convertible preferred stock....................... 15 15 15 15 15 --
Total shareholders' equity (deficit).............. (74) (3,642) (10,878) (4,941) (12,820) 24,771
</TABLE>
- ------------
(1) See Note 1 to ImageX.com Financial Statements for an explanation of the
method used in computing basic and diluted net loss per share.
22
<PAGE>
SELECTED FINANCIAL DATA FOR FINE ARTS GRAPHICS
You should read the selected financial data below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements of Fine Arts Graphics and the related
notes thereto that we have included elsewhere in this prospectus. Historical
results are not necessarily indicative of future results. The balance sheet data
as of December 31, 1997 and 1998 and the statement of operations data for the
years then ended are derived from the financial statements of Fine Arts Graphics
included elsewhere in this prospectus, and have been audited by
PricewaterhouseCoopers LLP, independent accountants. The balance sheet data as
of March 31, 1998 and 1999 and the statement of operations data for the three
months ended March 31, 1998 and 1999 have been derived from the unaudited
financial statements of Fine Arts Graphics and have been prepared on a basis
consistent with the audited financial statements of Fine Arts Graphics and the
notes thereto and include all adjustments (consisting of normal recurring
adjustments) which we consider necessary for a fair presentation of the
information.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------- --------------
1997 1998 1998 1999
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN THOUSANDS):
Revenues................................................................... $ 9,187 $10,460 $2,328 $2,221
Cost of sales.............................................................. 5,978 7,127 1,603 1,586
------- ------- ------ ------
Gross profit............................................................. 3,209 3,333 725 635
Operating expenses:
General and administrative............................................... 2,064 2,363 558 550
Selling and marketing.................................................... 654 528 141 118
------- ------- ------ ------
Total operating expenses................................................. 2,718 2,891 699 668
------- ------- ------ ------
Income (loss) from operations............................................ 491 442 26 (33)
Interest expense........................................................... 267 265 66 57
Other income (expense)..................................................... (31) 19 (1) (2)
------- ------- ------ ------
Income (loss) before income tax provision (benefit)........................ 193 196 (41) (92)
Income tax provision (benefit)............................................. -- 15 (3) (5)
------- ------- ------ ------
Net income (loss)........................................................ $ 193 $ 181 $ (38) $ (87)
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- --------------
1997 1998 1998 1999
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Cash....................................................................... $ 90 $ 19 $ 26 $ 41
Working capital............................................................ 168 185 100 62
Total assets............................................................... 3,737 3,364 3,190 3,255
Long-term obligations, net of current portion.............................. 1,244 1,110 1,229 1,071
Accumulated deficit........................................................ (453) (349) (505) (435)
Total shareholder's deficit................................................ (114) (9) (165) (96)
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WHEN YOU READ THIS SECTION OF THIS PROSPECTUS, IT IS IMPORTANT THAT YOU ALSO
READ THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THIS SECTION OF THE PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR
PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. WE USE WORDS SUCH AS
"ANTICIPATE," "BELIEVE," "EXPECT," "FUTURE" AND "INTEND" AND SIMILAR EXPRESSIONS
TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS FOR MANY
REASONS, INCLUDING THE FACTORS DESCRIBED BELOW AND IN "RISK FACTORS." YOU SHOULD
NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY
AS OF THE DATE OF THIS PROSPECTUS.
OVERVIEW
ImageX.com is a leading Internet-based business-to-business intermediary in
the $55 billion U.S. commercial printing industry. Prior to the launch of our
pilot system in December 1996, we engaged primarily in product development and
derived substantially all our revenues from contracts for software development.
For the first nine months of 1997, customers using our pilot system accounted
for substantially all our revenues. On October 1, 1997, we launched the
commercial version of the ImageX.com system for business cards. By April 30,
1999, we had
- grown to 119 business customers (excluding customers we added through the
acquisition of Fine Arts Graphics);
- expanded our sales regions beyond Seattle to include Los Angeles, San
Francisco, New York City, Chicago and Portland;
- acquired Fine Arts Graphics, an Oregon- and New Jersey-based commercial
printer with over 600 customers in 1998;
- expanded our product offerings to include a broad range of marketing
promotional materials and general office materials; and
- grown to 77 employees (excluding 111 employees from the acquisition of
Fine Arts Graphics).
On April 13, 1999, we acquired the assets of Fine Arts Graphics, a
commercial printer focused exclusively on the general office category. The
purchase price of the acquisition included approximately $4.6 million in cash
and 187,500 shares of common stock. In connection with the acquisition, we also
entered into a two-year employment agreement with the President of Fine Arts
Graphics, Nicholas J. Stanley, pursuant to which we agreed to provide Mr.
Stanley with, among other things, a warrant to purchase 150,000 shares of common
stock at $2.00 per share. See "Management--Employment Agreements."
We accounted for the acquisition under the purchase method of accounting.
For 1998 and the first quarter ended March 31, 1999, we have included Fine Arts
Graphics' results of operations and the fair market value of the assets acquired
and liabilities assumed in our Pro Forma Condensed Financial Statements, giving
effect to the acquisition as if it had occurred at the beginning of each period
presented. We expect to record goodwill of approximately $1.4 million as a
result of this acquisition. We amortize goodwill on a straight-line basis over a
period of 10 years.
We are currently in discussions with several acquisition candidates, but we
have not entered into any definitive acquisition agreements at this time. See
"Risk Factors--We are subject to risks associated with business acquisitions"
and "Business--Acquisitions."
As a result of our acquisition of Fine Arts Graphics, we expect that, for
the near term, a substantial portion of our revenues will be derived from orders
received through traditional means
24
<PAGE>
rather than through our online system. Our goal is to convert Fine Arts
Graphics' key customers to our online system, which we currently anticipate will
reduce manufacturing costs. In addition, we will be subject to various risks
associated with our manufacturing operations, including raw materials pricing
and higher fixed costs. We expect to incur significant costs in integrating the
operations of Fine Arts Graphics, including the implementation of management
information and internal control systems and other infrastructure. We may elect
to sell some or all of our current or future manufacturing operations, including
those of Fine Arts Graphics.
REVENUES
We derive substantially all our revenues from the sale of printed products
in both the marketing promotional and general office categories. Our revenues,
which consist of product and service revenues, totaled $968,000 in 1998, $87,000
in 1997 and $79,000 in 1996. After giving effect to the acquisition of Fine Arts
Graphics, our pro forma consolidated revenues were $2.7 million for the quarter
ended March 31, 1999 and $11.4 million for fiscal 1998.
We generally recognize product revenues when we ship an order or, in the
case of products such as masters (products printed ahead of time for later
addition of customer-specific data), when we bill the customer. We also generate
revenues from services related to the setup and management of each customer's
customized Online Printing Center. We charge for constructing the Online
Printing Center, creating and revising the printed materials in the customer's
online catalog and monthly maintenance.
Although service revenues constitute only a small portion of overall
revenues, they allow us to recoup costs associated with managing a customer's
Online Printing Center and raise the customer's attention to the value of the
work we perform.
GROSS PROFIT
For products that are produced by our commercial printing vendor network,
gross profit is calculated as the selling price of a specific product less the
price our vendor charges us. For products that we produce in our own facilities,
gross profit is calculated as the selling price of the product (including
freight), less manufacturing costs and certain allocated overhead.
OPERATING EXPENSES
Our business incurs operating expenses in three broad expense categories:
sales and marketing, product development and general and administrative. As is
typical of early-stage technology companies, most of our historical expenditures
have been in the product development and general and administrative categories,
as we have focused on building the ImageX.com online printing system and an
infrastructure suitable for future growth. In the future, we intend to focus on
acquiring new customers, converting customers of businesses we may acquire to
our online system and increasing our revenue base. As a result, we expect that
sales and marketing expenses and the general and administrative expenses
associated with our manufacturing operations will account for a relatively
larger percentage of our operating expenses. We expect our infrastructure and
development costs will decline over time as a percentage of sales.
Our future success will depend on our ability to expand our customer base,
improve the lifetime gross profit we earn from our customers and lower our costs
of customer acquisition. We intend to focus on these three objectives to recoup
our infrastructure and technology investments and achieve profitability.
We are pursuing an aggressive growth strategy that includes building our
direct sales force, acquiring businesses within the printing industry that have
strong customer relationships, and seeking
25
<PAGE>
alliance partners to co-market our services. In connection with this growth
strategy, we anticipate incurring substantial additional operating expenses in
the immediate future as we
- expand our sales force and marketing organization;
- promote awareness of our brand name;
- hire additional programmers to further our product development efforts;
- integrate any additional acquisitions; and
- expand the infrastructure needed to support the growth of our business.
We also anticipate incurring additional general and administrative costs related
to being a public company, including directors' and officers' liability
insurance, investor relation programs and professional service fees. As a result
of these increased expenditures and other related factors, we expect to continue
to incur losses during the foreseeable future.
We have incurred significant net losses since our inception. As of March 31,
1999, we had accumulated a deficit of $15.0 million. Also, in connection with
the grant of certain stock and stock options to employees from inception through
the first quarter of fiscal 1999, we recorded total unearned compensation of
approximately $2.4 million as of March 31, 1999. This total unearned
compensation amount represents the difference between the fair value of our
common stock for accounting purposes at the date of grant and the exercise or
purchase price of such securities, as applicable. As of March 31, 1999, $1.6
million unamortized portion of this total unearned compensation amount is
reflected as a reduction of shareholders' equity, and will be amortized over the
remaining vesting period of the applicable stock or options. The unearned
compensation is being amortized in accordance with Financial Accounting
Standards Board Interpretation No. 28 over the vesting period of the individual
options, generally four years. In 1998, we recorded expense of $379,000 and, in
the first quarter of 1999, we recorded expense of $398,000 for amortization of
unearned compensation.
Our extremely limited operating history and the uncertain and emerging
nature of the market in which we compete make it difficult to assess our
prospects or predict our future results of operations. Therefore, you should not
consider our recent revenue growth as an indication of our future rate of
revenue growth, if any. Our prospects are subject to the risks and uncertainties
frequently encountered in establishing a new business enterprise, particularly
in the new and rapidly evolving markets for online products and services.
Because of our short operating history, period-to-period comparisons of our
results of operations are not necessarily meaningful. As a result, you should
not rely on such comparisons as indications of our future performance. See "Risk
Factors--We have an extremely limited operating history and are subject to the
risks of new enterprises" and "Risk Factors--Our quarterly results are difficult
to predict and are likely to fluctuate, which may have an impact on our stock
price."
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for the five-quarter period ended March 31, 1999, as well as such data expressed
as a percentage of our total revenues for the periods indicated. We have
prepared this unaudited information on the same basis as our audited financial
statements. This table includes all adjustments (consisting only of normal
recurring adjustments) required to fairly present the information for the
quarters presented, assuming you read it in conjunction with our financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN THOUSANDS):
Revenues.......................................... $ 110 $ 190 $ 314 $ 354 $ 485
Cost of sales..................................... 127 217 313 340 375
--------- -------- --------- -------- ---------
Gross profit...................................... (17) (27) 1 14 110
Operating expenses:
Sales and marketing............................. 614 673 454 441 596
Product development............................. 660 666 558 667 395
General and administrative...................... 555 682 996 1,180 1,045
Amortization of unearned compensation........... 25 25 84 245 398
--------- -------- --------- -------- ---------
Total operating expenses...................... 1,854 2,046 2,092 2,533 2,434
Loss from operations.............................. (1,871) (2,073) (2,091) (2,519) (2,324)
Interest income (expense), net.................... (1) (1) (37) (7) (16)
--------- -------- --------- -------- ---------
Net loss.......................................... $(1,872) $ (2,074) $ (2,128) $ (2,526) $(2,340)
--------- -------- --------- -------- ---------
--------- -------- --------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues.......................................... 100% 100% 100% 100% 100%
Cost of sales..................................... 115 114 100 96 77
--------- -------- --------- -------- ---------
Gross margin...................................... (15) (14) -- 4 23
Operating expenses:
Sales and marketing............................. 558 354 145 125 123
Product development............................. 600 351 177 189 81
General and administrative...................... 505 359 317 333 215
Amortization of unearned compensation........... 23 13 27 69 82
--------- -------- --------- -------- ---------
Total operating expenses...................... 1,686 1,077 666 716 502
Loss from operations.............................. (1,701) (1,091) (666) (712) (479)
Interest income (expense), net.................... (1) (1) (12) (2) (3)
--------- -------- --------- -------- ---------
Net loss.......................................... (1,702)% (1,092)% (678)% (714)% (482)%
--------- -------- --------- -------- ---------
--------- -------- --------- -------- ---------
</TABLE>
REVENUES. Revenues grew in each quarter of 1998 and the first quarter of
1999 as demand for our products and services increased.
27
<PAGE>
GROSS PROFIT. Gross profit increased 686% to $110,000 for the quarter ended
March 31, 1999 from $14,000 for the quarter ended December 31, 1998. Gross
profit as a percentage of total revenues, or gross margin, increased to 23% for
the quarter ended March 31, 1999 from 4% for the quarter ended December 31,
1998. This improvement was substantially due to decreased cost of sales as a
result of better vendor pricing, as well as increased pricing to our customers.
SALES AND MARKETING EXPENSES. Sales and marketing expenses are comprised
primarily of our promotional expenditures to support our products and services,
and selling expenses associated with our direct sales force, including salaries,
benefits, travel and entertainment expenses. Sales and marketing expenses
increased 35% to $596,000 for the quarter ended March 31, 1999 from $441,000 for
the quarter ended December 31, 1998 due to increased spending on our marketing
collateral materials and public relations efforts. The 33% decrease to $454,000
for the quarter ended September 30, 1998 from $673,000 for the quarter ended
June 30, 1998 was due to our efforts to preserve our limited available cash at
that time.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses are comprised
primarily of the salary and benefits of our team of software developers. These
software developers are responsible for designing, writing and implementing the
software that underlies our online printing system. Product development expenses
as a percentage of total revenues have been generally declining over the five
quarters ended March 31, 1999. The 41% decrease to $395,000 for the quarter
ended March 31, 1999 from $667,000 for the quarter ended December 31, 1998 was
due to the capitalization of certain development costs as a result of a change
in accounting standards which took effect on January 1, 1999. The 20% increase
to $667,000 for the quarter ended December 31, 1998 from $558,000 for the
quarter ended September 30, 1998 and the 16% decrease for the quarter ended
September 30, 1998 from $666,000 for the quarter ended June 30, 1998 was due to
timing of costs incurred related to recruiting, hiring of additional personnel
and contract labor activities.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
are comprised primarily of expenses for maintaining our business, such as
administrative and executive salaries and benefits, rent, professional fees,
business taxes, bad debt expense, recruiting, travel and other administrative
expenses. General and administrative expenses decreased by 11% to $1.0 million
for the quarter ended March 31, 1999 from $1.2 million for the quarter ended
December 31, 1998 and increased by 18% to $1.2 million from $996,000 for the
quarter ended September 30, 1998. This increase and subsequent decrease were the
result of fluctuating professional fees, recruiting costs and a settlement with
a former employee. The 46% increase to $996,000 for the quarter ended September
30, 1998 from $682,000 for the quarter ended June 30, 1998 was due to higher
costs associated with consulting services, increasing the number of employees,
higher travel expenses, and recruiting. General and administrative expenses also
increased 23% to $682,000 for the quarter ended June 30, 1998 from $555,000 for
the quarter ended March 31, 1998 due to increased staffing.
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. In addition, the results of any quarter do not indicate
results to be expected for a full fiscal year. Because of our short operating
history, period-to-period comparisons of our operating results are not
necessarily meaningful. As a result, you should not rely on such comparisons as
indications of our future performance. Also, our operating results will fall
below market analysts' expectations in some future quarters, which could lead to
a significant decline in the market price of our stock.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated. Pro forma consolidated
data give effect to the acquisition of Fine Arts Graphics as if it had occurred
at the beginning of each period presented.
<TABLE>
<CAPTION>
ACTUAL
---------------------------------------- PRO FORMA
THREE MONTHS -----------------------------
YEAR ENDED DECEMBER ENDED THREE MONTHS
31, MARCH 31, YEAR ENDED ENDED
---------------------- -------------- DECEMBER 31, MARCH 31,
1996 1997 1998 1998 1999 1998 1999
---- ------ ---- ------ ---- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................................... 100 % 100% 100 % 100% 100 % 100% 100%
Cost of sales..................................... 126 115 103 115 77 72 74
---- ------ ---- ------ ---- -------- --------
Gross margin...................................... (26 ) (15) (3 ) (15) 23 28 26
Operating expenses:
Sales and marketing............................. -- 1,167 225 558 123 24 26
Product development............................. 382 1,509 264 600 81 22 15
General and administrative...................... 186 1,474 353 505 215 51 60
Amortization of unearned compensation........... -- -- 39 23 82 3 15
Amortization of goodwill........................ -- -- -- -- -- 1 1
---- ------ ---- ------ ---- -------- --------
Total operating expenses...................... 568 4,150 879 1,684 507 102 117
Loss from operations.............................. (594) (4,165) (881) (1,701) (479) (74) (91)
Other income (expense), net....................... 4 71 (5 ) (1) (3 ) (3) (3)
---- ------ ---- ------ ---- -------- --------
Net loss.......................................... (590)% (4,094)% (889)% (1,702)% (482)% (77)% (94)%
---- ------ ---- ------ ---- -------- --------
---- ------ ---- ------ ---- -------- --------
</TABLE>
ACTUAL RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998 (UNAUDITED)
REVENUES. Revenues for the quarter ended March 31, 1999 increased 341% to
$485,000 from $110,000 for the same quarter in 1998. Product revenues increased
340% to $459,000 from $104,000 for the same quarter in 1998, while service
revenues increased 333% to $26,000 from $6,000 for the same quarter in 1998. The
increase in revenues resulted primarily from the increase in our customer base
to 115 customers at March 31, 1999 from 41 at March 31, 1998. The increase in
revenues was also attributable to:
- launching our marketing promotional materials capability;
- increasing sales to existing customers;
- expanding the range of services for which we charge a fee;
- realigning the customer service process to allow sales representatives to
focus on developing new accounts; and
- introducing new lead generation techniques, including direct mail and
telemarketing.
GROSS PROFIT. Gross profit for the quarter ended March 31, 1999 increased
to $110,000 from a loss of $17,000 for the same quarter in 1998. Gross margin
for the quarter ended March 31, 1999 increased to 23% from negative gross margin
of 15% for the same quarter in 1998. This increase in gross margin was primarily
attributable to increased product pricing to our customers, as well as decreased
costs due to renegotiated supplier pricing with several of our key commercial
print vendors. We were able to renegotiate better supplier pricing due to
increased orders and the ability of our system to reduce our vendors'
manufacturing costs. The high quality of the digital raw materials we supply to
vendors
29
<PAGE>
enables them to produce the printed materials with very little handling, thereby
creating increased plant utilization with very little incremental labor.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the quarter
ended March 31, 1999 decreased 3% to $596,000 from $614,000 for the same quarter
in 1998. This decrease was a result of our efforts to preserve our limited
available cash. However, we intend to increase the expenditures to introduce our
services to our targeted customers and to create a name brand within the
electronic commerce and printing industries. We expect that sales and marketing
expenses will grow significantly as we pursue an aggressive growth strategy and
hire additional sales and marketing personnel.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses for the quarter
ended March 31, 1999 decreased 40% to $395,000 from $660,000 for the same
quarter in 1998. This decrease was primarily a result of our adoption of
capitalization accounting for software obtained or developed for internal use
beginning January 1, 1999, offset in part by increased product development
headcount from 24 people at March 31, 1998 to 28 people at March 31, 1999. We
believe that continued investment in product development is critical to
attaining our goals.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the quarter ended March 31, 1999 increased 88% to $1.0 million from $555,000
for the same quarter in 1998. The increase was primarily a result of personnel
increases needed to support the growth of our business. We expect these expenses
to grow as additional personnel are hired and additional expenses are incurred
to support the growth of our business.
INTEREST EXPENSE, NET. Interest expense, net reflects both interest income
from investing our available cash in money market funds and certificates of
deposit and interest expense on our debt, principally under our bank credit
facilities. Interest expense, net for the quarter ended March 31, 1999 increased
to $16,000 from $1,000 for the same quarter in 1998.
INCOME TAXES. No provision for federal and state income taxes has been
recorded to date because we incurred net operating losses from inception through
March 31, 1999. As of March 31, 1999, we had approximately $13.7 million of net
operating loss carryforwards for federal income tax purposes, expiring in 2011
through 2019. These losses are available to offset future taxable income. Given
our limited operating history, losses incurred to date and the difficulty in
accurately forecasting our future results, we do not believe that the
realization of the related deferred income tax assets meets the criteria
required by generally accepted accounting principles and, accordingly, no
deferred tax asset has been recorded.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Revenues for 1998 increased 1,013% to $968,000 from $87,000 in
1997. Our product revenues for 1998 increased 1,117% to $913,000 from $75,000 in
1997, while our service revenues increased 358% to $55,000 from $12,000 in 1997.
The increase was due to the commercial launch of the ImageX.com system in
October 1997, the addition of new customers and launching the sale of marketing
promotional materials in 1998.
GROSS PROFIT. We experienced a negative gross profit of $30,000 in 1998
compared to $13,000 in 1997. Negative gross margin for 1998 was 3% compared to
15% for 1997. The improvement was a result of higher pricing to our customers
and lower vendor costs.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for 1998
increased 115% to $2.2 million from $1.0 million for 1997. This increase
resulted from increased promotional marketing expenditures on print and direct
mail advertising, as well as the initiation of our telemarketing campaign. In
addition, we did not commence commercial marketing efforts until the last
quarter of 1997. Finally, we hired two new sales representatives in 1998.
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<PAGE>
PRODUCT DEVELOPMENT EXPENSES. Product development expenses for 1998
increased 94% to $2.6 million from $1.3 million for 1997. The increase resulted
primarily from the addition of six software developers to our team and our
investment in equipment to maintain and upgrade our proprietary software and
infrastructure systems.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for 1998 increased 166% to $3.4 million from $1.3 million for 1997. The increase
resulted primarily from the addition of four employees and higher facility costs
and professional fees to support the growth of our business.
INTEREST INCOME (EXPENSE), NET. Interest expense, net for 1998 decreased to
$46,000 from income of $62,000 for 1997 as a result of establishing and using a
working capital line and other bank credit facilities.
INCEPTION THROUGH DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996
From inception to December 31, 1995, we had no operations. We generated
$79,000 in revenues in 1996, primarily as a result of contracts for software
development. Our total operating expenses were $446,000, consisting primarily of
product development expenses related to the development of our proprietary
software and infrastructure systems. Given the early stage of our business, we
do not believe the results of operations for this period are comparable to those
for 1997.
PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998
REVENUES. Revenues on a pro forma basis, which include the operating
results of Fine Arts Graphics, increased approximately 11% to $2.7 million for
the quarter ended March 31, 1999 from $2.4 million for the same quarter in 1998.
The increase in revenues is due to the 341% growth of the ImageX.com business
from the first quarter of 1998 to the first quarter of 1999. Fine Arts Graphics'
revenues decreased slightly due to reduced sales staffing and the disruption
associated with the prospective acquisition by ImageX.com in the first quarter
of 1999.
GROSS PROFIT. Gross profit for the quarter ended March 31, 1999 increased
4% to $699,000 from $671,000 for the same quarter in 1998. Gross margin for the
quarter ended March 31, 1999 decreased to 26% from 28% for the same quarter in
1998 due to reduced gross profit earned by Fine Arts Graphics resulting
significantly from increased commissions charged by a significant independent
sales agent.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the quarter
ended March 31, 1999 decreased 5% to $714,000 from $755,000 for the same quarter
in 1998. Expenses were slightly lower due to lower salary and benefits expense
at Fine Arts Graphics and lower promotional marketing expenses at ImageX.com due
to efforts to preserve limited available cash.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the quarter ended March 31, 1999 increased 42% to $1.6 million from $1.1
million for the same quarter in 1998 due to the increase in personnel needed to
support and grow the ImageX.com business. Fine Arts Graphics' general and
administrative expenses for the quarter ended March 31, 1999 remained relatively
stable for this period.
OTHER INCOME (EXPENSE), NET. Other income (expense), net for the quarter
ended March 31, 1999 increased to expense of $75,000 from expense of $68,000 for
the same quarter in 1998.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through sales
of equity securities and, to a lesser degree, through the use of long-term debt.
As of March 31, 1999, we had raised approximately $12.8 million, net of offering
costs, from private placements of preferred stock, and approximately $1.9
million from net borrowings under convertible notes and bank credit facilities.
As of March 31, 1999, we had cash and cash equivalents of $124,000. In April
1999, we raised an additional $23.9 million, net of offering costs, through the
sale of a new series of preferred stock. We also completed the acquisition of
Fine Arts Graphics, using $4.6 million in cash (including $2.0 million in new
bank financing).
Our operating activities resulted in net cash outflows of $14,000 in 1996,
$3.0 million in 1997, $7.4 million in 1998 and $2.1 million for the quarter
ended March 31, 1999. The operating cash outflows in these periods resulted from
significant expenditures on product development, sales and marketing and general
and administrative expense, all of which led to operating losses. The cash
outflows resulting from operating losses and increases in accounts receivable
were partially offset by increases in current liabilities, including trade
payables.
Investing activities used cash of $18,000 in 1996, $797,000 in 1997,
$887,000 in 1998 and $428,000 for the three months ended March 31, 1999,
primarily for capital expenditures, including property and equipment.
Our financing activities provided cash of $3.5 million in 1996, $578,000 in
1997, $8.9 million in 1998 and $1.8 million for the quarter ended March 31,
1999, primarily from the issuance of preferred stock and borrowings pursuant to
convertible notes and our bank credit facilities.
As of March 31, 1999, we had several credit facilities outstanding with
Silicon Valley Bank consisting of:
- a 24-month term loan bearing interest at the bank's prime rate plus 2%,
which was 9.75% as of March 31, 1999. This facility was established for
general corporate purposes. As of March 31, 1999, we had an outstanding
balance of $156,000 under this term loan, which we are currently paying in
equal monthly installments through December 1999.
- a 36-month term loan bearing interest at the bank's prime rate plus 2%,
which was 9.75% as of March 31, 1999. The purpose of this facility was to
finance the purchase of new equipment. As of March 31, 1999, we had an
outstanding balance of $414,000 under this term loan, which we are
currently paying in equal monthly installments through January 2002.
- a working capital revolving line of credit that is secured by our accounts
receivable. This facility allows us to borrow up to the lesser of 75% of
our eligible accounts receivable or $300,000. As of March 31, 1999, we had
borrowed $96,000 under this facility. This facility expires on September
18, 1999 and bears interest at the bank's prime rate plus 1%, which was
8.75% as of March 31, 1999.
The agreements under which these credit facilities were established contain
certain financial covenants, including provisions requiring us to maintain
specified financial ratios.
On April 30, 1999, our Fine Arts Graphics subsidiary entered into a credit
agreement with Bank of America for a 5-year, $1.5 million term loan for the
purpose of funding its purchase by ImageX.com. This facility bears interest at
the bank's prime lending rate plus up to 1%. On April 30, 1999, the interest
rate was 8.75%. This facility is a revolving term loan that only requires
monthly interest payments for the first two years of its term and thereafter
requires monthly interest and principal repayments over a 36-month period. The
credit agreement also includes a $1.0 million working capital line, which bears
interest at the bank's prime lending rate plus 0.5% for drawn amounts and a
commitment fee of 0.25% on any unused portion of the line. This facility expires
on April 29, 2000. We
32
<PAGE>
have $2.0 million outstanding under these facilities. Both credit facilities are
secured by all the assets of Fine Arts Graphics, including but not limited to
accounts receivable, inventory, equipment and intangibles. ImageX.com has
unconditionally guaranteed both of these facilities. Under the guarantee,
ImageX.com must maintain minimum total shareholders' equity of $5.0 million.
We currently expect to substantially increase our operating expenses in
connection with our aggressive growth strategy. These additional operating
expenses will consume a material amount of our cash resources, including a
portion of the net proceeds of this offering. We believe that the net proceeds
of this offering, together with our existing cash and cash equivalents and
available bank credit, will be sufficient to meet our anticipated cash needs for
working capital, acquisitions and capital expenditures for at least the next 12
months. However, our cash needs could exceed our expectations, and we may choose
to seek additional equity capital before that time. We expect that we will need
to raise additional capital in the future to fund our operations. We have no
commitments for additional financing, and we may experience difficulty in
obtaining additional funding on favorable terms, if at all. Any future funding
may dilute the ownership of our existing shareholders. See "Risk Factors--We
will need to raise substantial additional capital in the future, which can cause
dilution."
We do not own any equity securities of third parties and, accordingly, a
decline in the general condition of the stock market would not have a material
effect on us. We have no exchange rate exposure, and we do not employ
derivatives in managing our balance sheet. We believe that the market risk
arising from holdings of our financial instruments is not material.
YEAR 2000 COMPLIANCE
Many existing computer systems are not capable of distinguishing
twenty-first century dates from twentieth century dates. As a result, computer
systems and software used by many companies and organizations in a wide variety
of industries will produce erroneous results or fail when they attempt to
process data dependent on dates on or after January 1, 2000 unless they have
been modified or upgraded to process date information correctly. Significant
uncertainty exists concerning the scope and magnitude of problems associated
with the century change. We recognize the need to ensure that our operations
will not be adversely affected by year 2000 software failures.
We have completed our initial assessment of the potential impact of the
impending century change on ImageX.com's computer systems and software. Based on
our current assessment, we believe that all our systems and software are or will
be fully year 2000 compliant--that is, they are or will be capable of adequately
distinguishing twenty-first century dates from twentieth century dates--by the
third quarter of 1999. Nevertheless, we cannot be certain that coding errors
will not be discovered in the future. Also, we cannot be certain that the
third-party systems we rely on, the manufacturing systems of our vendors or the
systems our customers use to order our services will not be affected by the year
2000 date change.
We have done no substantive assessment of the potential impact of the
century change on Fine Arts Graphics' systems and software. We expect to
complete our assessment of Fine Arts Graphics' year 2000 readiness by the third
quarter of 1999. As a result, we could discover substantial year 2000 compliance
problems with Fine Arts Graphics' internal systems and software, manufacturing
systems or facilities. Remedying any such problems could require substantial
expenditures and could result in a significant disruption in Fine Arts Graphics'
operations.
Although we have not been a party to any litigation or arbitration
proceeding involving our services related to year 2000 compliance issues, we may
in the future be required to defend our products or services in such
proceedings, or to negotiate resolutions of claims based on year 2000 issues. We
may incur substantial costs of defending and resolving year 2000-related
disputes, regardless of the merits of such disputes, and we may face liability
for year 2000-related damages, including
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<PAGE>
consequential damages. Sales of our products may decrease as potential customers
reduce their printing budgets due to increased expenditures on their own year
2000 compliance efforts.
We have reviewed our internal management information and other critical
business systems to identify any year 2000 problems. We also have communicated
with the external vendors that supply us with business-critical systems,
supplies or products (including our third-party print vendors) to determine
their year 2000 readiness. In the course of these investigations, we have not
encountered any material year 2000 problems with these third-party products or
services.
We have done no assessment of our building systems (such as security, heat
and electricity) at our headquarters location in Bellevue, Washington. We do not
have sufficient information to determine what impacts the century change may
have on the building systems at this time.
To date, we have not incurred any material costs directly associated with
our year 2000 compliance efforts, except for compensation expense associated
with our salaried employees who have devoted some of their time to our year 2000
assessment and remediation efforts. As discussed above, we do not expect the
total cost of year 2000 problems to be material to our business, financial
condition and operating results. During the months prior to the century change,
however, we will continue to evaluate new versions of our services, information
systems, and any new infrastructure systems that we acquire to determine whether
they are year 2000 compliant. Despite our current assessment, we may not
identify and correct all significant year 2000 problems on a timely basis. year
2000 compliance efforts may involve significant time and expense, and
unremediated problems could materially adversely affect our business, financial
condition and operating results. We currently have no contingency plans to
address the risks associated with unremediated year 2000 problems.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for computer software developed or obtained for internal
use, including a requirement to capitalize specified costs and amortize such
costs. We adopted this statement effective January 1, 1999. As of March 31,
1999, we had capitalized computer software costs of $338,000 and had recorded
the related amortization expense of $22,000 for the quarter ended March 31,
1999.
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<PAGE>
BUSINESS
IMAGEX.COM, INC.
ImageX.com is a leading Internet-based business-to-business intermediary in
the $55 billion U.S. commercial printing industry. We believe we offer the first
integrated electronic commerce solution that automates the error-prone,
time-consuming and labor-intensive traditional commercial printing process. With
the ImageX.com solution, businesses access a customized, secure Web site, called
the "Online Printing Center," that contains a digital catalog of all of their
custom-printed business materials--from marketing brochures to stationery and
business cards. Through its Online Printing Center, each business can modify,
proof, procure and manage its printed business materials from any Internet-
enabled personal computer. We reduce the time associated with procuring printed
business materials from several days to a few minutes and virtually eliminate
the possibility of print errors. Through a combination of our extensive network
of commercial printing vendors and two facilities that we own, we deliver
high-quality printed business materials nationwide.
Our customer and revenue base has grown rapidly since we introduced the
ImageX.com solution in October 1997. As a result of our sales and marketing
efforts and our recent acquisition of Fine Arts Graphics, we have customers such
as Amazon.com, Bell Atlantic Mobile, CB Richard Ellis, CIBC Oppenheimer, Concur
Technologies, Donaldson, Lufkin & Jenrette, Merck & Co., Silicon Graphics (SGI)
and Visio.
INDUSTRY BACKGROUND
THE GROWTH OF BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
The Internet has emerged as a mass medium for communications and commerce,
revolutionizing the way businesses and consumers share information and conduct
business. The growth of the Internet sector initially was driven by developers
of search engines and portals. More recently, consumer-oriented electronic
commerce has become widespread, driven by online retailers such as Amazon.com.
Industry observers predict the next phase in the Internet revolution will be
business-to-business electronic commerce. Forrester Research estimates that
businesses bought and sold $43 billion in goods over the Internet last year, as
opposed to $8 billion bought by consumers. In addition, they predict that
business-to-business electronic commerce will grow to $1.3 trillion by 2003, or
more than 90% of the total projected electronic commerce market.
In recent years, businesses have used electronic data interchange (EDI),
technology that links businesses directly to their suppliers, to procure
materials more efficiently and accurately than they could using paper-based
transactions. However, electronic data interchange is typically
capital-intensive and difficult to implement. Like electronic data interchange,
transactions over the Internet are more efficient and accurate than paper-based
transactions. However, Internet electronic commerce offers businesses additional
advantages, including
- the ability to reach a global audience of other businesses and provide
broader product and services selection and unparalleled convenience;
- the ability to complete transactions with minimal infrastructure, reduced
costs and greater economies of scale;
- the opportunity for anyone within an organization to access suppliers from
any Internet-enabled personal computer; and
- the technology to customize customer interfaces, creating greater
convenience and ease of use.
As a result, industry observers expect that an increasing portion of commerce
between businesses will be transacted over the Internet.
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<PAGE>
Although many companies in the business-to-business space have commenced
offering products and services over the Internet, they typically still offer
only standard, rather than customized, products. We believe a larger opportunity
exists for companies that can offer solutions to businesses for the procurement
of customized products over the Internet.
THE PRINTING INDUSTRY
Printed business materials, which include promotional marketing materials
and general office products, are employed throughout business organizations
today. Based on data provided by CAP Ventures, sales in the U.S. commercial
printing industry totaled $55 billion in 1997. This large industry is
fragmented, with over 40,000 local and regional commercial printers operating
nationwide.
<TABLE>
<S> <C>
[Graphic: Two pie charts representing (1) breakdown of U.S. Publishing and
Printing market between (a) publishing and specialty ($122.6 billion)
and (b) printing ($100.9 billion) and (2) breakdown of the U.S.
printing market between (a) forms, quick printers and other ($45.5
billion) and (b) commercial ($55.4 billion), which is ImageX.com's
market.]
</TABLE>
Despite its size, the U.S. market for printed business materials suffers
from a number of limitations and inefficiencies:
<TABLE>
<S> <C>
INEFFICIENT PRODUCTION PROCESSES Many printers employ complex labor-intensive
prepress processes, which often result in high
error rates and increased costs.
LIMITED PRODUCT RANGES Individual printers can typically offer their
customers only a limited range of products,
forcing customers to source their printed business
materials needs from multiple commercial printers.
LACK OF INTEGRATED TECHNOLOGIES There is little integration among the technologies
used for ordering, processing, proofing and
manufacturing printed products, resulting in
additional errors and inefficiencies.
LACK OF COST-EFFECTIVE Due to the limitations of many printers'
CUSTOMIZATION technologies, customers are unable to easily
obtain on a cost-effective basis, distinctive,
customized printed products.
EXCESS MANUFACTURING CAPACITY Many printers suffer from excess manufacturing
capacity, making it difficult for them to maximize
profitability.
</TABLE>
Most frustrating from both the customer's and the printer's perspective is
the error-prone and time-consuming procurement process for printed business
materials. As the chart on page 37 illustrates, obtaining a single printed
business materials order from a printer typically requires a series of
interactions with the printer over a period of several days. The process is
labor-intensive and repetitive. The business unit within the customer
organization requiring the printed business materials must contact the
procurement administrator and describe the business unit's needs. The
procurement administrator must then gather the materials and information
relevant to the order and send them to the printer in the format required by the
printer. The customer must then wait to receive the printer proof, review and
correct the proof and return it to the printer. The printer must generate
proofs, transmit them to the customer, receive customer comments, make
corrections and retransmit corrected
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<PAGE>
proofs to the customer. Finally, once the customer approves the final proof, the
printer must process the order, convert the proof into a format suitable for
printing, and move the order through the prepress process, which includes color
separation, trapping and imposition. Only then is the printer able to prepare
the final printing plates and commence the printing process.
The complexity and labor intensive nature of the prepress process results in
production delays, frequent errors, product returns and general customer
dissatisfaction. We believe the inefficiency of the traditional procurement and
prepress process, and many of the other problems facing the printing industry,
can be addressed with an automated, integrated Internet-based print procurement
solution.
THE IMAGEX.COM SOLUTION VERSUS THE TRADITIONAL PROCUREMENT PROCESS
[Graphic--old print production process flow chart. Subheadings for
elements within graphics: Customer Process/Manufacturing Process; Need for
Printed Products, Order Placement, Contact with Printer, Initiate Job
Ticket, Typesetting, Fax to Customer, Customer Reviews Proof, Customer Makes
Corrections, Printer Typesets Corrections, Corrected Proof Faxed Back to
Customer, Customer Re-Proofs Corrections, This part of the process is
repeated until a corrected proof is approved by customer, Elapsed Time:
Several Days, Customer Approves Proof, Pre-Press/Plating, Job to Press,
Printed Product Delivered. Total Elapsed Time 14-21 Days.]
[Graphic--New ImageX.com print production process flow chart.
Subheadings for elements within graphics: Customer Process/Manufacturing
Process; Need for Variety of Printed Materials, Customer Logs In, Customer
Modifies Proofs and Releases Order Online, Elapsed Time: 10 minutes, Printer
Receives Press-Ready Digital Files, Press-Ready Digital Files Sent Directly
to Plate, Job to Presses, Variety of Printed Products Delivered. Total
Elapsed Time: 5-7 Days.]
The ImageX.com solution gives businesses access to a customized, secure Web
site, called the "Online Printing Center," that contains a digital catalog of
all their custom printed business materials-- from marketing brochures to
stationery and business cards. Through its Online Printing Center, each business
can modify, proof, procure and manage their printed business materials from any
Internet-enabled personal computer. Through a combination of our extensive
network of commercial printing vendors and two facilities that we own, we
deliver high-quality printed business materials nationwide. Our solution
<TABLE>
<S> <C>
REDUCES TIME AND COST We streamline the time-consuming and iterative
traditional process for modifying and proofing
printed business materials. Customers can reduce
procurement costs through a number of means: they
can implement a just-in-time ordering process to
reduce the costs associated with wasted inventory
or they can queue their orders and release them in
batches to take advantage of volume pricing.
ENHANCES CONTROL AND SCALABILITY For each customer, we build a unique Online
Printing Center, which contains a permanent
digital catalog that includes employee data,
company graphics and logos, delivery information,
reporting requirements and prototypes of the
customer's printed business materials. From the
password-protected Online Printing Center,
authorized customer employees can individually
modify, proof, procure and manage a wide variety
of printed business materials. In addition,
customers can preset certain rules to ensure the
consistency of the materials
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and bring a uniform look to the materials used
throughout all parts of their worldwide
organization. Through online status reports
located on the Online Printing Center, customers
maintain visibility into the timing of delivery.
The Online Printing Center is scalable to any
number of new employees and new products.
REDUCES ERROR RATES By permanently storing company and employee data
and automating the traditional, manual method of
typesetting and proofing, the ImageX.com solution
reduces errors in the printing and procurement
process. Customers can organize and order their
products from their own online catalog, in which
the images of the customer's products, their
descriptions and their appropriate usage are
stored. In addition, for business cards,
stationery and labels, the system captures and
secures all necessary data on each individual
employee, such as name, position, title and
contact information. Customers can order their
materials directly from the online catalog and
proof them online with a color-consistent and
dimensionally accurate screen rendering.
ENABLES SINGLE-SOURCING The ImageX.com solution allows customers to deal
with a single vendor, because our national network
of commercial printing vendors and two facilities
that we own enable us to provide a wide range of
printed business materials. Individual printers
are typically constrained to a limited range of
products that can be supported by their equipment.
Our single-source solution eliminates the need for
customers to engage several different printers to
supply their printing needs.
STREAMLINES MANUFACTURING The ImageX.com solution eliminates many of the up-
front costs of the traditional printing process.
By electronically delivering a print-ready digital
file directly into the print manufacturing
process, we bypass the manufacturing steps where
delays and errors most commonly occur, thereby
reducing manufacturing costs.
</TABLE>
BUSINESS STRATEGY
Our objective is to be the leading Internet-based provider of printed
business materials. The following are the key components of our strategy:
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RAPIDLY ADD NEW CUSTOMERS We seek to rapidly increase our customer base
THROUGH DIRECT SALES, through the most cost-effective means and to
ACQUISITIONS AND STRATEGIC develop long-term relationships with new
ALLIANCES customers. First, we are increasing our sales
force to develop new customer relationships and
expand the use of our services by our existing
customers. In addition, we intend to actively
pursue acquisitions of printers and print brokers
with strong customer relationships and to convert
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their customers to the ImageX.com system. Finally,
we are actively seeking to co-market our services
with partners that target customers similar to
those we target.
INCREASE REVENUES FROM EXISTING Our strategy is to become the single-source
CUSTOMERS provider of printed business materials to all our
customers. We believe that substantial opportunity
exists for us to grow by selling additional
products and services to our existing customers.
We accomplish this by selling additional products
and services through our existing sales
relationships and by developing new sales
relationships within the customer's organization.
BUILD BRAND NAME AWARENESS AND We promote ImageX.com as the leading electronic
EXPLOIT FIRST-MOVER ADVANTAGE commerce solution for procuring printed business
materials, primarily using public relations, print
advertising, online demonstrations and direct
contact with targeted decision-makers. We believe
that promoting our brand name and reputation as
the leading electronic commerce provider in our
industry will build awareness among our potential
customers, attract new customers, and increase
loyalty and usage of our services by our existing
customers. We believe that, as the first company
providing an integrated Internet solution for
procuring printed business materials, we have the
opportunity to establish ourselves as the leading
commercial printing brand on the Internet.
MAINTAIN PRODUCT AND TECHNOLOGY We believe that the ImageX.com solution is the
LEADERSHIP first integrated print procurement system to
effectively automate the customer procurement
process and the print manufacturing process across
a broad variety of manufacturing technologies and
equipment. To continue our leadership position, we
are currently pursuing technology initiatives
designed to enhance our product and service
offerings. We intend to enhance our product and
service offerings by continuing to research and
reassess customer needs and preferences.
</TABLE>
IMAGEX.COM PRODUCTS AND SERVICES
Our end-to-end solution delivers high-quality printed business materials.
For each customer, we build a custom Online Printing Center, which requires
approximately four hours using automated proprietary tools. The Online Printing
Center
- contains all the information, including underlying graphic files and
employee data, that the customer needs to procure its printed business
materials;
- is protected by security measures;
- incorporates standardization procedures so that all orders are consistent
with the approved corporate image, regardless of who inputs the data for
an order; and
- incorporates procurement and authorization rules defined by the customer.
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Once the Online Printing Center is built, the customer's employees can
modify, proof, procure and manage their printed business materials online from
any Internet-enabled personal computer. The ImageX.com solution eliminates the
manual, sequential iterations between the customer and the printer, replacing
the error-prone and time-consuming traditional prepress processes with an
automated system. As a result, the printing process is simpler, faster and less
prone to error, resulting in rapid delivery of consistent, high-quality printed
business materials.
Customers of traditional printers suffer from a number of problems inherent
to the traditional printing process. These problems include high error rates,
the need to deal with multiple vendors, inventory obsolescence and poor
turnaround time. Through our online system, we offer our customers the following
key benefits as compared to the traditional printing process:
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24-HOUR, 7-DAY ORDERING SYSTEM Customers can modify, proof, procure and manage
their printed business materials in minutes, at
any time, on any day, from any Internet-enabled
personal computer. Multiple users can be using the
site simultaneously without any degradation of
service.
BRAND CONTROL Customers can preset certain rules to bring
consistency to their printed business materials
and a uniform look throughout their worldwide
organization. Logo treatments are protected across
all printed products within the customer's digital
catalog.
ONLINE CATALOG OF PRINTED Customers can organize and order a broad range of
BUSINESS MATERIALS printed materials through a customized online
catalog that displays an image of the product, its
description and its appropriate usage. The online
catalog greatly reduces errors and makes
reordering simple for customers with complex rules
and product versions.
ONLINE EDITING AND PROOFING Our solution eliminates the chronic problems of
misinterpreted text and delays associated with the
traditional, manual method of typesetting and
transmission. Customers proof their order
materials online with a color-consistent and
dimensionally accurate screen rendering.
ONLINE DATABASE OF COMPANY Our system captures and secures customer-specific
INFORMATION data, including company graphics and logos,
delivery information and reporting requirements,
as well as employee-specific data, such as name,
position, title and contact information. This
database minimizes errors and delays associated
with relocations, area code changes, office moves
and other changes. Customers can make global
changes to their online information or edit
individual items. This data is then automatically
incorporated into the text of promotional
marketing materials, office stationery and
business cards.
ONLINE TRACKING AND MANAGEMENT Customers can maintain visibility into the timing
of delivery through online status reports. Order
history reports can be configured online.
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CENTRAL MANAGEMENT OF ORDERS Rather than different departments of an
organization independently ordering and printing,
customers can queue their orders and release them
in batches to take advantage of volume pricing.
CUSTOMER SERVICE Our customer base is supported by sales
representatives and customer service professionals
who each have dedicated customer accounts.
Customers receive timely and high-quality personal
assistance as needed.
SCALABILITY The Online Printing Center is scalable to
incorporate any number of new employees and new
products. Customers can add new customer and
employee data and products, while still
maintaining worldwide ordering access with
centralized control.
ENHANCED PRODUCTIVITY Customers can enhance productivity by reducing the
labor associated with ordering, proofing and
managing the procurement process.
</TABLE>
Our existing customers can also request unique "one-off" print orders that
we can process more efficiently off-line. For these off-line orders, we source
and manage the "off-line" print process for our customer.
CUSTOMERS AND MARKETS
Our target customers are medium-to-large businesses. To date, we have
obtained over 119 customers through our direct sales efforts. In addition, Fine
Arts Graphics, which we acquired in April 1999, sold printed business materials
to over 600 customers in 1998. The following is a list of the top 10 customers
for ImageX.com and the top 10 customers for Fine Arts Graphics, based on 1998
revenues:
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<CAPTION>
IMAGEX.COM FINE ARTS GRAPHICS
- -------------------------------- --------------------------------------
<S> <C>
Amazon.com Automatic Data Processing (ADP)
Concur Technologies Bell Atlantic Mobile
FileNet CB Richard Ellis
New Energy Ventures Donaldson, Lufkin & Jenrette
PAC National Merck & Co.
Parallel Communications Orrick, Herrington & Sutcliffe
Primus Knowledge Solutions PricewaterhouseCoopers
Travis Industries Silicon Graphics (SGI)
Visio Waddell & Reed
Worldvision Enterprises Weichert, Realtors
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The following are two case studies of customers who have adopted the
ImageX.com solution:
<TABLE>
<CAPTION>
[AMAZON.COM LOGO] BEFORE IMAGEX.COM IMAGEX.COM SOLUTION
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
- - World's largest online seller of - Fax-back method of proofing - Instant online proofs slash
books resulted in long delays, lost process by an average of five
orders, errors and frustrated days
employees
- - 1,200 employees - 25 man-hours per week spent - Reduced administrative time by
researching, calling printer, and 90% with instant online order
tracking down orders status and history
- Customer had experienced high - ImageX.com's "graphic rules"
error rates eliminate errors and maintain
consistent corporate graphics
standards
</TABLE>
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<CAPTION>
[VERIFONE LOGO] BEFORE IMAGEX.COM IMAGEX.COM SOLUTION
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
- - VeriFone is the leading global - VeriFone's Marketing - VeriFone's worldwide field
provider of secure electronic Communications Department stopped representives view color
payment solutions for financial printing datasheets for sales datasheets from an online catalog
institutions, merchants and representatives and customers due and order directly without
consumers. VeriFone has shipped to complexity and time involving the Marketing
more than 7 million payment requirements Communication Department
systems used in over 100 - Remote sales offices and - Professional quality printed
countries. customers printed product materials shipped directly to
datasheets from screen images on remote sales offices
their Internet site
</TABLE>
SALES AND MARKETING
ORGANIZATION
We sell our products and services through our direct sales force. As of
April 30, 1999, our sales and marketing team consisted of 17 employees,
including 5 employees we acquired through the acquisition of Fine Arts Graphics.
We have a Director of Sales in Seattle and 11 sales representatives covering
Seattle, Los Angeles, San Francisco, New York City, Chicago and Portland.
PROMOTION
We market the ImageX.com solution to both the purchasing and marketing
departments of our customers. Our solution allows purchasing departments to
quickly process their orders for general office materials, such as business
cards, stationery and labels, and marketing departments to more efficiently
provide promotional marketing materials, such as sell sheets to their sales
organizations, channel partners and customers.
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Our sales force uses three primary tools to generate leads and ultimately
gain new customers rapidly and efficiently:
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TELEMARKETING Telemarketing has been our most effective tool for
targeted lead generation since we began telemarketing
efforts in September 1998. Telemarketing has allowed us to
efficiently find the appropriate contact within an
organization. From targeted marketing lists, telemarketers
qualify leads by using creative scripts and online
demonstrations. The qualified sales leads, some with
prescheduled meetings, are then passed on to our direct
sales force.
ONLINE DEMONSTRATIONS Online demonstrations are used to showcase our products.
Links at complementary Web sites direct customers to our
Web site.
PRINT MEDIA/PUBLIC RELATIONS Print media/public relations build awareness of our
solution in major markets and draw target customers to our
Web site. ImageX.com uses advertising and public relations
agencies to integrate all marketing programs and ensure
efficient and effective spending.
</TABLE>
SELLING PROCESS
When we receive a qualified sales lead, an ImageX.com sales representative
makes contact with the potential customer and arranges a phone or live sales
presentation and demonstration of the Online Printing Center. The sales
representative assesses the potential customer's needs and returns with a sales
proposal, which includes a customized presentation of the benefits for that
potential customer, their Online Printing Center build fee, per-item setup
charges, monthly site maintenance fee and printed product quotes. Once this
sales proposal is accepted, we begin to build the customer's customized Online
Printing Center. For typical customers, the sales cycle takes between two and
twelve weeks, but for large customers the sales cycle may require more than one
year.
STRATEGIC MARKETING ALLIANCES
We are actively seeking to co-market our products and services with third
parties that target customers similar to those we target. Ideal candidates are
companies with a national sales capacity, market leadership position and
extensive contact with the purchasing and marketing managers of their customers.
We also intend to partner with firms that offer complementary Internet-based
services to their end users in areas such as marketing, advertising, office
supply and procurement services.
In October 1998, ImageX.com and Concur Technologies, an online office
products retailer, announced an alliance that will allow businesses to procure
printing services via Concur's CompanyStore online procurement system. Through
the alliance, companies using CompanyStore can give their employees the ability
to manage and acquire their printing through ImageX.com.
Silicon Valley Bank offers a business-to-business, full-service Web site
called E-source. From this Web site, clients can access services such as
accounting and human resources consulting, as well as procure their printed
business materials. In January 1999, we entered into an alliance agreement with
Silicon Valley Bank, under which the bank will feature us as the E-source print
provider for medium-and large-sized clients.
Corporate Express is a leading provider of office supplies to Fortune 1000
companies, both online and via traditional procurement processes. In April 1999,
we entered into a co-marketing arrangement
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whereby Corporate Express's office products sales organization will offer the
ImageX.com solution to its customers.
These strategic relationships are new and as yet unproven. We cannot be
certain that these strategic relationships will result in significant customer
leads.
PRICING
We provide each customer with a pricing proposal for each item on their
Online Printing Center. As customers add new products, we agree on appropriate
pricing. In preparing a pricing proposal, we also consider:
- the complexity of the printed product;
- the expected production volume;
- external market factors; and
- internal margin requirements.
Diverse pricing exists in the printing industry. For example, quotes for 500
business cards can range from $8.00 to $90.00 and quotes for 10,000 marketing
brochures can range from $1,000 to $9,000 depending on the customer's desired
specifications. Although we bid competitively for most of our work, we do offer
standard pricing for some stationery and business card products.
CUSTOMER SERVICE
We are committed to providing a high level of service and support to our
customers. Because our Internet services are available to users 24 hours a day,
our network support services are likewise continuously available. We value
frequent communication and feedback from our customers to continually improve
our services and products. To facilitate this communication, we have established
a customer advisory board with which our sales representatives meet monthly. By
offering customers a compelling and personalized service, we seek to strengthen
customer relationships, to encourage repeat visits and purchases, and to extend
customer retention. We generally staff our customer service desk weekdays from 6
a.m. to 6 p.m., Pacific time, consistent with the ordering patterns of our
customers. Inquiries come to us through our Web site and via e-mail and
telephone. As of April 30, 1999, we had 22 employees engaged in customer service
and operations.
ACQUISITIONS
Along with direct sales, acquisitions are an important part of our growth
strategy because they offer an efficient way to access high-quality customers.
We believe our acquisition strategy offers the following strategic advantages:
- enables us to more quickly acquire desirable customers and avoid a lengthy
direct sales cycle;
- allows us to acquire an established and knowledgeable sales force;
- builds the ImageX.com brand by introducing our solution to a broader
audience of customers and a wider range of markets; and
- provides us with valuable expertise in integrating our technology with
other printers' systems and equipment.
The commercial printing industry is characterized by a significant number of
small- to medium-sized, regionally oriented, privately held businesses. We
target a range of potential businesses, including print brokers, printers,
direct mail houses, fulfillment houses and service bureaus. We consider several
factors in evaluating an acquisition target, including
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- the quality of the target's customer base, including size, geographic
location, expected propensity to convert to the ImageX.com system and the
strength of existing customer relationships;
- the fit of the target's product and services capabilities with those of
ImageX.com;
- the depth of the target's management (including its sales force); and
- the target's financial performance.
We are currently in discussions with several acquisition candidates, but we have
not entered into any definitive acquisition agreements at this time. See "Risk
Factors--We are subject to risks associated with business acquisition."
FINE ARTS GRAPHICS
On April 13, 1999, we acquired the assets of Fine Arts Graphics, a
commercial printer with approximately $10 million in 1998 annual revenues
focused primarily on the general office category. The business has two
facilities, one in New Jersey and the other in Oregon. Sales offices are
co-located with manufacturing facilities.
In 1998, Fine Arts Graphics sold printed materials to over 600 customers,
with 46 customers accounting for approximately 80% of its $10 million in 1998
revenues. We intend to use our direct sales force to convert Fine Arts Graphics'
key customers to the ImageX.com online system. Since the acquisition, we have
contacted customers accounting for approximately 55% of Fine Arts Graphics' 1998
revenues. As of May 7, 1999, customers accounting for approximately 80% of the
revenues generated by such contacted customers (44% of Fine Arts Graphics's
total 1998 revenues) had tentatively agreed to convert to our online system.
TECHNOLOGY
The technology behind the ImageX.com solution is based on an integrated view
of the entire print procurement and manufacturing process. Other systems seek to
automate either the printer's manufacturing process or the customer's ordering
process. The ImageX.com solution combines both processes into one coherent
system, and drives the entire ordering and manufacturing process. We designed
our scalable manufacturing system to process thousands of printing orders daily.
ImageX.com hosts substantially all elements of the system for all customers
and print vendors. Customers use standard Internet browsers to access the
system. We install and configure a small amount of software onsite for key
vendor partners.
SYSTEMS ARCHITECTURE
The ImageX.com system is composed of three main elements:
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ONLINE PRINTING CENTER We build an Online Printing Center for each
customer that contains the customer's print
products and the business and procurement rules
required by that customer. ImageX.com customer
service and prepress representatives build these
Online Printing Centers using proprietary tools
developed especially for this task. Each Online
Printing Center has all the requisite features of
a business-to-business electronic commerce site,
including high levels of security, ease of
navigation, extensive customization, order
management, order tracking and administrative
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controls. The Online Printing Center handles all
customer interaction with ImageX.com's system. The
Online Printing Center accepts the customer's
order, gathers the required information, creates
and renders a proof of the document on screen and
submits the order into the manufacturing queuing
system.
IMAGING LOGIC INFORMATION ILIAD is the heart of the ImageX.com solution.
DATABASE (ILIAD) When a customer initiates an order, the ILIAD
engine establishes the boundaries within which the
customer can modify the item. This allows the
Online Printing Center to guide the customer's
interaction so that elements are modified properly
and in the right combinations, based on the
customer-prescribed business rules maintained
within ILIAD. This composition engine is a robust
and central technology developed by ImageX.com
expressly for this purpose.
MANUFACTURING SYSTEMS The ImageX.com manufacturing systems prepare the
digital information file for a particular printer
and printing process, deliver the file
electronically using the industry standard
PostScript file format and establish the
information flow between the printer and
ImageX.com for monitoring and quality control.
</TABLE>
The ImageX.com solution runs on a distributed Oracle database that holds and
manages all ordering rules, content information and process data. The Oracle
database was chosen because it provides the industry's leading scalable solution
for enterprise data management. The ImageX.com technology utilizes Microsoft's
Internet Information Server and application server technology provided by
Microsoft's Transaction Server and Message Queue Server. Finally, Adobe PDF
technology is utilized for online proofing of materials prior to ordering. Every
component of the ImageX.com architecture was chosen with scalability as the
primary consideration. By using scalable technologies from Oracle, Microsoft and
Adobe, the ImageX.com system is able to leverage innovations and capabilities
from those vendors on an incremental basis, without impacting other elements of
the system or its fundamental architecture.
OPERATIONS
Our operations strategy leverages a national network of 20 commercial
printing vendors and two facilities that we own. We believe that the ImageX.com
solution allows us to achieve the following product delivery efficiencies:
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IMPROVED CAPACITY UTILIZATION As an aggregator of print material demand, we
improve the capacity utilization of acquired and
aligned businesses. We believe the industry is
currently plagued by overcapacity, with very few
operations running at efficient three-shift,
seven-day schedules. With nationally aggregated
orders, we hope to improve the cash flow of
acquired and aligned businesses.
DIRECT COST AND OVERHEAD COST Current manufacturing processes within the
REDUCTION industry are costly and labor-intensive. By
providing commercial printing vendors with
print-ready PostScript files that
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are routed directly to their printing systems, our
system reduces the number of errors that must be
managed and corrected by a printing facility. In
addition, we estimate that, by automating
significant portions of a printer's customer
service and prepress operations, the ImageX.com
solution replaces between 10% and 25% of a typical
printer's staffing. As a result, our solution
lowers print production costs and correspondingly
increases cash flow.
VENDOR MANAGEMENT With access to our national network of commercial
printing vendors, as well as to our own
facilities, we can allocate print orders to the
most efficient supplier. Our access to multiple
print sources allows us to negotiate more
favorable terms from individual commercial
printing vendors. Vendors not meeting quality or
cost objectives can be replaced.
</TABLE>
PRODUCT DEVELOPMENT
Our future success will depend on our ability to maintain and develop
competitive technologies, to continue to enhance our current services, and to
develop and introduce new services in a timely and cost-effective manner that
meet changing conditions, including evolving customer needs, new competitive
service offerings, emerging industry standards and rapidly changing technology.
We maintain a customer advisory board that meets monthly to provide feedback on
product and service enhancements. We have a dedicated product development
organization that creates new features and functionality for our existing
services, as well as the software that supports new services. The product
development team has expertise in database systems, network technology, digital
print imaging systems, Internet protocols and security, distributed computing
and computer-integrated manufacturing. At April 30, 1999, we had 30 employees
engaged in product development. Product development expenses were $2.6 million
in 1998, $1.3 million in 1997 and $300,000 in 1996. We expect to continue making
substantial expenditures on product development in the future. See "Risk
factors--Our success will depend on our ability to continuously enhance our
technology and services."
INTELLECTUAL PROPERTY
We rely on intellectual property laws in the United States and other
jurisdictions to protect our proprietary rights. We currently have one U.S.
patent pending. We do not have any issued patents. We own copyrights in the
computer software and online materials that we have developed, and currently
hold limited licenses to use software in which third parties own copyrights,
including software for database management and electronic prepress. We have
registered the trademark "ImageX" in the United States and have applied for the
same mark in Japan and the European Union. We also have applied for U.S. federal
registration of the following marks: "Online Printing Center," "Your online
printing resource," "We didn't invent printing. We reinvented it," and "Your
online printing solution." For a discussion of risks related to our intellectual
property, refer to "Risk Factors--Possible infringement of intellectual property
rights could harm our business."
COMPETITION
The market for printed business materials is intensely competitive. We
compete primarily with local and regional printers, which are either independent
or owned by print industry consolidators. The commercial printing industry is
highly fragmented, with over 40,000 local and regional commercial printers
operating nationwide. These local and regional printers typically have
significant excess
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production capacity. Therefore, they compete aggressively for business printing
orders in the markets they serve.
Traditional commercial printers often have long-standing relationships with
customers. We face substantial challenges in convincing businesses to consider
alternatives to their traditional printer. In addition, printers typically have
extensive local sales forces that regularly canvass and solicit businesses in
the areas they serve. Commercial printers compete primarily on product pricing,
product and service quality, and, to a lesser extent, on innovation in printing
technologies and techniques. To attract new customers and retain our existing
customers, we must compete effectively in each of these areas.
We also face substantial competition from printing services
brokers--companies that contract with businesses to select and procure printing
services from a variety of printers. Brokers are able to offer customers a
relatively wide variety of products and services, and are often able to obtain
favorable pricing for their customers by soliciting bids from a variety of
printers. Like local and regional printers, printing services brokers often have
long-standing customer relationships and extensive local direct sales resources.
We may in the future also face direct competition from other companies that
may develop and market integrated Internet-based business printing services
similar to ours. Potential developers of competing electronic commerce services
may include:
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<S> <C>
CONSUMER PRINTING SERVICES A number of companies have recently started
PROVIDERS offering Internet-enabled printing services to
consumers and to the small office/home office
market. Among the services these companies offer
are online design and ordering of personalized
stationery, business cards and other office
staples. We believe that none of these consumer-
oriented providers is currently targeting our core
market of medium- to large-sized businesses.
However, these companies could enhance and expand
their service to include features and services
that make them competitive with the ImageX.com
system.
OFFICE SERVICES PROVIDERS Several large national and regional business
services providers currently offer integrated
document management services. These providers
typically offer onsite document management
services and equipment, and outsourced document
production services. Some providers have recently
commenced employing Web-based technologies for
document and order management and tracking. These
companies could potentially seek to capitalize on
their extensive customer base and document
production expertise by developing online business
materials design and ordering services.
EQUIPMENT MANUFACTURERS Leading office and computer equipment
manufacturers have recently devoted substantial
resources to developing high-end office printing
and reproduction equipment capable of producing
high-quality printed materials. As the cost and
complexity of high-end office printing technology
continues to fall, office equipment vendors could
displace a significant portion of the market for
outsourced business printing. Equipment
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manufacturers could pose a particular competitive
threat to ImageX.com if they enhance their
hardware line by combining it with powerful
document design and management software with
features similar to the ImageX.com system.
</TABLE>
Many of our current and potential future competitors have substantially
greater financial, marketing and other resources than we do. As a result, they
may be able to market their products, services and branding more aggressively
than we are able to, and may be able to significantly undercut our pricing for
extended periods of time. They may also be able to respond more quickly and
effectively to emerging new technologies and to changes in customer requirements
and preferences. See "Risk Factors--We face intense competition from printing
companies and could face additional competition from other businesses offering
Internet-based printing services."
EMPLOYEES
As of April 30, 1999, we had 187 full-time employees and one part-time
employee, including 111 employees we acquired through the acquisition of Fine
Arts Graphics. Of these employees, we have 17 in sales and marketing, 30 in
product development, 40 in customer service and operations, 73 in manufacturing
and 28 in general and administrative services. We also employ a limited number
of independent contractors and temporary employees on a periodic basis. None of
our employees are represented by a labor union and we consider our labor
relations to be good.
We believe our success depends to a significant extent on our ability to
attract, motivate and retain highly skilled management and employees. To this
end, we focus on incentive programs such as employee stock options, competitive
compensation and benefits for our employees.
FACILITIES
We are headquartered in Bellevue, Washington, where we lease approximately
18,000 square feet pursuant to a term lease that expires on March 31, 2002.
These facilities are used for executive office space, including sales and
marketing, finance and administration, and customer support. Through the
acquisition of Fine Arts Graphics, we have added an approximately
40,000-square-foot production facility and administrative office in Tualatin,
Oregon, and an approximately 15,000-square-foot production facility and
administrative office in Union, New Jersey. All our databases, servers and other
information and communications systems are located at our headquarters in
Bellevue, Washington. Although we have limited backup systems, significant
damage to or destruction of our main facilities could interrupt service to our
customers for several days.
LEGAL PROCEEDINGS
We are not a party to any material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of ImageX.com as of May 10, 1999 are as
follows:
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<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Richard P. Begert............................ 42 President, Chief Executive Officer and Director
F. Joseph Verschueren........................ 48 Chairman of the Board
Eric J. Bean................................. 40 Vice President of Products and Technology
Cory E. Klatt................................ 30 Chief Technology Officer, Secretary and Treasurer
Dana F. Manciagli............................ 38 Vice President of Sales and Marketing
John R. Higgins.............................. 33 Vice President of Finance and Acquisitions
Nicholas J. Stanley.......................... 34 President and Chief Executive Officer of Fine Arts
Graphics
John E. Ardell, III.......................... 59 Director
Garrett P. Gruener(1)........................ 44 Director
Elwood D. Howse, Jr.(1)...................... 59 Director
Richard R. Sonstelie(2)...................... 54 Director
Bernee D. L. Strom(2)........................ 52 Director
</TABLE>
- ---------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Richard P. Begert has been President and Chief Executive Officer and
director of ImageX.com since November 1998. From 1993 to 1998, Mr. Begert was
Regional President of AT&T Wireless Services (and its predecessor, McCaw
Cellular Communications, Inc.), a telecommunications company. From 1986 to 1993,
Mr. Begert held various other positions at McCaw Cellular. Mr. Begert received
his B.A. in business administration from the University of Washington.
F. Joseph Verschueren, a co-founder of ImageX.com, has been a director of
ImageX.com since its inception in 1995 and has served as Chairman of the Board
since August 1997. In addition, he served as President from September 1996 to
November 1998 and Chief Executive Officer from August 1997 to November 1998. Mr.
Verschueren served as Chief Executive Officer of Parallel Communications Inc.,
an advertising agency, from 1992 to 1996 and as Chairman of Board of Parallel
Communications since 1992. Mr. Verschueren received his B.A. in English and
philosophy from Gonzaga University.
Eric J. Bean has been Vice President of Products and Technology of
ImageX.com since July 1998. From June 1991 to July 1998, Mr. Bean held several
positions, including Director of Product Management and Business Line Manager,
with Adobe Systems Inc., a software company (and Aldus Corporation, which was
acquired by Adobe Systems in 1994). Mr. Bean received his M.B.A. from the
University of Washington, his master's degree in software engineering from
Seattle University, and his B.S. in mathematics from Pacific Lutheran
University.
Cory E. Klatt, a co-founder of ImageX.com, served as a director of
ImageX.com from August 1995 to December 1996, as Secretary from September 1996
to August 1997 and from July 1998 to present, as Assistant Secretary from August
1997 to July 1998, as Treasurer since July 1998 and as Chief Technology Officer
since August 1997. From 1995 to 1996, Mr. Klatt was Chief Technology Officer of
Parallel Communications. From 1992 to 1995, Mr. Klatt was a general partner of
Practical Applications, Inc., a software development company.
50
<PAGE>
Dana F. Manciagli has been Vice President of Sales and Marketing at
ImageX.com since May 1998. From August 1996 to May 1998, Ms. Manciagli was Vice
President of Worldwide Marketing of the Kodak Professional Division of Eastman
Kodak Company, a photographic equipment and supply company. From June 1991 to
July 1996, she was Director of Marketing for Europe and Asia of Sea-Land
Service, Inc., a subsidiary of CSX Corporation, a transportation company, in
Hong Kong. Ms. Manciagli received her B.A. in political science from the
University of California, Santa Barbara and her master's degree in international
management from the American Graduate School of International Management.
John R. Higgins has been Vice President of Finance and Acquisitions at
ImageX.com since May 1999. In addition, he served as Director of Business
Development and Acquisitions from June 1998 to May 1999. From November 1996 to
January 1998, Mr. Higgins was Business Manager of the International Group of
Simpson Investment Company and Simpson Paper Company, a forest products
manufacturer. From June 1994 to November 1996, he served as a Senior Business
Analyst in Simpson Paper Company's Commercial Printing Business Unit. Mr.
Higgins received his B.S. in chemistry from the United States Military Academy
at West Point and his M.B.A. with distinction from Harvard University.
Nicholas J. Stanley has served as President of Fine Arts Graphics, which we
acquired in April 1999, since 1991 and as Chief Executive Officer since 1994.
Mr. Stanley has served as President of Stanley Investment & Management, an
investment company, since 1994, as a principal of the Titan Group, a real estate
investment firm, since 1990 and as a director of MotivePower Industries, Inc., a
manufacturer of products for rail and other power-related industries, since
1994. He also serves as Honorary Consul to the Kingdom of Thailand. Mr. Stanley
received his B.S. in business administration from Georgetown University.
John E. Ardell, III has been a director of ImageX.com since December 1996.
Mr. Ardell has been a general partner of Technology Partners, a venture capital
firm, since January 1994. From June 1996 to November 1998, Mr. Ardell served as
Chairman and Chief Executive Officer of Crystal Dynamics, a video game
developer. He is also a director of several private companies. Mr. Ardell
received his B.S. in engineering from the United States Naval Academy.
Garrett P. Gruener has been a director of ImageX.com since April 1999. Mr.
Gruener has been a general partner of Alta Partners, L.P., a venture capital
firm, since 1996 and of certain funds affiliated with Burr, Egan, Deleage & Co.,
a venture capital firm, since 1992. Mr. Gruener received his B.A. in political
science from the University of California, San Diego and his M.A. in political
science from the University of California, Berkeley.
Elwood D. Howse, Jr. has been a director of ImageX.com since December 1996.
Mr. Howse served as President of Cable & Howse Ventures, a Northwest venture
capital management firm, from 1981 to 1997, and as Managing Member since 1997.
He has served as a director of OrthoLogic Corporation, a manufacturer of
orthopedic products, since September 1987 and of Applied Microsystems
Corporation, a manufacturer of microprocessors, since February 1992. He also
serves as a director of several private companies and charitable institutions.
Mr. Howse received his B.S. in engineering and his M.B.A. from Stanford
University.
Richard R. Sonstelie has been a director of ImageX.com since June 1998. Mr.
Sonstelie has served as Chairman of the Board of Puget Sound Energy, Inc., a
power company, since February 1997 and as a director since 1987. His prior
positions with Puget Sound Energy included Chief Executive Officer from 1992 to
1998, Chief Operating Officer from 1991 to 1992, Chief Financial Officer from
1987 to 1991, and Executive Vice President from 1985 to 1987. Mr. Sonstelie
received his B.S. from the United States Military Academy at West Point, his
M.S. in nuclear engineering from Massachusetts Institute of Technology and his
M.B.A. from Harvard University.
51
<PAGE>
Bernee D. L. Strom has been a director of ImageX.com since May 1999. Ms.
Strom has served as President and Chief Operating Officer of InfoSpace.com,
Inc., a content services aggregator and integrator, since November 1998 and as a
director since December 1998. Ms. Strom has served as President and Chief
Executive Officer of the Strom Group, a venture investment and business advisory
firm specializing in high technology, since 1990. From April 1995 to June 1997,
Ms. Strom served as President and Chief Executive Officer of USA Digital Radio,
LP, a partnership of Westinghouse Electric Corporation and Gannett Co., Inc.
that develops technology for AM and FM digital radio broadcasting. Ms. Strom
also serves as a director of the Polaroid Corporation, a photographic equipment
and supply company, Krug International Corporation, a consumer products
manufacturer, MilleCom, an Internet-based communications company, Walker
Digital, an intellectual property studio, and Quantum Development, a software
and services company. Ms. Strom received her B.S. in mathematics and history,
her M.A. and her Ph.D. in mathematics and mathematics education from New York
University and her M.B.A. from the University of California, Los Angeles.
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee currently consists of Mr. Sonstelie and Ms.
Strom. The compensation committee establishes and reviews the compensation and
benefits of our executive officers, considers incentive compensation plans for
our employees and carries out duties assigned to the committee under our option
plan and our employee stock purchase plan.
The audit committee currently consists of Messrs. Gruener and Howse. The
audit committee makes recommendations to our board of directors regarding the
selection and retention of independent auditors, reviews the scope and results
of the audit with the independent auditor and management, and reviews and
evaluates our audit and control functions.
CLASSIFIED BOARD OF DIRECTORS
As of the first annual meeting of shareholders after the completion of this
offering, our board of directors will be divided into three classes of
directors. Directors in the first class will be elected for a one-year term,
those in the second class will be elected for a two-year term and those in the
third class will be elected for a three-year term. At each subsequent annual
meeting, shareholders will elect replacements for the directors whose term is
then expiring, and the directors so elected will serve for three-year terms.
DIRECTOR COMPENSATION
We reimburse our directors for all reasonable expenses incurred in
connection with their attendance at board and committee meetings. In December
1998, we granted to both Mr. Howse and Mr. Sonstelie a nonqualified stock option
to purchase 25,000 shares of common stock at an exercise price of $0.60 per
share. In April 1999, we granted to Ms. Strom a nonqualified stock option to
purchase 25,000 shares of common stock at an exercise price of $3.00 per share.
Other than stock options issued pursuant to the 1999 Nonemployee Directors Stock
Option Plan described below, we do not currently pay compensation to our
directors.
NONEMPLOYEE DIRECTORS STOCK OPTION PROGRAM
Our board of directors has adopted our 1999 Nonemployee Directors Stock
Option Program, subject to shareholder approval. Under the program, our
nonemployee directors are entitled to receive stock options. All options granted
under the program expire ten years from the date of the option grant. The
exercise price for these options is the fair market value of our common stock on
the grant date.
52
<PAGE>
The program provides for the grant of an option to purchase 25,000 shares of
common stock to each of our nonemployee directors upon their initial election or
appointment to the board following this offering. Thereafter, beginning with the
annual meeting of shareholders in 2000, we will grant each nonemployee director
who continues to serve on the board an additional option to purchase 10,000
shares of common stock upon such reelection or reappointment. All options
granted under the program fully vest on the grant date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Mr. Sonstelie and Ms.
Strom. No member of the compensation committee serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as members of our board of directors or compensation
committee. Mr. Sonstelie and his spouse have purchased ImageX.com securities as
follows:
- 25,000 shares of our Series D Preferred Stock on October 1, 1998 at $2.00
per share;
- 16,667 shares of our Series E Preferred Stock on April 8, 1999 at $2.10
per share; and
- 2,500 warrants to purchase shares of our Series D Preferred Stock on
October 1, 1998 at an exercise price of $2.00 per share.
See "Certain Transactions."
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
Our articles of incorporation limit the liability of directors to the
fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, subject to
the Washington Business Corporation Act, no director will be personally liable
to ImageX.com or its shareholders for monetary damages resulting from his or her
conduct as a director of ImageX.com, except liability for
- acts or omissions involving intentional misconduct or knowing violations
of law;
- unlawful distributions; or
- transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally entitled.
Our articles of incorporation also provide that we will indemnify any
individual made a party to a proceeding because that individual is or was a
director of ImageX.com and that we will advance or reimburse reasonable expenses
incurred by that individual in advance of the final disposition of the
proceeding to the full extent permitted by applicable law. Any repeal of or
modification to our articles of incorporation may not adversely affect any right
of a director of ImageX.com who is or was a director at the time of that repeal
or modification.
Our bylaws provide that we will indemnify our directors and officers and may
indemnify our employees and agents to the full extent permitted by law. In
addition, we have entered into separate indemnification agreements with our
directors and executive officers that could require us, among other things, to
indemnify them against certain liabilities that arise because of their status or
service as directors or executive officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. We also maintain a liability insurance policy, pursuant to which
our directors and officers may be indemnified against liability they may incur
as a result of their service as directors and officers of ImageX.com.
To the extent the provisions of the articles of incorporation, bylaws and
indemnification agreements provide for indemnification of directors for
liabilities arising under the Securities Act, those
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<PAGE>
provisions are, in the opinion of the Securities and Exchange Commission,
against public policy as expressed in the Securities Act and are therefore
unenforceable.
EXECUTIVE COMPENSATION
The following table provides information concerning the compensation
received for services rendered to ImageX.com in all capacities for the year
ended December 31, 1998 by our Chief Executive Officer and the other two
executive officers of ImageX.com whose compensation exceeded $100,000 in fiscal
1998. None of our executive officers whose compensation exceeded $100,000 in
fiscal 1998 received stock options in 1998 or held stock options as of December
31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------
NAME AND PRINCIPAL POSITION SALARY
- ------------------------------------------------------------------------------- -------------
<S> <C>
Richard P. Begert
Chief Executive Officer and President(1)..................................... $ 28,125
F. Joseph Verschueren
Chairman of the Board(2)..................................................... 154,211
Cory E. Klatt
Chief Technology Officer, Secretary and Treasurer............................ 111,648
</TABLE>
- ---------
(1) Mr. Begert joined ImageX.com in November 1998. His current annual base
salary is $225,000. In November 1998, Mr. Begert purchased 1,000,000 shares
of common stock at the then fair market price of $0.20 per share, as
determined by our board of directors. He paid the purchase price for the
shares by issuing a promissory note to us. The promissory note accrues
interest at the rate of 7% per year. Principal and interest under the
promissory note are due and payable as follows: (a) 24% of the principal,
plus interest accrued thereon, is due in November 1999 and (b) 2% of the
principal is due each month thereafter until the promissory note is paid in
full. Pursuant to the stock vesting and pledge agreement, Mr. Begert granted
ImageX.com a right to repurchase a portion of these shares if his employment
terminates. The repurchase right lapses after 12 months with respect to
240,000 of the shares. The repurchase right with respect to the remaining
shares lapses ratably over the next 38 months.
(2) Prior to November 1998, Mr. Verschueren served as President and Chief
Executive Officer.
EMPLOYMENT AGREEMENTS
Pursuant to an offer letter dated November 12, 1998, we agreed to provide
Mr. Begert with an annual base salary of $225,000; participation in our bonus
program (at up to 100% of Mr. Begert's base salary); insurance and participation
in other employee benefit plans; eligibility for an additional bonus for the
achievement of profitability goals; a restricted stock award of 1,000,000 shares
of common stock at $0.20 per share, issued on November 16, 1998, which is
subject to our purchase option, which lapses incrementally over a period of
approximately four years at $0.20 per share; and upon completion of a private
placement at a level of $15,000,000 or greater, an additional option to purchase
100,000 shares of common stock. In April 1999, we granted Mr. Begert this option
to purchase 100,000 shares of common stock after we completed our private
placement of Series E Preferred Stock.
Pursuant to an offer letter dated June 22, 1998, we agreed to provide Mr.
Bean with an annual base salary of $150,000; a guaranteed bonus of $50,000 on
July 15, 1999, the first anniversary of his employment with ImageX.com; an
option to purchase 150,000 shares of common stock, which vests incrementally
over a period of four years; a relocation reimbursement for documented moving
expenses
54
<PAGE>
up to $16,000 and reimbursement for other related expenses; and medical benefits
for him and his family based on our benefit plans.
Pursuant to an offer letter dated April 23, 1998, we agreed to provide Ms.
Manciagli with an annual base salary of $150,000; a guaranteed bonus of $50,000
on May 12, 1999, the first anniversary of her employment with ImageX.com; an
additional bonus of $50,000 and an option to purchase 25,000 shares of common
stock if we met certain sales goals and marketing objectives; an option to
purchase 125,000 shares of common stock, which vests incrementally over a period
of four years; a relocation reimbursement for her documented moving expenses up
to $24,000 and reimbursement for other related expenses; and medical benefits
for her and her family based on our benefit plans. In April 1999, we granted Ms.
Manciagli the aforementioned option to purchase 25,000 shares of common stock
after she had achieved the requisite sales goals and marketing objectives.
Pursuant to an employment agreement dated April 13, 1999, we agreed to
provide Mr. Stanley with an annual base salary of $125,000; an annual bonus, if
any, as determined by our board of directors; the right to participate in fringe
benefit programs generally available to our senior executives; a warrant to
purchase 150,000 shares of common stock at $2.00 per share; and an option to
purchase 50,000 shares of common stock, which vests incrementally over a period
of four years.
EMPLOYEE BENEFIT PLANS
AMENDED AND RESTATED 1996 STOCK INCENTIVE COMPENSATION PLAN
In September 1996, our board of directors and shareholders adopted our
Amended and Restated 1996 Stock Incentive Compensation Plan. In April 1999, our
board of directors approved, subject to shareholder approval, an increase in the
number of shares of common stock reserved under the plan, as well as certain
other amendments. The purpose of the option plan is to enhance long-term
shareholder value by offering opportunities to selected persons to participate
in our growth and success, and to encourage them to remain in our service or in
the service of our subsidiaries and to acquire and maintain ownership in our
company. The option plan provides for awards, which may include, but are not
limited to, incentive stock options, nonqualified stock options and stock
awards. The board has reserved a total of 5,600,000 shares of common stock under
the plan, of which 2,245,073 remain available for grant as of April 30, 1999,
plus an automatic annual increase, to be added on the first day of each fiscal
year beginning on January 1, 2001, equal to the least of (1) 2,000,000 shares,
(2) 5% of the average number of common shares outstanding as used to calculate
fully diluted earnings per share as reported in ImageX.com's Annual Report for
the preceding year and (3) a lesser amount determined by the board of directors.
No awards granted under the option plan may be assigned or transferred by
the holder other than by will or by the applicable laws of descent and
distribution, and, during the holder's lifetime, these awards may be exercised
only by the holder. The board may suspend or terminate the option plan at any
time. Unless sooner terminated by the board, the option plan will terminate on
April 21, 2009.
STOCK OPTION GRANTS. The board of directors or a committee appointed by the
board will serve as the plan administrator of the option plan. The plan
administrator will have the authority to select individuals to receive options
under the option plan and to specify the terms and conditions of each option
granted, the exercise price (which, for incentive stock options, must be at
least equal to the fair market value of the common stock on the grant date and,
for nonqualified stock options, must be not less than 85% of the fair market
value of the common stock on the grant date), the vesting provisions and the
option term. Unless otherwise provided by the plan administrator, options
granted under the option plan will expire ten years from the date of grant.
STOCK AWARDS. The plan administrator is authorized under the option plan to
award shares of common stock on terms and conditions and subject to restrictions
established by the plan administrator
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<PAGE>
in its sole discretion. The terms, conditions and restrictions that the plan
administrator will have the power to determine will include, without limitation,
the manner in which shares subject to stock awards are held during the periods
they are subject to restrictions and the circumstances under which forfeiture of
restricted stock will occur by reason of termination of the holder's services.
Holders of restricted stock are shareholders of ImageX.com and have, subject to
certain restrictions, all the rights of shareholders with respect to those
shares.
CORPORATE TRANSACTIONS. In the event of certain corporate transactions,
such as a merger or sale of ImageX.com, each outstanding option and stock award
will automatically accelerate and become 100% vested and exercisable immediately
before the corporate transaction, unless the option or stock award is, in
connection with the corporate transaction, assumed or replaced with a comparable
award by ImageX.com's successor corporation or the parent of ImageX.com's
successor corporation. Any option or stock award that is assumed or replaced
with a comparable award in the corporate transaction, which does not otherwise
accelerate, will accelerate if the holder's employment or services should
subsequently terminate within two years of that corporate transaction, unless
the holder's services or employment are terminated by the successor corporation
for cause or by the holder voluntarily without good reason.
1999 EMPLOYEE STOCK PURCHASE PLAN
In April 1999, our board of directors adopted our 1999 Employee Stock
Purchase Plan, subject to shareholder approval. We will implement our stock
purchase plan upon the effectiveness of this offering to encourage employees to
remain in our employ or the employ of our subsidiaries. We intend for the plan
to qualify under Section 423 of the Internal Revenue Code.
Our stock purchase plan permits our eligible employees and eligible
employees of our subsidiaries to purchase common stock through payroll
deductions of up to 15% of their salary or wage compensation (or higher
percentage established by the plan administrator from time to time). Under our
stock purchase plan, no employee may purchase common stock with a fair market
value of more than $25,000 in any calendar year, or purchase more than 500
shares of common stock in any single purchase period.
We will implement the stock purchase plan with two-year offering periods.
Each two-year offering period is comprised of four six-month purchase periods.
The first offering period will commence on the effectiveness of this offering
and end on August 31, 2001. The first purchase period under the first offering
period will commence on the effectiveness of this offering and end on February
29, 2000. Subsequent purchase periods will begin on each March 1 and September 1
and end on each August 31 and February 28 (or February 29 in the case of leap
years). Subject to certain limitations, the plan administrator may establish a
different term and different commencing and ending dates for future offerings.
The price of the common stock purchased under the stock purchase plan will
be the lesser of 85% of the fair market value on the first day of the applicable
offering period and 85% of the fair market value on the last day of the
applicable purchase period, except that the purchase price for the first
offering period will be equal to the lesser of 100% of the initial public
offering price of the common stock and 85% of the fair market value on the last
day of the applicable purchase period. The stock purchase plan terminates ten
years after the date of adoption by our board of directors, but the board may
terminate it at any earlier time. We have not yet issued any shares of common
stock under the stock purchase plan.
Employees generally will be eligible to participate in the stock purchase
plan if they are customarily employed by ImageX.com for 20 hours or more per
week and more than five months in a calendar year and have been employed for a
certain minimum period of time as of the beginning of the relevant offering
period (as specified by the plan administrator) and are not (and would not
become as
56
<PAGE>
a result of purchasing shares under the plan) holders of 5% or more of our
common stock or of our subsidiaries. Options granted under the stock purchase
plan are not transferable and are only exercisable during the optionee's
lifetime.
We authorized the issuance under the stock purchase plan of a total of
500,000 shares of common stock, plus automatic annual increases, to be added on
the first day of our fiscal year beginning on January 1, 2001, equal to the
least of (1) 200,000 shares, (2) 0.5% of the average common shares outstanding
as used to calculate fully diluted earnings per share as reported in
ImageX.com's Annual Report for the preceding year and (3) a lesser amount as
determined by our board of directors.
In the event of a merger or consolidation resulting in a change of control
or acquisition by another corporation of all or substantially all our assets,
each outstanding option to purchase shares under the stock purchase plan shall
be assumed or an equivalent option substituted by the successor corporation. If
the successor corporation refuses to assume or substitute for the option, the
offering period during which a participant may purchase stock will be shortened
to a specified date before such proposed transaction. Similarly, in the event of
a proposed liquidation or dissolution of ImageX.com, the offering period during
which a participant may purchase stock will be shortened to a specified date
before the date of the proposed liquidation or dissolution.
The stock purchase plan will expire ten years after the date of its adoption
by our board of directors, but the board of directors may suspend or terminate
the stock purchase plan at any time.
401(k) PLAN
We maintain a 401(k) plan that covers all our employees who satisfy certain
eligibility requirements relating to minimum age, length of service and hours
worked. We may make an annual contribution for the benefit of eligible employees
in an amount determined by our board of directors. We have not made any such
contribution to date and have no current plans to do so. Eligible employees may
make pretax elective contributions of up to 15% of their compensation, subject
to maximum limits on contributions prescribed by law.
57
<PAGE>
CERTAIN TRANSACTIONS
From January 1, 1996 through April 30, 1999, in a series of private
transactions, we sold securities as follows:
<TABLE>
<CAPTION>
PURCHASE WEIGHTED AVERAGE
SECURITY DATE OF ISSUANCE SHARES PRICE EXERCISE PRICE
- ----------------------------------------------- --------------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Series B Preferred Stock....................... 12/20/96 3,500,000 $ 1.00 --
Series C Preferred Stock....................... 1/9/98 and 5/14/98 4,000,000 $ 1.50 --
Series D Preferred Stock....................... 10/1/98 and 1/11/99 1,786,750 $ 2.00 --
Series E Preferred Stock....................... 4/8/99 and 4/15/99 11,904,761 $ 2.10 --
Common Stock Warrants.......................... 1/9/98 1,000,000 $ .01 $ 1.50
1/9/98 580,000 $ .01 $ 3.75
5/14/98 780,000 $ .01 $ 1.50
4/13/99 150,000 $ .01 $ 2.00
4/21/99 96,329 $ .01 $ 2.10
Series C Warrants.............................. 8/24/98 26,667 $ .01 $ 1.50
8/28/98 13,333 $ .01 $ 1.50
Series D Warrants.............................. 10/1/98 138,250 $ .01 $ 2.00
Series E Warrants.............................. 4/8/99 85,535 $ .01 $ 2.10
</TABLE>
We sold these securities pursuant to preferred stock purchase agreements on
similar terms (except for terms relating to date and price), under which we made
representations, warranties and covenants, and provided the purchasers with
registration rights, information rights, and rights of first refusal, among
other provisions. Each share of preferred stock will convert into one share of
common stock and each warrant to purchase shares of preferred stock will convert
into a warrant to purchase common stock, upon the closing of this offering.
Listed below for holders of 5% or more of our common stock and our directors,
officers and entities affiliated with our directors and our officers are the
securities they purchased in the above financings.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK PURCHASED WARRANTS PURCHASED
-------------------------------------------- -----------------------------------
INVESTOR SERIES B SERIES C SERIES D SERIES E COMMON SERIES C SERIES D
- --------------------------------------- --------- --------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with Acorn
Ventures, Inc.(1).................... 1,383,334 2,928,572 1,849,750
Entities affiliated with Technology
Partners(2).......................... 1,750,000 946,667 201,380 1,904,762 184,600 26,667 20,000
Entities affiliated with Alta
California Management Partners II,
L.P.(3).............................. 2,857,143
Vanguard V, L.P........................ 1,000,000 546,667 101,613 106,600 13,333 10,000
Eric J. Bean(4)........................ 25,000 2,500
Dana F. Manciagli(5)................... 125,000 119,048 12,500
Elwood D. Howse, Jr.(6)................ 125,000 73,334 130,952 14,300
Richard R. Sonstelie(7)................ 25,000 16,667 2,500
</TABLE>
- ------------
(1) Includes shares purchased by Acorn Ventures IV, LLC and Internet Ventures,
LLC. Acorn Ventures, Inc. is a member of Acorn Ventures IV, LLC and Internet
Ventures, LLC.
(2) Includes shares purchased by Technology Partners Fund V, L.P. and Technology
Partners Fund VI, L.P. Mr. Ardell, a director of ImageX.com, is a general
partner of TPW Management V, L.P., which is the general partner of
Technology Partners Fund V, L.P. and a managing member of TP Management VI,
LLC, which is the general partner of Technology Partners Fund VI, L.P.
(3) Includes shares purchased by Alta California Partners II, L.P. and Alta
Embarcadero Partners II, LLC. Mr. Gruener, a director of ImageX.com, is a
general partner of Alta California Management Partners II, L.P., which is
the general partner of Alta California Partners II, L.P. and the managing
member of Alta Embarcadero Partners II, LLC.
(4) Includes shares and warrants purchased by Donaldson, Lufkin & Jenrette, of
which Mr. Bean, an executive officer of ImageX.com, is the beneficial owner.
(5) Includes shares and warrants purchased by Galaxy Investment Partners. Ms.
Manciagli, an executive officer of ImageX.com, is a general partner of
Galaxy Investment Partners.
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<PAGE>
(6) Includes shares and warrants purchased by Howse Family Partnership. Mr.
Howse, a director of ImageX.com, is a general partner of Howse Family
Partnership.
(7) Includes shares and warrants purchased jointly by Mr. Sonstelie and his
spouse.
In December 1996, we issued 375,000 shares of Series A Preferred Stock to
each of Messrs. Verschueren and Klatt in connection with a reclassification of
their issued and outstanding shares of common stock into Series A Preferred
Stock.
In December 1996, ImageX.com issued promissory notes to Technology Partners
Fund V, L.P. in the amount of $100,000 and to Vanguard V, L.P. in the amount of
$50,000. The notes accrued interest at the rate of 8% per annum. Technology
Partners Fund V, L.P. and Vanguard V, L.P. paid a portion of the purchase price
for their shares of Series B Preferred Stock by canceling the convertible
promissory notes.
In December 1996, we entered into stock vesting agreements with F. Joseph
Verschueren, Cory E. Klatt and Elwood D. Howse, Jr., pursuant to which we issued
an aggregate of 1,500,000 shares of our common stock in exchange for an
aggregate of $300. Pursuant to the stock vesting agreements, each of Messrs.
Verschueren, Klatt and Howse granted ImageX.com a right to repurchase a portion
of his shares if his employment or consulting services terminate. The repurchase
rights lapse ratably over the 36-month period ending in December 1999. The
number of shares issued to each of Messrs. Verschueren, Klatt and Howse, and the
percentage of shares subject to the repurchase option, is as follows:
<TABLE>
<CAPTION>
PERCENT SUBJECT
NAME SHARES ISSUED TO REPURCHASE
- ------------------------------------------------------------------------- ------------- -----------------
<S> <C> <C>
F. Joseph Verschueren.................................................... 800,000 100%
Cory E. Klatt............................................................ 600,000 100%
Elwood D. Howse, Jr...................................................... 100,000 50%
</TABLE>
In August 1997, we entered into a stock subscription and repurchase
agreement with Elwood D. Howse, Jr., pursuant to which we issued 200,000 shares
of common stock to Mr. Howse at a purchase price of $.10 per share. Mr. Howse
paid the purchase price for the shares by issuing a $20,000 promissory note to
ImageX.com. Interest on the promissory note is due and payable monthly at the
rate of 7% per year. The principal amount of the promissory note is due in full
in April 2000. Pursuant to the stock subscription and repurchase agreement, Mr.
Howse granted ImageX.com a right to repurchase a portion of his shares if his
consulting services terminate. The repurchase right lapses ratably over the
36-month term beginning May 1, 1997 and ending April 30, 2000.
In May 1998, in connection with its purchase of Series C Preferred Stock,
Acorn Ventures IV, LLC issued a promissory note to ImageX.com in the amount of
$490,000.50. No interest was payable on the unpaid principal amount of the note.
In October 1998, Acorn Ventures IV, LLC satisfied its obligation under the note
with a cash payment of the principal amount.
In August 1998, we issued convertible promissory notes to Technology
Partners Fund V, L.P. in the amount of $400,000 and to Vanguard V, L.P. in the
amount of $200,000. The notes accrued interest at the rate of 7% per annum.
Technology Partners Fund V, L.P. and Vanguard V, L.P. paid the purchase price
for their shares of Series D Preferred Stock by canceling of the convertible
promissory notes.
In November 1998, Richard P. Begert, our President, Chief Executive Officer
and a director, purchased 1,000,000 shares of common stock at $0.20 per share.
Mr. Begert paid the purchase price for the shares by issuing a promissory note
to us. The promissory note accrues interest at the rate of 7% per year.
Principal and interest under the promissory note are due and payable as follows:
(a) 24% of the principal, plus interest accrued thereon, is due in November 1999
and (b) 2% of the principal is due each month thereafter until the promissory
note is paid in full. Pursuant to the stock vesting and pledge agreement, Mr.
Begert granted ImageX.com a right to repurchase a portion of these shares if
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<PAGE>
his employment terminates. The repurchase right lapses after 12 months with
respect to 240,000 of the shares. The repurchase right with respect to the
remaining shares lapses ratably over the next 38 months.
In January 1998, we entered into a consulting agreement with Acorn Ventures
IV, LLC, pursuant to which we were required to pay reasonable out-of-pocket
expenses incurred by Acorn Ventures in connection with its services as a
consultant. In connection with the consulting agreement, Acorn Ventures received
a warrant to purchase 1,580,000 shares of common stock. Other than the
reimbursement of out-of-pocket expenses, there was no other cash compensation
under the consulting agreement. In addition, we entered into agreements to
indemnify Acorn Ventures against expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by Acorn Ventures as a party or
participant arising out of Acorn Ventures' services as a consultant. On April 7,
1999, Acorn Ventures and ImageX.com mutually agreed to terminate the consulting
agreement and accelerate the unvested portion of the warrant.
We have extended offer letters to Richard P. Begert, Dana F. Manciagli and
Eric J. Bean and have entered into an employment agreement with Nicholas J.
Stanley. See "Management--Employment Agreements."
During 1998, we paid approximately $521,000 to Parallel Communications, our
advertising agency, for services rendered in connection with our marketing
efforts. Mr. Verschueren, a director of ImageX.com, serves as a director and
owns one-third of the outstanding shares of capital stock of Parallel
Communications. Mr. Klatt, an executive officer of ImageX.com, owns one-third of
the outstanding shares of capital stock of Parallel Communications. During 1996,
ImageX.com had a payable to Parallel Communications in the amount of $86,627 for
various services performed and expenses incurred on behalf of ImageX.com, which
amount was disputed by ImageX.com and, as a consequence, was written off in
1996.
We intend to enter into indemnification agreements with each of our
executive officers and directors. See "Management--Director and Officer
Indemnification and Liability."
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table summarizes certain information regarding the beneficial
ownership of our common stock as of April 30, 1999 for
- each person or group that we know owns more than 5% of the common stock;
- each of our directors;
- our chief executive officer;
- each officer whose compensation exceeded $100,000 in 1998; and
- all our directors and executive officers as a group.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes shares over which the indicated
beneficial owner exercises voting and/or investment power. Shares of common
stock subject to options or warrants currently exercisable or exercisable within
60 days are deemed outstanding for computing the percentage ownership of the
person holding the options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person. Except as otherwise
indicated, we believe the beneficial owners of the common stock listed below,
based on information furnished by them, have sole voting and investment power
with respect to the shares listed opposite their names. Unless otherwise
indicated, the following officers, directors and shareholders can be reached at
the principal offices of ImageX.com.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF SHARES ----------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING(1) OFFERING(2)
- --------------------------------------------------------------------- ----------------- ------------- -------------
<S> <C> <C> <C>
Entities affiliated with Acorn Ventures, Inc.(3) .................... 6,161,656 23.62% %
1309 114th Avenue S.E., Suite 200
Bellevue, WA 98004
Entities affiliated with Technology Partners(4) ..................... 5,034,076 19.29
1550 Tiburon Boulevard, Suite A
Belvedere, CA 94920
Entities affiliated with Alta California Management 2,857,143 10.95
Partners II, L.P.(5) ..............................................
One Embarcadero Center, Suite 4050
Palo Alto, CA 94301
Vanguard V, L.P.(6) ................................................. 1,778,213 6.82
525 University Avenue, Suite 600
Palo Alto, CA 94301
OKGBD & Co., as nominee for SunAmerica Investments, Inc. 1,539,286 5.90
1 SunAmerica Center
Century City, CA 90067
Richard P. Begert.................................................... 1,000,000 3.83
Cory E. Klatt........................................................ 975,000 3.74
F. Joseph Verschueren................................................ 1,175,000 4.50
John E. Ardell, III(7)............................................... 5,034,076 19.29
Garrett P. Gruener(8)................................................ 2,857,143 10.95
Elwood D. Howse, Jr.(9).............................................. 668,586 2.56
Richard R. Sonstelie(10)............................................. 69,167 * *
Bernee D. L. Strom(11)............................................... 25,000 * *
All directors and executive officers as a group (12 persons)(12)..... 12,432,520 47.43
</TABLE>
- ---------
* Less than 1%.
61
<PAGE>
(1) Based on shares outstanding as of April 30, 1999.
(2) Assumes that all outstanding options and warrants to purchase common stock
are not exercised.
(3) Includes 71,429 outstanding shares held by Acorn Ventures, Inc. Also
includes 1,316,667 outstanding shares and 1,836,750 shares issuable
pursuant to warrants currently exercisable held by Acorn Ventures IV, LLC.
Also includes 2,923,810 outstanding shares and 13,000 shares issuable
pursuant to warrants currently exercisable held by Internet Ventures, LLC.
Acorn Ventures, Inc. is a member of Acorn Ventures IV, LLC and Internet
Ventures, LLC.
(4) Includes 4,802,809 outstanding shares and 231,267 shares issuable pursuant
to warrants currently exercisable held by Technology Partners Fund V, L.P.
and Technology Partners Fund VI, L.P.
(5) Includes 2,830,966 oustanding shares held by Alta California Partners II,
L.P. and 26,177 outstanding shares held by Alta Embarcadero Partners II,
LLC.
(6) Includes 129,933 shares of common stock issuable pursuant to warrants
currently exercisable.
(7) Includes 4,802,809 outstanding shares and 231,267 shares issuable pursuant
to warrants currently exercisable held by Technology Partners Fund V, L.P.
and Technology Partners Fund VI, L.P. Mr. Ardell is a general partner of
TPW Management V, L.P., which is the general partner of Technology Partners
Fund V, L.P., and a managing member of TP Management VI, LLC, which is the
general partner of Technology Partners Fund VI, L.P. Mr. Ardell disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in these shares arising from his interest in Technology Partners.
(8) Represents outstanding shares held by Alta California Partners II, L.P. and
Alta Embarcadero Partners II, LLC. Mr. Gruener is a general partner of Alta
California Management Partners II, L.P., which is the general partner of
Alta California Partners II, L.P. and the managing member of Alta
Embarcadero Partners II, LLC. Mr. Gruener disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest in these shares
arising from his interest in Alta California Management Partners II, L.P.
(9) Includes 25,000 shares issuable pursuant to options exercisable within 60
days of April 30, 1999. Also includes 329,286 outstanding shares and 14,300
shares issuable pursuant to warrants exercisable within 60 days of April
30, 1999 held by the Howse Family Partnership. Mr. Howse is a general
partner of the Howse Family Partnership.
(10) Includes 25,000 shares issuable pursuant to options exercisable within 60
days of April 30, 1999. Also includes 41,667 outstanding shares and 2,500
shares issuable pursuant to warrants currently exercisable held jointly by
Mr. Sonstelie and his spouse.
(11) Represents shares issuable pursuant to options exercisable within 60 days
of April 30, 1999.
(12) Includes 119,500 shares issuable pursuant to options and warrants
exercisable within 60 days of April 30, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 100,000,000 shares of common stock, $0.01
par value per share, and 30,000,000 shares of preferred stock, $0.01 par value
per share. The following summary of certain provisions of the common stock and
preferred stock is not complete and is qualified in its entirety by reference to
our articles of incorporation, which are included as an exhibit to the
registration statement of which this prospectus is a part.
COMMON STOCK
As of April 30, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 26,092,201 shares of common stock outstanding held
of record by 77 shareholders. Following this offering, there will be
shares of common stock outstanding (assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options). The holders of
common stock are entitled to one vote per share on all matters to be voted on by
the shareholders. Subject to the prior rights of holders of any outstanding
shares of preferred stock, the holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the board of directors out
of funds legally available for the payment of dividends. See "Dividend Policy."
In the event of a liquidation, dissolution or winding up of ImageX.com, the
holders of common stock are entitled to share pro rata all assets remaining
after payment of liabilities and prior liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued following this
offering will be fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 22,691,511 shares of common stock. Thereafter, pursuant
to our articles of incorporation, the board of directors will have the
authority, without further action by the shareholders, to issue up to 30,000,000
shares of preferred stock in one or more series. The board also has the
authority to fix the designations, powers, preferences, privileges and relative,
participating, optional or special rights and the qualifications, limitations or
restrictions of any preferred stock issues, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. The board of directors, without shareholder approval, can issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms that could delay or prevent a change in
control of ImageX.com or make removal of management more difficult.
Additionally, the issuance of preferred stock may decrease the market price of
the common stock and may adversely affect the voting and other rights of the
holders of common stock. We have no plans to issue any preferred stock.
WARRANTS
As of April 30, 1999, there were outstanding warrants to purchase 2,870,114
shares of common stock exercisable as follows:
- 2,360,000 shares at a weighted average exercise price of $2.05 per share,
expiring on January 8, 2005;
- 26,667 shares at an exercise price of $1.50 per share, expiring on August
24, 2005;
- 13,333 shares at an exercise price of $1.50 per share, expiring on August
28, 2005;
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<PAGE>
- 138,250 shares at an exercise price of $2.00 per share, expiring on
October 1, 2005;
- 150,000 shares at an exercise price of $2.00 per share, expiring on April
13, 2006;
- 85,535 shares at an exercise price of $2.10 per share, expiring on April
8, 2004; and
- 96,329 shares at an exercise price of $2.10 per share, expiring on April
21, 2004.
REGISTRATION RIGHTS
Pursuant to an investor rights agreement dated April 8, 1999 between us and
holders of 21,379,011 shares of our common stock and warrants to purchase
263,785 shares of our common stock, these holders will be entitled to certain
registration rights beginning 180 days following the effective date of this
prospectus. Under the investor rights agreement, the holders, by written request
of at least 40% of these shares then outstanding, may demand that we file a
registration statement under the Securities Act covering all or a portion of the
holders' shares, provided that the registration statement has a proposed
aggregate offering price, net of underwriting discounts and commissions, of at
least $10 million.
In addition, if any holder who is a party to the investor rights agreement
requests that we file a registration statement on Form S-3 and there is a
reasonably anticipated aggregate offering price exceeding $1 million, we are
required to use our best efforts to cause these shares to be registered. The
holders who are parties to that investor rights agreement may not demand more
than two Form S-3 registrations in any 12-month period.
Further, if we propose to register any of our securities under the
Securities Act, either for our own account or for the account of other security
holders (other than registrations relating solely to employee benefit plans or
acquisitions), holders who are parties to the investor rights agreement are
entitled to notice of the registration and to include their shares in the
registration at our expense. This registration right is subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares held by parties to the investor rights
agreement included in the registration (but not below 25% of the total number of
shares to be included therein).
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION, BYLAWS
AND WASHINGTON LAW
As noted above, our board of directors, without shareholder approval, has
the authority under our articles of incorporation to issue preferred stock with
rights superior to the rights of the holders of common stock. As a result,
preferred stock could be issued quickly and easily, could adversely affect the
rights of holders of common stock and could be issued with terms calculated to
delay or prevent a change in control of ImageX.com or make removal of members of
the board of directors or management more difficult.
ELECTION AND REMOVAL OF DIRECTORS. Effective as of the first annual meeting
of shareholders following this offering, our articles of incorporation provide
for the division of our board of directors into three classes, as nearly as
equal in number as possible, with the directors in each class serving for a
three-year term, and one class being elected each year by our shareholders.
Directors may be removed only for cause. Because this system of electing and
removing directors generally makes it more difficult for shareholders to replace
a majority of the board of directors, it may tend to discourage a third party
from making a tender offer or otherwise attempting to gain control of ImageX.com
and may maintain the incumbency of the board of directors.
APPROVAL FOR CERTAIN BUSINESS COMBINATIONS. Our articles of incorporation
require that certain business combinations (including a merger, share exchange
and the sale, lease, exchange, mortgage, pledge, transfer or other disposition
or encumbrance of a substantial part of our assets other than in
64
<PAGE>
the usual and regular course of business) be approved by the holders of not less
than two-thirds of the outstanding shares, unless such business combination has
been approved by a majority of the board of directors, in which case the
affirmative vote required shall be a majority of the outstanding shares.
SHAREHOLDER MEETINGS. Under our articles of incorporation and bylaws, our
shareholders may call a special meeting only upon the request of holders of at
least 25% of the outstanding shares. Additionally, the chairman of the board,
the chief executive officer, the president or the board of directors may call
special meetings of shareholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND
PROPOSALS. Our bylaws establish advance notice procedures with respect to
shareholder proposals and the nomination of candidates for election of
directors, other than nominations made by or at the direction of the board of
directors or a committee thereof.
WASHINGTON LAW. Washington law imposes restrictions on certain transactions
between a corporation and certain significant shareholders. Chapter 23B.19 of
the Washington Business Corporation Act prohibits a "target corporation," with
certain exceptions, from engaging in certain significant business transactions
with an "acquiring person," which is defined as a person or group of persons
that beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after becoming an acquiring person,
unless the transaction or acquisition of shares is approved by a majority of the
members of the target corporation's board of directors prior to the time of
acquisition. Such prohibited transactions include, among other things,
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or
- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. This
provision may have the effect of delaying, deterring or preventing a change in
control of ImageX.com.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
NASDAQ NATIONAL MARKET LISTING
We have applied to have the common stock listed for quotation on the Nasdaq
National Market under the symbol "IMGX."
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock. We cannot provide any assurances that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding shares of common
stock. Of these shares, the shares that we expect to sell in this
offering ( shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable in the public market without
restriction under the Securities Act, unless these shares are held by our
"affiliates," as that term is defined in Rule 144 under the Securities Act.
The remaining shares of common stock that will be outstanding after
this offering will be restricted shares. We issued and sold the restricted
shares in private transactions in reliance on exemptions from registration under
the Securities Act. Restricted shares may be sold in the public market only if
they are registered or if they qualify for an exemption from registration under
Rule 144 or Rule 701 under the Securities Act, as summarized below.
Pursuant to certain lock-up agreements, all the executive officers,
directors and shareholders of ImageX.com, who collectively hold an aggregate of
restricted shares, have agreed not to offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any such shares for a
period of 180 days from the date of this prospectus. Volpe Brown Whelan &
Company, LLC may, in its sole discretion and at any time without prior notice,
release all or any portion of the common stock subject to these lock-up
agreements. We also have entered into an agreement with the underwriters that we
will not offer, sell or otherwise dispose of common stock for a period of 180
days from the date of this prospectus. On the date of the expiration of the
lock-up agreements, restricted shares will be eligible for immediate
sale (of which shares will be subject to certain volume, manner of sale
and other limitations under Rule 144). Approximately remaining
restricted shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following the
expiration of the lock-up period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (1) 1% of the number of shares of common stock then outstanding
(which will equal approximately shares immediately after this offering)
and (2) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
ImageX.com. Under Rule 144(k), a person who is not deemed to have been an
affiliate of ImageX.com at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate), is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or consultant to ImageX.com
who purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that nonaffiliates may sell such shares in reliance on Rule 144
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<PAGE>
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
their shares. However, all shares issued pursuant to Rule 701 are subject to
180-day lock-up agreements and will only become eligible for sale at the earlier
of the expiration of the lock-up agreements or upon obtaining the prior written
consent of Volpe Brown Whelan & Company, LLC on behalf of the underwriters.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately 9,186,810 shares of common stock
reserved for issuance under our option plan, employee stock purchase plan, and
nonemployee directors stock option plan. The registration statement will become
effective automatically upon filing. Shares issued under the foregoing plans,
after the filing of a registration statement on Form S-8, may be sold in the
open market, subject, in the case of certain holders, to the Rule 144
limitations applicable to affiliates, the above-reference lock-up agreements and
vesting restrictions imposed by us.
In addition, 180 days after the effective date of this offering, the holders
of 21,379,011 shares of outstanding common stock and 263,785 warrants to
purchase common stock will, under certain circumstances, have rights to require
us to register their shares for future sale.
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UNDERWRITING
Under the terms and conditions contained in an underwriting agreement among
the underwriters and ImageX.com, each of the underwriters, for whom Volpe Brown
Whelan & Company, LLC and Prudential Securities Incorporated are acting as
representatives, has severally agreed to purchase from us the number of shares
of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------- -------------
<S> <C>
Volpe Brown Whelan & Company, LLC..................................................
Prudential Securities Incorporated.................................................
-------------
Total..........................................................................
-------------
-------------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to approval of
certain legal matters by their counsel and to certain other conditions. Under
the terms and conditions of the underwriting agreement, all the underwriters are
obligated to take and pay for all such shares of common stock if any are taken.
The underwriters propose initially to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to certain dealers at such price, less a concession not
in excess of $ per share. The underwriters may allow, and such dealers may
reallow, concessions not in excess of $ per share of the common stock to
certain other dealers. After the initial public offering of the common stock,
the offering price of the common stock and other selling terms may be changed by
the underwriters. The underwriters expect to deliver the shares against payment
in Seattle, Washington on , 1999. The underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Pursuant to the underwriting agreement, 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 on the same terms and
conditions as set forth on the cover page of this prospectus. The underwriters
may exercise this option solely to cover over-allotments. To the extent such
option is exercised, each underwriter will have a commitment, subject to certain
conditions, to purchase a number of additional shares of common stock
proportionate to such underwriter's initial commitment pursuant to the
underwriting agreement.
The underwriters have reserved for sale, at the initial public offering
price, shares of common stock for certain of our directors, officers,
employees, friends and family who have expressed an interest in purchasing
shares of common stock in this offering. Such persons are expected to purchase,
in the aggregate, not more than % of the common stock offered in this
offering. The number of shares available for sale to the general public in this
offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not purchased will be offered by the underwriters on
the same basis as other shares offered hereby.
From the date of this prospectus until 180 days after such date, we and all
our shareholders, officers and directors have agreed not to, directly or
indirectly, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
common stock or any securities convertible into or exchangeable or exercisable
for or any other rights
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to purchase or acquire common stock without the prior consent of Volpe Brown
Whelan & Company, LLC. However, Volpe Brown Whelan & Company, LLC may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements.
We have agreed to indemnify the underwriters against certain liabilities,
losses and expenses, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments that the underwriters may be required to
make in respect thereof.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the shares of common stock in this
offering will be determined by agreement between us and the underwriters. Among
the factors to be considered in making such determination will be the history
of, and the prospects for, the industry in which we compete, an assessment of
our management, our present operations, our historical results of operations and
the trend of our revenues and earnings, our prospects for future earnings, the
general condition of the securities markets at the time of this offering and the
price of similar securities of generally comparable companies. An active trading
market may not develop for our common stock, and our common stock may not trade
in the public markets at or above the initial public offering price.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising their
over-allotment option. In addition, the underwriters may stabilize or maintain
the price of the common stock by bidding for or purchasing shares of common
stock in the open market and may impose penalty bids, under which selling
concessions allowed to syndicate members or other broker-dealers participating
in this offering are reclaimed, if shares of common stock previously distributed
in this offering are repurchased in connection with stabilization transactions
or otherwise. These transactions may stabilize or maintain the market price at a
level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to the
extent that it discourages resales thereof. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
In April 1999, an affiliate of Volpe Brown Whelan & Company, purchased
95,238 shares of Series E Preferred Stock at $2.10 per share as part of an
equity financing on the same terms pursuant to which all other participants in
the financing purchased their shares.
69
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed on for ImageX.com by Perkins Coie LLP,
Seattle, Washington. Certain legal matters will be passed on for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Kirkland, Washington and Palo Alto, California.
EXPERTS
The financial statements of ImageX.com, Inc. as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998,
included in this Prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Fine Arts Engravers Company, Inc. (d.b.a. Fine
Arts Graphics) as of December 31, 1997 and 1998 and for each of the two years in
the period ended December 31, 1998, included in this prospectus, have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1. This prospectus, which forms a part of the registration
statement, does not contain all the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and its exhibits. With respect to references made in this
prospectus to any contract or other document of ImageX.com, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement, including exhibits and schedules
filed therewith, at the Commission's public reference facilities in Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may also obtain copies of such materials from
the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as
ImageX.com, that file electronically with the Commission.
This prospectus includes statistical data regarding the Internet sector and
the printing industry which were obtained from industry publications, including
reports generated by Forrester Research and CAP Ventures. These industry
publications generally indicate that they have obtained information from sources
believed to be reliable, but they do not guarantee the accuracy and completeness
of such information. While we believe these industry publications to be
reliable, we have not independently verified such data. We also have not sought
the consent of any of these organizations to refer to their reports in this
prospectus.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
IMAGEX.COM, INC.
Report of PricewaterhouseCoopers LLP, independent accountants............................................ F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)........................... F-3
Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and for the three-month
periods ended March 31, 1998 and 1999 (unaudited)...................................................... F-4
Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998 and for
the three-month period ended March 31, 1999 (unaudited)................................................ F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and for the three-month
periods ended March 31, 1998 and 1999 (unaudited)...................................................... F-6
Notes to Financial Statements............................................................................ F-7
FINE ARTS ENGRAVERS COMPANY, INC. (D.B.A. FINE ARTS GRAPHICS)
Report of PricewaterhouseCoopers LLP, independent accountants............................................ F-24
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)........................... F-25
Statements of Operations for the years ended December 31, 1997 and 1998 and for the three-month periods
ended March 31, 1998 and 1999 (unaudited).............................................................. F-26
Statements of Changes in Shareholders' Equity (Deficit) for the years ended December 31, 1997 and 1998
and for the three-month period ended March 31, 1999 (unaudited)........................................ F-27
Statements of Cash Flows for the two years ended December 31, 1997 and 1998 and for the three-month
periods ended March 31, 1998 and 1999 (unaudited)...................................................... F-28
Notes to Financial Statements............................................................................ F-29
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Balance Sheet as of March 31, 1999......................................... F-36
Unaudited Pro Forma Condensed Statements of Operations for the year ended December 31, 1998 and for the
three-month period ended March 31, 1999................................................................ F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
ImageX.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of ImageX.com, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
March 5, 1999, except for paragraph 3
of Note 12, as to which the date is
April 13, 1999, paragraphs 17 and 18
of Note 1 and paragraph 8 of Note 12,
as to which the date is April 15,
1999, paragraph 2 of Note 7, paragraph
2 of Note 8, paragraphs 1 and 6 of
Note 9 and paragraph 9 of Note 12, as
to which the date is April 21, 1999,
paragraph 7 of Note 12, as to which
the date is April 30, 1999 and
paragraph 10 of Note 12, as to which
the date is May 7, 1999
F-2
<PAGE>
IMAGEX.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
MARCH 31, PRO FORMA
1999 SHAREHOLDERS'
----------- EQUITY
-------------
(UNAUDITED)
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 186,374 $ 882,723 $ 123,569
Accounts receivable (net of allowance for doubtful accounts of
$14,917 and $19,085 at December 31, 1998 and March 31, 1999,
respectively)................................................ 19,331 234,085 351,941
------------ ------------ -----------
Total current assets......................................... 205,705 1,116,808 475,510
Restricted cash.................................................. 24,849 24,849
Property and equipment, net...................................... 693,374 1,131,433 1,398,630
Other assets..................................................... 39,326 45,482 146,356
------------ ------------ -----------
Total assets................................................. $ 938,405 $ 2,318,572 $2,045,345
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable............................... $ 300,000 $ 452,724 $1,499,622
Line of credit payable......................................... 96,440 96,440
Accounts payable............................................... 450,480 745,659 614,163
Accrued liabilities............................................ 70,969 240,011 170,799
------------ ------------ -----------
Total current liabilities.................................... 821,449 1,534,834 2,381,024
Notes payable, net of current portion............................ 300,000 312,500 267,568
------------ ------------ -----------
Total liabilities............................................ 1,121,449 1,847,334 2,648,592
------------ ------------ -----------
Commitments (Note 10)
Series B mandatorily redeemable convertible preferred stock,
$0.01 par value; 3,500,000 shares authorized, issued and
outstanding; liquidation preference of $1.00 per share......... 3,458,648 3,458,648 3,458,648
Series C mandatorily redeemable convertible preferred stock,
$0.01 par value; 4,040,000 shares authorized, 4,000,000 issued
and outstanding; liquidation preference of $1.50 per share..... 5,109,450 5,173,749
Series D mandatorily redeemable convertible preferred stock,
$0.01 par value; 1,925,000 shares authorized, 1,385,493 and
1,786,750 issued and outstanding at December 31, 1998 and March
31, 1999, respectively; liquidation preference of $2.00 per
share.......................................................... 2,634,593 3,437,706
Value ascribed to mandatorily redeemable convertible preferred
stock warrants................................................. 146,840 146,840
------------ ------------ -----------
Total mandatorily redeemable convertible preferred stock..... 3,458,648 11,349,531 12,216,943
------------ ------------ -----------
Shareholders' equity (deficit):
Series A convertible preferred stock, $0.01 par value;
1,500,000 shares authorized, issued and outstanding;
liquidation preference of $1.00 per share.................... 15,000 15,000 15,000
Common stock, $0.01 par value; 100,000,000 shares authorized;
2,400,000, 3,217,040 and 3,173,150 shares issued and
outstanding at December 31, 1997 and 1998 and March 31, 1999,
respectively................................................. 24,000 32,170 31,731 $ 260,522
Additional paid-in capital..................................... 380,027 3,892,380 3,967,870 41,346,020
Unearned compensation.......................................... (1,956,256) (1,641,331 ) (1,641,331)
Notes receivable from shareholders (including $20,000 from a
director).................................................... (28,000) (228,000) (220,000 ) (220,000)
Accumulated deficit............................................ (4,032,719) (12,633,587) (14,973,460) (14,973,460)
------------ ------------ ----------- -------------
Total shareholders' equity (deficit)......................... (3,641,692) (10,878,293) (12,820,190) $ 24,771,751
------------ ------------ ----------- -------------
-------------
Total liabilities, mandatorily redeemable convertible
preferred stock and shareholders' equity (deficit)......... $ 938,405 $ 2,318,572 $2,045,345
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
IMAGEX.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 78,453 $ 87,202 $ 968,028 $ 110,130 $ 485,335
Cost of sales........................... 98,831 100,320 997,713 126,771 374,877
--------- ----------- ----------- ----------- -----------
Gross profit........................ (20,378) (13,118) (29,685) (16,641) 110,458
Operating expenses:
General and administrative............ 145,638 1,285,048 3,413,093 555,144 1,044,671
Sales and marketing................... 1,017,296 2,182,311 614,089 596,127
Product development................... 300,000 1,316,152 2,550,926 660,710 394,745
Amortization of unearned
compensation........................ 378,507 24,931 398,665
--------- ----------- ----------- ----------- -----------
Total operating expenses............ 445,638 3,618,496 8,524,837 1,854,874 2,434,208
--------- ----------- ----------- ----------- -----------
Loss from operations................ (466,016) (3,631,614) (8,554,522) (1,871,515) (2,323,750)
--------- ----------- ----------- ----------- -----------
Other income:
Interest income (expense), net........ 3,027 61,884 (46,346) (880) (16,123)
--------- ----------- ----------- ----------- -----------
Net loss............................ $(462,989) $(3,569,730) $(8,600,868) $(1,872,395) $(2,339,873)
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
Basic and diluted net loss per share.... $ (2.00) $ (1.57) $ (3.63) $ (0.79) $ (0.76)
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
IMAGEX.COM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED
SERIES A COMMON STOCK ADDITIONAL
------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1996................................... 2,000 $ 20 $ 1,980
Issuance of common stock for transfer of technology (see
Note 8)................................................... 98,000 980 299,020
Conversion of common stock to Series A Convertible Preferred
Stock..................................................... 1,500,000 $15,000 (100,000) (1,000) (14,000)
Issuance of common stock.................................... 2,100,000 21,000 (20,600)
Related party contribution (see Note 6)..................... 86,627
Net loss....................................................
---------- ------- ---------- ------- ----------
Balances, December 31, 1996................................. 1,500,000 15,000 2,100,000 21,000 353,027
Issuance of common stock for notes receivable............... 300,000 3,000 27,000
Collection of notes receivable..............................
Net loss....................................................
---------- ------- ---------- ------- ----------
Balances, December 31, 1997................................. 1,500,000 15,000 2,400,000 24,000 380,027
Value ascribed to common stock warrants issued in
conjunction with sale of Series C Preferred Stock......... 1,038,094
Issuance of common stock for notes receivable............... 1,000,000 10,000 190,000
Repurchase of common stock.................................. (200,000) (2,000)
Issuance of stock options to consultant..................... 169,429
Issuance of common stock upon exercise of stock options..... 17,040 170 1,534
Unearned compensation....................................... 2,334,763
Amortization of unearned compensation.......................
Accretion of mandatorily redeemable convertible preferred
stock..................................................... (221,467)
Net loss....................................................
---------- ------- ---------- ------- ----------
Balances, December 31, 1998................................. 1,500,000 15,000 3,217,040 32,170 3,892,380
---------- ------- ---------- ------- ----------
Repurchase of common stock (unaudited)...................... (84,000) (840) (7,160)
Issuance of stock options to consultants (unaudited)........ 68,046
Issuance of common stock upon exercise of stock options
(unaudited)............................................... 40,110 401 3,610
Unearned compensation (unaudited)........................... 83,740
Amortization of unearned compensation (unaudited)...........
Accretion of mandatorily redeemable convertible preferred
stock (unaudited)......................................... (72,746)
Net loss (unaudited)........................................
---------- ------- ---------- ------- ----------
Balances, March 31, 1999 (unaudited)........................ 1,500,000 $15,000 3,173,150 $31,731 $3,967,870
---------- ------- ---------- ------- ----------
<CAPTION>
NOTES
RECEIVABLE
UNEARNED FROM ACCUMULATED
COMPENSATION SHAREHOLDERS DEFICIT TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, January 1, 1996................................... $ 2,000
Issuance of common stock for transfer of technology (see
Note 8)................................................... 300,000
Conversion of common stock to Series A Convertible Preferred
Stock.....................................................
Issuance of common stock.................................... 400
Related party contribution (see Note 6)..................... 86,627
Net loss.................................................... $ (462,989) (462,989)
------------ ------------ ------------ ------------
Balances, December 31, 1996................................. (462,989) (73,962)
Issuance of common stock for notes receivable............... $ (30,000)
Collection of notes receivable.............................. 2,000 2,000
Net loss.................................................... (3,569,730) (3,569,730)
------------ ------------ ------------
Balances, December 31, 1997................................. (28,000) (4,032,719) (3,641,692)
Value ascribed to common stock warrants issued in
conjunction with sale of Series C Preferred Stock......... 1,038,094
Issuance of common stock for notes receivable............... (200,000)
Repurchase of common stock.................................. (2,000)
Issuance of stock options to consultant..................... 169,429
Issuance of common stock upon exercise of stock options..... 1,704
Unearned compensation....................................... $(2,334,763)
Amortization of unearned compensation....................... 378,507 378,507
Accretion of mandatorily redeemable convertible preferred
stock..................................................... (221,467)
Net loss.................................................... (8,600,868) (8,600,868)
------------ ------------ ------------ ------------
Balances, December 31, 1998................................. (1,956,256) (228,000) (12,633,587) (10,878,293)
------------ ------------ ------------ ------------
Repurchase of common stock (unaudited)...................... 8,000
Issuance of stock options to consultants (unaudited)........ 68,046
Issuance of common stock upon exercise of stock options
(unaudited)............................................... 4,011
Unearned compensation (unaudited)........................... (83,740)
Amortization of unearned compensation (unaudited)........... 398,665 398,665
Accretion of mandatorily redeemable convertible preferred
stock (unaudited)......................................... (72,746)
Net loss (unaudited)........................................ (2,339,873) (2,339,873)
------------ ------------ ------------ ------------
Balances, March 31, 1999 (unaudited)........................ $(1,641,331) $(220,000) $(14,973,460) $(12,820,190)
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
IMAGEX.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $ (462,989) $(3,569,730) $(8,600,868) $(1,872,395) $(2,339,873)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... 104 121,314 424,221 90,444 160,589
Amortization of unearned
compensation.................... 378,507 24,931 398,665
Interest expense for warrants
issued in connection with bridge
financing....................... 29,889
Issuance of stock options to
consultant...................... 169,429 68,046
Purchased in-process research and
development..................... 300,000
Provision for doubful accounts.... 14,917 4,168
Changes in operating assets and
liabilities:
Accounts receivable............. (19,331) (229,671) (43,120 ) (122,024 )
Other assets.................... (250) (39,326) (6,156) 21,124 (100,874 )
Accounts payable and accrued
liabilities................... 148,881 459,195 464,221 116,158 (200,708 )
---------- ----------- ----------- ----------- -----------
Net cash used in operating
activities.................. (14,254) (3,047,878) (7,355,511) (1,662,858 ) (2,132,011 )
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment... (17,784) (796,758) (862,280) (385,017 ) (427,785 )
Deposits of restricted cash........... (24,849)
Purchases of investments of available
for sale securities................. (974,798)
Proceeds from sale of investments of
available for sale securities....... 974,798
---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities.................. (17,784) (796,758) (887,129) (385,017 ) (427,785 )
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable............................. 174,000 600,000 450,000 1,197,486
Principal payments on notes payable... (24,000) (284,776) (83,274 ) (195,520 )
Proceeds from borrowings on line of
credit.............................. 96,440
Proceeds from issuance of Series B
Preferred stock (net of offering
costs of $74,352)................... 3,308,648
Proceeds from issuance of Series C
Preferred stock (net of offering
costs of $88,983 for the year ended
December 31, 1998 and $38,708 for
the three months ended March 31,
1998)............................... 5,934,618 2,977,092
Proceeds from issuance of Series D
Preferred stock (net of offering
costs of $29,365 for the year ended
December 31, 1998 and $7,849 for the
three months ended March 31,
1999)............................... 2,743,003 794,665
Repurchase of common stock............ (2,000)
Proceeds from issuance of common
stock............................... 400 1,704 4,011
Proceeds from repayment on notes
receivable from shareholders........ 2,000
---------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities.................. 3,483,048 578,000 8,938,989 2,893,818 1,800,642
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents... 3,451,010 (3,266,636) 696,349 845,943 (759,154 )
Cash and cash equivalents at
beginning of period......... 2,000 3,453,010 186,374 186,374 882,723
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at
end of period............... $3,453,010 $ 186,374 $ 882,723 $1,032,317 $ 123,569
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
ImageX.com, Inc. (the "Company," formerly ImageX, Inc.) was incorporated on
August 21, 1995 and is headquartered in Bellevue, Washington. The Company is an
Internet-based business-to-business provider of printed business materials. The
Company's customers access an Online Printing Center that contains a digital
catalog of all of their custom-printed business materials--from marketing
brochures to stationery and business cards. From its Online Printing Center,
each customer can modify, proof, procure and manage its printed business
materials from any Internet-enabled personal computer. The Company markets its
printed business materials domestically. The Company operates in one segment.
Prior to 1998, the Company operated as a development-stage enterprise.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of a certificate of deposit which secures a letter
of credit as required by the Company's office lease agreement.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method for financial statement purposes and accelerated methods
for federal income tax purposes. Estimated useful lives of the assets are as
follows:
<TABLE>
<CAPTION>
ASSET YEARS
- -------------------------------------------------------------------------- ------------------
<S> <C>
Computer software......................................................... 3
Computer hardware......................................................... 5
Office furniture and equipment............................................ 7
Leasehold improvements.................................................... Life of lease
or useful lives,
whichever is
shorter, ranging
from 3 to 5
</TABLE>
Expenditures for additions and improvements are capitalized; expenditures
for maintenance and repairs are charged to expense as incurred. When assets are
retired or otherwise disposed of, the cost of the assets and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is
reflected in the results of operations.
VALUATION OF LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including, but not limited to, property and equipment and
other assets, when events and circumstances warrant such a review. The carrying
value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the
F-7
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
fair value of the long-lived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Loss on long-lived assets to be disposed of is determined in a similar manner,
except that fair values are reduced for the cost to dispose.
STOCK ISSUANCE COSTS
Proceeds from issuances of capital stock are presented net of specific
external costs directly attributable to the related offering.
REVENUE RECOGNITION
Revenue from sales of printed business materials is recognized upon
shipment. Revenue from sales of masters (products printed ahead of time for
later addition of customer-specific data) is recognized when invoiced.
PRODUCT DEVELOPMENT COSTS
Product development costs represent research and development expenditures,
which are charged to operations as incurred.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expenses for
the years ended December 31, 1996, 1997 and 1998 were approximately $0, $5,300
and $175,600, respectively, and $114,000 and $18,300, for the three months ended
March 31, 1998 and 1999, respectively (unaudited).
NET LOSS AND PRO FORMA NET LOSS PER SHARE
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"EARNINGS PER SHARE," requires the presentation of basic and diluted earnings
(loss) per share for all periods presented.
In accordance with SFAS No. 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, except that pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98, if applicable, common shares issued in each of the
periods presented for nominal consideration have been included in the
calculation as if they were outstanding for all periods presented.
Pro forma basic and diluted net loss per share has been computed as
described above and also gives effect to the conversion of the convertible
instruments that will occur upon completion of the Company's qualified initial
public offering as described in Note 8. The Company has included the equivalent
number of common shares from the conversion of certain convertible preferred
stock in the calculation of pro forma EPS. The preferred stock is assumed
converted because its terms require conversion upon a qualified initial public
offering.
F-8
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
A reconciliation of shares used in the calculation of basic and diluted and
pro forma basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------ -----------------------------
1996 1997 1998 1998 1999
----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net loss.............................. $ (462,989) $ (3,569,730) $ (8,600,868) $ (1,872,395) $ (2,339,873)
Accretion of mandatorily redeemable
convertible preferred stock......... (221,467) (31,034) (72,746)
----------- ------------- -------------- ------------- --------------
Net loss for common stock............. (462,989) (3,569,730) (8,822,335) (1,903,429) (2,412,619)
Weighted average shares of common
stock outstanding (shares used in
computing basic and diluted net loss
per share).......................... 231,896 2,274,521 2,427,183 2,400,000 3,160,507
----------- ------------- -------------- ------------- --------------
----------- ------------- -------------- ------------- --------------
Basic and diluted net loss per
share............................. $ (2.00) $ (1.57) $ (3.63) $ (0.79) $ (0.76)
----------- ------------- -------------- ------------- --------------
----------- ------------- -------------- ------------- --------------
Shares used in computing basic and
diluted net loss per share........ 2,427,183 3,160,507
-------------- --------------
Adjustment to reflect the effect of
the assumed conversion of
convertible instruments:
Preferred stock -- Series A....... 1,500,000 1,500,000
Preferred stock -- Series B....... 3,500,000 3,500,000
Preferred stock -- Series C....... 4,000,000 4,000,000
Preferred stock -- Series D....... 1,385,493 1,786,750
-------------- --------------
10,385,493 10,786,750
-------------- --------------
Shares used in computing pro forma
basic and diluted net loss per
share............................. 12,812,676 13,947,257
-------------- --------------
-------------- --------------
Pro forma basic and diluted net loss
per share......................... $ (0.69) $ (0.17)
-------------- --------------
-------------- --------------
</TABLE>
Dilutive securities include options, warrants, preferred stock as if
converted and restricted stock subject to vesting. Potentially dilutive
securities totaling 0, 619,500 and 3,838,960 for the years ended December 31,
1996, 1997 and 1998, respectively, and 2,208,800 and 3,908,607 for the
three-month periods ended March 31, 1998 and 1999 respectively, were excluded
from historical basic and diluted loss per share because of their antidilutive
effect.
PRO FORMA SHAREHOLDERS' EQUITY
Upon completion of the Company's qualified initial public offering as
described in Note 8, all of the convertible preferred stock outstanding as of
the closing date, including 11,904,761 shares of
F-9
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Series E Preferred Stock issued in April 1999 (see Note 12), will automatically
be converted into aggregate of 22,691,511 shares of common stock.
Unaudited pro forma shareholders' equity at March 31, 1999, as adjusted for
the conversion of the convertible preferred stock outstanding at March 31, 1999,
the issuance of Series E Preferred Stock in April 1999 and the issuance of
187,500 shares of common stock in connection with the acquisition of Fine Arts
Engravers Company, Inc. in April 1999 (see Note 12), is disclosed on the
accompanying balance sheet.
INCOME TAXES
The Company follows the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"ACCOUNTING FOR INCOME TAXES." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax laws
and rates applicable to the periods in which the differences are expected to
reverse. The Company provides for a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value.
CONCENTRATIONS OF CREDIT RISK
The Company reviews the credit histories of potential customers prior to
extending credit and maintains allowances for potential credit losses. No single
customer accounted for a significant amount of the Company's revenues and there
were no significant accounts receivable from a single customer. The Company
maintains its cash and cash equivalents in bank accounts in amounts, which, at
times, may exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate fair value due to the relatively short maturity period.
The carrying amount of notes payable and the line of credit approximate
their market value because they have interest rates that vary with market
interest rates.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued Statement of Position 98-1,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE." This statement requires that once certain capitalization criteria
have been met, the direct costs of developing or obtaining computer software for
internal use be capitalized. The statement will be effective for fiscal years
beginning after December 15, 1998. Effective
F-10
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
January 1, 1999, the Company adopted this statement. As of March 31, 1999, the
Company had capitalized computer software costs of $338,296 and recognized the
related amortization expense of $22,477 for the three months ended March 31,
1999 (unaudited).
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of March 31, 1999 and for the three months
ended March 31, 1999 and 1998 is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company's financial
position as of March 31, 1999 and the results of its operations and cash flows
for the three months ended March 31, 1999 and 1998.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1997 and
1998, and at March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer hardware............................ $ 445,092 $ 784,401 $ 838,615
Office furniture and equipment............... 216,683 299,736 314,451
Computer software............................ 137,991 560,166 915,219
Leasehold improvements....................... 14,776 32,218 32,218
--------- ---------- -----------
814,542 1,676,521 2,100,503
Less accumulated depreciation................ (121,168) (545,088) (701,873)
--------- ---------- -----------
Property and equipment, net................ $ 693,374 $1,131,433 $ 1,398,630
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
Depreciation expense for the year ended December 31, 1996, 1997 and 1998 was
$104, $121,314 and $424,221, respectively. Depreciation expense was $90,444 and
$138,112 for the three months ended March 31, 1998 and 1999, respectively
(unaudited).
3. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31, 1997 and
1998, and at March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related benefits......... $ 63,553 $ 93,082 $ 119,459
Taxes payable................................ 7,416 28,847 38,383
Accrued professional services................ 113,961
Other........................................ 4,121 12,957
--------- ---------- -----------
$ 70,969 $ 240,011 $ 170,799
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
F-11
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE AND LINE OF CREDIT:
Notes payable consisted of the following at December 31, 1997 and 1998 and
at March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank, interest at prime
(7.75% at December 31, 1998) plus 2%,
monthly principal payments of $25,000 due
December 1999, and collateralized by
substantially all of the Company's
assets..................................... $600,000 $274,286 $ 156,190
Note payable to bank, interest at prime
(7.75% at December 31, 1998) plus 2%, due
in 36 equal montly principal payments, due
January 2002, and collateralized by
substantially all of the Company's
assets..................................... 450,000 413,514
Convertible subordinated promissory notes
payable to investors, interest at 7%, due
earlier of June 30, 1999 or the date of
closing of sale of Series E Preferred
Stock; subsequently converted to Series E
Preferred Stock in April 1999
(See Note 12).............................. 1,197,486
Uncollateralized note payable to business
advisor, no interest, due on March 1,
1999....................................... 40,938
-------- -------- -----------
600,000 765,224 1,767,190
Less: current portion........................ (300,000) (452,724) (1,499,622)
-------- -------- -----------
$300,000 $312,500 $ 267,568
-------- -------- -----------
-------- -------- -----------
</TABLE>
The agreements for notes payable to bank include various restrictive
covenants which, among other things, restrict the payment of dividends and
require the Company to maintain minimum working capital and net worth amounts.
At March 31, 1999, the Company was not in compliance with the minimum working
capital and net worth covenants of the note payable in the amount of $413,514.
However, the Company received a waiver for the violations. In April 1999, in
connection with the sale of Series E Preferred Stock (See Note 12), the Company
was no longer in violation of the above mentioned covenants.
Future minimum debt payments at December 31, 1998 were as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 452,724
2000.............................................................. 150,000
2001.............................................................. 150,000
2002.............................................................. 12,500
---------
$ 765,224
---------
---------
</TABLE>
During 1996, the Company maintained a $25,000 line of credit. The
outstanding balance of $24,000 at December 31, 1996 was repaid in 1997 and the
line was closed in February 1997.
F-12
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE AND LINE OF CREDIT: (CONTINUED)
During 1998, the Company obtained a new line of credit in the amount of
$300,000 in conjunction with its note payable to a bank of $450,000. The line of
credit includes various restrictive covenants, effective from January 31, 1999,
which, among other things, require the Company to maintain minimum working
capital and net worth amounts. The line of credit accrues interest at prime
(7.75% at December 31, 1998) plus 1% and matures on September 18, 1999. The
outstanding balance as of December 31, 1998 was $96,440. The line of credit is
collateralized by substantially all of the Company's assets. At March 31, 1999,
the Company was not in compliance with the minimum working capital and net worth
covenants. However, the Company received a waiver for the violations. In April
1999, in connection with the sale of Series E Preferred Stock (See Note 12), the
Company was no longer in violation of the above mentioned covenants.
5. FEDERAL INCOME TAXES:
At December 31, 1998, the Company had accumulated net operating loss
carryforwards for tax purposes of approximately $11,900,000, which will expire
beginning in 2011 through 2018. Utilization of net operating loss carryforwards
may be subject to certain limitations under Section 382 of the Internal Revenue
Code.
The following is a reconciliation of the income tax benefit to the amount
based on the statutory Federal rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal income tax benefit at statutory rate.......................... (34)% (34)% (34)%
Change in valuation allowance......................................... 34% 34% 34%
-- -- --
-- -- --
-- -- --
-- -- --
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-13
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL INCOME TAXES: (CONTINUED)
purposes. Significant components of the Company's deferred tax assets and
liabilities are approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Deferred income tax assets:
Tax loss carryforwards........................................ $ 1,290,300 $ 4,029,800
Accrued compensation & benefits............................... 18,300 80,600
Provision for doubtful accounts............................... 5,100
Contributed technology........................................ 34,000
Other......................................................... 8,400
------------- -------------
1,342,600 4,123,900
Deferred income tax liabilities:
Depreciation.................................................. (2,300) (100)
------------- -------------
1,340,300 4,123,800
Valuation allowance........................................... (1,340,300) (4,123,800)
------------- -------------
Net deferred tax assets....................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
A full valuation allowance has been recorded at December 31, 1997 and 1998
based on management's determination that the recognition criteria for
realization of the net deferred tax assets has not been met.
6. RELATED PARTY TRANSACTIONS:
The original founders of the Company, one of whom is an officer and a
director of the Company, are the owners of 100% of the outstanding capital stock
of Parallel Communications, Inc. ("Parallel"), which serves as the Company's
advertising agency pursuant to an Advertising Agency Service Agreement, dated
August 26, 1997. In 1996, 1997 and 1998, the Company paid Parallel approximately
$0, $152,000 and $521,000, respectively, for services performed on behalf of the
Company. For the three months ended March 31, 1998 and 1999, the Company paid
approximately $192,900 and $95,000, respectively, for services performed on
behalf of the Company (unaudited).
As of December 31, 1997 and 1998, the Company had a payable to Parallel of
$85,397 and $21,088, respectively. As of March 31, 1999, the Company had a
payable to Parallel of $76,900 (unaudited).
During 1996, the Company had a payable to Parallel in the amount of $86,627
for various services performed and expenses incurred on behalf of the Company.
The payable was disputed by the Company and as a consequence was written off by
the Company in 1996. Because the shareholders of Parallel were the same as the
Company's shareholders, the $86,627 was recorded as a capital contribution by
the Company in 1996.
F-14
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFITS:
DEFINED CONTRIBUTION PLAN
The Company has a 401(k) Retirement Plan (the "Plan") which covers
substantially all eligible employees. The Plan is a defined contribution profit
sharing plan in which all eligible participants may elect to have a percentage
of their compensation contributed to the Plan, subject to certain guidelines
issued by the Internal Revenue Service. The Company can contribute to the Plan
at the discretion of the Board of Directors. There were no contributions made by
the Company during 1996, 1997 or 1998.
STOCK OPTION PLAN
The Company has adopted a stock incentive compensation plan (the "Plan"),
which provides for the issuance of stock awards and nonqualified and incentive
stock options for officers, directors, employees, and consultants. As of
December 31, 1998, the Company had reserved a total of 3,100,000 shares of
common stock for issuance pursuant to the Plan. In April 1999, the Board of
Directors increased the total number of shares reserved under the Plan to
5,600,000 shares, plus an automatic annual increase, to be added on the first
day of each fiscal year beginning on January 1, 2001, equal to least of (1)
2,000,000 shares, (2) 5% of the average number of common shares outstanding as
used to calculate fully diluted earnings per share as reported in the Company's
financial statements for the preceding year and (3) a lesser amount determined
by the Board of Directors. Options under the Plan will generally expire 10 years
from the date of grant. Under the Plan, the Plan administrator will fix the
conditions for the exercise of the options. Generally, options vest over four
years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
awards and options is measured as the excess, if any, of the fair value of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock. The unearned compensation is being amortized in accordance
with Financial Accounting Standards Board Interpretation No. 28 over the vesting
period of the individual options.
Compensation expense of $0 and $378,507 has been recorded for stock options
granted during the years ended December 31, 1997 and 1998, respectively, and
$24,931 and $398,665, for the three months ended March 31, 1998 and 1999,
respectively (unaudited), because the exercise prices of the stock options
granted were less than the deemed fair value of the related shares at the time
of grant.
F-15
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFITS: (CONTINUED)
Option activity for the years ended December 31, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
Options outstanding, January 1, 1997.................................. 0
Granted............................................................... 711,500 $ 0.10
Canceled.............................................................. (92,000) 0.10
----------- -----
Options outstanding, December 31, 1997................................ 619,500 0.10
Granted............................................................... 2,086,600 0.21
Exercised............................................................. (1,017,040) 0.20
Canceled.............................................................. (388,350) 0.12
----------- -----
Options outstanding, December 31, 1998................................ 1,300,710 0.19
Granted (unaudited)................................................... 145,857 1.02
Exercised (unaudited)................................................. (40,110) 0.10
Canceled (unaudited).................................................. (36,100) 0.15
----------- -----
Options outstanding, March 31, 1999 (unaudited)....................... 1,370,357 0.28
Options exercisable at December 31, 1998.............................. 332,730
-----------
Stock awards and options available for grant at December 31, 1998..... 482,250
-----------
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- -------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------
EXERCISE NUMBER OF CONTRACTUAL LIFE NUMBER OF EXERCISE
PRICES SHARES (IN YEARS) SHARES PRICES
- ---------- ---------- ------------------- --------- ---------
<S> <C> <C> <C> <C>
$0.10 363,610 9 188,730 $0.10
0.15 745,100 9 144,000 0.15
0.20 50,000 10 0.20
0.60 142,000 8 0.60
</TABLE>
Pro forma information regarding net loss as required by SFAS No. 123 has
been determined as if the Company had accounted for its employee stock options
under the minimum value method using the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998
------------------ ------------------
<S> <C> <C>
Risk free interest rate............................... 5.82% to 6.87% 4.60% to 5.65%
Expected lives........................................ 5 to 10 years 5 to 10 years
Expected dividends.................................... $0 $0
</TABLE>
The minimum value method was developed for use in estimating the fair value
of options granted by nonpublic entities and, accordingly, excludes
consideration of volatility. In addition, option valuation
F-16
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFITS: (CONTINUED)
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the minimum
value method does not necessarily provide a reliable single measure of the fair
value of its stock options.
The following table presents net loss and per share amounts as if the
Company accounted for compensation expense related to stock options under the
fair value method prescribed by SFAS No. 123:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Net loss--as reported........................................... $ (3,569,730) $ (8,600,868)
Net loss--pro forma............................................. $ (3,573,514) $ (8,667,754)
Loss per share--as reported..................................... $ (1.57) $ (3.63)
Loss per share--pro forma....................................... $ (1.58) $ (3.66)
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
8. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
During 1997, the Company issued 3,500,000 shares of Series B Preferred
Stock, $0.01 par value. During 1998, the Company issued 4,000,000 shares of
Series C Preferred Stock, $0.01 par value and 1,385,493 shares of Series D
Preferred Stock, $0.01 par value. All holders of Preferred Stock are entitled to
vote on all matters on an "as if converted" basis. The holders of Preferred
Stock shall be entitled to receive dividends prior and in preference to any
declaration or payment of any dividend on the Series A Preferred Stock and
common stock of the Company.
Each share of Preferred Stock is convertible at the option of the holder or
automatically upon sale of the Company's common stock in a public offering in
which the offering price of the common stock is not less than $5 per share and
the gross proceeds are at least $15,000,000, as described in the Company's
Restated Articles of Incorporation. The conversion price is subject to weighted
average anti-dilution protection and proportional adjustments in the event of
stock splits and similar events. The Preferred Stock, other than Series A
Preferred Stock, is redeemable, at the option of the holders of more than 50% of
the outstanding shares thereof, beginning on or after April 2004. The redemption
price for each share of Preferred Stock shall be the original issue price plus
all accrued and unpaid dividends, adjusted for stock splits. Upon liquidation or
dissolution, holders of Preferred Stock will receive preference over holders of
Series A Preferred Stock and common stock. The redemption value of the
mandatorily redeemable convertible Preferred Stock is being accreted over the
period from issuance to the earliest redemption date using the effective
interest method.
F-17
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
At December 31, 1998, the following warrants to purchase mandatorily
redeemable convertible preferred stock were outstanding:
<TABLE>
<CAPTION>
PRICE PER
SHARE,
NUMBER OF SUBJECT TO
SHARES ADJUSTMENT EXPIRATION DATE
---------- ------------- ------------------
<S> <C> <C> <C>
Series C Preferred Stock 26,667 $ 1.50 August 24, 2005
13,333 $ 1.50 August 28, 2005
----------
40,000
Series D Preferred Stock 138,250 $ 2.00 October 1, 2005
</TABLE>
In August 1998, the Company issued warrants to two of its investors to
purchase 40,000 shares of Series C Preferred Stock in connection with bridge
financing arrangements. The Company executed convertible subordinated promissory
notes aggregating $600,000 which, with accrued interest, were converted into
302,993 shares of Series D Preferred Stock upon closing of the sale of Series D
Preferred Stock in October 1998. These warrants are exercisable at $1.50 per
share through August 28, 2005. The warrants were ascribed a value of $29,889.
In connection with issuance of Series D Preferred Stock, the Company issued
warrants to its investors to purchase 138,250 shares of Series D Preferred
Stock. These warrants are exercisable at $2.00 per share and are exercisable
through October 1, 2005. The warrants were ascribed a value of $116,951.
9. SHAREHOLDERS' EQUITY (DEFICIT):
COMMON STOCK
As of December 31, 1998, the Company was authorized to issue 45,000,000
shares of voting common stock, $0.01 par value. In April 1999, the Company's
Articles of Incorporation were amended to increase the number of authorized
shares of common stock to 100,000,000 shares. At its discretion, the Board of
Directors may declare dividends on shares of common stock. Upon liquidation,
holders of common stock will be paid only after the Preferred Stock preferences
have been satisfied.
The Company issued 2,000 shares of common stock to its four founding
shareholders (the "Founders") for $2,000 upon the formation of the Company on
August 21, 1995. Pursuant to an agreement dated May 1, 1996, the Founders, all
of whom are shareholders of Parallel (see Note 6), contributed technology to the
Company in exchange for 98,000 shares of common stock. Such technology was
purchased by the Founders from Parallel. The technology was valued at $300,000
and has been credited as a contribution to capital. The transferred technology
was considered to be in-process research and development; accordingly, the
$300,000 was charged to research and development expense in 1996. In December
1996, the Founders exchanged all of their 100,000 shares of common stock for
1,500,000 shares of Series A Preferred Stock.
In December 1996, the Company issued 2,100,000 shares of common stock to
certain Founders and a director of the Company for consideration of $400 and
services to be performed in the future. The shares are subject to repurchase by
the Company for $0.01 per share over the thirty-six month period following the
issuance of the shares. Such shares subject to repurchase will be reduced for
each completed month of employment with the Company by the Founders and the
director. During 1998,
F-18
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (DEFICIT): (CONTINUED)
the Company repurchased 200,000 shares from one of the Founders of the Company
in accordance with an employment termination agreement.
Pursuant to the Company's stock incentive compensation plan (see Note 7),
the Company issued 300,000 shares of common stock (200,000 shares were to a
director of the Company) at a purchase price of $0.10 per share for an aggregate
purchase price of $30,000, which was satisfied by notes receivable totaling
$30,000. One note in the amount of $10,000 bears interest at 5.70% and is due in
February 2001. The other note in the amount of $20,000 bears interest at the
rate of 7.00% and is due in April 2000. The 300,000 shares are subject to
repurchase by the Company for $0.10 per share, as follows:
1. 100,000 shares will be subject to repurchase through February 2001, with
the number of shares being subject to repurchase reduced by 2,000 each
month following the original issuance of the shares.
2. 200,000 shares will be subject to repurchase through April 2000, with
the number of shares being subject to repurchase reduced by 5,556 shares
each month following the original issuance of the shares. During the
repurchase period, the individual who purchased the 200,000 shares is
required to perform management services for the Company.
In November 1998, the Company issued 1,000,000 shares of common stock to an
officer of the Company at a purchase price of $0.20 per share pursuant to a
promissory note in the amount of $200,000. The note bears interest at 7% and is
due in January 2003. These shares are subject to repurchase by the Company for
$0.20 per share through January 15, 2003, with the shares being subject to
repurchase reduced by 240,000 shares after November 15, 1999, and reduced by
20,000 shares each month following November 15, 1999. The 1,300,000 shares have
been included in the stock options activity (see Note 7.) At December 31, 1998,
the notes receivable from shareholders totaled $228,000 and are included in
shareholders' equity (deficit) on the accompanying balance sheet.
SERIES A PREFERRED STOCK
As of December 31, 1998, the Company was authorized to issue 10,965,000
shares of preferred stock. In April 1999, the Articles of Incorporation were
amended to increase the number of authorized shares of preferred stock to
30,000,000 shares. The holders of Series A Preferred Stock shall be entitled to
receive dividends prior and in preference to any declaration or payment of any
dividend on the common stock of the Company. Each share of Series A Preferred
Stock is convertible at the option of the holder or automatically upon sale of
the Company's common stock in a public offering in which the offering price of
the common stock is not less than $5 per share and the gross proceeds are at
least $15,000,000, as described in the Company's Restated Articles of
Incorporation. The conversion price is subject to weighted average auto-dilution
protection and proportional adjustments in the event of stock splits and similar
events.
F-19
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
WARRANTS
At December 31, 1998, the following warrants to purchase common stock were
outstanding:
<TABLE>
<CAPTION>
PRICE PER
SHARE,
NUMBER OF SUBJECT TO
SHARES ADJUSTMENT EXPIRATION DATE
- ------------ ------------- ---------------------
<S> <C> <C>
1,780,000 $ 1.50 January 8, 2005
580,000 $ 3.75 January 8, 2005
- ------------
2,360,000
</TABLE>
During 1998 in connection with the sale of Series C Preferred Stock, the
Company sold warrants to purchase 2,360,000 shares of common stock for
consideration of $23,600 to investors. Of the warrants issued, 1,780,000
warrants are exercisable at $1.50 per share. The remaining 580,000 warrants are
exercisable at $3.75 per share. The warrants are exercisable through January 8,
2005. A certain number of warrants are subject to repurchase by the Company, as
defined in the warrant agreements. The period in which the Company is entitled
to repurchase the warrants is January 1, 2001 through March 31, 2001. The
repurchase price is $0.01 per warrant. The warrants were ascribed a value of
$1,038,094. One of the investors has the entered into an agreement with the
Company to perform certain management services for the Company.
10. COMMITMENTS:
OPERATING LEASE
The Company leases its facilities under noncancelable operating leases which
expire between February 28, 2001 and February 28, 2002. The Company pays taxes,
insurance, normal maintenance and certain other operating expenses. At December
31, 1998 the approximate future rental payments due under these leases for the
remainder of the lease terms were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------
<S> <C>
1999.............................................. $ 344,000
2000.............................................. 350,000
2001.............................................. 304,000
2002.............................................. 74,000
----------
$1,072,000
----------
----------
</TABLE>
Total rent expense incurred under operating leases for the years ended
December 31, 1996, 1997 and 1998 was approximately $7,500, $158,000 and
$332,000, respectively. Total rent expense incurred under operating leases for
the three months ended March 31, 1998 and 1999 was $62,191 and $88,989,
respectively (unaudited).
F-20
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosure of cash flow information is summarized below for the
years ended December 31, 1996, 1997 and 1998, and for the three months ended
March 31, 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MARCH
DECEMBER 31, 31,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the year for
interest............................. $ 1,535 $ 12,233 $ 59,410 $ 15,703 $ 27,497
Non-cash financing activities:
Conversion of notes payable to Series
B Preferred stock.................. $ 150,000
Related party contribution (see Note
6)................................. $ 86,627
Unearned compensation................ $2,334,763 $ 133,853 $ 83,740
Issuance of common stock for note
receivable......................... $ 30,000 $ 200,000
Value ascribed to common stock
warrants issued in conjunction with
sale of Series C Preferred Stock... $1,038,094 $ 578,919
Value ascribed to Series C Preferred
Stock warrants issued in connection
with bridge financing.............. $ 29,889
Value ascribed to Series D Preferred
Stock warrants issued in
conjunction with sale of Series D
Preferred Stock.................... $ 116,951
Accretion on Series C Preferred
Stock.............................. $ 212,926 $ 31,034 $ 64,299
Accretion on Series D Preferred
Stock.............................. $ 8,541 $ 8,447
</TABLE>
12. SUBSEQUENT EVENTS:
REPURCHASE OF COMMON STOCK
During January 1999, the Company repurchased 84,000 shares of common stock
previously issued at $0.10 per share. As consideration for the repurchase, the
Company canceled the outstanding remaining principal amount of the note
receivable that was issued in connection with the original stock purchase.
SALE OF SERIES D PREFERRED STOCK
During January 1999, the Company issued an additional 401,257 shares of
Series D Preferred Stock for $802,514.
ACQUISITION
On April 13, 1999, the Company acquired substantially all of the assets of
Fine Arts Engravers Company, Inc. ("Fine Arts"), a privately owned Oregon
corporation. Fine Arts is in the printing business. The acquisition will be
accounted for using the purchase method. The aggregate purchase price of
$5,000,000 consists of $375,000 of common stock for 187,500 shares issued to the
seller and $4,625,000 of cash payment. The aggregate purchase will be allocated
to the net assets acquired, based
F-21
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS: (CONTINUED)
upon their respective fair market values. The excess of the purchase price over
the fair market value of the assets acquired of $1,386,060 has been allocated to
cost in excess of net assets acquired and will be amortized over 10 years.
In connection with the acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired................................... $4,813,792
Cash paid....................................................... (4,625,000)
Common stock issued............................................. (375,000)
Cost in excess of net assets acquired........................... 1,386,060
----------
Liabilities assumed............................................. $1,199,852
----------
----------
</TABLE>
The following summarizes the unaudited pro forma results of operations, on a
combined basis, as if the Company's acquisition of Fine Arts occurred as of the
beginning of each of the periods presented, after including the impact of
certain adjustments such as amortization of cost in excess of net assets
acquired:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues........................................................ $ 11,428,362 $ 2,706,220
Pro forma net loss.............................................. $ (8,791,465) $(2,530,575)
Pro forma basic and diluted net loss per share.................. $ (3.45) $ (0.78)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
results of operations which would actually have been reported had the
acquisition occurred prior to the beginning of the periods presented. In
addition, they are not intended to be indicative of future results.
On April 30, 1999, Fine Arts entered into a credit agreement with a bank for
a $1 million working capital line and a $1.5 million term loan that is
collateralized by all substantially of the assets of Fine Arts. The credit line
accrues interest at prime rate plus 0.5% for drawn amounts and a commitment fee
of 0.25% on any unused portion of the line and matures on April 29, 2000 with an
option to renew for subsequent 364 day-periods. The term loan accrues interest
at prime rate plus 0.25% to 1% based on the Debt to EBITDA ratio of the Company
on a consolidated basis.
SALE OF SERIES E PREFERRED STOCK
During April 1999, the Company issued 11,904,761 shares of Series E
Preferred Stock, $0.01 par value, for $25,000,000. The terms of the Series E
Preferred Stock are similar to the terms of previously issued preferred stock.
Of the 11,904,761 shares issued, 579,745 shares were issued as a result of the
conversion of the convertible subordinated promissory notes issued to investors
in January 1999 aggregating $1,197,486 plus accrued interest of $19,979. In
addition, in April 1999, the Company issued warrants to purchase 85,535 shares
of Series E Preferred Stock and 96,329 shares of common stock at an exercise
price of $2.10 per share.
F-22
<PAGE>
IMAGEX.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS: (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Board of Directors adopted, subject to shareholder
approval, the 1999 Employee Stock Purchase Plan ("Stock Purchase Plan") and
authorized for issuance under the Stock Purchase Plan a total of 500,000 shares
of common stock, plus automatic annual increases, to be added on the first day
of the Company's fiscal year beginning on January 1, 2001, equal to the least of
(1) 200,000 shares, (2) 0.5% of the average common shares outstanding as used to
calculate fully diluted earnings per share as reported in the Company's
financial statements for the preceding year and (3) a lesser amount as
determined by the Board of Directors. The Stock Purchase Plan will be
implemented upon the effectiveness of the Company's initial public offering of
its common stock ("IPO").
INITIAL PUBLIC OFFERING
In May 1999, the Board of Directors authorized the Company to file a
Registration Statement with the Securities and Exchange Commission to permit the
Company to proceed with an IPO.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
ImageX.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in shareholder's equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Fine Arts
Engravers Company, Inc. (d.b.a. Fine Arts Graphics) (the Company) at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Portland, Oregon
April 16, 1999
F-24
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------ MARCH 31, 1999
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 89,891 $ 19,450 $ 40,548
Accounts receivable - trade, less allowance for doubtful accounts
of $25,531, $38,455 and $11,607 in 1997, 1998 and at March 31,
1999, respectively............................................... 1,893,528 1,533,384 1,406,280
Unbilled revenues and other receivables............................ 30,401 164,005 97,100
Inventories........................................................ 697,837 659,783 725,167
Prepaid expenses................................................... 62,050 71,927 71,862
------------ ------------ --------------
Total current assets............................................. 2,773,707 2,448,549 2,340,957
Property and equipment, net.......................................... 795,132 740,426 728,376
Other assets......................................................... 167,869 175,282 185,513
------------ ------------ --------------
$ 3,736,708 $ 3,364,257 $ 3,254,846
------------ ------------ --------------
------------ ------------ --------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Short-term bank borrowings......................................... $ 1,269,378 $ 1,015,293 $ 942,540
Indebtedness to related parties, current........................... 136,217 129,665 131,948
Current portion of deferred compensation........................... 4,039 4,523 5,066
Trade accounts payable............................................. 650,600 662,796 746,495
Accrued liabilities................................................ 545,658 451,101 453,357
------------ ------------ --------------
Total current liabilities........................................ 2,605,892 2,263,378 2,279,406
Indebtedness to related parties, noncurrent.......................... 1,198,826 1,069,161 1,035,306
Deferred compensation, net of current portion........................ 45,637 41,114 36,048
------------ ------------ --------------
Total liabilities................................................ 3,850,355 3,373,653 3,350,760
------------ ------------ --------------
------------ ------------ --------------
Commitments
Shareholder's equity (deficit):
Common stock, $10 par value, 25,000 shares authorized, 3,933 shares
issued and outstanding........................................... 39,330 39,330 39,330
Additional paid-in capital......................................... 300,000 300,000 300,000
Accumulated deficit................................................ (452,977) (348,726) (435,244)
------------ ------------ --------------
Total shareholder's equity (deficit)............................... (113,647) (9,396) (95,914)
------------ ------------ --------------
$ 3,736,708 $ 3,364,257 $ 3,254,846
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTH PERIODS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
--------------------- --------------------
1997 1998 1998 1999
--------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................... $9,187,145 $10,460,334 $2,328,478 $2,220,885
Cost of sales................................ 5,978,003 7,127,106 1,603,261 1,586,289
--------- ---------- --------- ---------
Gross profit............................. 3,209,142 3,333,228 725,217 634,596
--------- ---------- --------- ---------
Operating expenses:
General and administrative................. 2,064,183 2,363,046 558,129 549,773
Selling and marketing...................... 653,762 528,474 140,828 117,748
--------- ---------- --------- ---------
2,717,945 2,891,520 698,957 667,521
--------- ---------- --------- ---------
Income (loss) from operations............ 491,197 441,708 26,260 (32,925)
--------- ---------- --------- ---------
Other income (expense):
Interest expense........................... (266,723) (264,639) (65,736) (56,520)
Other income (expense)..................... (30,892) 18,917 (1,083) (2,073)
--------- ---------- --------- ---------
(297,615) (245,722) (66,819) (58,593)
--------- ---------- --------- ---------
Income (loss) before income taxes........ 193,582 195,986 (40,559) (91,518)
Income tax provision (benefit)............... 15,405 (3,000) (5,000)
--------- ---------- --------- ---------
Net income (loss)........................ $ 193,582 $ 180,581 $ (37,559) $ (86,518)
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL SHAREHOLDER'S
---------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
----------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996........................... 3,933 $ 39,330 $ 300,000 $ (506,812) $ (167,482)
Net income........................................... 193,582 193,582
Distributions........................................ (139,747) (139,747)
----- --------- ---------- ------------ -------------
Balance, December 31, 1997........................... 3,933 39,330 300,000 (452,977) (113,647)
Net income........................................... 180,581 180,581
Distributions........................................ (76,330) (76,330)
----- --------- ---------- ------------ -------------
Balance, December 31, 1998........................... 3,933 39,330 300,000 (348,726) (9,396)
Net loss (unaudited)................................. (86,518) (86,518)
----- --------- ---------- ------------ -------------
Balance, March 31, 1999 (unaudited).................. 3,933 $ 39,330 $ 300,000 $ (435,244) $ (95,914)
----- --------- ---------- ------------ -------------
----- --------- ---------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER THREE MONTH PERIODS
31, ENDED MARCH 31,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ 193,582 $ 180,581 $ (37,559) $ (86,518)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 244,287 228,787 61,724 51,643
Loss from disposal of property and equipment............. 4,811 2,300
Unrealized gain on cash surrender value of life
insurance.............................................. (31,893) (33,690) (6,796) (6,778)
(Increase) decrease in:
Accounts receivable--trade............................. (446,010) 360,144 537,334 127,104
Unbilled revenues and other receivables................ (25,331) (133,604) (32,296) 66,905
Inventories............................................ (69,422) 38,054 (36,848) (65,384)
Prepaid expenses and other assets...................... (2,321) (8,582) 16,375 905
Increase (decrease) in:
Trade accounts payable................................. 144,319 12,196 62,202 83,699
Accrued liabilities.................................... 120,421 (94,557) (234,931) 2,256
Deferred compensation.................................. (19,549) (4,039) (4,039) (4,523)
----------- ----------- ----------- -----------
Net cash provided by operating activities................ 112,894 545,290 325,166 171,609
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........................ (165,750) (149,852) (48,256) (37,963)
Increase in cash surrender value of life insurance......... (32,781) (32,867) (8,204) (8,223)
----------- ----------- ----------- -----------
Net cash used in investing activities.................... (198,531) (182,719) (56,460) (46,186)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from (repayments of) short-term borrowings.... 348,902 (254,085) (289,269) (72,753)
Proceeds from life insurance policy loans.................. 32,885 33,620
Repayment of indebtedness to related parties............... (114,991) (136,217) (29,444) (31,572)
Distributions to shareholder............................... (139,747) (76,330) (14,165)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities...... 127,049 (433,012) (332,878) (104,325)
----------- ----------- ----------- -----------
Net increase (decrease) in cash.......................... 41,412 (70,441) (64,172) 21,098
Cash at beginning of period.................................. 48,479 89,891 89,891 19,450
----------- ----------- ----------- -----------
Cash at end of period........................................ $ 89,891 $ 19,450 $ 25,719 $ 40,548
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................. $ 264,989 $ 273,276 $ 55,863 $ 45,889
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income taxes............................................. $ 7,105 $ 5,109
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Fine Arts Engravers Company, Inc. (the "Company", d.b.a. Fine Arts Graphics)
is an Oregon corporation formed in 1963, which does business under the name of
Fine Arts Graphics. The Company manufactures and distributes fine quality
letterhead, envelopes, business cards, wine labels and other printed material
for customers in a broad range of industries throughout the United States. The
Company operates production facilities in Tualatin, Oregon (headquarters) and
Union, New Jersey.
On April 13, 1999, the Company's principal assets were sold to, and certain
of its liabilities were assumed by ImageX.com, Inc. (see Note 11).
The unaudited interim financial statements as of March 31, 1999 and for the
three month periods ended March 31, 1998 and 1999 have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
INVENTORIES
Inventories consist of raw materials, work-in-process and finished basics
(customer-owned inventory), which are stated at the lower of cost or market.
Cost is determined using a method which approximates the first-in, first-out
method. Work-in-process includes direct labor, materials and allocated
production overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated service lives. Minor repairs and
maintenance, which do not improve or extend the lives of assets, are expensed as
incurred. Major renewals are capitalized. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is recognized in operations.
Estimated services lives are as follows:
<TABLE>
<CAPTION>
ASSET CLASS SERVICE LIVES
- -------------------------------------------------- -------------
<S> <C>
Machinery and equipment........................... 7-12 years
Furniture......................................... 10 years
Computers......................................... 3-5 years
</TABLE>
REVENUE RECOGNITION
Goods are shipped free on board (FOB) origin with revenue recognition taking
place based on product shipment from the Company's production facilities or the
Company's network of specialty product suppliers or product transfer to
customer-owned finished basic inventory.
F-29
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Revenues are not recognized for Company-owned finished basics until imprint
orders are received, printed and shipped. Finished basics represent partially
manufactured products that require additional printing before they are shipped.
Revenues include freight billed to customers.
ADVERTISING
Advertising and promotion costs are expensed as incurred and totaled
approximately $59,000 for 1997 and $70,000 for 1998.
INCOME TAXES
The Company, with the consent of its shareholder, elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code and generally did
not pay Federal income taxes. In lieu of corporate income taxes, the
shareholders of an S corporation are taxed on their proportionate share of the
Company's taxable income. Therefore, the shareholder reports the taxable income
or loss. Accordingly, no provision or liability for Federal income taxes has
been included in these financial statements.
For state income tax purposes, the Company files as an S corporation in the
State of Oregon and a C corporation in the states of California and New Jersey.
Accordingly, state taxes are provided for income attributable to operations in
California and New Jersey.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Sales to the largest three customers totaled 15%, 10% and 5%, respectively,
of sales in 1997 and 18%, 13% and 3%, respectively, of sales in 1998. Of the
accounts receivable balances, these same three customers represented 13%, 7% and
5%, respectively, of the balance at December 31, 1997 and 13%, 14% and 5%,
respectively, of the balance at December 31, 1998.
F-30
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Paper stock and supplies.......................... $285,965 $250,254 $234,631
Work-in-process................................... 144,514 90,200 138,996
Finished basics................................... 267,358 319,329 351,540
-------- -------- -----------
$697,837 $659,783 $725,167
-------- -------- -----------
-------- -------- -----------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Production machinery and equipment................ $2,153,935 $2,345,651 $2,342,700
Computers, furniture and other equipment.......... 1,127,590 1,073,225 1,090,339
-------- -------- -----------
3,281,525 3,418,876 3,433,039
Less accumulated depreciation..................... 2,486,393 2,678,450 2,704,663
-------- -------- -----------
$795,132 $740,426 $ 728,376
-------- -------- -----------
-------- -------- -----------
</TABLE>
As of December 31, 1998, approximately $1,696,700 of fully depreciated
property and equipment remained in service.
4. CASH SURRENDER VALUE OF LIFE INSURANCE:
The Company purchased life insurance policies in connection with severance
agreements for two former key officers (see Note 8). The Company has elected to
report the cash surrender value of these policies net of any outstanding loans
against the policies. These net amounts are included in other assets on the
accompanying balance sheets. As of December 31, 1997 and 1998, the cash
surrender value of the policies was $848,654 and $915,211, respectively, which
was reported net of outstanding policy loans of $775,955 and $809,575,
respectively. The interest rate on these loans ranged from 6.75% to 6.84% at
December 31, 1998.
5. FINANCING AGREEMENTS:
SHORT-TERM BANK BORROWINGS
On July 17, 1998, the Company renewed a $1,400,000 bank line of credit with
Centennial Bank, which allows the Company to borrow against a specified
percentage of eligible accounts receivable plus a percentage of inventories. The
amount the Company may borrow against inventories and receivables may not exceed
$400,000 and $1,400,000, respectively. As of December 31, 1998, $1,326,239 was
available to be drawn under the line of credit. The line, which is guaranteed by
the Company's
F-31
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCING AGREEMENTS: (CONTINUED)
shareholder, accrues interest at 1% above the bank's reference rate (8.75% at
December 31, 1998) and is collateralized by accounts receivable and inventories.
Additionally, Centennial Bank has a first security interest in $300,000 of
machinery and equipment and a fourth security position behind the Marital Trust
and Maria Stanley notes (junior debt) on the remaining machinery and equipment.
The junior debt is subordinate to the bank line of credit and subject to
"inter-creditor" agreements. There are also certain financial covenants relating
to the various security agreements with which the Company was in compliance at
December 31, 1998. Management does not believe any of these covenants are
significantly restrictive.
INDEBTEDNESS TO RELATED PARTIES
MARITAL TRUST NOTE: On April 25, 1996, as a part of a refinance of existing
debt, the Company borrowed $1,187,477 from the Marital Trust Testamentary of
Edwin M. Stanley (Marital Trust). The Company's shareholder, Nicholas J.
Stanley, is one of four Marital Trustees. The note, which matures in April 2006,
bears a fixed annual interest rate of 7% and requires monthly payments of
$14,290, which includes principal and interest.
MARIA STANLEY NOTE: In conjunction with the refinance of the Marital Trust
notes referred to above, the balance of $263,116 on an existing note from Maria
Stanley (a related party) also matures in April 2006. The note, which was also
executed on April 25, 1996, bears an annual fixed interest rate of 7% and
requires monthly payments of $3,166, which includes principal and interest.
The following schedule represents the current and non-current portions of
the notes at December 31, 1998:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
DESCRIPTION PORTION PORTION TOTAL
- -------------------------------------------------- -------- ----------- ----------
<S> <C> <C> <C>
Marital Trust Note................................ $106,145 $ 875,227 $ 981,372
Maria Stanley Note................................ 23,520 193,934 217,454
-------- ----------- ----------
$129,665 $ 1,069,161 $1,198,826
-------- ----------- ----------
-------- ----------- ----------
</TABLE>
Maturities of indebtedness to related parties as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999.............................................. $ 129,665
2000.............................................. 139,039
2001.............................................. 149,090
2002.............................................. 159,868
2003.............................................. 171,424
Thereafter........................................ 449,740
----------
Total......................................... $1,198,826
----------
----------
</TABLE>
6. LEASE OBLIGATIONS:
The Company leases its Oregon facility (land and building) from SIAM Leasing
Company, which is owned by the Marital Trust, under an operating lease. In
addition to the base rents, the Company is
F-32
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASE OBLIGATIONS: (CONTINUED)
also responsible for property taxes, utilities and related insurance expenses.
The facility lease is noncancelable and was renewed for a five-year term on July
1, 1996. The lease requires monthly payments of $24,300, and allows one option
of renewal effective July 1, 2001 for a five-year period using fair market
rentals at the date of renewal. Total lease expense under this agreement was
$291,600 in each of 1997 and 1998.
The Company leases its Union, New Jersey facility (land and building) from
Ideal Trade, which is a New Jersey partnership, under an operating lease. The
Company is responsible for property taxes and related insurance expenses. The
lease is noncancelable and was renewed for a five-year term on November 1, 1998.
Total lease expense under this agreement was $63,840 and $65,700 in 1997 and
1998, respectively.
The Company is also obligated under terms of noncancelable operating leases
for equipment, expiring through March 2002. Total lease expense under these
leases was $15,040 for 1998.
The following is a schedule of future minimum lease payments under leases
that have initial or remaining noncancelable lease terms in excess of one year
as of December 31, 1998.
<TABLE>
<CAPTION>
LAND AND
BUILDING EQUIPMENT
LEASES LEASES
---------- ---------
<S> <C> <C>
1999.............................................. $ 367,225 $14,360
2000.............................................. 370,975 6,880
2001.............................................. 228,925 6,880
2002.............................................. 86,625 1,719
2003.............................................. 73,750
---------- ---------
$1,127,500 $29,839
---------- ---------
---------- ---------
</TABLE>
7. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1994, the Company established a 401(k) profit sharing
plan (the Plan) covering all eligible employees who meet certain age and service
requirements. Participants are allowed to defer the lesser of 20% of their
annual compensation or $10,000 to the Plan. Contributions are made to the Plan
at the discretion of the Company's Board of Directors. No matching contributions
were made in 1997 or 1998. The Plan includes professionally managed investment
funds that are invested at the discretion of individual Plan members, and a
professional third-party plan administrator. As a participant-driven plan, under
Internal Revenue Code Section 404(c), the Company is effectively relieved of
liability for losses that result from individual participant investment
decisions.
In addition, the Plan provides that the Company may make discretionary
profit sharing contributions. The Company did not make any discretionary
contributions in 1997 or 1998.
8. DEFERRED COMPENSATION PLANS:
In 1979 and 1980, the Company entered into deferred compensation
arrangements with two employees which provide for cash payments to be made after
their retirement. One employee retired in
F-33
<PAGE>
FINE ARTS ENGRAVERS COMPANY, INC.
(D.B.A. FINE ARTS GRAPHICS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. DEFERRED COMPENSATION PLANS: (CONTINUED)
October 1982 and has received monthly payments of $1,861. This contract was
completed in October 1997. Another employee retired in December 1985 and began
receiving annual payments of $10,000 for 15 years in January 1991. The
liabilities under these arrangements have been recorded at their present value
using a 12% discount rate.
9. TRANSFER OF OWNERSHIP AND STOCK RESTRICTION:
On September 30, 1994, Nicholas J. Stanley completed the purchase of all
outstanding shares of the Company's stock from the estate of Edwin Stanley in a
transaction that did not involve the Company. All of the Company's stock is
subject to an Escrow Agreement and Stock Pledge and Security Agreement. The
shares will remain restricted as long as any amounts relating to the original
Marital Trust note of $1,187,477 (see Note 5) remain outstanding. Associated
with the Purchase Agreement, the Company and Mr. Stanley have agreed to certain
financial covenants relating to quarter-end net worth and working capital, and
quarterly and annual net profit and loss minimums. In addition to the financial
covenants, the Company is restricted from extending or modifying its bank debt
without the written consent of the Marital Trust. See Note 11 regarding the sale
of the Company's operations subsequent to December 31, 1998. The Company was in
compliance with these covenants at December 31, 1997, December 31, 1998 and
March 31, 1999 (unaudited).
10. SHAREHOLDER DISTRIBUTIONS:
As disclosed in Note 1, the Company has elected to be taxed under Subchapter
S of the Internal Revenue Code for federal and State of Oregon income tax
purposes, which results in the taxable income of the Company being taxed
directly to the shareholder. In order to fund the personal taxes of the
shareholder that result from this tax election at the corporate level, the
Company distributes to its shareholder, as dividends, an amount based on the
estimated tax costs of this flow-through income. During 1997 and 1998, these
Subchapter S shareholder dividends totaled $139,747 and $76,330, respectively.
11. SALE OF THE COMPANY:
On November 25, 1998, the Company and its shareholder entered into a letter
of intent that involves the sale of substantially all of the Company's assets to
and assumption of certain of its liabilities by ImageX.com, Inc. The sale closed
on April 13, 1999.
F-34
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
On April 13, 1999, ImageX.com, Inc. (ImageX.com) acquired the assets of Fine
Arts Engravers Company, Inc. (Fine Arts Graphics) for approximately $5 million.
The unaudited pro forma condensed balance sheet is based on the individual
unaudited balance sheets of ImageX.com and Fine Arts Graphics appearing
elsewhere in this prospectus and has been prepared to reflect the acquisition by
ImageX.com of the assets of Fine Arts Graphics as of March 31, 1999. The
unaudited pro forma condensed statements of operations is based on individual
historical results of operations of ImageX.com and Fine Arts Graphics for the
year ended December 31, 1998 and for the three months ended March 31, 1999,
after giving effect to the acquisition of Fine Arts Graphics as if it had
occurred at the beginning of each of the periods presented.
The unaudited pro forma condensed financial statements should be read in
conjunction with the historical financial statements and notes thereto of
ImageX.com and Fine Arts Graphics. The pro forma condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of results of operations that would have actually occurred had the acquisition
of Fine Arts Graphics been effected on the dates assumed.
F-35
<PAGE>
IMAGEX.COM, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------------------------------
FINE ARTS PRO FORMA
ENGRAVERS ADJUSTMENTS
IMAGEX.COM, INC. COMPANY, INC. (NOTE 1) PRO FORMA
---------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 123,569 $ 40,548 ($4,665,548) $(4,501,431)
Accounts receivable................................ 351,941 1,406,280 1,758,221
Unbilled revenues.................................. 97,100 97,100
Inventories........................................ 725,167 725,167
Prepaid expenses................................... 71,862 71,862
---------------- ------------- ----------- -----------
Total current assets........................... 475,510 2,340,957 (4,665,548) (1,849,081)
Restricted cash...................................... 24,849 24,849
Property and equipment, net.......................... 1,398,630 728,376 1,599,494 3,726,500
Cost in excess of net assets acquired................ 1,386,060 1,386,060
Other assets......................................... 146,356 185,513 331,869
---------------- ------------- ----------- -----------
Total assets................................... $ 2,045,345 $ 3,254,846 ($1,679,994) $ 3,620,197
---------------- ------------- ----------- -----------
---------------- ------------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current portion of notes payable................... $ 1,499,622 $ 942,540 $(942,540) $ 1,499,622
Related party indebtedness......................... 131,948 (131,948)
Line of credit payable............................. 96,440 96,440
Current portion of deferred compensation........... 5,066 (5,066)
Accounts payable................................... 614,163 746,495 1,360,658
Accrued liabilities................................ 170,799 453,357 624,156
---------------- ------------- ----------- -----------
Total current liabilities...................... 2,381,024 2,279,406 (1,079,554) 3,580,876
Indebtedness to related parties, net of current...... 267,568 1,035,306 (1,035,306) 267,568
Deferred compensation, net of current................ 36,048 (36,048)
---------------- ------------- ----------- -----------
Total liabilities.............................. 2,648,592 3,350,760 (2,150,908) 3,848,444
Commitments and contingencies
Mandatorily redeemable convertible preferred stock... 12,216,943 12,216,943
Shareholders' (deficit) equity:
Series A convertible preferres stock............... 15,000 15,000
Common stock....................................... 31,731 39,330 (37,455) 33,606
Additional paid-in capital......................... 3,967,870 300,000 73,125 4,340,995
Unearned compensation.............................. (1,641,331) (1,641,331)
Notes receivable from shareholders................. (220,000) (220,000)
Accumulated deficit................................ (14,973,460) (435,244) 435,244 (14,973,460)
---------------- ------------- ----------- -----------
Total shareholders' (deficit) equity........... (12,820,190) (95,914) 470,914 (12,445,190)
---------------- ------------- ----------- -----------
Total liabilities and shareholders' (deficit)
equity....................................... $ 2,045,345 $ 3,254,846 ($1,679,994) $ 3,620,197
---------------- ------------- ----------- -----------
---------------- ------------- ----------- -----------
</TABLE>
Note 1-- The pro forma balance sheet has been prepared to reflect the
acquisition by ImageX.com of the assets of Fine Arts Graphics for an
aggregate purchase price of $5 million, consisting of $375,000 of common
stock and $4,625,000 of cash payment. Pro forma adjustments are made to
reflect:
(a) The issuance of 187,500 shares of common stock for $375,000
(b) The increase in the value of the property and equipment acquired
(c) The elimination of shareholder's equity accounts of Fine Arts
Graphics
(d) The elimination of liabilities of Fine Arts Graphics not assumed
(e) The cost in excess of net assets acquired
F-36
<PAGE>
IMAGEX.COM, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31, 1998 1999
-------------------------------------------------------- -------------------------------
FINE ARTS PRO FORMA FINE ARTS
ENGRAVERS ADJUSTMENTS ENGRAVERS
IMAGEX.COM, INC. COMPANY, INC. (NOTE 2) PRO FORMA IMAGEX.COM, INC. COMPANY, INC.
---------------- ------------- ----------- ---------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 968,028 $10,460,334 $11,428,362 $ 485,335 $ 2,220,885
Cost of Sales.................... 997,713 7,127,106 $ 151,559 8,276,378 374,877 1,586,289
---------------- ------------- ----------- ---------- ---------------- -------------
Gross profit................... (29,685) 3,333,228 (151,559) 3,151,984 110,458 634,596
Operating expenses:
General and administrative..... 3,413,093 2,363,046 81,013 5,857,152 1,044,671 549,773
Selling and marketing.......... 2,182,311 528,474 2,710,785 596,127 117,748
Research and development....... 2,550,926 2,550,926 394,745
Amortization of unearned
compensation................. 378,507 378,507 398,665
Amortization of cost in excess
of net assets acquired....... 138,606 138,606
---------------- ------------- ----------- ---------- ---------------- -------------
Total operating expenses..... 8,524,837 2,891,520 219,619 11,635,976 2,434,208 667,521
Loss from operations......... (8,554,522) 441,708 (371,178) (8,483,992) (2,323,750) (32,925)
---------------- ------------- ----------- ---------- ---------------- -------------
Other expense, net............... (46,346) (245,722) (292,068) (16,123) (58,593)
Net (loss) income before
taxes...................... (8,600,868) 195,986 (371,178) (8,776,060) (2,339,873) (91,518)
---------------- ------------- ----------- ---------- ---------------- -------------
State income tax expense
(benefit).................. 15,405 15,405 (5,000)
Net (loss) income............ $ (8,600,868) $ 180,581 $(371,178) $(8,791,465) $ (2,339,873) $ (86,518)
---------------- ------------- ----------- ---------- ---------------- -------------
---------------- ------------- ----------- ---------- ---------------- -------------
Preferred stock accretion........ (221,467) (221,467) (72,746)
Net loss used in calculating
loss per share............. $ (8,822,335) $ 180,581 $(371,178) $(9,012,932) $ (2,412,619) $ (86,518)
---------------- ------------- ----------- ---------- ---------------- -------------
---------------- ------------- ----------- ---------- ---------------- -------------
Basic and diluted net loss per
share.......................... $ (3.63) $ (3.45) $ (0.76)
---------------- ---------- ----------------
---------------- ---------- ----------------
<CAPTION>
PRO FORMA
ADJUSTMENTS
(NOTE 2) PRO FORMA
----------- ----------
<S> <C> <C>
Revenues......................... $2,706,220
Cost of Sales.................... $ 45,904 2,007,070
----------- ----------
Gross profit................... (45,904) 699,150
Operating expenses:
General and administrative..... 23,628 1,618,072
Selling and marketing.......... 713,875
Research and development....... 394,745
Amortization of unearned
compensation................. 398,665
Amortization of cost in excess
of net assets acquired....... 34,652 34,652
----------- ----------
Total operating expenses..... 58,280 3,160,009
Loss from operations......... (104,184) (2,460,859)
----------- ----------
Other expense, net............... (74,716)
Net (loss) income before
taxes...................... (104,184) (2,535,575)
----------- ----------
State income tax expense
(benefit).................. (5,000)
Net (loss) income............ $(104,184) $(2,530,575)
----------- ----------
----------- ----------
Preferred stock accretion........ (72,746)
Net loss used in calculating
loss per share............. $(104,184) $(2,603,321)
----------- ----------
----------- ----------
Basic and diluted net loss per
share.......................... $ (0.78)
----------
----------
</TABLE>
Note 2-- The pro forma statements of operations give effect to the following pro
forma adjustments necessary to reflect the acquisition described in Note
1 to the unaudited pro forma condensed balance sheet on the preceding
page:
(a) The amortization of cost in excess of net assets acquired over a
period of 10 years
(b) The additional depreciation expense recorded to cost of sales and
general and administrative expense for the increase in the value of the
property and equipment acquired
F-37
<PAGE>
BACK GATEFOLD COVER
IMAGEX.COM CUSTOMERS
Each customer has a customized Online Printing Center housing its branded
communications materials.
[GRAPHICS - INDIVIDUAL LOGOS OF TOP IMAGEX.COM AND FINE ARTS GRAPHICS CUSTOMERS
IN TERMS OF 1998 SALES THAT HAVE AGREED TO THE INCLUSION OF THEIR LOGO IN THIS
PROSPECTUS]
INSIDE BACK GATEFOLD
IMAGEX.COM HARNESSES THE POWER OF THE INTERNET TO AUTOMATE THE PRINT-ORDERING
PROCESS
THE IMAGEX.COM SOLUTION ADDRESSES A VARIETY OF PROBLEMS COMMON IN THE
TRADITIONAL PROCESS OF PROCURING PRINTED BUSINESS MATERIALS.
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
THE TRADITIONAL PROCESS THE IMAGEX.COM SOLUTION
- ----------------------------------------------------------------------------------------------------
HIGH ERROR RATES Online editing and proofing eliminates common errors
- ----------------------------------------------------------------------------------------------------
INVENTORY WASTE Online tracking and management provides just-in-time
order capability
- ----------------------------------------------------------------------------------------------------
MULTIPLE VENDORS One-stop solution - customers now order all their
materials from their online catalog
- ----------------------------------------------------------------------------------------------------
HIGH OPERATING COSTS Time savings and process efficiencies reduce
operating costs
- ----------------------------------------------------------------------------------------------------
DIFFICULTY LOCATING DESIGN ASSETS The online catalog of print materials provides
instant access and version control
- ----------------------------------------------------------------------------------------------------
LONG LEAD-TIMES FOR MATERIALS MODIFICATION Online modification tools allow for instant editing
and approval
- ----------------------------------------------------------------------------------------------------
BRAND ABUSE Complete brand image control is pre-defined and
locked onto the customer's Web site
- ----------------------------------------------------------------------------------------------------
HIGH COST OF CUSTOMIZATION Process automation makes customization
cost-effective
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The traditional method of ordering printed business materials is error-prone,
time-consuming and labor-intensive.
[GRAPHIC - OLD PRINT PRODUCTION PROCESS DIAGRAM]
SUBHEADS FOR ELEMENTS WITHIN GRAPHICS:
Customer Process / Manufacturing Process
Need for Printed Products, Order Placement, Contact with Printer, Initiate Job
Ticket, Typesetting, Fax to Customer, Customer Reviews Proof, Customer Makes
Corrections, Printer Typesets Corrections, Corrected Proof Faxed Back to
Customer, Customer Re-Proofs Corrections, This part of the process is repeated
until a corrected proof is approved by customer, Elapsed Time: Several
Days, Customer Approves Proof, Pre-Press/Plating, Job to Press, Printed Product
Delivered. Total Elapsed Time 14-21 Days.
ImageX.com has eliminated the hassles and unnecessary steps of traditional
printing services.
[GRAPHIC - NEW IMAGEX.COM PRINT PRODUCTION PROCESS DIAGRAM]
SUBHEADS FOR ELEMENTS WITHIN GRAPHICS:
Customer Process/Manufacturing Process Need for Variety of Printed Materials,
Customer Logs In, Customer Modifies Proofs and Releases Order Online, Elapsed
Time: 10 minutes, Printer Receives Press-Ready Digital Files, Press-Ready
Digital Files Sent Directly to Plate, Job to Presses, Variety of Printed
Products Delivered. Total Elapsed Time: 5-7 Days.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration
fee............................................... $ 13,900
NASD filing fee..................................... 5,500
Nasdaq National Market listing fee.................. 95,000
Blue Sky fees and expenses.......................... 10,000
Printing and engraving expenses..................... 150,000
Legal fees and expenses............................. 500,000
Accounting fees and expenses........................ 300,000
Directors' and officers' insurance.................. 100,000
Transfer Agent and Registrar fees................... 10,000
Miscellaneous expenses.............................. 15,600
-------------
Total............................................. $ 1,200,000
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Restated Bylaws (Exhibit 3.2
hereto) provides for indemnification of the registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law. The
directors and officers of the registrant also may be indemnified against
liability they may incur for serving in that capacity pursuant to a liability
insurance policy maintained by the registrant for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Article VII of the registrant's Restated Articles of Incorporation
(Exhibit 3.1 hereto) contains provisions implementing, to the fullest extent
permitted by Washington law, such limitations on a director's liability to the
registrant and its shareholders.
The registrant has entered into certain indemnification agreements with its
officers and directors, the form of which is attached as Exhibit 10.26 to this
Registration Statement and incorporated herein by reference. The indemnification
agreements provide the registrant's officers and directors with indemnification
to the maximum extent permitted by the WBCA.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act, in connection
II-1
<PAGE>
with matters specifically provided in writing by the Underwriters for inclusion
in this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, the registrant has issued and sold unregistered
securities as follows:
(1) On December 20, 1996, the registrant issued 375,000 shares of Series A
Preferred Stock to each of Philip J. Hooper, John T. Jerome, Cory E. Klatt
and F. Joseph Verschueren in connection with a reclassification of their
issued and outstanding shares of common stock into 15 shares of Series A
Preferred Stock.
(2) On December 20, 1996, the registrant issued 3,500,000 shares of Series B
Preferred Stock, which are convertible into 3,500,000 shares of common
stock, to nine investors, Technology Partners Fund V, L.P., Vanguard V,
L.P., Ironwood Capital, LLC, Howse Family Partnership, Steven Gillis,
Harold Kawaguchi, Thomas J. Cable, John D. Durbin and Scott Land. The
aggregate consideration received for such shares was $3,500,000.00 or $1.00
per share.
(3) On January 9, 1998, the registrant issued 2,000,001 shares of Series C
Preferred Stock, which are convertible into 2,000,001 shares of common
stock, to six investors, Acorn Ventures IV, LLC, Technology Partners Fund
V, L.P., Vanguard V, L.P., Michael Towers, Howse Family Partnership and
Harold Kawaguchi. The aggregate consideration received for such shares was
$3,000,001.50 or $1.50 per share. The registrant also issued warrants to
purchase 1,580,000 shares of common stock to Acorn Ventures IV, LLC. The
aggregate consideration received for such warrants was $15,800.00.
(4) On May 14, 1998, the registrant issued 1,999,999 shares of Series C
Preferred Stock, which are convertible into 1,999,999 shares of common
stock, to 12 investors, Acorn Ventures IV, LLC, Internet Ventures, LLC,
Technology Partners Fund V, L.P., Vanguard V, L.P., Nicholas B. Temple,
Eric S. Temple, Nicholas Brigham Temple, Jr., Tom A. Alberg, John
Meisenbach, Steven Gillis, Charles J. Katz, Jr. and James E. Webster. The
aggregate consideration received for such shares was $2,999,998.50 or $1.50
per share. The registrant also issued warrants to purchase 780,000 shares
of common stock to 15 investors, which includes, in addition to the
investors described in paragraph 2 above, Michael Towers, Howse Family
Partnership and Harold Kawaguchi. The aggregate consideration received for
such warrants was $7,800.
(5) On August 24, 1998, the registrant issued warrants to purchase 26,667
shares of Series C Preferred Stock, which are convertible into warrants to
purchase 26,667 shares of common stock, to Technology Partners Fund V, L.P.
The aggregate consideration received for such warrants was $267.
(6) On August 28, 1998, the registrant issued warrants to purchase 13,333
shares of Series C Preferred Stock, which are convertible into warrants to
purchase 13,333 shares of common stock, to Vanguard V, L.P. The aggregate
consideration received for such warrants was $133.
(7) On October 1, 1998, the registrant issued 1,385,493 shares of Series D
Preferred Stock, which are convertible into 1,385,493 shares of common
stock, to ten investors, SunAmerica, Inc., Technology Partners Fund V,
L.P., Vanguard V, L.P., Donaldson, Lufkin & Jenrette, Galaxy Investment
Partners, Michael Towers, Steve Shindler and Mary Kay Kosnik, Rich and
Cindy Sonstelie, Western Investments Capital LLC and Carl Stork. The
aggregate consideration received for such shares was $2,770,986.00 or $2.00
per share. The registrant also issued warrants to purchase 138,250 shares
of Series D Preferred Stock, which are convertible into warrants to
purchase 138,250 shares of common stock, to the ten investors described
above. The aggregate consideration received for such warrants was
$1,382.50.
II-2
<PAGE>
(8) On January 11, 1999, the registrant issued 401,257 shares of Series D
Preferred Stock, which are convertible into 401,257 shares of Series D
Preferred Stock, to two investors, Eli Wilner and Barbara A. Brennan. The
aggregate consideration received for such shares was $802,514.
(9) On April 13, 1999, the registrant issued warrants to purchase 150,000
shares of common stock to Nicholas J. Stanley. The aggregate consideration
received for such warrants was $1,500.
(10) On April 8, 1999, the registrant issued 8,641,666 shares of Series E
Preferred Stock, which are convertible into 8,641,666 shares of common
stock, to 28 investors, Internet Ventures, LLC, Nicholas Brigham Temple,
Jr., Eli Wilner, Barbara A. Brennan, Eric S. Temple, Galaxy Investment
Partners, Harold Kawaguchi, Ironwood Capital, LLC, Philip J. Hooper, John
Durbin, Michael and Pam Towers, Nicholas B. Temple, Rich and Cindy
Sonstelie, Rufus Lumry, SunAmerica Investments, Inc., Tom Alberg, Thomas
J. Cable, Western Investments Capital LLC, Howse Family Partnership, Alta
California Partners II, L.P., Alta Embarcadero Partners II, LLC, Arthur W.
Harrigan, WS Investment Company 99A, Stephen Scherba Jr. and Elaine P.
Scherba, Scott Drum, William C. Krueger, Brian and Jami Holman and David
Valle. The aggregate consideration received for such shares was
$18,147,498.60 or $2.10 per share. The registrant also issued warrants to
purchase 85,535 shares of common stock to two investors, Eli Wilner and
Barbara A. Brennan. The aggregate consideration received for such warrants
was $855.35.
(11) On April 15, 1999, the registrant issued 3,263,095 shares of Series E
Preferred Stock, which are convertible into 3,263,095 shares of common
stock, to 12 investors, Technology Partners Fund VI, L.P., Kellett
Partners LP, Clear Fir Partners, LP, Gary Sledge, Carl Stork, Nanda Nishit
Mehta and Nishit Kantilal Mehta, VBW Raptor Fund, LLC, Robert L. and
Leslie A Hobart JTWROS, Hambrecht & Quist California, Hambrecht & Quist
Employee Venture Fund, L.P. II, Access Technology Partners, L.P. and
Access Technology Partners Brokers Fund, L.P. The aggregate consideration
received for such shares was $6,852,499.50, or $2.10 per share.
(12) On April 21, 1999, the registrant issued warrants to purchase 96,329
shares of common stock to SG Cowen Securities Corporation for services
rendered in connection with the registrant's issuance of Series E
Preferred Stock.
(13) Within the last three years, the registrant granted stock options to
purchase 3,929,207 shares of common stock, with exercise prices ranging
from $0.10 to $3.00 and issued 1,300,000 shares of restricted common stock
to selected persons pursuant to the registrant's option plan. Of the
options, options for 515,280 shares have been canceled without being
exercised, options for 97,190 shares have been exercised and options for
2,016,737 shares remain outstanding.
The sales and issuances of these securities were exempt from registration
under the Securities Act, pursuant to Section 4(2) of the Securities Act, on the
basis that the transactions did not involve a public offering, or pursuant to
Rule 701 under the Securities Act, on the basis that these options were offered
and sold either pursuant to a written compensatory benefit plan or pursuant to
written contracts relating to consideration, as provided by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Form of Amended and Restated Articles of Incorporation of the registrant.
3.2 Form of Amended and Restated Bylaws of the registrant.
5.1* Opinion of Perkins Coie LLP as to the legality of the shares.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.1 Amended and Restated Investor Rights Agreement, dated as of April 8, 1999, by and among the registrant
and certain of the registrant's shareholders named therein.
10.2 Stock Vesting Agreement, dated as of December 20, 1996, by and between the registrant and F. Joseph
Verschueren.
10.3 Stock Vesting Agreement, dated as of December 20, 1996, by and between the registrant and Cory E. Klatt.
10.4 Stock Vesting Agreement, dated as of December 20, 1996, by and between the registrant and Elwood D.
Howse, Jr.
10.5 Stock Subscription and Repurchase Agreement, dated as of August 7, 1997, by and between the registrant
and Elwood D. Howse, Jr.
10.6 Stock Vesting and Pledge Agreement, dated as of November 16, 1998, by and between the registrant and
Richard P. Begert.
10.7 Offer of Employment, dated as of November 12, 1998, from the registrant to Richard P. Begert.
10.8 Offer of Employment, dated as of April 23, 1998, from the registrant to Dana F. Manciagli.
10.9 Offer of Employment, dated as of June 22, 1998, from the registrant to Eric J. Bean.
10.10 [Reserved.]
10.11 Employment Agreement, dated as of April 13, 1999, by and between the registrant and Nicholas J. Stanley.
10.12 Lease Agreement, dated as of January 31, 1997, by and between the registrant and Bellevue Associates,
L.P.
10.13 Lease Agreement, dated as of May 15, 1998, by and between the registrant and Spieker Properties, L.P.
10.14 Lease Agreement, dated as of October 19, 1998, by and between the registrant and Spieker Properties,
L.P.
10.15 Lease Agreement, dated as of April 22, 1999, by and between the registrant and Spieker Properties, L.P.
10.16 Lease Assignment and Assumption, dated as of April 13, 1999, by and between the Keystone Acquisition
Corporation, a wholly owned subsidiary of the registrant, and Fine Arts Engravers Company, Inc.
10.17 Lease Assignment and Assumption, dated as of April 13, 1999, by and between Keystone Acquisition
Corporation, a wholly owned subsidiary of the registrant, and Fine Arts Engravers Company, Inc.
10.18 Loan and Security Agreement, dated as of February 26, 1997, by and between the registrant and Silicon
Valley Bank.
10.19 Loan and Security Agreement, dated as of September 24, 1998, by and between the registrant and Silicon
Valley Bank.
10.20 Credit Agreement, dated as of April 30, 1999, by and between the Keystone Acquisitions Corporation, a
wholly owned subsidiary of the registrant, and Seafirst Bank.
10.21 Guaranty Agreement, dated as of April 30, 1999, by and between the registrant and Seafirst Bank.
10.22 Pledge Agreement, dated as of April 30, 1999, by and between the registrant and Seafirst Bank.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.23* Amended and Restated 1996 Stock Incentive Compensation Plan.
10.24* 1999 Employee Stock Purchase Plan.
10.25* 1999 Stock Option Grant Program for Nonemployee Directors.
10.26 Form of Indemnification Agreement.
10.27 Asset Purchase Agreement, dated as of February 23, 1999, by and among the registrant, Keystone
Acquisition Corp., Fine Arts Engravers Company, Inc. and Nicholas J. Stanley.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the registrant
or related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has 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 the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of 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 to provide to the Underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bellevue,
State of Washington, on the 11th day of May, 1999.
<TABLE>
<S> <C> <C>
IMAGEX.COM, INC.
BY: /S/ RICHARD P. BEGERT
-----------------------------------------
Richard P. Begert
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Richard P. Begert and John R. Higgins, and each of them, with full
power of substitution and resubstitution and full power to act without the
other, as his or her true and lawful attorney-in-fact and agent to act in his or
her name, place and stead and to execute in the name and on behalf of each
person, individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and amendments thereto and any registration statement relating to the
same offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 11th day of May, 1999.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
/s/ RICHARD P. BEGERT
------------------------------------------- President and Chief Executive Officer (Principal
Richard P. Begert Executive Officer)
/s/ JOHN R. HIGGINS
------------------------------------------- Vice President, Finance and Acquisitions (Principal
John R. Higgins Financial and Accounting Officer)
/s/ F. JOSEPH VERSCHUEREN
------------------------------------------- Chairman of the Board
F. Joseph Verschueren
/s/ JOHN E. ARDELL
------------------------------------------- Director
John E. Ardell
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
/s/ GARRETT P. GRUENER
------------------------------------------- Director
Garrett P. Gruener
/s/ ELWOOD D. HOWSE, JR.
------------------------------------------- Director
Elwood D. Howse, Jr.
/s/ RICHARD R. SONSTELIE
------------------------------------------- Director
Richard R. Sonstelie
/s/ BERNEE D. L. STROM
------------------------------------------- Director
Bernee D. L. Strom
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Form of Amended and Restated Articles of Incorporation of the registrant.
3.2 Form of Amended and Restated Bylaws of the registrant.
5.1* Opinion of Perkins Coie LLP as to the legality of the shares.
10.1 Amended and Restated Investor Rights Agreement, dated as of April 8, 1999, by and among the registrant
and certain of the registrant's shareholders named therein.
10.2 Stock Vesting Agreement, dated as of December 20, 1996, by and between the registrant and F. Joseph
Verschueren.
10.3 Stock Vesting Agreement, dated as of December 20, 1996, by and between the registrant and Cory E. Klatt.
10.4 Stock Vesting Agreement, dated as of December 20, 1996, by and between the registrant and Elwood D.
Howse, Jr.
10.5 Stock Subscription and Repurchase Agreement, dated as of August 7, 1997, by and between the registrant
and Elwood D. Howse, Jr.
10.6 Stock Vesting and Pledge Agreement, dated as of November 16, 1998, by and between the registrant and
Richard P. Begert.
10.7 Offer of Employment, dated as of November 12, 1998, from the registrant to Richard P. Begert.
10.8 Offer of Employment, dated as of April 23, 1998, from the registrant to Dana F. Manciagli.
10.9 Offer of Employment, dated as of June 22, 1998, from the registrant to Eric J. Bean.
10.10 [Reserved.]
10.11 Employment Agreement, dated as of April 13, 1999, by and between the registrant and Nicholas J. Stanley.
10.12 Lease Agreement, dated as of January 31, 1997, by and between the registrant and Bellevue Associates,
L.P.
10.13 Lease Agreement, dated as of May 15, 1998, by and between the registrant and Spieker Properties, L.P.
10.14 Lease Agreement, dated as of October 19, 1998, by and between the registrant and Spieker Properties,
L.P.
10.15 Lease Agreement, dated as of April 22, 1999, by and between the registrant and Spieker Properties, L.P.
10.16 Lease Assignment and Assumption, dated as of April 13, 1999, by and between the Keystone Acquisition
Corporation, a wholly owned subsidiary of the registrant, and Fine Arts Graphics Company, Inc.
10.17 Lease Assignment and Assumption, dated as of April 13, 1999, by and between Keystone Acquisition
Corporation, a wholly owned subsidiary of the registrant, and Fine Arts Graphics Company, Inc.
10.18 Loan and Security Agreement, dated as of February 26, 1997, by and between the registrant and Silicon
Valley Bank.
10.19 Loan and Security Agreement, dated as of September 24, 1998, by and between the registrant and Silicon
Valley Bank.
10.20 Credit Agreement, dated as of April 30, 1999, by and between the Keystone Acquisitions Corporation, a
wholly owned subsidiary of the registrant, and Seafirst bank.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.21 Guaranty Agreement, dated as of April 30, 1999, by and between the registrant and Seafirst Bank.
10.22 Pledge Agreement, dated as of April 30, 1999, by and between the registrant and Seafirst Bank.
10.23* Amended and Restated 1996 Stock Incentive Compensation Plan.
10.24* 1999 Employee Stock Purchase Plan.
10.25* 1999 Stock Option Grant Program for Nonemployee Directors.
10.26 Form of Indemnification Agreement.
10.27 Asset Purchase Agreement, dated as of February 23, 1999, by and among the registrant, Keystone
Acquisition Corp., Fine Arts Engravers Company, Inc. and Nicholas J. Stanley.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
IMAGEX.COM, INC.
ARTICLE 1. NAME
The name of this corporation is ImageX.com, Inc.
ARTICLE 2. CAPITAL STOCK
2.1 CLASSES OF STOCK
The total number of shares of capital stock which the corporation is
authorized to issue is One Hundred Thirty Million (130,000,000), consisting
of One Hundred Million (100,000,000) shares of common stock, par value $.01
per share ("Common Stock"), and Thirty Million (30,000,000) shares of
preferred stock, par value $.01 per share ("Preferred Stock").
2.2 ISSUANCE OF PREFERRED STOCK IN SERIES
The Preferred Stock may be issued from time to time in one or more
series in any manner permitted by law and the provisions of these Articles of
Incorporation (including without limitation Section 2.8.6 hereof), as
determined from time to time by the Board of Directors and stated in the
resolution or resolutions providing for its issuance, prior to the issuance
of any shares. The Board of Directors shall have the authority to fix and
determine and to amend, subject to these provisions, the designation,
preferences, limitations and relative rights of the shares of any series that
is wholly unissued or to be established. Unless otherwise specifically
provided in the resolution establishing any series, the Board of Directors
shall further have the authority, after the issuance of shares of a series
whose number it has designated, to amend the resolution establishing such
series to decrease the number of shares of that series, but not below the
number of shares of such series then outstanding.
2.3. DIVIDENDS
The holders of shares of Preferred Stock shall be entitled to receive
dividends, out of the funds of the Company legally available therefor, at the
rate and at the time or times, whether cumulative or noncumulative, as may be
provided by the Board in designating a particular series of Preferred Stock.
If such dividends on the Preferred Stock shall be cumulative, then if
dividends shall not have been paid, the deficiency shall be fully paid or the
dividends declared and set apart for payment at such rate, but without
interest on
<PAGE>
cumulative dividends, before any dividends on the Common Stock shall be paid
or declared and set apart for payment. Shares of one class or series may be
issued as a share dividend in respect to shares of another class or series.
2.4. REDEMPTION
Preferred Stock may be redeemable at such price, in such amount, and at
such time or times as may be provided by the Board in designating a
particular series of Preferred Stock. In any event, such Preferred Stock may
be repurchased by the Company to the extent legally permissible.
2.5. LIQUIDATION
In the event of any liquidation, dissolution, or winding up of the
affairs of the Company, whether voluntary or involuntary, then, before any
distribution shall be made to the holders of the Common Stock, the holders of
the Preferred Stock at the time outstanding shall be entitled to be paid the
preferential amount or amounts per share as may be provided by the Board in
designating a particular series of Preferred Stock and dividends accrued
thereon to the date of such payment. The holders of the Preferred Stock
shall not be entitled to receive any distributive amounts upon the
liquidation, dissolution, or winding up of the affairs of the Company other
than the distributive amounts referred to in this section, unless otherwise
provided by the Board in designating a particular series of Preferred Stock.
2.6. CONVERSION
Shares of Preferred Stock may be convertible into Common Stock of the
Company upon such terms and conditions, at such rate and subject to such
adjustments as may be provided by the Board in designating a particular
series of Preferred Stock.
2.7. VOTING RIGHTS
Holders of Preferred Stock shall have such voting rights as may be
provided by the Board in designating a particular series of Preferred Stock.
2.8 RIGHTS, PREFERENCES AND RESTRICTIONS OF SERIES A PREFERRED STOCK, SERIES B
PREFERRED STOCK, SERIES C PREFERRED STOCK, SERIES D PREFERRED STOCK AND
SERIES E PREFERRED STOCK.
The rights, preferences, privileges, and restrictions granted to and
imposed on the Series A Preferred Stock, which series shall consist of One
Million Five Hundred Thousand (1,500,000) shares (the "Series A Preferred
Stock"), the Series B Preferred Stock, which series shall consist of Three
Million Five Hundred Thousand (3,500,000) shares (the "Series B Preferred
Stock"), the Series C Preferred Stock, which series shall consist of Four
Million Forty Thousand (4,040,000) shares (the "Series C Preferred Stock"),
the Series D Preferred Stock, which series shall consist of One Million Nine
Hundred Twenty-Five
2
<PAGE>
Thousand (1,925,000) shares (the "Series D Preferred Stock") and the Series E
Preferred Stock, which series shall consist of Eleven Million Nine Hundred
Ninety Thousand Two Hundred Ninety-Seven (11,990,297) (the "Series E
Preferred Stock") are as set forth below in this Article 2.8.
2.8.1 DIVIDEND PROVISIONS
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, the holders of shares of Series E
Preferred Stock, the holders of shares of Series D Preferred Stock, the
holders of shares of Series C Preferred Stock and the holders of shares of
Series B Preferred Stock shall be entitled to receive dividends, when, as and
if declared by the Board of Directors out of assets legally available
therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) on the
Series A Preferred Stock, Common Stock or other equity securities of this
corporation, in an amount per share at least equal to the maximum amount per
share to be paid on any other outstanding shares of capital stock of this
corporation. Such dividends shall not be cumulative, and the holders of
Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock
and Series B Preferred Stock shall rank pari passu as to all dividends.
(b) Subject to the rights of the Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock and Series B Preferred Stock, and
any other series of Preferred Stock which may from time to time come into
existence, the holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, when, as and if declared by the Board of
Directors out of assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock
of this corporation) on the Common Stock or other equity securities of this
corporation, in an amount per share at least equal to the maximum amount per
share to be paid on any other outstanding shares of capital stock of this
corporation. Such dividends shall not be cumulative.
2.8.2 LIQUIDATION PREFERENCE
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series E Preferred Stock, Series D Preferred Stock, Series C
Preferred Stock, Series B Preferred Stock and Series A Preferred Stock shall
be entitled to receive, prior and in preference to any distribution of any of
the assets of this corporation to the holders of Common Stock by reason of
their ownership thereof, (A) in the case of the Series E Preferred Stock, an
amount per share equal to the sum of (i) $2.10 for each outstanding share of
the Series E Preferred Stock (the "Original Series E Issue Price") and
(ii) an amount equal to declared but unpaid dividends on such share, (B) in
3
<PAGE>
the case of the Series D Preferred Stock, an amount per share equal to the
sum of (i) $2.00 for each outstanding share of the Series D Preferred Stock
(the "Original Series D Issue Price") and (ii) an amount equal to declared
but unpaid dividends on such share, (C) in the case of the Series C Preferred
Stock, an amount per share equal to the sum of (i) $1.50 for each outstanding
share of Series C Preferred Stock (the "Original Series C Issue Price") and
(ii) an amount equal to declared but unpaid dividends on such share, (D) in
the case of the Series B Preferred Stock, an amount per share equal to the
sum of (i) $1.00 for each outstanding share of Series B Preferred Stock (the
"Original Series B Issue Price") and (ii) an amount equal to declared but
unpaid dividends on such share, and (E) in the case of the Series A Preferred
Stock an amount per share equal to the sum of (i) $1.00 for each outstanding
share of Series A Preferred Stock (the "Original Series A Issue Price") and
(ii) an amount equal to declared but unpaid dividends on such share. If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series E Preferred Stock, Series D Preferred Stock, Series C
Preferred Stock, Series B Preferred Stock and Series A Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred
Stock that may from time to time come into existence, the entire assets and
funds of the corporation legally available for distribution shall be
distributed in the following order: (x) first, to the holders of the Series E
Preferred Stock (pro rata according to their ownership thereof) until such
holders have been paid an amount per share of Series E Preferred Stock equal
to the sum of (i) fifty percent (50%) of the Original Series E Issue Price
and (ii) an amount equal to declared but unpaid dividends on such share;
(y) second, ratably among the holders of the Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock and Series B Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled
to receive (less the amount paid to any such holder pursuant to clause (x) of
this paragraph) until such preferential amounts due to such holders have been
paid in full; and (z) third, to the holders of the Series A Preferred Stock
(pro rata according to their ownership thereof) until the full preferential
amounts due to such holders have been paid in full.
(b) Upon the completion of the distributions required by
subparagraph (a) of this Section 2.8.2 and any other distribution that may be
required with respect to series of Preferred Stock that may from time to time
come into existence, the remaining assets, if any, of the corporation
available for distribution to shareholders shall be distributed among the
holders of Series E Preferred Stock, Series D Preferred Stock, Series C
Preferred Stock, Series B Preferred Stock, Series A Preferred Stock and
Common Stock pro rata based on the number of shares of Common Stock held by
each (assuming conversion of all such Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and
Series A Preferred Stock).
(c) (i) For purposes of this Section 2.8.2, unless this provision
is waived in writing by the holders of a majority of the voting power of the
Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock
and Series B Preferred Stock voting together as a single class, a
liquidation, dissolution or winding up of this corporation shall be deemed to
be occasioned by, or to include, (A) the acquisition of the corporation by
4
<PAGE>
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation
but, excluding any merger effected exclusively for the purpose of changing
the domicile of the corporation); or (B) a sale of all or substantially all
of the assets of the corporation; unless the corporation's shareholders of
record as constituted immediately prior to such acquisition or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for the corporation's acquisition or sale or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by
the corporation is other than cash, its value will be deemed its fair market
value as determined in good faith by the Board of Directors; provided,
however, that in the event that the holders of a majority of the voting power
of the Series E Preferred Stock, Series D Preferred Stock, Series C Preferred
Stock, Series B Preferred Stock and Series A Preferred Stock voting together
as a single class disagree with the determination of the board of directors,
such holders may retain, at their expense (which shall be shared among such
holders based on their relative aggregate liquidation preferences, unless
otherwise agreed by them), an independent appraisal firm of national
reputation that is reasonably acceptable to the Board of Directors and
unaffiliated with any such holder to perform an appraisal of the value of
such consideration and the determination of such independent appraisal firm
shall be binding on the parties.
(iii) The corporation shall give each holder of record of
Series E Preferred Stock, Series D Preferred Stock, Series C Preferred Stock,
Series B Preferred Stock and Series A Preferred Stock written notice of such
impending transaction not later than twenty (20) days prior to the
shareholders' meeting called to approve such transaction, or twenty days
prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this
Section 2.8.2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than three (3) days after the corporation has
given notice of any material changes; provided, however, that such periods
may be shortened upon the written consent of the holders of at least a
majority of the voting power of all then outstanding shares of Series E
Preferred Stock Series D Preferred Stock, Series C Preferred Stock, Series B
Preferred Stock and Series A Preferred Stock voting together as a single
class.
2.8.3 REDEMPTION
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence and to the conversion rights set forth
in Section 2.8.4 hereof, shares of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock and
5
<PAGE>
Series B Preferred Stock shall be redeemable according to the following
schedule and as more fully provided in this Section 2.8.3:
(i) at any time on or after April 8, 2004 (the "First
Redemption Date"), up to one third of the shares of Series E Preferred Stock,
up to one third of the shares of Series D Preferred Stock, up to one third of
the shares of Series C Preferred Stock and up to one third of the shares of
Series B Preferred Stock shall be redeemable at the election of a majority of
the shares of Series E Preferred Stock, Series D Preferred Stock, Series C
Preferred Stock or Series B Preferred Stock, as the case may be, then
outstanding;
(ii) at any time on or after the first anniversary of the
First Redemption Date, up to two thirds of the shares of Series E Preferred
Stock (less the number of shares of Series E Preferred Stock, if any,
previously redeemed), up to two thirds of the shares of Series D Preferred
Stock (less the number of shares of Series D Preferred Stock, if any,
previously redeemed), up to two thirds of the shares of Series C Preferred
Stock (less the number of shares of Series C Preferred Stock, if any,
previously redeemed) and up to two thirds of the shares of Series B Preferred
Stock (less the number of shares of Series B Preferred Stock, if any,
previously redeemed) shall be redeemable at the election of a majority of the
shares of Series E Preferred Stock, Series D Preferred Stock, Series C
Preferred Stock or Series B Preferred Stock, as the case may be, then
outstanding;
(iii) at any time on or after the second anniversary of the
First Redemption Date, all shares of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock and Series B Preferred Stock shall
be redeemable at the election of a majority of the shares of Series E
Preferred Stock, Series D Preferred Stock, Series C Preferred Stock or Series B
Preferred Stock, as the case may be, then outstanding.
Shares of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock eligible for redemption
pursuant to the schedule set forth above shall be redeemed by the corporation,
to the extent it may lawfully do so, within sixty (60) days after receipt by
the corporation of a written request from the holders of not less than a
majority of the shares of Series B Preferred Stock , Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may
be, outstanding on the date as of which such request is being made specifying
the number of shares of such series to be redeemed, provided that any
redemption shall only be made concurrently with surrender by holders of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
or Series E Preferred Stock, as the case may be, of the certificates
representing the shares to be redeemed (the date on which any such redemption
is to be effected being a "Redemption Date"). The corporation shall pay in
cash $1.00 per share of Series B Preferred Stock, $1.50 per share of Series C
Preferred Stock, $2.00 per share of Series D Preferred Stock and $2.10 per
share of Series E Preferred Stock being redeemed, as the case may be, (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus all declared but unpaid dividends on such share (in each case,
the "Redemption Price").
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(b) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, at least fifteen (15) but no more than
thirty (30) days prior to each Redemption Date, written notice shall be
mailed, first class postage prepaid, to each holder of record (at the close
of business on the business day next preceding the day on which notice is
given) of the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, as the case may be, to be
redeemed, at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the
Redemption Date, the Redemption Price, the place at which payment may be
obtained and calling upon such holder to surrender to this corporation, in
the manner and at the place designated, his, her or its certificate or
certificates representing the shares to be redeemed (the "Redemption
Notice"). Each holder of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock, as the case may be, to
be redeemed shall surrender to this corporation the certificate or
certificates representing such shares, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price for
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event that less than all the shares
represented by any such certificate are being redeemed, a new certificate
shall be issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders
of shares of Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, as the case may be, designated
for redemption in the Redemption Notice as holders of such series (except the
right to receive the Redemption Price without interest upon surrender of
their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of this
corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Any redemption effected pursuant to this Section 2.8.3 shall
be made on a pro rata basis among the holders of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, as the case may be, then being redeemed in proportion to the number of
shares of such series then held by such holders. Subject to the rights of
series of Preferred Stock which may from time to time come into existence, if
the funds of the corporation legally available for redemption of shares of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
or Series E Preferred Stock, as the case may be, on any Redemption Date, and
for the repurchase of any shares of capital stock that are entitled to be
repurchased by the corporation in connection with any such Redemption Date in
accordance with the terms of any repurchase or similar agreement entered into
after April 8, 1999 between the corporation and the holders of such shares
(provided such agreement has been unanimously approved by the Board of
Directors) (such shares, if any, are hereinafter referred to collectively as
the "Put Stock"), are insufficient to redeem the total number of shares of
Series B Preferred Stock, Series C
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Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Put
Stock, as the case may be, to be redeemed on such date, and to repurchase the
Put Stock to be repurchased on such date, those funds which are legally
available for redemption or repurchase, as the case may be, of such shares
shall be used for such redemption or repurchase in the following order:
(i) first, to redeem fifty percent (50%) of the shares of
Series E Preferred Stock to be redeemed on such Redemption Date (ratably
among the holders of such shares to be redeemed);
(ii) second, to redeem the maximum possible number of shares
of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock not redeemed pursuant clause (i) above, as
the case may be, to be redeemed on such Redemption Date, ratably among the
holders of such shares to be redeemed in proportion to the relative total
Redemption Prices which such holder would otherwise be entitled to receive in
such redemption; and
(iii) third, to repurchase the maximum possible number of
shares of Put Stock, ratably among the holders of such shares to be
repurchased.
Any shares of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and/or Series E Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. Subject to the rights of series of Preferred Stock which may from
time to time come into existence, at any time thereafter when additional
funds of the corporation are legally available for the redemption of shares
of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, or for the repurchase of shares of Put
Stock, such funds will immediately be used to redeem or repurchase, as the
case may be, the balance of the shares which the corporation has become
obligated to redeem or repurchase on any Redemption Date but which it has not
yet redeemed or repurchased, such redemption or repurchase to be completed in
the order and manner set forth in clauses (i), (ii) and (iii) above and prior
to the redemption of any shares of Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, or the
repurchase of any shares of Put Stock, that become redeemable or subject to
repurchase, as the case may be, subsequent to any such Redemption Date.
(e) On or prior to each Redemption Date (or immediately after any
funds become legally available for redemption, in the event that the
corporation shall at any time have been unable to redeem all shares of Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or
Series E Preferred Stock which it may have become obligated to redeem, as
contemplated by the last sentence of the preceding paragraph), this
corporation shall deposit the Redemption Price (or so much thereof as may
then be available) of all shares of Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock
designated for redemption in the Redemption Notice, and not
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yet redeemed or converted, with a bank or trust corporation having aggregate
capital and surplus in excess of $100,000,000 as a trust fund for the benefit
of the respective holders of the shares of Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock
designated for redemption and not yet redeemed, with irrevocable instructions
and authority to the bank or trust corporation to publish the notice of
redemption thereof and pay the Redemption Price (or other amount payable in
accordance herewith) for such shares to their respective holders on or after
the applicable Redemption Date, upon receipt of notification from the
corporation that such holder has surrendered his, her or its share
certificate or certificates to the corporation pursuant to Section 2.8.3(b)
above. Such instructions shall also provide that any funds deposited by the
corporation pursuant to this Section 2.8.3(e) for the redemption of shares of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and/or Series E Preferred Stock thereafter converted into shares of Common
Stock pursuant to Section 2.8.4 hereof prior to the Redemption Date shall be
returned to the corporation forthwith upon such conversion. The balance of
any funds deposited by the corporation pursuant to this Section 2.8.4
remaining unclaimed at the expiration of one (1) year following any
applicable Redemption Date shall thereafter be returned to the corporation.
2.8.4 CONVERSION
The holders of the Series E Preferred Stock, Series D Preferred Stock,
Series C Preferred Stock, Series B Preferred Stock and Series A Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series E Preferred Stock,
Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock
and Series A Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share and,
with respect to the Series E Preferred Stock, Series D Preferred Stock,
Series C Preferred Stock and Series B Preferred Stock, prior to redemption
thereof, at the office of this corporation or any transfer agent for such
stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Series E Issue Price,
Original Series D Issue Price, Original Series C Issue Price, Original Series B
Issue Price or Original Series A Issue Price, as the case may be, by the
Series E Conversion Price, Series D Conversion Price, Series C Conversion
Price, Series B Conversion Price or Series A Conversion Price, respectively,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Series E Conversion Price shall be
equal to the Original Series E Issue Price, the initial Series D Conversion
Price shall be equal to the Original Series D Issue Price, the initial Series C
Conversion Price shall be equal to the Original Series C Issue Price, the
initial Series B Conversion Price shall be equal to the Original Series B
Issue Price, and the initial Series A Conversion Price shall be equal to the
Original Series A Issue Price; provided, however, that the Series E
Conversion Price, the Series D Conversion Price, the Series C Conversion
Price, the Series B Conversion Price and the Series A Conversion Price shall
be subject to adjustment as set forth in Section 2.8.4(d).
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(b) AUTOMATIC CONVERSION. Each share of Series E Preferred Stock,
Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock
and Series A Preferred Stock shall automatically be converted into shares of
Common Stock at the Series E Conversion Price, Series D Conversion Price,
Series C Conversion Price, Series B Conversion Price or Series A Conversion
Price, as the case may be, at the time in effect for such series immediately
upon the earlier of (i) the corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended (the "1933 Act"), the public
offering price of which was not less than $5.00 per share (as adjusted to
reflect stock dividends, stock splits, combinations and similar events) and
the gross proceeds of which were at least $15,000,000 (before payment of any
underwriting discounts or commissions) or (ii) at such time as at least a
majority of the shares of Series E Preferred Stock, Series D Preferred Stock,
Series C Preferred Stock and Series B Preferred Stock, considered together as
a single class, either shall have been converted into Common Stock or shall
have elected to convert into Common Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Series E
Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B
Preferred Stock or Series A Preferred Stock shall be entitled to convert the
same into shares of Common Stock, such holder shall surrender the certificate
or certificates therefor, duly endorsed in blank, at the office of this
corporation or of any transfer agent for the Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A
Preferred Stock (as the case may be), and shall give written notice to this
corporation at its principal corporate office of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made and to be effective immediately prior to the close of business on the
date on which such written notice and certificates (or affidavits of loss
thereof satisfactory to the corporation) are received by the corporation as
provided above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such
date. If the conversion is being made pursuant to paragraph (a) above in
connection with an underwritten offering of securities registered pursuant to
the 1933 Act, the conversion may, at the option of any holder tendering
shares of Series E Preferred Stock, Series D Preferred Stock, Series C
Preferred Stock, Series B Preferred Stock or Series A Preferred Stock for
conversion, be conditioned upon the closing of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
the Common Stock upon conversion of the Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A
Preferred Stock shall not be deemed to have converted such Series E Preferred
Stock, Series D Preferred Stock, Series C Preferred Stock, Series B Preferred
Stock or Series A Preferred Stock until immediately prior to the closing of
such sale of securities.
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(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Series E Conversion Price,
Series D Conversion Price, Series C Conversion Price, Series B Conversion
Price and Series A Conversion Price shall be subject to adjustment from time
to time as follows:
(i) (A) If the corporation shall issue, after the date on
which shares of Series E Preferred Stock are first issued (the "Series E
Issuance Date") (in the case of the Series E Preferred Stock), or the date on
which shares of Series D Preferred Stock are first issued (the "Series D
Issuance Date") (in the case of the Series D Preferred Stock), or the date on
which shares of Series C Preferred Stock are first issued (the "Series C
Issuance Date") (in the case of the Series C Preferred Stock) or the date on
which shares of Series B Preferred Stock are first issued (the "Series B
Issuance Date") (in the case of the Series B Preferred Stock or the Series A
Preferred Stock), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Series E
Conversion Price, the Series D Conversion Price, the Series C Conversion
Price, the Series B Conversion Price or the Series A Conversion Price in
effect immediately prior to the issuance of such Additional Stock, the Series E
Conversion Price, Series D Conversion Price, Series C Conversion Price,
Series B Conversion Price or Series A Conversion Price, as the case may be,
in effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall
be the total number of Common Stock Equivalents (as defined below)
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the corporation for
such issuance would purchase at such Conversion Price, and the denominator of
which shall be the total number of Common Stock Equivalents outstanding
immediately after to such issuance. The term "Common Stock Equivalents"
shall mean all shares of Common Stock outstanding, plus all shares of Common
Stock issuable upon conversion or exchange of all convertible or exchangeable
securities then outstanding.
(B) Notwithstanding anything to the contrary in the
preceding Section 2.8.4(d)(i)(A), if Additional Stock is issued in a
Qualified Financing (as defined below) for a consideration per share less
than the Series E Conversion Price in effect immediately before the issuance
of such Additional Stock, the Series E Conversion Price in effect immediately
prior to such issuance shall (except as otherwise provided in this clause
(i)) be adjusted to a price equal to the amount of consideration per share at
which the Additional Stock was issued. A "Qualified Financing" shall mean a
closing, or a series of closings, involving the issuance and sale by this
corporation of Additional Stock in which the aggregate gross proceeds to this
corporation are in excess of $5,000,000.
(C) If the corporation shall issue, after the Series D
Issuance Date, any Common Stock Equivalents, or cash or property, in the name
of, or at the direction of, Greg Brown (a former employee of the corporation
with whom the corporation was, as of the Series D Issuance Date, engaged in
litigation) pursuant to any court order, settlement
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agreement or similar dispute resolution, then the Series D Conversion Price
in effect immediately prior thereto shall be adjusted as follows:
(x) in the event of an issuance of Common Stock
Equivalents, such Series D Conversion Price shall be multiplied by the
following fraction: one (1) minus a fraction, the numerator of which shall
be the number of Common Stock Equivalents so issued, and the denominator of
which shall be the total number of Common Stock Equivalents outstanding
immediately after such issuance;
(y) in the event of a payment of cash or property,
such Series D Conversion Price shall be multiplied by the following fraction:
one (1) minus a fraction, the numerator of which shall be the result obtained
by dividing the total value of such cash and property by the then current
fair market value per share of stock (such per share value to be determined
by taking the total fair market value of the corporation on a debt-free basis
as determined in good faith by the Board of Directors and dividing by the
total number of Common Stock Equivalents then outstanding), and the
denominator of which shall be the total number of Common Stock Equivalents
outstanding immediately after any adjustment under paragraph (x) above;
provided, however, that if the holders of a majority in voting power of the
Series D Preferred Stock object to the valuation determined by the board of
directors under this paragraph, then the corporation shall engage a reputable
investment banker, reasonably acceptable to such holders, to determine the
valuation.
Notwithstanding any other provision of these Articles of
Incorporation, in the event that an adjustment to the Series D Conversion
Price is required under this Section 2.8.4(d)(i)(C), there shall be no
adjustments under paragraphs (A) or (B) above in connection with any such
settlement agreement or similar dispute resolution.
(D) No adjustment of the Series E Conversion Price,
Series D Conversion Price, Series C Conversion Price, Series B Conversion
Price or Series A Conversion Price shall be made in an amount less than one
cent, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken
into account in any subsequent adjustment made prior to 3 years from the date
of the event giving rise to the adjustment being carried forward, or shall be
made at the end of 3 years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for
in subsections (G)(3) and (G)(4) below, no adjustment of such Conversion
Price pursuant to this Section 2.8.4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(E) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the gross amount of cash paid
therefor before deducting any discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
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(F) In the case of the issuance of Additional Stock for
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof, as determined by the
Board of Directors irrespective of any accounting treatment.
(G) In the case of the issuance of options to purchase
or rights to subscribe for Additional Stock, securities by their terms
convertible into or exchangeable for Additional Stock or options to purchase
or rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 2.8.4(d)(i)
and (ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Additional Stock shall be
deemed to have been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in the manner
provided in Sections 2.8.4(d)(i)(E) and (F)), if any, received by the
corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into
account potential antidilution adjustments) for the Common Stock covered
thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the
time such securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received by the
corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus
the minimum additional consideration, if any, to be received by the
corporation (without taking into account potential antidilution adjustments)
upon the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be determined in
the manner provided in Sections 2.8.4(d)(i)(E) and (F)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or
in exchange for such convertible or exchangeable securities, including, but
not limited to, a change resulting from the antidilution provisions thereof,
the Series E Conversion Price, Series D Conversion Price, Series C Conversion
Price, Series B Conversion Price or Series A Conversion Price, to the extent
in any way affected by or computed using such options, rights or securities,
shall be
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recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange
of such securities; provided, however, that the Series E Conversion Price,
Series D Conversion Price, Series C Conversion Price, Series B Conversion
Price and Series A Conversion Price shall not be recomputed to reflect any
such change resulting from the antidilution provisions contained in any
warrant(s) to purchase Common Stock issued to SG Cowen Securities Corporation
in consideration of its services as placement agent in connection with the
offer and sale of the Series E Preferred Stock.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Series E Conversion Price, Series D Conversion
Price, Series C Conversion Price, Series B Conversion Price or Series A
Conversion Price, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which
remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to
Section 2.8.4(d)(i)(G)(l) and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either
Section 2.8.4(d)(i)(G)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 2.8.4(d)(i)(G)) by
this corporation after the Series E Issuance Date, Series D Issuance Date,
Series C Issuance Date or Series B Issuance Date, as the case may be, other
than the following:
(A) shares of Common Stock issued pursuant to a
transaction described in Section 2.8.4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to
licensors, lessors, vendors or similar parties in connection with commercial
credit arrangements, equipment financings, software development or other
technology transfer arrangements or similar transactions (if such
transactions are for primarily non-financing purposes); provided, however,
that shares of Common Stock issued in any such transaction shall be
considered Additional Stock unless such transaction is approved by all
members of the corporation's Board of Directors voting upon such matter
(although the absence of one or more directors, other than the director
designated by the holders of the Series E Preferred Stock, from any meeting
at which such matter is voted upon, or the abstaining from voting thereon by
any director, shall not result in such shares being considered Additional
Stock);
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(C) shares of Common Stock issued or issuable pursuant
to warrants or convertible Preferred Stock contemplated by the Series E
Preferred Stock Purchase Agreement, dated April 8, 1999, or outstanding on or
issued as of the Series E Issuance Date, Series D Issuance Date, Series C
Issuance Date or Series B Issuance Date, as the case may be, or pursuant to
conversion of any convertible securities issuable upon exercise of warrants
outstanding on or issued as of the Series E Issuance Date, Series D Issuance
Date, Series C Issuance Date or Series B Issuance Date, as the case may be;
(D) options for the purchase of up to Four Million
(4,000,000) shares of Common Stock (plus any additional shares approved by a
majority of the Board of Directors, including the approval of any directors
designated by the holders of Series B Preferred Stock) granted or available
for grant to employees, consultants, directors, independent contractors and
similar parties pursuant to one or more stock option plans or restricted
stock plans approved by the Board of Directors, and the shares of Common
Stock issuable upon exercise of such options;
(E) 187,500 shares of Common Stock to be issued
pursuant to that certain Asset Purchase Agreement, dated February 23, 1999
(the "Asset Purchase Agreement"), among the corporation, Keystone Acquisition
Corp. ("Keystone"), Fine Arts Engravers Company, Inc. and Nicholas J. Stanley
("Stanley"), and warrants to purchase up to 150,000 shares of Common Stock to
be issued to Stanley pursuant to an employment agreement to be entered into
between the corporation, Keystone and Stanley, the form of which is attached
as Exhibit 8.6(j) to the Asset Purchase Agreement.
(iii) In the event the corporation should at any time or from
time to time after the Series E Issuance Date, Series D Issuance Date, Series C
Issuance Date or Series B Issuance Date, as the case may be, fix a record
date for the effectuation of a split or subdivision of the outstanding shares
of Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into or exercisable
for, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock ("Share Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Share Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date
(or the date of such dividend distribution, split or subdivision if no record
date is fixed), each of the Series E Conversion Price, Series D Conversion
Price, Series C Conversion Price, Series B Conversion Price and/or the Series A
Conversion Price, as the case may be, shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each
share of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with
respect to such Share Equivalents with the number of shares issuable with
respect to Share Equivalents determined from time to time in the manner
provided for deemed issuances in Section 2.8.4(d)(i)(G).
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(iv) If the number of shares of Common Stock outstanding at
any time after the Series E Issuance Date, Series D Issuance Date, Series C
Issuance Date or the Series B Issuance Date, as the case may be, is decreased
by a combination of the outstanding shares of Common Stock, then, following
the record date of such combination, the Series E Conversion Price, Series D
Conversion Price, Series C Conversion Price, Series B Conversion Price and/or
the Series A Conversion Price, as the case may be, shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in Section 2.8.4(d)(iii),
then, in each such case for the purpose of this Section 2.8.4(e), the holders
of the Series E Preferred Stock, Series D Preferred Stock, Series C Preferred
Stock, Series B Preferred Stock and Series A Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they
were the holders of the number of shares of Common Stock of the corporation
into which their shares of Series E Preferred Stock, Series D Preferred
Stock, Series C Preferred Stock, Series B Preferred Stock and Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
(f) REORGANIZATIONS. In case, at any time after the date hereof,
of any capital reorganization, merger, consolidation or similar transaction
in which the Common Stock is to be exchanged for or converted into other
securities or property (other than a transaction covered by Section 2.8.2(c)
above), or any reclassification of the stock of the corporation (other than
as a result of a stock dividend or subdivision, split-up or combination of
shares, or similar event), the shares of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and
Series A Preferred Stock shall, after such capital transaction, be
convertible into the kind and number of shares of stock or other securities
or property of the corporation or otherwise to which such holder would have
been entitled if immediately prior to such transaction such holder had
converted such holder's shares of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A
Preferred Stock, as the case may be, into Common Stock. The provisions of
this subsection (f) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other transactions of
the type covered by this paragraph.
(g) NO IMPAIRMENT. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 2.8.4.
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(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series E Preferred Stock, Series D Preferred
Stock, Series C Preferred Stock, Series B Preferred Stock or Series A
Preferred Stock, and the number of shares of Common Stock to be issued shall
be rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series E Preferred Stock, Series D Preferred Stock,
Series C Preferred Stock, Series B Preferred Stock or Series A Preferred
Stock the holder is at the time converting into Common Stock and the number
of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Series E Conversion Price, Series D Conversion Price, Series C
Conversion Price, Series B Conversion Price or Series A Conversion Price
pursuant to this Section 2.8.4, this corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series E Preferred Stock,
Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock
or Series A Preferred Stock (or all), as the case may be, a certificate
setting forth such adjustment or readjustment and the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Series E Conversion Price, Series D Conversion Price, Series C Conversion
Price, Series B Conversion Price or Series A Conversion Price, as the case
may be, at the time in effect, and (C) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of a share of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock or Series A
Preferred Stock, as the case may be.
(i) NOTICE OF RECORD DATE. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
corporation shall mail to each holder of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and
Series A Preferred Stock, at least ten (10) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character thereof
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series E
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Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B
Preferred Stock and Series A Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and
Series A Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to the corporation's Articles of
Incorporation.
2.8.5 VOTING RIGHTS
Each holder of Series E Preferred Stock, Series D Preferred Stock,
Series C Preferred Stock, Series B Preferred Stock and Series A Preferred
Stock shall have the right to one vote for each share of Common Stock into
which each share of Series E Preferred Stock, Series D Preferred Stock,
Series C Preferred Stock, Series B Preferred Stock or Series A Preferred
Stock, as the case may be, could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest
whole share). Except as otherwise provided by law, holders of Series E
Preferred Stock, Series D Preferred Stock, Series C Preferred Stock, Series B
Preferred Stock and Series A Preferred Stock shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common
Stock, shall vote together with the Common as a single class (except as
provided in Section 2.8.6 below), and shall be entitled, notwithstanding any
provision hereof, to notice of any shareholders' meeting in accordance with
the bylaws of this corporation, and, except as otherwise provided by law,
shall be entitled to vote, together with holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote.
2.8.6 PROTECTIVE PROVISIONS
(a) In addition to any other rights provided by law, so long as
any Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock shall be outstanding, the corporation shall
not, without first obtaining the written consent, authorization or waiver of
not less than a majority of the then outstanding shares of Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, considered together as a single class, which consent,
authorization or waiver may be obtained without the necessity of formal
shareholder action or of notice to the holders of any shares of capital stock
not expressly empowered with such right to consent, authorize or waive:
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(i) declare or pay any dividends or other distributions
on outstanding capital stock of the corporation, or repurchase any of the
corporation's capital stock (unless such shares are repurchased (A) in
connection with an employment, repurchase or similar vesting agreement, or
any other agreement (provided such other agreement is approved by the Board
of Directors) or (B) contemplated by the redemption provisions set forth
herein);
(ii) increase or decrease the authorized number of shares
of Common Stock or Preferred Stock; or
(iii) sell, convey or otherwise dispose of or encumber all
or substantially all of its property or business or merge or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the corporation is disposed
of; provided, however, that this Section 2.8.6(a)(iii) shall not apply to a
merger effected exclusively for the purpose of changing the domicile of the
corporation.
(b) In addition to any other rights provided by law, so long as
any Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock shall be outstanding, the corporation shall not, without first
obtaining the written consent, authorization or waiver of not less than a
majority of the then outstanding shares of Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, considered together as a single
class, which consent, authorization or waiver may be obtained without the
necessity of formal shareholder action or of notice to the holders of any
shares of capital stock not expressly empowered with such right to consent,
authorize or waive, authorize, create or issue a series or class of equity
security (by reclassification or otherwise), including any equity security
convertible into or exercisable for any other equity security, senior to or
on a parity with the Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock as to dividends, liquidation or redemption.
(c) In addition to any other rights provided by law, so long as
any Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock shall be outstanding, the corporation shall not, without first
obtaining the written consent, authorization or waiver of not less than a
majority of the then outstanding shares of Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, as the case may, which consent,
authorization or waiver may be obtained without the necessity of formal
shareholder action or of notice to the holders of any shares of capital stock
not expressly empowered with such right to consent, authorize or waive, amend
or repeal any provision of, or add any provision to, the corporation's
Restated Articles of Incorporation or Bylaws if such action would materially
and adversely alter or change the preferences, rights, privileges or powers
of, or the restrictions provided for the benefit of, the Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock, as the case may
be.
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(d) In addition to any other rights provided by law, so long as at
least Two Million (2,000,000) shares of Series E Preferred Stock shall be
outstanding, the corporation shall not, without first obtaining the written
consent, authorization or waiver of not less than a majority of the then
outstanding shares of Series E Preferred Stock, which consent, authorization
or waiver may be obtained without the necessity of formal shareholder action
or of notice to the holders of any shares of capital stock not expressly
empowered with such right to consent, authorize or waive:
(i) amend or repeal any provision of, or add any
provision to, the corporation's Restated Articles of Incorporation or Bylaws
if such action would materially and adversely alter or change the
preferences, rights, privileges or powers of, or the restrictions provided
for the benefit of, the Series E Preferred Stock as to dividends, liquidation
or redemption; or
(ii) authorize, create or issue a series or class of
equity security (by reclassification or otherwise), including any equity
security convertible into or exercisable for any other equity security,
senior to or on a parity with the Series E Preferred Stock;
(iii) sell, convey or otherwise dispose of or encumber all
or substantially all of its property or business or merge or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the corporation is disposed
of; provided, however, that this Section 2.8.6(e)(iii) shall not apply (x) to
a merger effected exclusively for the purpose of changing the domicile of the
corporation or (y) if the consideration to be received by the holders of
Series E Preferred Stock in such transaction is at least $4.20 per share (as
adjusted to reflect stock dividends, stock splits, combinations and similar
events); or
(iv) declare or pay any dividends or other distributions
on outstanding capital stock of the corporation.
2.8.7 STATUS OF CONVERTED OR REDEEMED STOCK
In the event any shares of Series E Preferred Stock, Series D Preferred
Stock, Series C Preferred Stock, Series B Preferred Stock or Series A
Preferred Stock shall be redeemed or converted pursuant to Section 2.8.3 or
Section 2.8.4 hereof, the shares so converted or redeemed shall thereafter
revert to and constitute authorized but unissued shares of Preferred Stock of
the corporation.
2.8.8 NOTICES
Any notice required by these Articles of Incorporation to be given to
the holders of shares of Series E Preferred Stock, Series D Preferred Stock,
Series C Preferred Stock, Series B Preferred Stock or Series A Preferred
Stock shall be deemed given if deposited in
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the United States mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of this corporation.
2.9. COMMON STOCK
2.9.1. DIVIDEND RIGHTS
Subject to the prior rights of holders of all classes of stock at the
time outstanding having prior rights as to dividends, the holders of the
Common Stock shall be entitled to receive, when and as declared by the Board
of Directors, out of any assets of the corporation legally available
therefor, such dividends as may be declared from time to time by the Board of
Directors.
2.9.2. LIQUIDATION RIGHTS
Upon the liquidation, dissolution or winding up of the corporation, the
assets of the corporation shall be distributed as provided in Article 2.8.2
hereof.
2.9.3. VOTING RIGHTS
Holders of Common Stock shall have the right to one vote per share,
shall be entitled to notice of any shareholders' meetings in accordance with
the Bylaws of this corporation, and shall be entitled to vote upon such
matters and in such manner as may be provided by law.
2.10. ELIMINATION OF PREFERRED STOCK PROVISIONS UPON CONVERSION OF
OUTSTANDING SHARES
When, as a result of the conversion of the outstanding shares of
Preferred Stock into shares of Common Stock, no shares of Preferred Stock
shall remain, Sections 2.8 and 2.9 shall no longer be in effect and operative.
ARTICLE 3. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE 4. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of capital stock of this corporation.
ARTICLE 5. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal
the Bylaws of this corporation, subject to the power of the shareholders to
amend or repeal such Bylaws.
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The shareholders shall also have the power to amend or repeal the Bylaws of
this corporation and to adopt new Bylaws.
ARTICLE 6. AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal any of the
provisions contained in these Articles of Incorporation in any manner now or
hereafter permitted by law, and the rights of the shareholders of this
corporation are granted subject to this reservation. Following an event in
which all outstanding shares of Preferred Stock of this corporation convert
into Common Stock (a "Full Conversion Event"), the provisions contained in
these Restated Articles of Incorporation shall only be amended as follows:
6.1. SUPERMAJORITY VOTING
Except as provided in Section 6.2 or Section 6.3, the following Sections
and Subsections may be amended or repealed only upon the affirmative vote of
the holders of at least two-thirds of the outstanding shares and, to the
extent, if any, provided by resolution adopted by the Board authorizing the
issuance of a class or series of Common Stock or Preferred Stock, by the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of such class or series, voting as a separate voting group:
Article 6 ("Amendments to Articles of Incorporation").
Article 7 ("Directors")
Article 9 ("Special Meetings of Shareholders")
Article 10 ("Special Voting Requirements")
6.2. MAJORITY VOTING
Notwithstanding the provisions of Section 6.1, and except as provided in
Section 6.3, an amendment or repeal of a Section identified in Section 6.1
that is approved by a majority of the Continuing Directors (as defined in
Section 10.1), voting separately and as a subclass of Directors, shall
require the affirmative vote of the holders of at least a majority of the
outstanding shares entitled to vote thereon and, to the extent, if any,
provided by resolution adopted by the Board authorizing the issuance of a
class or series of Common Stock or Preferred Stock, by the affirmative vote
of the holders of at least a majority of the outstanding shares of such class
or series, voting as a separate voting group.
6.3. NO SHAREHOLDER VOTE
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Notwithstanding the provisions of Section 6.1 or 6.2 hereof, if the
amendment or repeal of any Section not identified in Section 6.1 shall have
been approved by a majority of the Continuing Directors, voting separately
and as a subclass of Directors, and if such amendment or repeal is not
otherwise required to be approved by this corporation's shareholders pursuant
to the provisions of the Washington Business Corporation Act or of these
Restated Articles of Incorporation other than this Article 6, then no vote of
the shareholders of this corporation shall be required for approval of such
amendment or repeal.
This corporation reserves the right to amend or repeal any of the
provisions contained in these Articles of Incorporation in any manner now or
hereafter permitted by law, and the rights of the shareholders of this
corporation are granted subject to this reservation.
ARTICLE 7. DIRECTORS
7.1. NUMBER; ELECTION; TERM
Following a Full Conversion Event, the number of Directors of this
corporation shall be determined, and the Directors of this corporation shall
be elected and removed from office, as provided in this Section 7.1.
The number of Directors of this corporation shall be determined in the
manner provided by the Bylaws and may be increased or decreased from time to
time in the manner provided therein. Prior to the first annual election of
Directors following such a Full Conversion Event, unless a Director earlier
dies, resigns or is removed, his or her term of office shall expire at the
next annual meeting of shareholders. At the first annual election of
Directors following such a Full Conversion Event, the Board shall be divided
into three classes, with said classes to be as equal in number as may be
possible, with any Director or Directors in excess of the number divisible by
three being assigned to Class 3 and Class 2, as the case may be. At the
first election of Directors to such classified Board, each Class 1 Director
shall be elected to serve until the next ensuing annual meeting of
shareholders, each Class 2 Director shall be elected to serve until the
second ensuing annual meeting of shareholders and each Class 3 Director shall
be elected to serve until the third ensuing annual meeting of shareholders.
At each annual meeting of shareholders following the meeting at which the
Board is initially classified, the number of Directors equal to the number of
Directors in the class whose term expires at the time of such meeting shall
be elected to serve until the third ensuing annual meeting of shareholders.
Notwithstanding any of the foregoing provisions of this Article, Directors
shall serve until their successors are elected and qualified or until their
earlier death, resignation or removal from office, or until there is a
decrease in the number of Directors.
The Directors of this corporation may be removed only for cause; such
removal shall be in the manner provided by the Bylaws.
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7.2. LIMITATION OF DIRECTOR LIABILITY
A director of this corporation shall not be personally liable to this
corporation or its shareholders for monetary damages for conduct as a
director, except for liability of the director (i) for acts or omissions that
involve intentional misconduct by the director or a knowing violation of law
by the director, (ii) for conduct violating RCW 23B.08.310 of the Washington
Business Corporation Act, or (iii) for any transaction from which the
director will personally receive a benefit in money, property or services to
which the director is not legally entitled. If the Washington Business
Corporation Act is amended in the future to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of this corporation shall be eliminated or limited to
the full extent permitted by the Washington Business Corporation Act, as so
amended, without any requirement of further action by the shareholders.
ARTICLE 8. INDEMNIFICATION
This corporation shall indemnify any individual made a party to a
proceeding because that individual is or was a director of this corporation
and shall advance or reimburse the reasonable expenses incurred by such
individual in advance of final disposition of the proceeding, without regard
to the limitations in RCW 23B.08.510 through 23B.08.550 of the Washington
Business Corporation Act, or any other limitation which may hereafter be
enacted to the extent such limitation may be disregarded if authorized by the
Articles of Incorporation, to the full extent and under all circumstances
permitted by applicable law.
ARTICLE 9. SPECIAL MEETINGS OF SHAREHOLDERS
Following a Full Conversion Event, special meetings of the shareholders
shall be called in the manner set forth in this Article 9.
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of
the shareholders shall be held if the holders of not less than twenty-five
percent (25%) of all the votes entitled to be cast on any issue proposed to
be considered at such special meeting have dated, signed and delivered to the
Secretary of this corporation no later than 20 days prior to the date of such
meeting one or more written demands for such meeting, describing the purpose
or purposes for which it is to be held.
ARTICLE 10. SPECIAL VOTING REQUIREMENTS
Following a Full Conversion Event, in addition to any affirmative vote
required by law, by these Restated Articles of Incorporation or otherwise,
any "Business Combination" (as hereinafter defined) involving this
corporation shall be subject to approval in the manner set forth in Article
10.
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10.1. DEFINITIONS
For the purposes of this Article 10:
(a) "Business Combination" means (i) a merger, share exchange or
consolidation of this corporation or any of its Subsidiaries with any other
corporation or entity; (ii) the sale, lease, exchange, mortgage, pledge,
transfer or other disposition or encumbrance, whether in one transaction or a
series of transactions, by this corporation or any of its Subsidiaries of all
or a substantial part of this corporation's assets otherwise than in the
usual and regular course of business; or (iii) any agreement, contract or
other arrangement providing for any of the foregoing transactions.
(b) "Continuing Director" means any member of the Board who was a
member of the Board on March 31, 1999 or who is elected to the Board after
March 31, 1999 upon the recommendation of a majority of the Continuing
Directors voting separately and as a subclass of Directors on such
recommendation.
(c) "Subsidiary" means a domestic or foreign corporation, a
majority of the outstanding voting shares of which are owned, directly or
indirectly, by this corporation.
10.2. VOTE REQUIRED FOR BUSINESS COMBINATIONS
10.2.1. SUPERMAJORITY VOTE
Except as provided in Subsections 10.2.2 and 10.2.3, the
affirmative vote of the holders of not less than two-thirds of the
outstanding shares entitled to vote thereon and, to the extent, if any,
provided by resolution adopted by the Board authorizing the issuance of a
class or series of Common Stock or Preferred Stock, the affirmative vote of
the holders of not less than two-thirds of the outstanding shares of such
class or series, voting as a separate voting group, shall be required for the
adoption or authorization of a Business Combination.
10.2.2. MAJORITY VOTE
Notwithstanding Subsection 10.2.1, if a Business Combination shall
have been approved by a majority of the Continuing Directors, voting
separately and as a subclass of Directors, and if such Business Combination
is otherwise required to be approved by this corporation's shareholders
pursuant to the provisions of the Washington Business Corporation Act or of
these Restated Articles of Incorporation other than this Article 10, then the
affirmative vote of the holders of not less than a majority of the
outstanding shares entitled to vote thereon and, to the extent, if any,
provided by resolution adopted by the Board authorizing the issuance of a
class or series of Common Stock or Preferred Stock, the affirmative vote of
the holders of not
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less than a majority of the outstanding shares of such class or series,
voting as a separate voting group, shall be required for the adoption or
authorization of such Business Combination.
10.2.3. NO SHAREHOLDER VOTE
Notwithstanding Subsection 10.2.1 or 10.2.2, if a Business
Combination shall have been approved by a majority of the Continuing
Directors, voting separately and as a subclass of Directors, and if such
Business Combination is not otherwise required to be approved by this
corporation's shareholders pursuant to the provisions of the Washington
Business Corporation Act or of these Restated Articles of Incorporation other
than this Article 9, then no vote of the shareholders of this corporation
shall be required for approval of such Business Combination.
ARTICLE 11. RESTATEMENT OF ARTICLES OF INCORPORATION
Following a Full Conversion Event, the Board of Directors may, at its
discretion and without a vote of the shareholders of this corporation, cause the
elimination of the provisions of these Restated Articles of Incorporation which
are no longer operative and in effect by reason of such Full Conversion Event,
including, without limitation, Section 2.9, and make such clerical amendments as
are appropriate to effectuate any amendments to the provisions of these articles
of incorporation that become effective upon such Full Conversion Event, by
providing for the filing of restated articles of incorporation setting forth the
provisions of these Restated Articles of Incorporation, as they may be amended,
which remain in effect and operative.
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AMENDED AND RESTATED BYLAWS
OF
IMAGEX.COM, INC.
Originally adopted on: ____________________
Amendments are listed on page i
<PAGE>
AMENDMENTS
<TABLE>
<CAPTION>
SECTION EFFECT OF AMENDMENT DATE OF AMENDMENT
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<S> <C> <C>
</TABLE>
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BYLAWS Page i
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Annual Meeting. . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Meetings by Communication Equipment . . . . . . . . . . . . . 1
2.4 Date, Time and Place of Meeting . . . . . . . . . . . . . . . 2
2.5 Notice of Meeting . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Business for Shareholders' Meetings . . . . . . . . . . . . . 2
2.6.1 Business at Annual Meetings. . . . . . . . . . . . . . 2
2.6.2 Business at Special Meetings . . . . . . . . . . . . . 3
2.6.3 Notice to Corporation. . . . . . . . . . . . . . . . . 3
2.7 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Fixing of Record Date for Determining Shareholders. . . . . . 4
2.9 Voting Record . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Manner of Acting. . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Voting of Shares. . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Voting for Directors. . . . . . . . . . . . . . . . . . . . . 5
2.15 Action by Shareholders Without a Meeting. . . . . . . . . . . 5
SECTION 3. BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . 6
3.1 General Powers. . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Number and Tenure . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Annual and Regular Meetings . . . . . . . . . . . . . . . . . 6
3.4 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Meetings by Communications Equipment. . . . . . . . . . . . . 7
3.6 Notice of Special Meetings. . . . . . . . . . . . . . . . . . 7
3.6.1 Personal Delivery. . . . . . . . . . . . . . . . . . . 7
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BYLAWS Page ii
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3.6.2 Delivery by Mail . . . . . . . . . . . . . . . . . . . 7
3.6.3 Delivery by Private Carrier. . . . . . . . . . . . . . 7
3.6.4 Facsimile Notice . . . . . . . . . . . . . . . . . . . 8
3.6.5 Delivery by Email. . . . . . . . . . . . . . . . . . . 8
3.6.6 Oral Notice. . . . . . . . . . . . . . . . . . . . . . 8
3.7 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . 8
3.7.1 In Writing . . . . . . . . . . . . . . . . . . . . . . 8
3.7.2 By Attendance. . . . . . . . . . . . . . . . . . . . . 8
3.8 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 Manner of Acting. . . . . . . . . . . . . . . . . . . . . . . 9
3.10 Presumption of Assent . . . . . . . . . . . . . . . . . . . . 9
3.11 Action by Board or Committees Without a Meeting . . . . . . . 9
3.12 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.15 Executive and Other Committees. . . . . . . . . . . . . . . . 10
3.15.1 Creation of Committees. . . . . . . . . . . . . . . . 10
3.15.2 Authority of Committees . . . . . . . . . . . . . . . 10
3.15.3 Quorum and Manner of Acting . . . . . . . . . . . . . 11
3.15.4 Minutes of Meetings . . . . . . . . . . . . . . . . . 11
3.15.5 Resignation . . . . . . . . . . . . . . . . . . . . . 11
3.15.6 Removal . . . . . . . . . . . . . . . . . . . . . . . 11
3.16 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Appointment and Term. . . . . . . . . . . . . . . . . . . . . 11
4.2 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Contract Rights of Officers . . . . . . . . . . . . . . . . . 12
4.5 Chairman of the Board . . . . . . . . . . . . . . . . . . . . 12
4.6 Chief Executive Officer . . . . . . . . . . . . . . . . . . . 12
4.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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BYLAWS Page iii
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4.8 Vice President. . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 Salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS . . . . . . . . . . . 14
5.1 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Loans to the Corporation. . . . . . . . . . . . . . . . . . . 14
5.3 Checks, Drafts, Etc.. . . . . . . . . . . . . . . . . . . . . 14
5.4 Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER. . . . . . . . . 14
6.1 Issuance of Shares. . . . . . . . . . . . . . . . . . . . . . 14
6.2 Certificates for Shares . . . . . . . . . . . . . . . . . . . 15
6.3 Stock Records . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Transfer of Shares. . . . . . . . . . . . . . . . . . . . . . 15
6.5 Lost or Destroyed Certificates. . . . . . . . . . . . . . . . 15
SECTION 7. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8. ACCOUNTING YEAR . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 9. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 10. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 17
10.1 Right to Indemnification. . . . . . . . . . . . . . . . . . . 17
10.2 Restrictions on Indemnification . . . . . . . . . . . . . . . 17
10.3 Advancement of Expenses . . . . . . . . . . . . . . . . . . . 17
10.4 Right of Indemnitee to Bring Suit . . . . . . . . . . . . . . 18
10.5 Procedures Exclusive. . . . . . . . . . . . . . . . . . . . . 18
10.6 Nonexclusivity of Rights. . . . . . . . . . . . . . . . . . . 18
10.7 Insurance, Contracts and Funding. . . . . . . . . . . . . . . 18
10.8 Indemnification of Employees and Agents of the Corporation. . 19
10.9 Persons Serving Other Entities. . . . . . . . . . . . . . . . 19
SECTION 11. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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BYLAWS Page iv
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
IMAGEX.COM, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at the
principal place of business or such other place as the Board of Directors
("Board") may designate. The corporation may have such other offices, either
within or without the State of Washington, as the Board may designate or as
the business of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held the first Tuesday
in May in each year at the principal place of business of the corporation, or
at such other date, time or place as may be determined by the Board of
Directors, for the purpose of electing Directors and transacting such other
business as may properly come before the meeting. If the day fixed for the
annual meeting is a legal holiday at the place of the meeting, the meeting
shall be held on the next succeeding business day. At any time prior to the
commencement of the annual meeting, the Board may postpone the annual meeting
for a period of up to 120 days from the date fixed for such meeting in
accordance with this subsection 2.1.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the Chief Executive Officer, the President or
the Board may call special meetings of the shareholders for any purpose.
Further, a special meeting of the shareholders shall be held if the holders
of not less than 25% of all the votes entitled to be cast on any issue
proposed to be considered at such special meeting have dated, signed and
delivered to the Secretary one or more written demands for such meeting,
describing the purpose or purposes for which it is to be held.
2.3 MEETINGS BY COMMUNICATION EQUIPMENT
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall
constitute presence in person at a meeting.
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2.4 DATE, TIME AND PLACE OF MEETING
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board.
2.5 NOTICE OF MEETING
Written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting
is called shall be given by or at the direction of the Board, the Chairman of
the Board, the President or the Secretary to each shareholder entitled to
notice of or to vote at the meeting not less than 10 nor more than 60 days
before the meeting, except that notice of a meeting to act on an amendment to
the Articles of Incorporation, a plan of merger or share exchange, the sale,
lease, exchange or other disposition of all or substantially all of the
corporation's assets other than in the regular course of business or the
dissolution of the corporation shall be given not less than 20 or more than
60 days before such meeting. If an annual or special shareholders' meeting
is adjourned to a different date, time or place, no notice of the new date,
time or place is required if they are announced at the meeting before
adjournment. If a new record date for the adjourned meeting is or must be
fixed, notice of the adjourned meeting must be given to shareholders entitled
to notice of or to vote as of the new record date.
Such notice may be transmitted by mail, private carrier, personal
delivery, telegraph, teletype or communications equipment that transmits a
facsimile of the notice. If these forms of written notice are impractical in
the view of the Board, the Chairman of the Board, the President or the
Secretary, written notice may be transmitted by an advertisement in a
newspaper of general circulation in the area of the corporation's principal
office. If such notice is mailed, it is effective when deposited in the
official government mail, first-class postage prepaid, properly addressed to
the shareholder at such shareholder's address as it appears in the
corporation's current record of shareholders. Notice given in any other
manner is effective when dispatched to the shareholder's address, telephone
number or other number appearing on the records of the corporation. Any
notice given by publication is effective five days after first publication.
2.6 BUSINESS FOR SHAREHOLDERS' MEETINGS
2.6.1 BUSINESS AT ANNUAL MEETINGS
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business
is properly brought before such meeting. To be properly brought before an
annual meeting, business must be (a) brought by or at the direction of the
Board or (b) brought before the meeting by a shareholder pursuant to written
notice thereof, in accordance with subsection 2.6.3 hereof, and received by
the Secretary not fewer than 90 nor more than 120 days prior to the
anniversary date of the prior
<PAGE>
year's annual meeting. Any such shareholder notice shall set forth (i) the
name and address of the shareholder proposing such business; (ii) a
representation that the shareholder is entitled to vote at such meeting and a
statement of the number of shares of the corporation which are beneficially
owned by the shareholder; (iii) a representation that the shareholder intends
to appear in person or by proxy at the meeting to propose such business; and
(iv) as to each matter the Articles of Amendment proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting, the
language of the proposal (if appropriate), and any material interest of the
shareholder in such business. No business shall be conducted at any annual
meeting of shareholders except in accordance with this subsection 2.6.1. If
the facts warrant, the Board, or the chairman of an annual meeting of
shareholders, may determine and declare that (a) that a proposal does not
constitute proper business to be transacted at the meeting or (b) that
business was not properly brought before the meeting in accordance with the
provisions of this subsection 2.6.1 and, if, in either case, it is so
determined, any such business shall not be transacted. In addition to the
procedures set forth in this subsection 2.6.1, shareholders desiring to
include a proposal in the Company's proxy statement must also comply with the
requirements set forth in Rule 14a-8 under Section 14 of the Securities
Exchange Act of 1934, as amended, or any successor provision.
2.6.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.5
hereof, shall come before such meeting.
2.6.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.2, subsection 2.4, subsection 2.6.1 or
subsection 2.6.2 hereof must be given, either by personal delivery or by
registered or certified mail, postage prepaid, to the Secretary at the
corporation's principal executive offices in the City of Bellevue, State of
Washington Any such shareholder notice shall set forth (i) the name and
address of the shareholder proposing such business; (ii) a representation
that the shareholder is entitled to vote at such meeting and a statement of
the number of shares of the corporation that are beneficially owned by the
shareholder; (iii) a representation that the shareholder intends to appear in
person or by proxy at the meeting to propose such business; and (iv) as to
each matter the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, the language of the
proposal (if appropriate), and any material interest of the shareholder in
such business.
2.7 WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a
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<PAGE>
waiver thereof in writing, signed by the person or persons entitled to such
notice and delivered to the corporation, whether before or after the date and
time of the meeting, shall be deemed equivalent to the giving of such notice.
Further, notice of the time, place and purpose of any meeting will be deemed
to be waived by any shareholder by attendance thereat in person or by proxy,
unless such shareholder at the beginning of the meeting objects to holding
the meeting or transacting business at the meeting.
2.8 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
For the purpose of determining shareholders entitled (a) to notice of or
to vote at any meeting of shareholders or any adjournment thereof, (b) to
demand a special meeting, or (c) to receive payment of any dividend, or in
order to make a determination of shareholders for any other purpose, the
Board may fix a future date as the record date for any such determination.
Such record date shall be not more than 70 days, and in case of a meeting of
shareholders not less than 10 days prior to the date on which the particular
action requiring such determination is to be taken. If no record date is
fixed for the determination of shareholders entitled to notice of or to vote
at a meeting, the record date shall be the day immediately preceding the date
on which notice of the meeting is first given to shareholders. Such a
determination shall apply to any adjournment of the meeting unless the Board
fixes a new record date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting. If no
record date is set for the determination of shareholders entitled to receive
payment of any stock dividend or distribution (other than one involving a
purchase, redemption, or other acquisition of the corporation's shares) the
record date shall be the date the Board authorizes the stock dividend or
distribution.
2.9 VOTING RECORD
At least 10 days before each meeting of shareholders, an alphabetical
list of the shareholders entitled to notice of such meeting shall be made,
arranged by voting group and by each class or series of shares therein, with
the address of and number of shares held by each shareholder. This record
shall be kept at the principal office of the corporation for 10 days prior to
such meeting, and shall be kept open at such meeting, for the inspection of
any shareholder or any shareholder's agent.
2.10 QUORUM
A majority of the votes entitled to be cast on a matter by the holders
of shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively
upon such matter, represented in person or by proxy, shall constitute a
quorum of such shares at a meeting of shareholders. If less than a majority
of such votes are represented at a meeting, a majority of the votes so
represented may adjourn the meeting from time to time without further notice
if the new date, time or place is announced at the meeting before adjournment.
Any business may be transacted at a reconvened meeting that might have been
transacted at the meeting as originally called, provided a quorum is present
or represented thereat. Once a share is represented for any
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<PAGE>
purpose at a meeting other than solely to object to holding the meeting or
transacting business thereat, it is deemed present for quorum purposes for
the remainder of the meeting and any adjournment thereof (unless a new record
date is or must be set for the adjourned meeting) notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
2.11 MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed
the votes cast against such action by the shares entitled to vote and be
counted collectively thereon, unless the Articles of Incorporation or the
Washington Business Corporation Act requires a greater number of affirmative
votes.
2.12 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact or agent. Such proxy shall be effective
when received by the Secretary or other officer or agent authorized to
tabulate votes. A proxy shall become invalid 11 months after the date of its
execution, unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after
the final adjournment thereof.
2.13 VOTING OF SHARES
Except as provided in the Articles of Incorporation or in Section 2.14
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon
such matter.
2.14 VOTING FOR DIRECTORS
Each shareholder entitled to vote at an election of Directors may vote,
in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are Directors to be elected and for whose election such
shareholder has a right to vote; provided, however, that the aggregate number
of votes to which a shareholder is entitled shall not be affected by the
number of persons for whom such shareholder casts votes, and no cumulative
voting shall be permitted in the election of Directors. Unless otherwise
provided in the Articles of Incorporation, the candidates elected shall be
those receiving the largest number of votes cast, up to the number of
Directors to be elected.
2.15 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action that may or is required to be taken at a meeting of the
shareholders may be taken without a meeting by unanimous consent if one or
more written consents setting forth the action so taken shall be signed by
all the shareholders entitled to vote with respect to the
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<PAGE>
matter. Action may also be taken by less than unanimous consent. Action by
less than unanimous consent may be taken if one or more written consents
describing the action taken shall be signed by shareholders holding of record
or otherwise entitled to vote in the aggregate not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote on the action were present and
voted. If not otherwise fixed by the Board, the record date for determining
shareholders entitled to take action without a meeting is the date the first
shareholder consent is signed. A shareholder may withdraw a consent only by
delivering a written notice of withdrawal to the corporation prior to the
time that consents sufficient to authorize taking the action have been
delivered to the corporation. Every written consent shall bear the date of
signature of each shareholder who signs the consent. A written consent is
not effective to take the action referred to in the consent unless, within
60 days of the earliest dated consent delivered to the corporation, written
consents signed by a sufficient number of shareholders to take action are
delivered to the corporation. Unless the consent specifies a later effective
date, actions taken by written consent of the shareholders are effective when
(a) consents sufficient to authorize taking the action are in possession of
the corporation and (b) the period of advance notice required by the Articles
of Incorporation to be given to any nonconsenting or nonvoting shareholders
has been satisfied. Any such consent shall be inserted in the minute book as
if it were the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, the Board, except as may be otherwise provided in these Bylaws,
the Articles of Incorporation or the Washington Business Corporation Act.
3.2 NUMBER AND TENURE
The Board shall be composed of not less than four nor more than seven
Directors, the specific number to be set by resolution of the Board. The
number of Directors may be changed from time to time by amendment to these
Bylaws, but no decrease in the number of Directors shall have the effect of
shortening the term of any incumbent Director. Unless a Director dies,
resigns, or is removed, his or her term of office shall expire at the third
ensuing annual meeting of shareholders; provided, however, that a Director
shall continue to serve until his or her successor is elected or until there
is a decrease in the authorized number of Directors. Directors need not be
shareholders of the corporation or residents of the State of Washington and
need not meet any other qualifications.
3.3 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution
the Board, or any committee
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<PAGE>
thereof, may specify the time and place either within or without the State of
Washington for holding regular meetings thereof without notice other than
such resolution.
3.4 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chairman of the Board, the
President, the Secretary or, in the case of special Board meetings, any
Director and, in the case of any special meeting of any committee designated
by the Board, by the Chairman thereof. The person or persons authorized to
call special meetings may fix any place either within or without the State of
Washington as the place for holding any special Board or committee meeting
called by them.
3.5 MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the
meeting through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.6 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day
and hour of the meeting shall be given to a Director in writing or orally.
Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
3.6.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be effective
if delivered to a Director at least two days before the meeting.
3.6.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least six days before the
meeting, properly addressed to a Director at his or her address shown on the
records of the corporation, with postage thereon prepaid.
3.6.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be deemed
effective when dispatched for overnight delivery, or the quickest regularly
available delivery if overnight delivery is unavailable, to a Director at his
or her address shown on the records of the corporation at least three days
before the meeting.
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3.6.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched
at least two days before the meeting to a Director at his or her telephone
number or other number appearing on the records of the corporation.
3.6.5 DELIVERY BY EMAIL
If notice is delivered by email, the notice shall be deemed effective
upon electronic confirmation of receipt, such as by receipt by the sender of
an electronic return receipt at least three days before the meeting.
3.6.6 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice
shall be deemed effective if personally given to the Director at least two
days before the meeting.
3.7 WAIVER OF NOTICE
3.7.1 IN WRITING
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person
or persons entitled to such notice and delivered to the corporation, whether
before or after the date and time of the meeting, shall be deemed equivalent
to the giving of such notice. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board or any committee
designated by the Board need be specified in the waiver of notice of such
meeting.
3.7.2 BY ATTENDANCE
A Director's attendance at or participation in a Board or committee
meeting shall constitute a waiver of notice of such meeting, unless the
Director at the beginning of the meeting, or promptly upon his or her
arrival, objects to holding the meeting or transacting business thereat and
does not thereafter vote for or assent to action taken at the meeting.
3.8 QUORUM
A majority of the number of Directors fixed by or in the manner provided
in these Bylaws shall constitute a quorum for the transaction of business at
any Board meeting but, if less than a majority are present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice.
8
<PAGE>
3.9 MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority
of the Directors present at a Board meeting shall be the act of the Board,
unless the vote of a greater number is required by these Bylaws, the Articles
of Incorporation or the Washington Business Corporation Act.
3.10 PRESUMPTION OF ASSENT
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting,
or promptly upon the Director's arrival, to holding the meeting or
transacting any business thereat, (b) the Director's dissent or abstention
from the action taken is entered in the minutes of the meeting, or (c) the
Director delivers written notice of the Director's dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
corporation within a reasonable time after adjournment of the meeting. The
right of dissent or abstention is not available to a Director who votes in
favor of the action taken.
3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is
taken and delivered to the corporation. Action taken by written consent of
Directors without a meeting is effective when the last Director signs the
consent, unless the consent specifies a later effective date. Any such
written consent shall be inserted in the minute book as if it were the
minutes of a Board or a committee meeting.
3.12 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of
resignation specifies a later effective date and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
3.13 REMOVAL
At a meeting of shareholders called expressly for that purpose, one or
more members of the Board, including the entire Board, may be removed with or
without cause (unless the Articles of Incorporation permit removal for cause
only) by the holders of the shares entitled to elect the Director or
Directors whose removal is sought if the number of votes cast to remove the
Director exceeds the number of votes cast not to remove the Director. If the
Articles of Incorporation permit cumulative voting in the election of
Directors, then a
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Director may not be removed if the number of votes sufficient to elect such
Director if then cumulatively voted at an election of the entire Board or, if
there are classes of Directors, at an election of the class of Directors of
which such Director is a part, is voted against the Director's removal.
3.14 VACANCIES
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if
the Directors in office constitute fewer than a quorum, by the affirmative
vote of a majority of the remaining Directors. Any vacant office held by a
Director elected by the holders of one or more classes or series of shares
entitled to vote and be counted collectively thereon shall be filled only by
the vote of the holders of such class or series of shares. A Director
elected to fill a vacancy shall serve only until the next election of
Directors by the shareholders.
3.15 EXECUTIVE AND OTHER COMMITTEES
3.15.1 CREATION OF COMMITTEES
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action
in accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject
to such conditions as may be prescribed by the Board, these Bylaws and
applicable law. Each committee must have two or more members, who shall
serve at the pleasure of the Board.
3.15.2 AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in
like manner, except that no such committee shall have the authority to:
(1) authorize or approve a distribution except according to a general formula
or method prescribed by the Board, (2) approve or propose to shareholders
actions or proposals required by the Washington Business Corporation Act to
be approved by shareholders, (3) fill vacancies on the Board or any committee
thereof, (4) adopt, amend or repeal Bylaws, (5) amend the Articles of
Incorporation pursuant to RCW 23B.10.020, (6) approve a plan of merger not
requiring shareholder approval, or (7) authorize or approve the issuance or
sale or contract for sale of shares, or determine the designation and
relative rights, preferences and limitations of a class or series of shares
except that the Board may authorize a committee or a senior executive officer
of the corporation to do so within limits specifically prescribed by the
Board.
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3.15.3 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of the
Board, as established and fixed by resolution of the Board, shall constitute
a quorum for the transaction of business at any meeting of such committee
but, if less than a majority are present at a meeting, a majority of such
Directors present may adjourn the meeting from time to time without further
notice. Except as may be otherwise provided in the Washington Business
Corporation Act, if a quorum is present when the vote is taken the act of a
majority of the members present shall be the act of the committee.
3.15.4 MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and shall
cause them to be recorded in books kept for that purpose.
3.15.5 RESIGNATION
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the Chief Executive Officer, the
President, the Secretary or the Board. Any such resignation is effective
upon delivery thereof, unless the notice of resignation specifies a later
effective date, and the acceptance of such resignation shall not be necessary
to make it effective.
3.15.6 REMOVAL
The Board may remove any member of any committee elected or appointed by
it but only by the affirmative vote of the greater of a majority of the
Directors then in office and the number of Directors required to take action
in accordance with these Bylaws.
3.16 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a
fixed sum for attendance at each Board or committee meeting, or a stated
salary as Director or a committee member, or a combination of the foregoing.
No such payment shall preclude any Director or committee member from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from
time to time by the Board or by any other officer empowered to do so. The
Board shall have sole power and authority to appoint executive officers. As
used herein, the term "executive officer" shall
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mean the Chief Executive Officer, the President, any Vice President in charge
of a principal business unit, division or function or any other officer who
performs a policy-making function. The Board or the President may appoint
such other officers and assistant officers to hold office for such period,
have such authority and perform such duties as may be prescribed. The Board
may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
4.2 RESIGNATION
Any officer may resign at any time by delivering written notice thereof
to the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
4.3 REMOVAL
Any officer may be removed by the Board at any time, with or without
cause. An officer or assistant officer, if appointed by another officer, may
be removed by any officer authorized to appoint officers or assistant
officers.
4.4 CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
4.5 CHAIRMAN OF THE BOARD
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board from time to time and shall
preside over meetings of the Board and shareholders unless another officer is
appointed or designated by the Board as Chairman of such meetings.
4.6 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall be the Chief Executive Officer of the
corporation, shall preside over meetings of the Board and shareholders in the
absence of a Chairman of the Board and, subject to the Board's control, shall
supervise and control all of the assets, business and affairs of the
corporation. The Chief Executive Officer may sign certificates for shares of
the corporation, deeds, mortgages, bonds, contracts or other instruments,
except when the signing and execution thereof have been expressly delegated
by the Board or by these Bylaws to some other officer or agent of the
corporation or are required by law to be otherwise signed or executed by some
other officer or in some other manner. In general, the Chief Executive
Officer shall perform all duties incident to the office of Chief Executive
Officer and such other duties as are prescribed by the Board from time to
time.
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4.7 PRESIDENT
In the event of the death of the Chief Executive Officer or his or her
inability to act, the President shall perform the duties of the Chief
Executive Officer, except as may be limited by resolution of the Board, with
all the powers of and subject to all the restrictions upon the Chief
Executive Officer. The President may sign with the Secretary or any Assistant
Secretary certificates for shares of the corporation. The President shall
have, to the extent authorized by the Chief Executive Officer or the Board,
the same powers as the Chief Executive officer to sign deeds, mortgages,
bonds, contracts or other instruments. The President shall perform such
other duties as from time to time may be assigned to him or her by the Chief
Executive Officer or the Board. If no Secretary has been appointed, the
President shall have responsibility for the preparation of minutes of
meetings of the Board and shareholders and for authentication of the records
of the corporation.
4.8 VICE PRESIDENT
In the event of the death of the President or his or her inability to
act, the Vice President (or if there is more than one Vice President, the
Vice President who was designated by the Board as the successor to the
President, or if no Vice President is so designated, the Vice President first
elected to such office) shall perform the duties of the President, except as
may be limited by resolution of the Board, with all the powers of and subject
to all the restrictions upon the President. Vice Presidents shall perform
such other duties as from time to time may be assigned to them by the
President or the Chief Executive Officer or by or at the direction of the
Board.
4.9 SECRETARY
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board and shareholders, maintenance of the
corporation records and stock registers, and authentication of the
corporation's records and shall in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be
assigned to him or her by the President or the Chief Executive Officer or by
or at the direction of the Board. In the absence of the Secretary, an
Assistant Secretary may perform the duties of the Secretary.
4.10 TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in
banks, trust companies or other depositories selected in accordance with the
provisions of these Bylaws, and in general perform all of the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him or her by the President or by or at the direction of the
Board. In the absence of the Treasurer, an Assistant Treasurer may perform
the duties of the Treasurer. If required by the Board, the Treasurer or
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any Assistant Treasurer shall give a bond for the faithful discharge of his
or her duties in such amount and with such surety or sureties as the Board
shall determine.
4.11 SALARIES
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation. Such authority may be general or confined
to specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to
specific instances.
5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall
be signed by such officer or officers, or agent or agents, of the corporation
and in such manner as is from time to time determined by resolution of the
Board.
5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR
TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee
is empowered to do so.
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6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by the Chief Executive Officer, the
President or any Vice President and by the Treasurer or any Assistant
Treasurer or the Secretary or any Assistant Secretary and shall include on
their face written notice of any restrictions which may be imposed on the
transferability of such shares. All certificates shall be consecutively
numbered or otherwise identified.
6.3 STOCK RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or
registrar. The name and address of each person to whom certificates for
shares are issued, together with the class and number of shares represented
by each such certificate and the date of issue thereof, shall be entered on
the stock transfer books of the corporation. The person in whose name shares
stand on the books of the corporation shall be deemed by the corporation to
be the owner thereof for all purposes.
6.4 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the
stock transfer books of the corporation pursuant to authorization or document
of transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer,
or by his or her attorney-in-fact authorized by power of attorney duly
executed and filed with the Secretary of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificates for a like number
of shares shall have been surrendered and cancelled.
6.5 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its
shareholders and the Board, a record of all actions taken by the shareholders
or the Board without a meeting, and a record of all actions taken by a
committee of the Board exercising the authority of the Board on behalf of the
corporation.
(b) Maintain appropriate accounting records.
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(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. the Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three years;
4. the financial statements described in Section 23B.16.200(1) of
the Washington Business Corporation Act, for the past three years;
5. all written communications to shareholders generally within
the past three years;
6. a list of the names and business addresses of the current
Directors and officers; and
7. the most recent annual report delivered to the Washington
Secretary of State.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year,
provided that if a different accounting year is at any time selected by the
Board for purposes of federal income taxes, or any other purpose, the
accounting year shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal which shall consist of the
name of the corporation, the state of its incorporation and the year of its
incorporation.
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SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a named party to or
is otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was
a Director or officer of the corporation or, that being or having been such a
Director or officer, he or she is or was serving at the request of the
corporation as a Director, officer, partner, trustee, employee or agent of
another corporation or of a partnership, joint venture, trust, employee
benefit plan or other enterprise (hereinafter an "indemnitee"), whether the
basis of a proceeding is alleged action in an official capacity as such a
Director or officer or in any other capacity while serving as such a Director
or officer shall be indemnified and held harmless by the corporation against
all expense, liability and loss (including counsel fees, judgments, fines,
ERISA excise taxes or penalties and amounts to be paid in settlement)
actually and reasonably incurred or suffered by such indemnitee in connection
therewith, and such indemnification shall continue as to an indemnitee who
has ceased to be a Director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators. Except as provided in
subsection 10.4 of this Section with respect to proceedings seeking to
enforce rights to indemnification, the corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if a proceeding (or part thereof) was authorized or
ratified by the Board. The right to indemnification conferred in this
Section shall be a contract right.
10.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or
a knowing violation of law, for conduct of the indemnitee finally adjudged to
be in violation of Section 23B.08.310 of the Washington Business Corporation
Act, for any transaction with respect to which it was finally adjudged that
such indemnitee personally received a benefit in money, property or services
to which the indemnitee was not legally entitled or if the corporation is
otherwise prohibited by applicable law from paying such indemnification,
except that if Section 23B.08.560 or any successor provision of the
Washington Business Corporation Act is hereafter amended, the restrictions on
indemnification set forth in this subsection 10.2 shall be as set forth in
such amended statutory provision.
10.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement
of expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately
be
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determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such
expenses under this subsection 10.3.
10.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within 60 days after a written claim has been
received by the corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be 20 days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part,
in any such suit or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. The indemnitee shall be presumed to be entitled to
indemnification under this Section upon submission of a written claim (and,
in an action brought to enforce a claim for an advancement of expenses, where
the required undertaking has been tendered to the corporation) and thereafter
the corporation shall have the burden of proof to overcome the presumption
that the indemnitee is so entitled.
10.5 PROCEDURES EXCLUSIVE
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the
procedures required by Section 23B.08.550 or any successor provision of the
Washington Business Corporation Act.
10.6 NONEXCLUSIVITY OF RIGHTS
Except as provided in Section 10.5, the right to indemnification and the
advancement of expenses conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation or Bylaws of the
corporation, general or specific action of the Board, contract or otherwise.
10.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect
itself and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such
expense, liability or loss under the Washington Business Corporation Act.
The corporation may enter into contracts with any Director, officer, partner,
trustee, employee or agent of the corporation in furtherance of the
provisions of this Section and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section.
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10.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any
class or group of employees and agents of the corporation (i) with the same
scope and effect as the provisions of this Section with respect to the
indemnification and advancement of expenses of Directors and officers of the
corporation; (ii) pursuant to rights granted pursuant to, or provided by, the
Washington Business Corporation Act; or (iii) as are otherwise consistent
with law.
10.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the
corporation, is or was serving (a) as a Director, officer, employee or agent
of another corporation of which a majority of the shares entitled to vote in
the election of its directors is held by the corporation or (b) as a partner,
trustee or otherwise in an executive or management capacity in a partnership,
joint venture, trust, employee benefit plan or other enterprise of which the
corporation or a majority owned subsidiary of the corporation is a general
partner or has a majority ownership shall conclusively be deemed to be so
serving at the request of the corporation and entitled to indemnification and
the advancement of expenses under subsections 10.1 and 10.3 of this Section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may
also alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws
made by the Board may be amended, repealed, altered or modified by the
shareholders.
The foregoing Bylaws were adopted by the Board on _______________, 1999.
----------------------------------------
Secretary
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IMAGEX.COM, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the "Agreement") is
entered into as of April 8, 1999 by and among ImageX.com, Inc., a Washington
corporation (the "Company"), and the parties listed on the Schedule of Investors
attached hereto as Exhibit A (the "Investors").
RECITALS
A. The Company and certain of the Investors are parties to that certain
Second Amended and Restated Investor Rights Agreement dated as of October 1,
1998 (the "Prior Agreement"), which is being amended, restated and superseded in
its entirety by this Agreement.
B. The execution and delivery of this Agreement is a condition to the
Closing under that certain Series E Preferred Stock Purchase Agreement of even
date herewith (the "Purchase Agreement").
AGREEMENTS
In consideration of the mutual promises and covenants hereinafter set
forth, the parties agree as follows:
1. Restrictions on Transferability; Registration Rights
1.1 Certain Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Conversion Shares" shall mean the Common Stock issued or issuable
upon conversion of the Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean any Investor holding Registrable Securities and
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.13 hereof.
"Initiating Holders" shall mean any Investors or transferees of
Investors under Section 1.13 hereof who in the aggregate are Holders of not less
than forty percent (40%) of the Registrable Securities.
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The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.5, 1.6 and 1.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Registrable Securities" means any Common Stock of the Company
issued or issuable in respect of the Shares, Warrant Shares or Conversion Shares
or other securities issued or issuable with respect to the Shares or Conversion
Shares upon any stock split, stock dividend, recapitalization or similar event,
or any Common Stock otherwise issued or issuable with respect to the Shares or
Conversion Shares; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(l) thereof so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (as
limited by Section 1.8).
"Shares" shall mean the shares of Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock outstanding as of the date hereof
and the shares of Series E Preferred Stock being issued pursuant to the Purchase
Agreement.
"Warrant Shares" shall mean the Common Stock, Series C Preferred
Stock and Series D Preferred Stock issued or issuable upon exercise of warrants
(and the Common Stock issuable upon conversion of such Series C Preferred Stock
and Series D Preferred Stock).
1.2 RESTRICTIONS
The Shares, the Conversion Shares and the Warrant Shares shall not be
sold, assigned, transferred or pledged except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. The Investors will
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cause any proposed purchaser, assignee, transferee or pledgee of the Shares, the
Conversion Shares or the Warrant Shares to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.
1.3 RESTRICTIVE LEGEND
Each certificate representing (i) the Shares, (ii) the Conversion Shares,
(iii) the Warrant Shares or (iv) any other securities issued in respect of the
securities referenced in clauses (i), (ii) and (iii) upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event shall (unless
otherwise permitted by the provisions of Section 1.4 below) bear a legend in the
form of Exhibit B attached hereto (in addition to any legend required under
applicable state securities laws). Each Investor and Holder consents to the
Company making a notation on its records and giving instructions to any transfer
agent of the Restricted Securities in order to implement the restrictions on
transfer established in this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS
The holder of each certificate representing Restricted Securities, by
acceptance thereof, agrees to comply in all respects with the provisions of this
Section 1. Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied at such holder's expense by either
(i) a written opinion of legal counsel who shall, and whose legal opinion shall,
be reasonably satisfactory to the Company, addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) any other evidence
reasonably satisfactory to counsel to the Company, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company shall not require such a legal opinion or "no action"
letter (a) in any transaction in compliance with Rule 144 or (b) in any
transaction in which an Investor which is a partnership distributes Restricted
Securities solely to partners thereof for no additional consideration. Each
certificate evidencing the Restricted Securities transferred as above provided
shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 1.3 above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for such holder and the Company, such legend is not required in order to
establish compliance with any provisions of the Securities Act.
1.5 REQUESTED REGISTRATION
(a) Request for Registration. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to the Registrable Securities, the
Company will:
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(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.5:
(1) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(2) Prior to the earlier of (a) 180 days following the
effective date of the first public offering of Common Stock of the Company to
the general public which is effected pursuant to a registration statement filed
with, and declared effective by, the Commission under the Securities Act (the
"Initial Public Offering") or (b) the third anniversary of the date of this
Agreement;
(3) Unless the proposed aggregate offering price
therefor, net of underwriting discounts and commissions, is at least
$10,000,000;
(4) If the Company is unable to arrange for the proposed
offering to be underwritten on commercially reasonable terms by an underwriting
firm of nationally recognized standing;
(5) After the Company has effected two (2) such
registrations pursuant to this subparagraph 1.5(a) and each such registration
has been declared or ordered effective and remained effective for the period
specified in Section 1.9(a) of this Agreement; or
(6) If the Company shall furnish to such Holders, within
30 days after the receipt by the Company of the demand for registration pursuant
to this Section 1.5, a certificate, signed by the President of the Company,
stating that the Company intends to file a registration statement relating to a
public offering of its securities within 90 days after the date of such
certificate, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.5 shall be deferred for a period not to
exceed one hundred and twenty (120) days from the date of receipt of written
request from the Initiating Holders.
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Subject to the foregoing clauses (1) through (6), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. The right of any Holder to registration pursuant
to Section 1.5 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.5 and the inclusion of such
Holder's Registrable Securities in the underwriting, to the extent requested, to
the extent provided herein. The Company shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company (which managing underwriter shall
be reasonably acceptable to a majority in interest of the Initiating Holders).
Notwithstanding any other provision of this Section 1.5, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, then the Company shall so advise all Holders of
Registrable Securities in writing, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest one hundred (100) shares. If any Holder
of Registrable Securities disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Initiating Holders. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to one hundred and eighty (180) days after the effective date
of such registration.
1.6 COMPANY REGISTRATION
(a) Notice of Registration. If at any time or from time to time
after completion of the Company's Initial Public Offering the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders, other than (x) a registration relating
solely to employee benefit plans or (y) a registration relating solely to a
Commission Rule 145 transaction, the Company will (but not more than five (5)
times pursuant to this Section 1.6(a)):
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests made within fifteen (15) days after receipt of such written notice
from the Company by any Holder.
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(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting, to the extent requested, to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.6, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities to be included in the registration and
underwriting, on a pro rata basis based on the total number of securities
(including, without limitation, Registrable Securities) entitled to registration
pursuant to registration rights granted to the participating Holders by the
Company; provided, however, that the the number of Registrable Securities to be
included in the registration shall not be reduced below 25% of the total number
of shares to be included therein, and if any Registrable Securities are so
excluded, no shares other than shares being sold by the Company may be included
in such registration. To facilitate the allocation of shares in accordance with
the above provisions, the Company or the underwriters may round the number of
shares allocated to any Holder or other holder to the nearest one hundred (100)
shares. If any Holder or other holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of the registration statement relating thereto.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration, whether or not any
Holder has elected to include securities in such registration.
1.7 REGISTRATION ON FORM S-3
(a) If any Holder or Holders of Registrable Securities requests that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders and (ii) as soon as practicable use its best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested
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and as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within fifteen (15) days after receipt of such written notice
from the Company. The substantive provisions of Section 1.5(b) shall be
applicable to each registration initiated under this Section 1.7.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act; (ii) during
the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following the effective date of, a registration statement (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; (iii) in any calendar year after the
Company has effected two (2) such registrations pursuant to this Section 1.7 in
such calendar year and each such registration has been declared or ordered
effective and has remained effective for the period specified in Section 1.9(a)
of this Agreement; or (iv) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors, it would be seriously detrimental to
the Company or its shareholders for registration statements to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one hundred
twenty (120) days from the receipt of the request to file such registration by
such Holder or Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
1.8 EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration
pursuant to Sections 1.5 and 1.6, and up to one registration in any calendar
year after the date hereof under Section 1.7, and the reasonable cost of one
special legal counsel to represent all of the Holders together in any such
registration (not to exceed $15,000), shall be borne by the Company. All
Registration Expenses incurred in connection with any registration pursuant to
Section 1.7 of this Agreement above and beyond one registration in any calendar
year after the date hereof, and the cost of any counsel for the Holders in any
such registration, shall be borne by the Holders pro rata according to the
number of Registrable Securities included by them in such registration. If a
registration proceeding is begun upon the request of Initiating Holders pursuant
to Section 1.5 or Section 1.7 (if the first request under Section 1.7 in any
calendar year), but such request is subsequently withdrawn, then the Holders of
Registrable Securities to have been registered may either: (i) bear all
Registration Expenses of such proceeding, pro rata on the basis of the number of
shares to have been registered, in which case the Company shall be deemed not to
have effected a registration pursuant to subparagraph 1.5(a) or 1.7, as the case
may be, of this Agreement, or (ii) require the Company to bear all Registration
Expenses of such proceeding, in
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which case the Company shall be deemed to have effected a registration pursuant
to subparagraph 1.5(a) or 1.7, as the case may be, of this Agreement. The
preceding sentence shall not apply if, at the time of such withdrawal, the
Holders have learned of a material adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request. Unless otherwise stated, all other Selling Expenses relating to
securities registered on behalf of the Holders shall be borne by the Holders of
the securities included in such registration pro rata on the basis of the number
of shares so registered.
1.9 REGISTRATION PROCEDURES
In the case of each registration, qualification or compliance effected by
the Company pursuant to this Section 1, the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective until the distribution
described in the registration statement has been completed, but in no event
longer than ninety (90) days; and
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such registration and to
the underwriters, if any, of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
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(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or other trading market on
which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters
and to the Holders requesting registration of Registrable Securities.
1.10 INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all actual
out-of-pocket expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in any litigation or
in settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, preliminary prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation or any
alleged violation by the Company of the Securities Act or the Exchange Act or
any state securities law, or of any rule or regulation promulgated under any of
the foregoing applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other actual out-of-pocket expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, as such expenses are incurred;
provided, however, that the indemnity agreement contained in this Section
1.10(a) shall not apply to amounts paid in settlement of any such matter if the
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld; and provided further that the Company will not be
liable in any such case
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to the extent that any such claim, loss, damage, liability or expense arises out
of or is based on any untrue statement or omission or alleged untrue statement
or omission, made in reliance upon and in conformity with written information
furnished to the Company by such Holder, controlling person or underwriter
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all actual out-of-pocket expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein, in
light of the circumstances in which they were made, or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
and any other actual out-of pocket expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, as such expenses are incurred, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 1.10(b) shall not apply to amounts paid in settlement of any matter if
the settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; and provided further that the maximum
liability of each selling Holder under this Section 1.10(b) shall be equal to
the total cash proceeds to such selling Holder as a result of such registration
and offering.
(c) Each party entitled to indemnification under this Section 1.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses of such counsel to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified
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Party and any other party represented by such counsel in such proceeding. The
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 1.10 unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party (not to be unreasonably withheld), consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; provided, that, in no event shall any contribution by a Holder
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 INFORMATION BY HOLDER
The Holder or Holders of Registrable Securities included in any
registration shall furnish to the Company such information regarding such Holder
or Holders, the Registrable Securities held by them and the distribution
proposed by such Holder or Holders as the Company may request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 1.
1.12 RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Restricted Securities to the public
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without registration, after such time as a public market exists for the Common
Stock of the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Exchange Act.
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Exchange Act (at any time
after it has become subject to such reporting requirements); and
(c) So long as an Investor owns any Restricted Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as an Investor may reasonably request in availing itself of any rule or
regulation of the Commission allowing an Investor to sell any such securities
without registration.
1.13 TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register securities granted Investors
under Sections 1.5, 1.6 and 1.7 may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Securities by an
Investor (together with any affiliate); provided that (a) such transfer may
otherwise be effected in accordance with applicable securities laws, (b) notice
of such assignment is given to the Company, and (c) such transferee or assignee
(i) is a wholly owned subsidiary or constituent partner (including limited
partners, retired partners, spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) of such Investor, or (ii) acquires from such
Investor at least 250,000 Shares (as appropriately adjusted for stock splits and
the like or Common Stock issued upon conversion thereof).
1.14 STANDOFF AGREEMENT
Each Holder agrees in connection with any registration of the Company's
securities (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), upon request of the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, pledge (or otherwise encumber or hypothecate),
grant any option for the purchase of, or otherwise directly or indirectly
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company and such managing
underwriters for such period of time (not to exceed 180 days) as the Board of
Directors establishes pursuant to its good faith negotiations with such managing
underwriters; provided, however, that the Investors shall not be subject to such
lockup unless the officers and directors of the Company who own stock of the
Company and all other
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persons with registration rights (whether or not pursuant to this Agreement)
shall also be bound by such restrictions. This Section 1.14 shall apply only to
the first such registration statement of the Company which covers Common Stock
(or other securities) to be sold on its behalf to the public in an underwritten
offering.
1.15 TERMINATION OF RIGHTS
The rights of any particular Holder to cause the Company to register
securities under Sections 1.5, 1.6 and 1.7 shall terminate with respect to such
Holder on the earlier of (a) the fifth anniversary of the effective date of the
Company's Initial Public Offering or (b) such time as Rule 144 or another
similar exemption under the Securities Act is available for the sale of all such
Holder's securities during a three (3)-month period without registration or (c)
the seventh anniversary of the date of this Agreement.
1.16 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, except as provided in the
following sentences of this paragraph, the Company shall not, without the prior
written consent of the Holders of at least sixty percent (60%) of the
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 1.5 hereof, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which are included or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.5(a)(ii)(2) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 1.5.
Notwithstanding any other provision of this Agreement, the parties acknowledge
that the Company is obligated to grant registration rights as contemplated
herein (a) to certain parties pursuant to that certain Asset Purchase Agreement
dated as of February 23, 1999 (the "Asset Purchase Agreement") with respect to
the shares of Common Stock issuable to such parties thereunder(the "Keystone
Shares"), (b) to Nicholas J. Stanley with respect to the warrant issuable to Mr.
Stanley in connection with the transactions contemplated in the Asset Purchase
Agreement (together with the Keystone Shares, the "Acquisition Shares") and (c)
to SG Cowen Securities Corporation with respect to the warrants issuable to such
party pursuant to its engagement letter with the Company dated as of December
11, 1998 (the "Placement Agent Warrants"). The parties acknowledge that the
Company shall be authorized, in connection with the issuance of such Acquisition
Shares and Placement Agent Warrants, to add the persons to whom such securities
are issued to this Agreement by having such parties execute a counterpart
signature page hereto, and that such persons shall thereby become parties
hereto, they shall be considered Investors hereunder, the Acquisition Shares and
the shares of Common Stock issuable upon exercise of the Placement Agent
Warrants shall be considered Registrable Securities and Restricted Securities
hereunder, and such parties and such securities shall otherwise be treated as if
they had been original parties hereto. No consent of the original parties hereto
shall be required to carry the foregoing into effect.
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2. Affirmative Covenants of the Company
The Company hereby covenants and agrees as follows:
2.1 FINANCIAL INFORMATION
The Company will furnish to each Investor who holds Shares, Warrant Shares
or Conversion Shares the following reports:
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, audited consolidated balance
sheets and statements of shareholders' equity of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such fiscal year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and certified by independent
public accountants of national standing selected by the Company;
(b) As soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, unaudited balance sheets of the Company and its subsidiaries, if
any, as of the end of each such quarter, and consolidated statements of income
and cash flows of the Company and its subsidiaries, if any, for each such
quarter, all prepared in accordance with generally accepted accounting
principles;
(c) As soon as practicable after the end of each calendar month, and
in any event within 30 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of each calendar month, and
consolidated statements of income and cash flows for such period and for the
current fiscal year to date, all prepared in accordance with generally accepted
accounting principles, together with a comparison of such statements to the
Company's operating plan then in effect; provided however, that the Company
shall have no obligation to furnish reports pursuant to this subsection (c) to a
Holder of less than 500,000 Shares, Warrant Shares or Conversion Shares (or a
combination thereof).
2.2 OPERATING PLAN AND BUDGET
The Company will furnish to each Holder of at least 500,000 Shares,
Warrant Shares or Conversion Shares (or a combination thereof) (as adjusted for
any stock splits, consolidations and the like) a budget and operating plan
(including projected balance sheets and profit and loss and cash flow
statements) for each fiscal year, as soon as practicable after approval or
adoption thereof by the Company's Board of Directors, but in any event no later
than 30 days before the beginning of the fiscal year covered thereby.
2.3 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION
The rights granted pursuant to Sections 2.1(c) and 2.2 may be assigned by
an Investor to a third party who acquires at least 500,000 Shares, Warrant
Shares or Conversion Shares (as adjusted for any stock splits, consolidations
and the like) and who is not an actual or potential
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competitor, or affiliated in any manner with a competitor, of the Company,
provided (a) that the Company receives notice fifteen (15) days prior to such
assignment and (b) that a transferee which owns less than 5% of the outstanding
equity securities of a competitor and is an affiliated entity of the Investor,
shall not be considered affiliated with a competitor if such transferee has no
other relationship with such competitor. If the Company reasonably believes it
necessary to protect proprietary information, the Company may require any
transferee or assignee of the rights under this Section 2 to execute a
confidentiality agreement as a condition receiving such information.
2.4 PREEMPTIVE RIGHT
Subject to the terms and conditions specified in this Section 2.4, the
Company hereby grants to each Investor a right of first offer with respect to
future sales by the Company of its Securities (as hereinafter defined).
Each time the Company proposes to offer, subsequent to the issuance of
Series E Preferred (and certain warrants therefor) contemplated by the Purchase
Agreement and excluding the issuances of the Acquisition Shares and the
Placement Agent Warrants, any shares of, or securities convertible into or
exercisable for any shares of, any class of its capital stock ("Securities"),
the Company shall first make an offering of such Securities to each Investor in
accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to each Investor
stating (i) its bona fide intention to offer such Securities, (ii) the number of
such Securities to be offered, (iii) the price, if any, for which it proposes to
offer such Securities, and (iv) any other material terms of such offer.
(b) Within fifteen (15) calendar days after receipt of the Notice,
the Investor may elect, by notice delivered to the Company, to purchase or
obtain, at the price and on the terms specified in the Notice, up to an amount
of such Securities equal to that portion of such Securities which equals the
proportion that the number of shares of Common Stock then held by such Investor
or issuable to the Investor upon conversion of Shares or exercise of warrants
then held by the Investor bears to the sum of the number of shares of Common
Stock then issued and outstanding plus the number of shares of Common Stock
issuable upon (i) conversion of all convertible securities of the Company then
outstanding and (ii) exercise of all options and warrants then outstanding. An
Investor shall be entitled to apportion the right of first offer hereby granted
among itself and its partners and affiliates in such proportions as it deems
appropriate. In the event that any Investors do not elect to purchase their full
pro rata shares of the Securities pursuant to this Section, the Company shall
notify all Investors who have elected to purchase Securities hereunder of the
number of unsubscribed Securities and each such participating Investor may
elect, by notice to the Company within five days after the effective date of the
Company's notice of the amount of unsubscribed Securities, to purchase such
Investor's pro rata share of such Securities (calculated according to the
relative ownership of all Investors who elect to purchase such unsubscribed
Securities).
15
<PAGE>
(c) If all Securities which the Investors are entitled to purchase
pursuant to this Section 2.4 are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the one hundred eighty (180)
day period following the expiration of the period provided in subsection 2.4(b)
hereof, offer such unsubscribed Securities to any person or persons at a price
not less than, and upon terms not materially more favorable to the offeree than,
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Securities within such period, or if such agreement is not
consummated within thirty (30) days of the execution thereof, the right provided
hereunder shall be deemed to be revived.
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of shares of capital stock (or options
therefor) to employees, officers, directors, consultants or other parties
eligible to receive options under the Company's stock option plan or plans, (ii)
to the issuance or sale of the Company's securities to leasing entities or
financial institutions in connection with commercial leasing or borrowing
transactions, (iii) to, or after consummation of, the Company's Initial Public
Offering, (iv) to conversions of convertible securities or exercises of
exercisable securities, (v) to any issuances of any of the shares of Series E
Preferred authorized as of the date of this Agreement, (vi) to any issuance of
securities in connection with any acquisition, business combination,
reorganization, merger or similar event, (vii) after the tenth anniversary of
this Agreement, or (viii) to the issuance of the Acquisition Shares or the
Placement Agent Warrants.
2.5 PROPRIETARY INFORMATION AGREEMENT
The Company shall require each person employed by, or who consults for,
the Company to execute an appropriate proprietary information, confidentiality
and nondisclosure agreement.
2.6 KEY MAN INSURANCE
The Company shall maintain a key man insurance policy on the life of
Richard P. Begert in the amount of $1,000,000, with benefits payable to the
Company.
2.7 TERMINATION OF COVENANTS
The covenants set forth in Sections 2.1 through 2.5 shall terminate on,
and be of no further force or effect after, the closing of the Company's Initial
Public Offering.
3. MISCELLANEOUS
3.1 ASSIGNMENT
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto.
16
<PAGE>
3.2 THIRD PARTIES
Nothing in this Agreement, express or implied, is intended to confer upon
any party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
3.3 GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Washington in the United States of America without regard to the
conflict or choice of law provisions of such State.
3.4 COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
3.5 NOTICES
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to an Investor, at such Investor's address set forth on Exhibit A, or at such
other address as such Investor shall have furnished to the Company in writing,
with a copy to Andrei M. Manoliu, Cooley Godward LLP, Five Palo Alto Square,
3000 El Camino Real, Palo Alto, CA 94306, or (b) if to the Company, at its
principal executive office, attention President, or at such other address as the
Company shall have furnished to the Investors, with a copy to David C. Clarke,
Perkins Coie LLP, 1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice is
provided by mail, it shall be deemed to be given three (3) business days after
proper deposit in the U.S. Mail, and if notice is given by hand or by messenger,
facsimile or courier, it shall be deemed to be given upon receipt.
3.6 SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, portions of such provisions, or such provisions in their
entirety, to the extent necessary, shall be severed from this Agreement, and the
balance of this Agreement shall be enforceable in accordance with its terms.
3.7 AMENDMENT AND WAIVER
Any provision of this Agreement may be amended with the written consent of
the Company and the Holders of at least sixty percent (60%) of the Registrable
Securities (or securities convertible into or exercisable for Registrable
Securities). Any amendment or waiver effected in accordance with this paragraph
shall be binding upon party hereto or Holder of securities subject hereto and
the Company. In addition, the Company may waive performance of any obligation
owing to it, as to some or all of the Investors, Holders of Registrable
Securities or
17
<PAGE>
other parties subject hereto, or agree to accept alternatives to such
performance, without obtaining the consent of any other party hereto or other
Holder of Registrable Securities. In the event that an underwriting agreement is
entered into between the Company and any Holder, and such underwriting agreement
contains terms differing from this Agreement, as to any such Holder the terms of
such underwriting agreement shall govern.
3.8 EFFECT OF AMENDMENT OR WAIVER
The Investors and their successors and assigns acknowledge that by the
operation of Section 3.7 hereof the holders of sixty percent (60%) of the
Registrable Securities (or securities convertible into or exercisable for
Registrable Securities), acting in conjunction with the Company, will have the
right and power to diminish or eliminate any or all rights or increase any or
all obligations pursuant to this Agreement.
3.9 RIGHTS OF HOLDERS
Each party hereto or other holder of Registrable Securities shall have the
absolute right to exercise or refrain from exercising any right or rights that
such party or holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
3.10 DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to
any party to this Agreement, upon any breach or default of the other party,
shall impair any such right, power or remedy of such non-breaching party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
3.11 AGGREGATION OF SHARES
All Shares and Registrable Securities held or acquired by affiliated
persons or entities shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
3.12 ENTIRE AGREEMENT
This Agreement is being executed by the Company, the purchasers of Series
E Preferred Stock pursuant to the Purchase Agreement, and the holders of a
majority in voting power of the
18
<PAGE>
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, considered as a single class. The Company and such holders agree that,
pursuant to Section 3.7 of the Prior Agreement, the Prior Agreement is hereby
amended and restated in its entirety as set forth herein. All parties to the
Prior Agreement who are not signatories hereto shall nevertheless be considered
"Investors" as such term is defined herein by virtue either of (i) such parties
having executed and delivered the Prior Agreement, which is being amended and
restated in its entirety as set forth herein and in accordance with its terms or
(ii) such parties having executed and delivered a prior version of the Prior
Agreement, which was amended and restated in its entirety and in accordance with
its terms by the Prior Agreement, which is being amended and restated in its
entirety as set forth herein and in accordance with its terms. The parties to
this Agreement hereby agree that this Agreement constitutes the full and entire
understanding of the parties with regard to the matters set forth herein and
supersedes any prior or contemporaneous agreements or understandings with
respect hereto.
3.13 UPDATING OF EXHIBIT A
The parties acknowledge and agree that the Company shall periodically
update Exhibit A hereto in respect of transfers of securities by the parties
hereto and other events which result in a change in the parties hereto or the
relative holdings of the parties hereto. The parties further acknowledge and
agree that any future purchasers of additional shares of Series E Preferred
Stock pursuant to the Purchase Agreement, by execution and delivery to the
Company of a counterpart signature page to this Agreement, shall be made parties
to this Agreement as "Investors" and "Holders" as if such purchasers had entered
into this Agreement on the date hereof. The parties further acknowledge that
Exhibit A shall be updated in respect of the transactions contemplated by
Section 1.16 above.
[This space intentionally left blank.]
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IMAGEX.COM, INC.
By: /s/ Richard P. Begert
------------------------------
Richard P. Begert, President
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
20
<PAGE>
INVESTOR:
INTERNET VENTURES, LLC
By: /s/ Rufus Lumry
-------------------------------
Name: Rufus Lumry
-----------------------------
Title: President of Acorn Ventures, Inc.
-----------------------------------
Managing member of Internet Ventures,
---------------------------------------------
LLC
---------------------------------------------
Tax I.D. No.: 91-1911044
--------------------------------
Address: 1309 114TH Ave. SE
Suite 200
Bellevue, WA 98004
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Nicholas Brigham Temple, Jr.
------------------------------------
Nicholas Brigham Temple, Jr.
Tax I.D. No.: ###-##-####
----------------------------
Address: 6 East Arlington
Yakima, WA 98901
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Carl Stork
-------------------------------------
Carl Stork
Tax I.D. No.: ###-##-####
-----------------------------
Address: 1 Microsoft Way
Building 27
Redmond, WA 98052
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Eli Wilner
--------------------------------------
Eli Wilner
Tax I.D. No.: ###-##-####
------------------------------
Address: 1525 York Avenue
New York, NY 10028
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Barbara A. Brennan
-------------------------------------
Barbara A. Brennan
Tax I.D. No.: ###-##-####
-----------------------------
Address: P.O. Box 351
East Hampton, NY 11937
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Eric S. Temple
--------------------------------------
Eric S. Temple
Tax I.D. No.: ###-##-####
------------------------------
Address: 6413 163rd Pl. SE
Bellevue, WA 98006
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
GALAXY INVESTMENT PARTNERS
By: /s/ Greg Manciagli
----------------------------------
Name: Greg Manciagli
--------------------------------
Title: Managing Partner
-------------------------------
Tax I.D. No.: 91-1928273
------------------------
Address: 3320 258th Avenue SE
Issaquah, WA 98029
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Harold Kawaguchi
-----------------------------------
Harold Kawaguchi
Tax I.D. No.: ###-##-####
---------------------------
Address: 626 38th Avenue
Seattle, WA 98122
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
IRONWOOD CAPITAL, LLC
By: /s/ Tim Mott
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Tax I.D. No.:
----------------------------
Address: 110 Old Mill Road
Box 6289
Ketchum, ID 83340
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Philip J. Hooper
------------------------------------
Philip J. Hooper
Tax I.D. No.: ###-##-####
----------------------------
Address: 8195 166th Avenue NE
Redmond, WA 98052
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ John Durbin
----------------------------------
John Durbin
Tax I.D. No.: ###-##-####
-------------------------
Address: 4204 Hunts Point
Bellevue, WA 98004
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Michael Towers
------------------------------------
Michael Towers
Name: /s/ Pam Towers
------------------------------------
Pam Towers
Tax I.D. No.: ###-##-####
----------------------------
Address: c/o Poipu Kapili
2221 Kapili Road
Koloa, HI 96756
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Nicholas B. Temple
----------------------------------
Nicholas B. Temple
Tax I.D. No.: ###-##-####
---------------------------
Address: 54307 Southern Hills Drive
PGA West
LaQuinta, CA 92253
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Richard Sonstelie
------------------------------------
Richard Sonstelie
Name: /s/ Cynthia Sonstelie
------------------------------------
Cynthia Sonstelie
Tax I.D. No.: 223569568
----------------------------
Address: 5 Brook Bay
Mercer Island, WA 98040
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Rufus Lumry
----------------------------------
Rufus Lumry
Tax I.D. No.: ###-##-####
--------------------------
Address: 1309 114th Avenue SE
Suite 200
Bellevue, WA 98004
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
SunAmerica Investments Inc.
----------------------------------------
By: /s/ Rafael Fogel
-------------------------------------
Name: Rafael Fogel
-----------------------------------
Title: Authorized Agent
----------------------------------
Tax I.D. No.: 52-1128427
---------------------------
Address: 1 SunAmerica Center
Los Angeles, CA 90067-6022
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Tom Alberg
----------------------------------
Tom Alberg
Tax I.D. No.: ###-##-####
--------------------------
Address: 1000 Second Avenue
Suite 3700
Seattle, WA 98104
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Thomas J. Cable
-----------------------------------
Thomas J. Cable
Tax I.D. No.: ###-##-####
---------------------------
Address: 40082 North 110th Place
Scottsdale, AZ 85262
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
WESTERN INVESTMENTS CAPITAL LLC
By: /s/ Tania A. Modic
--------------------------------------
Name: Tania A. Modic
------------------------------------
Title: Managing Member
-----------------------------------
Tax I.D. No.: 88-0362609
----------------------------
Address: PO Box 7952
774 Mays Blvd., Suite 10
Incline Village, NV 89452
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
HOWSE FAMILY PARTNERSHIP
By: /s/ Elwood D. Howse, Jr
------------------------------------.
Name: Elwood D. Howse, Jr
-----------------------------------
Title: General Partner
----------------------------------
Tax I.D. No.: 91-1142679
---------------------------
Address: 1615 72ND Avenue SE
Mercer Island, WA 98040
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
ALTA CALIFORNIA PARTNERS II, L.P.
By: Alta California Management Partners, L.P.
By: /s/ Garrett Gruener
--------------------------------------
Name: Garrett Gruener
------------------------------------
Title: General Partner
Tax I.D. No.: 94-3311761
----------------------------
Address: One Embarcadero Center
Suite 4050
San Francisco, CA 94111
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
ALTA EMBARCADERO PARTNERS II, LLC.
By: /s/ Garrett Gruener
------------------------------------
Name: Garrett Gruener
----------------------------------
Title: Member
Tax I.D. No.: 94-3315140
--------------------------
Address: One Embarcadero Center
Suite 4050
San Francisco, CA 94111
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
VBW RAPTOR FUND, LLC
By: /s/ David J. Duval
------------------------------------
Name: David J. Duval
----------------------------------
Title: Managing Member
---------------------------------
Tax I.D. No.: Applied For
--------------------------
Address: One Boston Place
Suite 3310
Boston, MA 02108
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
KELLETT PARTNERS LP
By: /s/ Gary Sledge
----------------------------------
Name: Gary Sledge
--------------------------------
Title: CFO
-------------------------------
Tax I.D. No.: 58-2280887
------------------------
Address: 200 Galleria Pkwy
Suite 1800
Atlanta, GA 30339
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Arthur W. Harrigan
------------------------------------
Arthur W. Harrigan
Tax I.D. No.: ###-##-####
----------------------------
Address: 999 3rd Avenue
44th Floor
Seattle, WA 98104
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
WS INVESTMENTS COMPANY 99A
By: /s/ Barry E. Taylor
-----------------------------------
Name: Barry E. Taylor
---------------------------------
Title: General Partner
--------------------------------
Tax I.D. No.:
-------------------------
Address: 650 Page Mill Road
Palo Alto, CA 94304
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Stephen Scherba, Jr.
-----------------------------------
Stephen Scherba, Jr.
Name: /s/ Elaine P. Scherba
-----------------------------------
Elaine P. Scherba
Tax I.D. No.: ###-##-####
---------------------------
Address: 509 Crockett Street
Seattle, WA 98109
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Scott Drum
---------------------------------
Scott Drum
Tax I.D. No.: 469546566
-------------------------
Address: 16868 Southeast 57th Place
Bellevue, WA 98006
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ William C. Krueger
-----------------------------------
William C. Krueger
Tax I.D. No.:
---------------------------
Address: 13141 106th Avenue NE
Redmond, WA 98502
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Brian Holman
----------------------------------
Brian Holman
Name: /s/ Jami Holman
----------------------------------
Jami Holman
Tax I.D. No.: ###-##-####
--------------------------
Address: 600 108th Avenue NE
Suite 1014
Bellevue, WA 98004
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ David Valle
--------------------------------------
David Valle
Tax I.D. No.: ###-##-####
------------------------------
Address: 24735 SE 56th Avenue
Issaquah, WA 98027
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
ROBERT L. AND LESLI A. HOBART JTWROS
/s/ Robert L. Hobart
--------------------------------------
Robert L. Hobart
/s/ Lesli A. Hobart
--------------------------------------
Lesli A. Hobart
Tax I.D. No.: ###-##-####
--------------------------
Address: One Bush Street
12th Floor
San Francisco, CA 94104
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
/s/ Nanda Nishit Mehta
--------------------------------------
Nanda Nishit Mehta
/s/ Nishit Kantilal Mehta
--------------------------------------
Nishit Kantilal Mehta
Tax I.D. No.: ###-##-####
-------------------------
Address: 14734 SE 65th Street
Bellevue, WA 98006
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
TECHNOLOGY PARTNERS FUND V, L.P.
By: /s/ J.E. Ardell, III
----------------------------------
Name: J.E. Ardell, III
--------------------------------
Title: General Partner
-------------------------------
Tax I.D. No.: 68-0316696
------------------------
Address: 1550 Tiburon Blvd.
Belvedere, CA 94920
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
TECHNOLOGY PARTNERS FUND VI, L.P.
By: /s/ J.E. Ardell, III
----------------------------------
Name: J.E. Ardell, III
--------------------------------
Title: Managing Member
-------------------------------
Tax I.D. No.: 94-3302941
------------------------
Address: 1550 Tiburon Blvd.
Belvedere, CA 94920
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
CLEAR FIR PARTNERS, LP
By: /s/ Gary Sledge
-----------------------------------
Name: Gary Sledge
---------------------------------
Title: CFO
--------------------------------
Tax I.D. No.: 91-1880146
-------------------------
Address: 200 Galleria Pkwy
Suite 1800
Atlanta, GA 30339
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
/s/ Gary Sledge
--------------------------------------
Gary Sledge
Tax I.D. No.: ###-##-####
-------------------------
Address: 200 Galleria Pkwy
Suite 1800
Atlanta, GA 30339
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
-------------------------------------
Name: Robert N. Savoie
-----------------------------------
Title: Tax Director, Attorney-in-Fact
----------------------------------
Tax I.D. No.: 94-2856927
---------------------------
Address: One Bush Street
12th Floor
San Francisco, CA 94104
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
HAMBRECHT & QUIST EMPLOYEE VENTURE FUND, L.P.
II
By: H&Q VENTURE MANAGEMENT, L.L.C
Its: General Partner
By: /s/ Robert N. Savoie
-------------------------------------
Name: Robert N. Savoie
-----------------------------------
Title: Tax Director, Attorney-in-Fact
----------------------------------
Tax I.D. No.: 94-3317746
------------------------------
Address: One Bush Street
12th Floor
San Francisco, CA 94104
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
ACCESS TECHNOLOGY PARTNERS, L.P.
By: ACCESS TECHNOLOGY MANAGEMENT, L.L.C.
Its: General Partner
By: H&Q VENTURE MANAGEMENT, L.L.C.
Its: Managing Member
By: /s/ Robert N. Savoie
------------------------------------
Name: Robert N. Savoie
----------------------------------
Title: Tax Director, Attorney-in-Fact
---------------------------------
Tax I.D. No.: 94-3318527
-----------------------------
Address: One Bush Street
12th Floor
San Francisco, CA 94104
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
ACCESS TECHNOLOGY PARTNERS BROKERS FUND, L.P.
By: H&Q VENTURE MANAGEMENT, L.L.C.
Its: General Partner
By: /s/ Robert N. Savoie
----------------------------------
Name: Robert N. Savoie
--------------------------------
Title: Tax Director, Attorney-in-Fact
-------------------------------
Tax I.D. No.: 94-3322351
---------------------------
Address: One Bush Street
12th Floor
San Francisco, CA 94104
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
VANGUARD V, L.P.
By: /s/ C.K. Myers
------------------------------------
Name: C.K. Myers
----------------------------------
Title: Member
---------------------------------
Tax I.D. No.:
--------------------------
Address: 525 University Avenue
Suite 600
Palo Alto, CA 94301
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
ACORN VENTURES IV, LLC
By: /s/ Rufus Lumry
---------------------------------------
Name: Rufus Lumry
-------------------------------------
Title: President of Acorn Ventures, Inc.
------------------------------------
only member of the LLC
Tax I.D. No.: 91-1885869
-----------------------------
Address: 1309 114th Avenue SE
Suite 200
Bellevue, WA 98004
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
VEBER PARTNERS, LLC
By: /s/ Gayle Veber
--------------------------------------
Name: Gayle Veber
------------------------------------
Title: President
-----------------------------------
Tax I.D. No.:
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
INVESTOR:
Name: /s/ Nicholas J. Stanley
-------------------------------------
Nicholas J. Stanley
Tax I.D. No.: ###-##-####
------------------------------
Address: c/o Stanley Investment and
Management
121 SW Salmon, Suite 1430
Portland, OR 97204
Attention: Wayne Slovick
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<PAGE>
EXHIBIT A
SHAREHOLDERS
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SunAmerica Investments,Inc. 0 0 0 0 750,000 714,286 1,464,286
c/o Chris DiMauro
1 SunAmerica Center
Century City, CA
90067-6022
Donaldson Lufkin Jenrette 0 0 0 0 25,000 0 25,000
Securities Corp.
(TIN 13-2741729),
Custodian F/B/O
Eric Bean, IRA
5590 178th Avenue SE
Bellevue WA 98006
Galaxy Investment Partners 0 0 0 0 125,000 119,048 244,048
c/o Greg Manciagli
3320 258th Ave SE
Issaquah, WA 98029
Steve Shindler & Mary Kay 0 0 0 0 32,500 0 32,500
Kosnik
612 Deerfiedl Pond Court
Great Falls, VA 22066
Richard and 0 0 0 0 25,000 16,667 41,667
Cynthia Sonstelie
5 Brook Bay
Mercer Island, WA 98040
Western Investments
Capital LLC 0 0 0 0 50,000 100,000 150,000
c/o Tania Modic
Managing Member
PO Box 7952
774 Mays Blvd., Suite 10
Incline Village, NV 89452
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Technology Partners 0 0 1,750,000 946,667 201,380 0 2,898,047
Fund V, L.P.
c/o Ted Ardell
1550 Tiburon Blvd.
Suite A
Belvedere, CA 94920
Vanguard V, L.P. 0 0 1,000,000 546,667 101,613 0 1,648,280
c/o Kip Meyers
525 University Avenue
Suite 600
Palo Alto, CA 94301
Harold Kawaguchi 0 0 50,000 66,667 0 47,619 164,286
626 - 38th Avenue
Seattle, WA 98122
Acorn Ventures IV, LLC 0 0 0 1,316,667 0 0 1,316,667
c/o Maryan Regan
1309 - 114th Avenue SE
Suite 200
Seattle, WA 98004
Howse Family Partnership 0 0 125,000 73,334 0 130,952 329,286
c/o Elwood D. Howse, Jr.
1615 72nd Avenue SE
Mercer Island, WA 98040
Michael 0 0 0 333,333 50,000 238,095 621,428
Towers
1812 - 142nd St. SE
Mill Creek, WA 98012
Steven Gillis 0 0 50,000 33,333 0 0 83,333
4311 Forest Avenue SE
Mercer Island, WA 98040
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ironwood Capital, LLC 0 0 450,000 0 0 238,095 688,095
c/o Tim Mott
Box 6289
110 Old Mill Road
Ketchum, ID 83340
Scott Land 0 0 25,000 0 0 0 25,000
7214 237th Avenue NE
Redmond, WA 98053
John D. Durbin 0 0 25,000 0 0 13,333 38,333
4204 Hunts Point Rd.
Bellevue, WA 98004
Thomas J. Cable 0 0 25,000 0 0 16,667 41,667
4876 Vista Way
Friday Harbor, WA 98250
Internet Ventures, LLC 0 0 0 66,667 0 2,857,143 2,923,810
c/o Maryan Regan
1309 - 114th Avenue SE
Suite 200
Seattle, WA 98004
Nicholas B. Temple 0 0 0 166,667 0 238,095 404,762
54307 Southern Hills Drive
PGA West
La Quinta, CA 92253
Eric S. Temple 0 0 0 166,667 0 142,857 309,524
6413 - 163rd Pl. SE
Bellevue, WA 98006
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Nicholas Brigham Temple, Jr. 0 0 0 83,333 0 142,857 226,190
6 East Arlington
Yakima, WA 98901
Tom A. Alberg 0 0 0 66,666 0 35,714 102,380
1000 Second Avenue
Suite 3700
Seattle, WA 98104
Charles J. Katz, Jr. 0 0 0 33,333 0 0 33,333
1201 Third Avenue
48th Floor
Seattle, WA 98101
James E. Webster 0 0 0 33,333 0 0 33,333
4060 W. Lake
Sammamish Rd. SE
Bellevue, WA 98008
John Meisenbach 0 0 0 66,666 0 0 66,666
1325 Fourth Avenue
Suite 2100
Seattle, WA 98122
Eli Wilner 0 0 0 0 200,629 289,872 490,501
1525 York Avenue
New York, NY 10028
Barbara A. Brennan 0 0 0 0 200,628 289,873 490,501
P.O. Box 351
East Hamption, NY 11937
Carl Stork 0 0 0 0 25,000 25,000 50,000
4451 91st Ave. NE
Bellevue, WA 98004
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Phillip J. Hooper 0 0 0 0 0 35,714 35,714
8195 166th Avenue NE
Redmond, WA 98052
Rufus Lumry 0 0 0 0 0 71,429 71,429
1309 114th Avenue SE
Suite 200
Bellevue, WA 98004
Alta California 0 0 0 0 0 2,830,966 2,830,966
Partners II, LP
c/o Garrett P. Gruener
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Alta Embarcadero 0 0 0 0 0 26,177 26,177
Partners II, LLC
c/o Garrett P. Gruener
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Arthur W. Harrigan, Jr. 0 0 0 0 0 14,286 14,286
999 3rd Avenue
44th Floor
Seattle, WA 98104
WS Investment Company 99A 0 0 0 0 0 4,762 4,762
c/o Barry Taylor
650 Page Mill Road
Palo Alto, CA 94304
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen Scherba 0 0 0 0 0 6,437 6,437
Jr. and Elaine P.
Scherba
509 Crockett Street
Seattle, WA 98109
Scott Drum 0 0 0 0 0 6,436 6,436
16868 SE 57th Place
Bellevue, WA 98006
William C. Krueger 0 0 0 0 0 4,762 4,762
13314 160th Avenue NE
Redmond, WA 98052
Brian and Jami 0 0 0 0 0 4,762 4,762
Holman
4130 Hanson Road
Ellensburg, WA 98926
David Vallee 0 0 0 0 0 4,762 4,762
24735 SE 56th Street
Issaquah, WA 98029
Technology 0 0 0 0 0 1,904,762 1,904,762
Partners Fund VI, L.P.
c/o Ted Ardell
1550 Tiburon Blvd. Suite A
Belvedere, CA 94920
Kellett Partners LP 0 0 0 0 0 404,761 404,761
c/o Gary Sledge
200 Galleria Pkwy
Suite 1800
Atlanta, GA 30339
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Clear Fir 0 0 0 0 0 47,619 47,619
Partners, LP
c/o Gary Sledge
200 Galleria Pkwy
Suite 1800
Atlanta, GA 30339
Gary Sledge 0 0 0 0 0 23,810 23,810
200 Galleria Pkwy
Suite 1800
Atlanta, GA 30339
Nanda Nishit Mehta 0 0 0 0 0 47,619 47,619
and Nishit Kantilal
Mehta
14734 SE 65th Street
Bellevue, WA 98006
VWB Raptor Fund, LLC
[Address] 0 0 0 0 0 95,238 95,238
Hambrecht & Quist 0 0 0 0 0 178,572 178,572
California
c/o Nancy E. Pfund
One Bush Street
Sand Francisco, CA 94104
Hambrecht & Quist 0 0 0 0 0 178,572 178,572
Employee Venture
Fund, L.P.
c/o Nancy E. Pfund
One Bush Street
San Francisco, CA 94104
Access Technology 0 0 0 0 0 178,571 178,571
Partners, L.P.
c/o Nancy E. Pfund
One Bush Street
Sand Francisco, CA 94104
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Common Common Series B Series D Series E Total No. of
No. of Warrant No. of Series C No. of No. of Preferred
Investor Shares No. of Shares Shares No. of Shares Shares Shares Shares
- ----------------------- ------ ------------- -------- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Access Technology 0 0 0 0 0 178,571 178,571
Partners Brokers Fund, L.P.
c/o Nancy E. Pfund
One Bush Street
Sand Francisco, CA 94104
Veber Partners LLC 37,500 0 0 0 0 0 37,500
The River Forum
Suite 250
4380 SW Macadam Avenue
Portland, OR 97201
Nicholas J. Stanley 150,000 150,000 0 0 0 0 300,000
c/o Stanley Investment and
Management
121 SW Salmon
Suite 1430
Portland, OR 97204
TOTAL 187,500 150,000 3,500,000 4,000,000 1,786,750 11,904,761 21,529,011
------- ------- --------- --------- --------- ---------- ----------
</TABLE>
8
<PAGE>
EXHIBIT B
RESTRICTIVE LEGEND
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OR AN AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT DATED APRIL ___,
1999. A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION, AND
MAY NOT BE SOLD, TRANSFERRED OR ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS
AND PROVISIONS OF SAID AGREEMENT AS SAID AGREEMENT MAY FROM TIME TO TIME BE
AMENDED AND SUPPLEMENTED.
<PAGE>
IMAGEX, INC.
STOCK VESTING AGREEMENT
This Stock Vesting Agreement is entered into as of December 20, 1996 by
and between ImageX, Inc., a Washington corporation (the "Company"), and F.
Joseph Verschueren (the "Shareholder").
RECITALS
A. In connection with the execution and delivery of this Agreement, the
Company is issuing to the Shareholder, in exchange for an aggregate of $100 and
services to be rendered to the Company in the future, 800,000 shares of common
stock, $.01 par value per share, of the Company (the "Stock").
B. In order to induce the Company to issue the Stock, the Shareholder has
agreed that the Stock will be subject to a purchase option in favor of the
Company as set forth herein.
AGREEMENTS
In consideration of the foregoing and the other provisions set forth
herein, the parties hereby agree as follows:
1. Purchase Option
The Stock shall be subject to the following option (the "Purchase
Option"):
(a) In the event that, prior to the termination of this Agreement,
the Shareholder ceases to be continuously employed by the Company, or a parent
or subsidiary or successor or affiliate of the Company, due either to his
voluntary resignation (other than due to disability) or to termination by the
Company for Cause (as defined below), the Company may exercise the Purchase
Option. For the purpose of this paragraph 1, the Shareholder's "continuous
employment" shall cease when the Shareholder ceases to be actively employed by
the Company or a parent or subsidiary or successor or affiliate of the Company,
as determined in the reasonable discretion of the Board of Directors of the
Company after at least 30 days' prior written notice is provided to the
Shareholder that such a determination is under consideration. Vacations and
temporary absences due to illness, disability or family crisis shall not be
considered in determining whether a cessation of the Shareholder's active
employment has occurred. The date when continuous employment ceases is
hereinafter referred to as the "Termination Date." The term "Cause" shall mean:
(i) the Shareholder's
<PAGE>
conviction of (or plea of guilty or nolo contendere to) a felony which had or
will have a material detrimental effect on the Company's business, (ii) a
grossly negligent or willful act by the Shareholder which constitutes gross
misconduct and is injurious to the Company, and (iii) continued violations by
the Shareholder of his material duties which are demonstrably willful and
deliberate or grossly negligent on the Shareholder's part after there has been
delivered to the Shareholder a written demand for performance from the Company
which describes the basis for the Company's belief that the Shareholder has not
substantially performed his duties.
(b) The Company shall have the right at any time within sixty (60)
days after the Termination Date, provided that such date is prior to the
termination of this Agreement, to purchase from the the Shareholder, at a price
per share of $.01 (appropriately adjusted for any subsequent stock split,
dividend, combination, or other recapitalization) (the "Repurchase Price"), up
to but not exceeding a number of shares of Stock equal to one hundred percent
(100%) of the Stock (800,000 shares) less 22,222 shares (subject to appropriate
adjustment for any subsequent stock split, stock dividend, combination, or other
recapitalization) for each completed month of employment with the Company
between the date of this Agreement (the "Commencement Date") and the Termination
Date.
(c) The Purchase Option, if exercised by the Company, shall be
exercised by written notice signed by an officer or director of the Company
after approval by the Board of Directors and shall be delivered to the
Shareholder on or prior to the expiration of the 60-day period referred to in
paragraph (b) above. The Company may pay for the shares of Stock it has elected
to repurchase (i) by delivery to the Shareholder of a check in the amount of the
aggregate Repurchase Price for the number of shares of Stock being repurchased,
(ii) by cancellation by the Company of an amount of the Shareholder's
indebtedness to the Company equal to the aggregate Repurchase Price for the
number of shares of Stock being repurchased or (iii) by a combination of (i) and
(ii). Payment of the Repurchase Price shall be completed within five business
days after notice of exercise of the Purchase Option is delivered to the
Shareholder.
(d) In the event that, in connection with any exercise of the
Purchase Option under this Agreement, the Company elects to exercise the
Purchase Option as to fewer than all the shares of Stock then subject thereto,
the Purchase Option shall expire as to all the shares of Stock that the Company
has not elected to repurchase.
(e) Upon the closing of any of the following transactions, provided
any such transaction is duly and validly approved by the Company's Board of
-2-
<PAGE>
Directors and shareholders in accordance with applicable law, the Purchase
Option shall automatically lapse in its entirety:
(i) the liquidation, dissolution or indefinite
cessation of business operations of the Company;
(ii) the execution by the Company of a general assignment for
the benefit of creditors, the appointment of a receiver or trustee to take
possession of the property and assets of the Company, or the filing of a
petition under applicable bankruptcy laws with respect to the Company;
(iii) the cessation of the Shareholder's employment with the
Company (or a parent or subsidiary or successor or affiliate of the Company) due
to any reason other than voluntary resignation (other than due to disability) or
termination by the Company for Cause.
(f) Notwithstanding subsections (b) and (c) of this Section, the
Company shall be entitled for a period of one year from the Termination Date
(rather than 60 days) to give notice to the Shareholder and to purchase the
shares to the extent that the Company reasonably determines that such an
extension of time is necessary to prevent the repurchase of the Shareholder's
shares from causing other capital stock of the Company to not qualify as "small
business stock" under Section 1202 of the Internal Revenue Code of 1986, as
amended.
2. Legend
All certificates representing any shares of Stock subject to this
Agreement shall have endorsed thereon the following legend, in addition to any
other legend required by the Company respecting the restricted nature of the
Stock:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN STOCK VESTING AGREEMENT
THAT INCLUDES A REPURCHASE RIGHT IN FAVOR OF THE CORPORATION
RELATING TO THESE SECURITIES. COPIES OF THE STOCK VESTING
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
3. Rights as Shareholder
Subject to the terms hereof, the Shareholder shall have all the rights of
a shareholder with respect to the Stock during the term of this Agreement,
including
-3-
<PAGE>
without limitation the right to vote and receive any dividends or other
distributions declared thereon.
4. Adjustments for Stock Splits, Recapitalizations and Similar
Events
If, at any time or from time to time, there is (i) a dividend of any
security, stock split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) any consolidation, merger or
similar event in connection with which the Purchase Option does not lapse under
the terms of this Agreement, then, in such event, any and all new, substituted
or additional securities or other property to which the Shareholder is entitled
by reason of his ownership of the shares of Stock then subject to the Purchase
Option shall be immediately included in the definition of "Stock" under this
Agreement and shall be subject to the Purchase Option with the same force and
effect as the Stock currently subject to this Agreement and the Purchase Option.
The Repurchase Price per share upon exercise of the Purchase Option shall be
appropriately adjusted as determined by the Board of Directors of the Company to
reflect any such event referred to in this Section 4.
5. Termination
This Agreement shall terminate in its entirety upon the lapse of the
Purchase Option in its entirety pursuant to Section 1 or otherwise, or upon the
completion of a repurchase transaction pursuant to an exercise of the Purchase
Option, in either case in accordance with the terms of this Agreement.
6. Tax Matters
The Shareholder acknowledges that he has considered and analyzed the
appropriate treatment by him of the transactions contemplated hereby under the
Internal Revenue Code of 1986, as amended (the "Code"), including without
limitation Section 83 thereof. The Shareholder agrees that any decision as to
whether to file an election relating thereto, and the due and proper filing of
any such election, are solely the Shareholder's responsibilities.
7. No Right to Continued Employment
Nothing in this Agreement shall create any right to continued employment
of the Shareholder, or to affect in any manner the right and power of the
Company to terminate the employment of the Shareholder for any reason or for no
reason, with or without Cause.
-4-
<PAGE>
8. Cooperation
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
9. Specific Enforcement
Each party expressly agrees that the other party would be irreparably
damaged if this Agreement were not specifically enforced. Upon a breach or
threatened breach of the terms, covenants and/or conditions of this Agreement by
any party, the other party shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of this Agreement.
10. Notices
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Shareholder, at the Shareholder's then current address on the
Company's books or at such other address as the Shareholder shall have furnished
to the Company in writing, or (b) if to the Company, at its principal executive
office, attention President, with a copy to Charles J. Katz, Jr., Perkins Coie,
1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice is provided by mail,
it shall be deemed to be given three (3) business days after proper deposit in
the U.S. Mail, and if notice is given by hand or by messenger, facsimile or
courier, it shall be deemed to be given upon receipt.
11. Entire Agreement
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both oral and written, among such parties, or any of them, with
respect to such subject matter. No such prior agreement or undertaking may
contradict, vary or supplement this Agreement.
12. Amendment and Waiver
Neither this Agreement nor any provision hereof may be modified, amended
or terminated except by a written agreement signed by the parties hereto, and no
waiver of any provision of this Agreement shall be effective unless in writing
and signed by or on behalf of the party to be bound by such waiver.
-5-
<PAGE>
13. Governing Law
This Agreement shall be governed by and construed under the laws of the
state of Washington as applied to agreements among Washington residents, made
and to be performed entirely within Washington.
14. Successors and Assigns
The provisions hereof shall inure to the benefit of, and be binding upon,
the successors, permitted assigns, heirs, executors, administrators and personal
representatives of the parties hereto. Notwithstanding anything to the contrary
contained in this Agreement, no shares of Stock may be transferred by the
Shareholder under any circumstances, without the prior written consent of the
Company which may be withheld for any reason, so long as such shares are subject
to the Purchase Option contained in this Agreement. Any transfer or purported
transfer in violation of this Section 14 shall be void.
15. Headings
The headings of the sections and paragraphs of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
16. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
17. Agreement to Perform Future Services
As partial consideration for the Stock being issued to the Shareholder,
the Shareholder agrees to serve as an employee and officer of the Company, and
to perform such srvices for the Company as the Company's Board of Directors may
determine, for the period during which the Purchase Option is in effect.
18. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provisions shall be excluded from this Agreement and
the balance of this Agreement shall be interpreted as if such provisions were so
excluded and shall be enforceable in accordance with its terms.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
IMAGEX, INC.
By /s/ JACK HOOPER
-----------------------------------
Name: Jack Hooper
--------------------------------
Title: CFO
-------------------------------
Address: 8195 - 166th Avenue N.E.
Suite 101
Redmond, Washington 98052
SHAREHOLDER
/s/ F. JOE VERSCHUEREN
-------------------------------------
F. Joe Verschueren
Address: 4105 80TH AVE SE
----------------------------
MERCER ISLAND, WA 98040
----------------------------
----------------------------
<PAGE>
IMAGEX, INC.
STOCK VESTING AGREEMENT
This Stock Vesting Agreement is entered into as of December 20, 1996 by
and between ImageX, Inc., a Washington corporation (the "Company"), and Cory E.
Klatt (the "Shareholder").
RECITALS
A. In connection with the execution and delivery of this Agreement, the
Company is issuing to the Shareholder, in exchange for an aggregate of $100 and
services to be rendered to the Company in the future, 600,000 shares of common
stock, $.01 par value per share, of the Company (the "Stock").
B. In order to induce the Company to issue the Stock, the Shareholder has
agreed that the Stock will be subject to a purchase option in favor of the
Company as set forth herein.
AGREEMENTS
In consideration of the foregoing and the other provisions set forth
herein, the parties hereby agree as follows:
1. Purchase Option
The Stock shall be subject to the following option (the "Purchase
Option"):
(a) In the event that, prior to the termination of this Agreement,
the Shareholder ceases to be continuously employed by the Company, or a parent
or subsidiary or successor or affiliate of the Company, due either to his
voluntary resignation (other than due to disability) or to termination by the
Company for Cause (as defined below), the Company may exercise the Purchase
Option. For the purpose of this paragraph 1, the Shareholder's "continuous
employment" shall cease when the Shareholder ceases to be actively employed by
the Company or a parent or subsidiary or successor or affiliate of the Company,
as determined in the reasonable discretion of the Board of Directors of the
Company after at least 30 days' prior written notice is provided to the
Shareholder that such a determination is under consideration. Vacations and
temporary absences due to illness, disability or family crisis shall not be
considered in determining whether a cessation of the Shareholder's active
employment has occurred. The date when continuous employment ceases is
hereinafter referred to as the "Termination Date." The term "Cause" shall mean:
(i) the Shareholder's
<PAGE>
conviction of (or plea of guilty or nolo contendere to) a felony which had or
will have a material detrimental effect on the Company's business, (ii) a
grossly negligent or willful act by the Shareholder which constitutes gross
misconduct and is injurious to the Company, and (iii) continued violations by
the Shareholder of his material duties which are demonstrably willful and
deliberate or grossly negligent on the Shareholder's part after there has been
delivered to the Shareholder a written demand for performance from the Company
which describes the basis for the Company's belief that the Shareholder has not
substantially performed his duties.
(b) The Company shall have the right at any time within sixty (60)
days after the Termination Date, provided that such date is prior to the
termination of this Agreement, to purchase from the Shareholder, at a price per
share of $.01 (appropriately adjusted for any subsequent stock split, dividend,
combination, or other recapitalization) (the "Repurchase Price"), up to but not
exceeding a number of shares of Stock equal to one hundred percent (100%) of the
Stock (600,000 shares) less 16,666 shares (subject to appropriate adjustment for
any subsequent stock split, stock dividend, combination, or other
recapitalization) for each completed month of employment with the Company
between the date of this Agreement (the "Commencement Date") and the Termination
Date.
(c) The Purchase Option, if exercised by the Company, shall be
exercised by written notice signed by an officer or director of the Company
after approval by the Board of Directors and shall be delivered to the
Shareholder on or prior to the expiration of the 60-day period referred to in
paragraph (b) above. The Company may pay for the shares of Stock it has elected
to repurchase (i) by delivery to the Shareholder of a check in the amount of the
aggregate Repurchase Price for the number of shares of Stock being repurchased,
(ii) by cancellation by the Company of an amount of the Shareholder's
indebtedness to the Company equal to the aggregate Repurchase Price for the
number of shares of Stock being repurchased or (iii) by a combination of (i) and
(ii). Payment of the Repurchase Price shall be completed within five business
days after notice of exercise of the Purchase Option is delivered to the
Shareholder.
(d) In the event that, in connection with any exercise of the
Purchase Option under this Agreement, the Company elects to exercise the
Purchase Option as to fewer than all the shares of Stock then subject thereto,
the Purchase Option shall expire as to all the shares of Stock that the Company
has not elected to repurchase.
(e) Upon the closing of any of the following transactions, provided
any such transaction is duly and validly approved by the Company's Board of
-2-
<PAGE>
Directors and shareholders in accordance with applicable law, the Purchase
Option shall automatically lapse in its entirety:
(i) the liquidation, dissolution or indefinite
cessation of business operations of the Company;
(ii) the execution by the Company of a general assignment for
the benefit of creditors, the appointment of a receiver or trustee to take
possession of the property and assets of the Company, or the filing of a
petition under applicable bankruptcy laws with respect to the Company;
(iii) the cessation of the Shareholder's employment with the
Company (or a parent or subsidiary or successor or affiliate of the Company) due
to any reason other than voluntary resignation (other than due to disability) or
termination by the Company for Cause.
(f) Notwithstanding subsections (b) and (c) of this Section, the
Company shall be entitled for a period of one year from the Termination Date
(rather than 60 days) to give notice to the Shareholder and to purchase the
shares to the extent that the Company reasonably determines that such an
extension of time is necessary to prevent the repurchase of the Shareholder's
shares from causing other capital stock of the Company to not qualify as "small
business stock" under Section 1202 of the Internal Revenue Code of 1986, as
amended.
2. Legend
All certificates representing any shares of Stock subject to this
Agreement shall have endorsed thereon the following legend, in addition to any
other legend required by the Company respecting the restricted nature of the
Stock:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN STOCK VESTING AGREEMENT
THAT INCLUDES A REPURCHASE RIGHT IN FAVOR OF THE CORPORATION
RELATING TO THESE SECURITIES. COPIES OF THE STOCK VESTING
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
3. Rights as Shareholder
Subject to the terms hereof, the Shareholder shall have all the rights of
a shareholder with respect to the Stock during the term of this Agreement,
including
-3-
<PAGE>
without limitation the right to vote and receive any dividends or other
distributions declared thereon.
4. Adjustments for Stock Splits, Recapitalizations and Similar Events
If, at any time or from time to time, there is (i) a dividend of any
security, stock split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) any consolidation, merger or
similar event in connection with which the Purchase Option does not lapse under
the terms of this Agreement, then, in such event, any and all new, substituted
or additional securities or other property to which the Shareholder is entitled
by reason of his ownership of the shares of Stock then subject to the Purchase
Option shall be immediately included in the definition of "Stock" under this
Agreement and shall be subject to the Purchase Option with the same force and
effect as the Stock currently subject to this Agreement and the Purchase Option.
The Repurchase Price per share upon exercise of the Purchase Option shall be
appropriately adjusted as determined by the Board of Directors of the Company to
reflect any such event referred to in this Section 4.
5. Termination
This Agreement shall terminate in its entirety upon the lapse of the
Purchase Option in its entirety pursuant to Section 1 or otherwise, or upon the
completion of a repurchase transaction pursuant to an exercise of the Purchase
Option, in either case in accordance with the terms of this Agreement.
6. Tax Matters
The Shareholder acknowledges that he has considered and analyzed the
appropriate treatment by him of the transactions contemplated hereby under the
Internal Revenue Code of 1986, as amended (the "Code"), including without
limitation Section 83 thereof. The Shareholder agrees that any decision as to
whether to file an election relating thereto, and the due and proper filing of
any such election, are solely the Shareholder's responsibilities.
7. No Right to Continued Employment
Nothing in this Agreement shall create any right to continued employment
of the Shareholder, or to affect in any manner the right and power of the
Company to terminate the employment of the Shareholder for any reason or for no
reason, with or without Cause.
-4-
<PAGE>
8. Cooperation
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
9. Specific Enforcement
Each party expressly agrees that the other party would be irreparably
damaged if this Agreement were not specifically enforced. Upon a breach or
threatened breach of the terms, covenants and/or conditions of this Agreement by
any party, the other party shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of this Agreement.
10. Notices
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Shareholder, at the Shareholder's then current address on the
Company's books or at such other address as the Shareholder shall have furnished
to the Company in writing, or (b) if to the Company, at its principal executive
office, attention President, with a copy to Charles J. Katz, Jr., Perkins Coie,
1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice is provided by mail,
it shall be deemed to be given three (3) business days after proper deposit in
the U.S. Mail, and if notice is given by hand or by messenger, facsimile or
courier, it shall be deemed to be given upon receipt.
11. Entire Agreement
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both oral and written, among such parties, or any of them, with
respect to such subject matter. No such prior agreement or undertaking may
contradict, vary or supplement this Agreement.
12. Amendment and Waiver
Neither this Agreement nor any provision hereof may be modified, amended
or terminated except by a written agreement signed by the parties hereto, and no
waiver of any provision of this Agreement shall be effective unless in writing
and signed by or on behalf of the party to be bound by such waiver.
-5-
<PAGE>
13. Governing Law
This Agreement shall be governed by and construed under the laws of the
state of Washington as applied to agreements among Washington residents, made
and to be performed entirely within Washington.
14. Successors and Assigns
The provisions hereof shall inure to the benefit of, and be binding upon,
the successors, permitted assigns, heirs, executors, administrators and personal
representatives of the parties hereto. Notwithstanding anything to the contrary
contained in this Agreement, no shares of Stock may be transferred by the
Shareholder under any circumstances, without the prior written consent of the
Company which may be withheld for any reason, so long as such shares are subject
to the Purchase Option contained in this Agreement. Any transfer or purported
transfer in violation of this Section 14 shall be void.
15. Headings
The headings of the sections and paragraphs of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
16. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
17. Agreement to Perform Future Services
As partial consideration for the Stock being issued to the Shareholder,
the Shareholder agrees to serve as an employee and officer of the Company, and
to perform such services for the Company as the Company's Board of Directors may
determine, for the period during which the Purchase Option is in effect.
18. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provisions shall be excluded from this Agreement and
the balance of this Agreement shall be interpreted as if such provisions were so
excluded and shall be enforceable in accordance with its terms.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
IMAGEX, INC.
By /s/ F. JOE VERSCHUEREN
---------------------------------
Name: F. Joe Verschueren
-------------------------------
Title: President
------------------------------
Address: 8195 - 166th Avenue N.E.
Suite 101
Redmond, Washington 98052
SHAREHOLDER
/s/ Cory E. Klatt
-------------------------------------
Cory E. Klatt
Address: 14325 63RD AVE W
---------------------------
EDMONDS, WA 98026
---------------------------
---------------------------
<PAGE>
IMAGEX, INC.
STOCK VESTING AGREEMENT
This Stock Vesting Agreement is entered into as of December 20, 1996
by and between ImageX, Inc., a Washington corporation (the "Company"), and
Elwood D. Howse, Jr. (the "Shareholder").
RECITALS
A. In connection with the execution and delivery of this Agreement, the
Company is issuing to the Shareholder, in exchange for an aggregate of $100 and
services to be rendered to the Company in the future, 100,000 shares of common
stock, $.01 par value per share, of the Company (the "Stock").
B. In order to induce the Company to issue the Stock, the Shareholder has
agreed that half of the Stock (50,000 shares) will be subject to a purchase
option in favor of the Company as set forth herein (the "Option Stock").
AGREEMENTS
In consideration of the foregoing and the other provisions set forth
herein, the parties hereby agree as follows:
1. Consulting Agreement and Purchase Option
The Shareholder agrees to be available as a consultant for the Company
during the term that the Purchase Option (as defined below) is in effect. In
this capacity, the Shareholder agrees to perform such consulting services as may
be reasonably requested by the Company from time to time. The parties agree that
the scope of any consulting services requested shall not be excessive or unduly
burdensome to Shareholder in light of his other business activities and personal
pursuits.
The Option Stock shall be subject to the following option (the "Purchase
Option"):
(a) In the event that, prior to the termination of this Agreement,
the Shareholder ceases to be available to perform consulting services for the
Company as contemplated by the foregoing paragraph, or for a parent or
subsidiary or successor or affiliate of the Company, due either to his voluntary
resignation from such consultancy (other than due to disability) or to
termination by the Company for Cause (as defined below), the Company may
exercise the Purchase Option. For the purpose
<PAGE>
of this paragraph 1, the Shareholder shall not be deemed to be unavailable to
perform consulting services unless so determined in the reasonable judgment of
the Board of Directors of the Company after at least 30 days' prior written
notice is provided to the Shareholder that such a determination is under
consideration; provided, however, that the Shareholder's service as a director
of the Company shall be considered entirely separate from the consulting
services hereunder and in no event shall any cessation of the Shareholder's
service on the Board of Directors of the Company due to resignation, removal or
other cause be deemed to constitute unavailability to perform consulting
services under this Agreement or be considered in determining whether any such
unavailability has occurred. Vacations and temporary unavailability due to
illness, disability or family crisis shall not be considered in determining
whether a cessation of the Shareholder's availability for consulting services
has occurred. The date when such availability ceases is hereinafter referred to
as the "Termination Date." The term "Cause" shall mean: (i) the Shareholder's
conviction of (or plea of guilty or nolo contendere to) a felony which had or
will have a material detrimental effect on the Company's business, (ii) a
grossly negligent or willful act by the Shareholder which constitutes gross
misconduct and is injurious to the Company, and (iii) continued violations by
the Shareholder of his material consulting duties which are demonstrably willful
and deliberate or grossly negligent on the Shareholder's part after there has
been delivered to the Shareholder a written demand for performance from the
Company which describes the basis for the Company's belief that the Shareholder
has not substantially performed his duties.
(b) The Company shall have the right at any time within sixty (60)
days after the Termination Date, provided that such date is prior to the
termination of this Agreement, to purchase from the the Shareholder, at a price
per share of $.01 (appropriately adjusted for any subsequent stock split,
dividend, combination, or other recapitalization) (the "Repurchase Price"), up
to but not exceeding a number of shares of Option Stock equal to fifty percent
(50%) of the Stock (50,000 shares) less 1,389 shares (subject to appropriate
adjustment for any subsequent stock split, stock dividend, combination, or other
recapitalization) for each completed month elapsed between the date of this
Agreement (the "Commencement Date") and the Termination Date.
(c) The Purchase Option, if exercised by the Company, shall be
exercised by written notice signed by an officer or director of the Company
after approval by the Board of Directors and shall be delivered to the
Shareholder on or prior to the expiration of the 60-day period referred to in
paragraph (b) above. The Company may pay for the shares of Option Stock it has
elected to repurchase (i) by delivery to the Shareholder of a check in the
amount of the aggregate Repurchase Price for the number of shares of Option
Stock being repurchased, (ii) by cancellation
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<PAGE>
by the Company of an amount of the Shareholder's indebtedness to the Company
equal to the aggregate Repurchase Price for the number of shares of Option Stock
being repurchased or (iii) by a combination of (i) and (ii). Payment of the
Repurchase Price shall be completed within five business days after notice of
exercise of the Purchase Option is delivered to the Shareholder.
(d) In the event that, in connection with any exercise of the
Purchase Option under this Agreement, the Company elects to exercise the
Purchase Option as to fewer than all the shares of Option Stock then subject
thereto, the Purchase Option shall expire as to all the shares of Option Stock
that the Company has not elected to repurchase.
(e) Upon the closing of any of the following transactions, provided
any such transaction is duly and validly approved by the Company's Board of
Directors and shareholders in accordance with applicable law, the Purchase
Option shall automatically lapse in its entirety:
(i) the liquidation, dissolution or indefinite
cessation of business operations of the Company;
(ii) the execution by the Company of a general assignment for
the benefit of creditors, the appointment of a receiver or trustee to take
possession of the property and assets of the Company, or the filing of a
petition under applicable bankruptcy laws with respect to the Company;
(iii) the cessation of the Shareholder's consultancy with the
Company (or a parent or subsidiary or successor or affiliate of the Company) due
to any reason other than voluntary resignation (other than due to disability) or
termination by the Company for Cause.
(f) Notwithstanding subsections (b) and (c) of this Section, the
Company shall be entitled for a period of one year from the Termination Date
(rather than 60 days) to give notice to the Shareholder and to purchase the
shares to the extent that the Company reasonably determines that such an
extension of time is necessary to prevent the repurchase of the Shareholder's
shares from causing other capital stock of the Company to not qualify as "small
business stock" under Section 1202 of the Internal Revenue Code of 1986, as
amended.
-3-
<PAGE>
2. Legend
All certificates representing any shares of Option Stock subject to this
Agreement shall have endorsed thereon the following legend, in addition to any
other legend required by the Company respecting the restricted nature of the
Option Stock:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN STOCK VESTING AGREEMENT
THAT INCLUDES A REPURCHASE RIGHT IN FAVOR OF THE CORPORATION
RELATING TO THESE SECURITIES. COPIES OF THE STOCK VESTING
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
3. Rights as Shareholder
Subject to the terms hereof, the Shareholder shall have all the rights of
a shareholder with respect to the Option Stock during the term of this
Agreement, including without limitation the right to vote and receive any
dividends or other distributions declared thereon.
4. Adjustments for Stock Splits, Recapitalizations and Similar
Events
If, at any time or from time to time, there is (i) a dividend of any
security, stock split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) any consolidation, merger or
similar event in connection with which the Purchase Option does not lapse under
the terms of this Agreement, then, in such event, any and all new, substituted
or additional securities or other property to which the Shareholder is entitled
by reason of his ownership of the shares of Option Stock then subject to the
Purchase Option shall be immediately included in the definition of "Option
Stock" under this Agreement and shall be subject to the Purchase Option with the
same force and effect as the Option Stock currently subject to this Agreement
and the Purchase Option. The Repurchase Price per share upon exercise of the
Purchase Option shall be appropriately adjusted as determined by the Board of
Directors of the Company to reflect any such event referred to in this Section
4.
5. Termination
This Agreement shall terminate in its entirety upon the lapse of the
Purchase Option in its entirety pursuant to Section 1 or otherwise, or upon the
completion of a
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<PAGE>
repurchase transaction pursuant to an exercise of the Purchase Option, in either
case in accordance with the terms of this Agreement.
6. Tax Matters
The Shareholder acknowledges that he has considered and analyzed the
appropriate treatment by him of the transactions contemplated hereby under the
Internal Revenue Code of 1986, as amended (the "Code"), including without
limitation Section 83 thereof. The Shareholder agrees that any decision as to
whether to file an election relating thereto, and the due and proper filing of
any such election, are solely the Shareholder's responsibilities.
7. Cooperation
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
8. Specific Enforcement
Each party expressly agrees that the other party would be irreparably
damaged if this Agreement were not specifically enforced. Upon a breach or
threatened breach of the terms, covenants and/or conditions of this Agreement by
any party, the other party shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of this Agreement.
9. Notices
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Shareholder, at the Shareholder's then current address on the
Company's books or at such other address as the Shareholder shall have furnished
to the Company in writing, or (b) if to the Company, at its principal executive
office, attention President, with a copy to Charles J. Katz, Jr., Perkins Coie,
1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice is provided by mail,
it shall be deemed to be given three (3) business days after proper deposit in
the U.S. Mail, and if notice is given by hand or by messenger, facsimile or
courier, it shall be deemed to be given upon receipt.
-5-
<PAGE>
10. Entire Agreement
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both oral and written, among such parties, or any of them, with
respect to such subject matter. No such prior agreement or undertaking may
contradict, vary or supplement this Agreement.
11. Amendment and Waiver
Neither this Agreement nor any provision hereof may be modified, amended
or terminated except by a written agreement signed by the parties hereto, and no
waiver of any provision of this Agreement shall be effective unless in writing
and signed by or on behalf of the party to be bound by such waiver.
12. Governing Law
This Agreement shall be governed by and construed under the laws of the
state of Washington as applied to agreements among Washington residents, made
and to be performed entirely within Washington.
13. Successors and Assigns
The provisions hereof shall inure to the benefit of, and be binding upon,
the successors, permitted assigns, heirs, executors, administrators and personal
representatives of the parties hereto. Notwithstanding anything to the contrary
contained in this Agreement, no shares of Option Stock may be transferred by the
Shareholder under any circumstances, without the prior written consent of the
Company which may be withheld for any reason, so long as such shares are subject
to the Purchase Option contained in this Agreement. Any transfer or purported
transfer in violation of this Section 13 shall be void.
14. Headings
The headings of the sections and paragraphs of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
-6-
<PAGE>
15. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
16. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provisions shall be excluded from this Agreement and
the balance of this Agreement shall be interpreted as if such provisions were so
excluded and shall be enforceable in accordance with its terms.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
IMAGEX, INC.
By /s/ F. JOE VERSCHUEREN
------------------------------------
Name: F. Joe Verschueren
---------------------------------
Title: President
--------------------------------
Address: 8195 - 166th Avenue N.E.
Suite 101
Redmond, Washington
98052
SHAREHOLDER
/s/ ELWOOD D. HOWSE, JR.
--------------------------------------
Elwood D. Howse, Jr.
Address: 1615 72ND AVE SE
------------------------------
MERCER ISLAND, WA 98040
------------------------------
-8-
<PAGE>
IMAGEX, INC.
STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT
This Stock Subscription and Repurchase Agreement is entered into as
of August 7, 1997 by and between ImageX, Inc., a Washington corporation
(the "Company"), and Elwood D. Howse, Jr. (the "Shareholder").
RECITALS
A. In connection with the execution and delivery of this Agreement, the
Company is issuing to the Shareholder, in exchange for an aggregate of $20,000
payable pursuant to a promissory note in substantially the form attached hereto
as Exhibit A (the "Note"), 200,000 shares of common stock of the Company (the
"Stock").
B. The Stock is being issued as an Award pursuant to the Company's Amended
and Restated 1996 Stock Incentive Compensation Plan (the "Plan"), a copy of
which is attached hereto as Exhibit B. Capitalized terms used herein without
definition shall have the meanings assigned thereto in the Plan.
C. In order to induce the Company to issue the Stock, the Shareholder has
agreed that all of the Stock will be subject to a repurchase option in favor of
the Company as set forth herein.
AGREEMENTS
In consideration of the foregoing and the other provisions set forth
herein, the parties hereby agree as follows:
1. Stock Subscription and Shareholder Representations
The Shareholder hereby subscribes for and agrees to purchase the Stock at
a purchase price of $.10 per share, or $20,000 in the aggregate, payable
pursuant to the Note. For purposes of complying with applicable securities laws
in connection with such purchase, the Shareholder represents and warrants to the
Company as follows:
(a) I am a resident of the State of Washington and, as a director of
the Company, I am familiar with its business and prospects and have had a full
opportunity to analyze the merits and risks of an investment in the Stock. I am
aware that the Stock has not been registered under the Securities Act of 1933
(the "1933 Act") or any state securities laws pursuant to exemption(s) from
registration. I understand that the reliance by the Company on such exemption(s)
is predicated in part upon the truth and accuracy of the representations
contained in this Section.
<PAGE>
(b) I am purchasing the Stock for my own personal account for
investment and not with a view to the sale or distribution of all or any part of
the Stock. I agree that I will in no event sell or distribute all or any part of
the Stock unless (1) there is an effective registration statement under the 1933
Act and applicable state securities laws covering any such transaction or (2)
the Company receives an opinion of my legal counsel (concurred in by legal
counsel for the Company) stating that such transaction is exempt from
registration or the Company otherwise satisfies itself that such transaction is
exempt from registration.
(c) I consent to the placing of a legend on my certificate(s) for
the Stock stating that the Stock has not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Stock until the Stock may be legally resold or distributed.
2. Consulting Agreement and Repurchase Option
In order to induce the Company to issue the Stock, the Shareholder agrees
to provide consulting services to the Company during the term that the
Repurchase Option (as defined below) is in effect. The Shareholder's consulting
services shall consist of mentoring the Company's President and CEO, assisting
the President and CEO in capital raising efforts, advising management on sales
strategy, advising on strategic planning matters and such other consulting
services as may be reasonably requested by the Company from time to time. The
parties agree that the scope of any consulting services requested shall not be
excessive or unduly burdensome to Shareholder in light of his other business
activities and personal pursuits.
The Stock shall be subject to the following repurchase option in favor of
the Company (the "Repurchase Option"):
(a) In the event that the Shareholder's consulting services for the
Company are terminated for any reason prior to April 30, 2000, whether by the
Company or by the Shareholder or involuntarily due to death of the Shareholder
or other circumstance, the Company may exercise the Repurchase Option as
provided herein. For the purpose of this Section 2, the Shareholder's consulting
services shall be deemed to have terminated when the Shareholder ceases to be
actively engaged in advising management on matters referred to in Section 1 as
determined in the reasonable discretion of the members of the Board of Directors
of the Company other than the Shareholder after at least 30 days' notice that
such a determination is under consideration. The date when such consulting
services terminate is hereinafter referred to as the "Termination Date." The
Shareholder's service as a director of the Company shall be considered entirely
separate from the consulting services hereunder, and in no event shall any
cessation of the Shareholder's service on the Board of Directors of the Company
due to resignation, removal or other cause be deemed to constitute
unavailability to perform consulting services under this Agreement or be
considered in determining whether any such unavailability has occurred.
Vacations and temporary
2
<PAGE>
unavailability due to illness, disability or family crisis shall not be
considered in determining whether the consulting services have terminated.
(b) The Company shall have the right at any time within sixty (60)
days after the Termination Date, provided that the Termination Date shall have
occurred prior to the termination of the Repurchase Option and prior to April
30, 2000, to repurchase from the Shareholder, at a price per share of $.10
(appropriately adjusted for any subsequent stock split, dividend, combination,
or other recapitalization) (the "Repurchase Price"), up to but not exceeding the
total number of shares of Stock (200,000) less 5,556 shares (subject to
appropriate adjustment for any subsequent stock split, stock dividend,
combination, or other recapitalization) for each completed month elapsed between
May 1, 1997 and the Termination Date. The Repurchase Option shall not be
exercisable as to any Stock if the Termination Date occurs on or after April 30,
2000.
(c) The Repurchase Option, if exercised by the Company, shall be
exercised by written notice signed by an officer or director (other than the
Shareholder) of the Company after approval by the Board of Directors (excluding
the Shareholder) and shall be delivered to the Shareholder on or prior to the
expiration of the 60-day period referred to in paragraph (b) above. The Company
may pay for the shares of Stock it has elected to repurchase (i) by delivery to
the Shareholder of a check in the amount of the aggregate Repurchase Price for
the number of shares of Stock being repurchased, (ii) by cancellation by the
Company of an amount of the Shareholder's indebtedness to the Company equal to
the aggregate Repurchase Price for the number of shares of Stock being
repurchased or (iii) by a combination of (i) and (ii). Payment of the Repurchase
Price shall be completed within five business days after notice of exercise of
the Repurchase Option is delivered to the Shareholder.
(d) In the event that, in connection with any exercise of the
Repurchase Option under this Agreement, the Company elects to exercise the
Repurchase Option as to fewer than all the shares of Stock then subject thereto,
the Repurchase Option shall expire as to all the shares of Stock that the
Company has not elected to repurchase.
(e) Upon the closing of any of the following transactions, provided
any such transaction is duly and validly approved by the Company's Board of
Directors (excluding the Shareholder) and shareholders in accordance with
applicable law, the Repurchase Option shall automatically lapse and terminate in
its entirety:
(i) the liquidation, dissolution or indefinite
cessation of business operations of the Company; or
(ii) the execution by the Company of a general assignment for
the benefit of creditors, the appointment of a receiver or trustee to take
possession of the property and assets of the Company, or the filing of a
petition under applicable bankruptcy laws with respect to the Company.
3
<PAGE>
(f) Notwithstanding subsections (b) and (c) of this Section 2, the
Company shall be entitled for a period of one year from the Termination Date
(rather than 60 days) to give notice to the Shareholder and to repurchase the
shares to the extent that the Company reasonably determines that such an
extension of time is necessary to prevent the repurchase of the Shareholder's
Stock from causing other capital stock of the Company to not qualify as "small
business stock" under Section 1202 of the Internal Revenue Code of 1986, as
amended.
3. Transfer Restrictions; Right of First Offer
(a) Without the prior written consent of the Company, no shares of
Stock may be transferred by the Shareholder under any circumstances, voluntarily
or involuntarily; provided, however, that shares of Stock may be transferred
without such prior written consent if and only if (i) the Repurchase Option
shall have ceased to apply to such shares as provided in this Agreement and (ii)
the Shareholder shall have complied fully with the requirements of this Section
3 and the other provisions of this Agreement.
(b) If and to the extent that any Stock shall no longer be subject
to the Repurchase Option as provided in this Agreement (such Stock being
referred to herein as "Vested Stock"), such Vested Stock shall be subject to a
right of first refusal in favor of the Company as provided in this Section 3.
(i) In the event that the Shareholder wishes to sell, transfer
or otherwise dispose of ("Transfer") any Vested Stock, the Shareholder shall
first provide written notice to the Company of the proposed Transfer and all
material terms thereof, including without limitation the number of shares of
Vested Stock proposed to be Transferred, the proposed Transferee and the
consideration, if any, to be paid by or on behalf of the Transferee in exchange
therefor (the "Offer").
(ii) Within 60 days after receipt of the written notice
referred to in the preceding sentence, the Company may accept the Offer as to
all, but not less than all, the shares of Vested Stock proposed to be
Transferred (as indicated in the Offer) by delivery of written notice to such
effect to the Shareholder. If there is any change in the terms of the proposed
Transfer after delivery of the Offer to the Company but prior to expiration of
the 60-day period referred to in the preceding sentence, the Shareholder shall
give written notice thereof to the Company, in which case such 60-day period
shall be extended by an additional 30 days beyond the date on which such 60-day
period otherwise would have expired.
(iii) In the event that the Company accepts the Offer, the
parties shall use reasonable efforts to close the transaction contemplated
thereby within 30 days after the date as of which the Offer is accepted. In the
event the Company does not accept the Offer within the prescribed time period,
the Shareholder shall be free to complete the Transfer to the Transferee
indicated in the Offer on terms no more favorable to the Transferee than those
contained in the Offer and any update thereof communicated to the Company as
required by this Section 3.
4
<PAGE>
(iv) In the event the proposed Transferee changes or the terms
of the proposed Transfer change, in a manner favorable to the Transferee, after
the Offer is rejected by the Company or after expiration of the period in which
the Offer could have been accepted by the Company, the proposed Transfer shall
be deemed to be abandoned and the Shareholder shall again comply in full with
the requirements of this Section 3 prior to completing the Transfer.
(c) Any purported Transfer without compliance with this Section
shall be void. The Company may place a legend on the certificate or certificates
evidencing the Stock referencing the restrictions on transfer set forth in this
Agreement. Any Transfer made in compliance with this Section (or otherwise)
shall be conditioned upon the Transferee agreeing in writing, in a form
reasonably acceptable to the Company, to be bound by the right of first refusal
in favor of the Company and other terms set forth in this Section with respect
to any future transfers by such Transferee.
(d) The provisions of this Section 3 shall terminate upon the
closing of any underwritten public offering of Common Stock of the Company.
4. Legend
All certificates representing any shares of Stock subject to this
Agreement shall have endorsed thereon the following legend, in addition to any
other legend required by the Company respecting the restricted nature of the
Stock:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT
THAT INCLUDES A REPURCHASE RIGHT AND A RIGHT OF FIRST OFFER IN FAVOR OF
THE CORPORATION RELATING TO THESE SECURITIES."
5. Rights as Shareholder
Subject to the terms hereof, the Shareholder shall have all the rights of
a shareholder with respect to the Stock during the term of this Agreement,
including without limitation the right to vote and receive any dividends or
other distributions declared thereon.
6. Adjustments for Stock Splits, Recapitalizations and Similar Events
(a) If, at any time or from time to time, there is (i) a dividend of
any security, stock split or other change in the character or amount of any of
the outstanding securities of the Company, or (ii) any consolidation, merger or
similar event in connection with which the Repurchase Option does not lapse and
terminate under the terms of this Agreement, then, in such event, any and all
new, substituted or additional securities or other property to which the
Shareholder is entitled by reason of his ownership of the shares of Stock then
subject to the Repurchase Option shall be immediately included in the definition
5
<PAGE>
of "Stock" under this Agreement and shall be subject to the Repurchase Option
with the same force and effect as the Stock currently subject to this Agreement
and the Repurchase Option. The Repurchase Price per share upon exercise of the
Repurchase Option shall be appropriately adjusted as determined by the Board of
Directors of the Company to reflect any such event referred to in this Section
6.
(b) Section 13.2 of the Plan with respect to Corporate Transactions
(as defined therein) shall not apply to the Stock subject to this Agreement, and
in no event shall the vesting restrictions embodied in the Repurchase Option
terminate in the event of a transaction contemplated by such Section 13.2.
7. Termination
This Agreement shall terminate in its entirety (a) upon the completion of
a repurchase transaction pursuant to an exercise of the Repurchase Option, (b)
upon completion of an initial underwritten public offering of the Company's
common stock or (c) at April 30, 2000, whichever is earliest.
8. Tax Matters
The Shareholder acknowledges that he has considered and analyzed the
appropriate treatment by him of the transactions contemplated hereby under the
Internal Revenue Code of 1986, as amended (the "Code"), including without
limitation Section 83 thereof. The Shareholder agrees that any decision as to
whether to file an election relating thereto, and the due and proper filing of
any such election, are solely the Shareholder's responsibilities.
9. Cooperation
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
10. Specific Enforcement
Each party expressly agrees that the other party would be irreparably
damaged if this Agreement were not specifically enforced. Upon a breach or
threatened breach of the terms, covenants and/or conditions of this Agreement by
any party, the other party shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of this Agreement.
11. Notices
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Shareholder, at the
6
<PAGE>
Shareholder's then current address on the Company's books or at such other
address as the Shareholder shall have furnished to the Company in writing, or
(b) if to the Company, at its principal executive office, attention President,
with a copy to Charles J. Katz, Jr., Perkins Coie, 1201 Third Avenue, 40th
Floor, Seattle, WA 98101. If notice is provided by mail, it shall be deemed to
be given three (3) business days after proper deposit in the U.S. Mail, and if
notice is given by hand or by messenger, facsimile or courier, it shall be
deemed to be given upon receipt.
12. Entire Agreement
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both oral and written, among such parties, or any of them, with
respect to such subject matter. No such prior agreement or undertaking may
contradict, vary or supplement this Agreement.
13. Amendment and Waiver
Neither this Agreement nor any provision hereof may be modified, amended
or terminated except by a written agreement signed by the parties hereto, and no
waiver of any provision of this Agreement shall be effective unless in writing
and signed by or on behalf of the party to be bound by such waiver.
14. Governing Law
This Agreement shall be governed by and construed under the laws of the
state of Washington as applied to agreements among Washington residents, made
and to be performed entirely within Washington.
15. Successors and Assigns
The provisions hereof shall inure to the benefit of, and be binding upon,
the successors, permitted assigns, heirs, executors, administrators and personal
representatives of the parties hereto. Notwithstanding anything to the contrary
contained in this Agreement, no shares of Stock may be transferred by the
Shareholder under any circumstances, without the prior written consent of the
Company which may be withheld for any reason, so long as such shares are subject
to the Repurchase Option contained in this Agreement. Any transfer or purported
transfer in violation of this Section 15 shall be void.
16. Headings
The headings of the sections and paragraphs of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
7
<PAGE>
17. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
18. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provisions shall be excluded from this Agreement and
the balance of this Agreement shall be interpreted as if such provisions were so
excluded and shall be enforceable in accordance with its terms.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
IMAGEX, INC.
By /s/ F. JOSEPH VERSCHUEREN
----------------------------------
Name: F. Joseph Verschueren
-------------------------------
Title: President
------------------------------
Address:
10800 N.E. 8th, Suite 200
Bellevue, WA 98004
SHAREHOLDER
/s/ ELWOOD D. HOWSE, JR.
------------------------------------
Elwood D. Howse, Jr.
Address:
ELWOOD D. HOWSE, JR.
------------------------------------
1615 - 72ND AVE SE
------------------------------------
MERCER ISLAND, WA 98040
------------------------------------
9
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Bellevue, Washington
$20,000 Principal Amount August 7, 1997
FOR VALUE RECEIVED, Elwood D. Howse, Jr. ("Maker") hereby promises to pay
to the order of ImageX, Inc., a Washington corporation ("Payee"), the principal
sum of twenty thousand dollars ($20,000) (the "Original Principal Amount"),
together with simple interest on the unpaid principal balance at a rate of seven
percent (7%) per annum (calculated on the basis of actual days elapsed). This
Note is being made in connection with the purchase by Maker from Payee of
200,000 shares of the Common Stock of Payee pursuant to the Amended and Restated
1996 Stock Incentive Compensation Plan of Payee and a Stock Subscription and
Repurchase Agreement of even date herewith (the "Repurchase Agreement") relating
to such shares under which Maker is agreeing that such shares shall be subject
to repurchase by Payee under certain conditions as provided therein.
1. Payments. All payments on account of the indebtedness evidenced by this
Note shall be applied first to full payment of accrued interest and then to
reduction of the outstanding principal balance. All such payments shall be made
in the form of cash or check.
2. Maturity and Repayment Schedule. This Note shall mature, and all unpaid
principal and accrued interest shall be due and payable, on the earliest to
occur of (a) an Event of Default (as defined below) or (b) April 30, 2000 (the
"Maturity Date"). Principal and accrued interest under this Note shall be
repaid according to the following schedule: (x) accrued interest on the
outstanding principal balance hereof shall be paid on or before the last day of
each month ending after the date hereof, and (y) the entire outstanding
principal balance hereof shall be paid in full in one lump sum payment on or
before the earlier of the Maturity Date and the date of any Event of Default.
3. Default. The entire unpaid principal of, and all accrued interest on,
this Note shall become immediately due and payable upon the occurrence of any
one or more of the following events of default (each, an "Event of Default"):
(a) Failure to pay all or any part of the principal or accrued interest
on this Note when the same shall be due and payable as provided in
the repayment schedule set forth herein;
(b) Maker shall (i) be made the subject of any proceeding under
the Bankruptcy Code of the United States, as amended or any
similar statute and which proceeding shall not be dismissed
within 60 days thereafter, (ii) admit in writing its inability
to pay its debts generally as they become due, (iii)
voluntarily seek the benefit of the Bankruptcy Code of the
United States, as amended, or any other applicable
liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or
<PAGE>
similar debtor relief laws, from time to time in effect,
affecting the rights of creditors generally (collectively,
"Debtor Relief Laws"), or (iv) be made the subject of any
proceeding provided for by any Debtor Relief Laws that
suspends or otherwise materially affects any of the rights of
Payee under this Note and which proceeding shall not be
dismissed within 60 days thereafter; or
(c) Lapse of the Repurchase Option under the Repurchase Agreement for
any reason, or termination of the Repurchase Agreement for any
reason.
4. Prepayment. Maker may, at any time, prepay all or any portion of the
principal and accrued interest due under this Note without premium or penalty.
5. Notices. Any notices to be given to Payee in connection with this Note
shall be deemed to be delivered (i) ten days after deposit in the United States
mail, first-class postage prepaid, registered or certified, and addressed to the
recipient or (ii) one business day after the transmission by facsimile.
6. Waiver. Maker hereby waives presentment, notice of dishonor, protest,
notice of protest and diligence in collection, and consents that the time of
payment on any part of this Note may be extended by Payee without otherwise
modifying, altering, releasing, affecting or limiting its liability.
7. Attorneys' Fees. If any suit or action arising out of or related to
this Note is brought by any party, the prevailing party or parties shall be
entitled to recover the costs and fees (including without limitation reasonable
attorneys' fees, the fees and costs of experts and consultants, and copying,
courier and telecommunication costs) incurred by such party or parties in such
suit or action, including without limitation any post-trial or appellate
proceeding, or in the collection or enforcement of any judgment or award entered
or made in such suit or action.
8. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Washington.
10. Assignment; Successors. This Note shall not be assignable by Maker, by
operation of law or otherwise, without the prior written consent of Payee. This
Note shall be binding upon, and shall inure to the benefit of, Maker, Payee and
their respective permitted successors, assigns, heirs and legal representatives,
as the case may be.
-2-
<PAGE>
Maker hereby executes and delivers this Note, and Payee hereby accepts
this Note, as of the date first set forth above.
/s/ ELWOOD D. HOWSE, JR.
-------------------------
Elwood D. Howse, Jr.
ACCEPTED:
IMAGE X, INC.
By /s/ F. JOSEPH VERSCHUEREN
-----------------------------
Title PRESIDENT
--------------------------
-3-
<PAGE>
IMAGEX.COM, INC.
STOCK VESTING AND PLEDGE AGREEMENT
This Stock Vesting and Pledge Agreement is entered into as of November 16,
1998 by and between ImageX.com, Inc., a Washington corporation (the "Company"),
and Richard P. Begert (the "Shareholder").
RECITALS
A. In connection with the execution and delivery of this Agreement, the
Company is issuing to the Shareholder, in exchange for an aggregate of $200,000
payable pursuant to the terms of a Promissory Note in substantially the form
attached hereto as Exhibit A (the "Note"), 1,000,000 shares of common stock,
$.01 par value per share, of the Company (the "Shares").
B. Shareholder has agreed to pledge the Shares to Company to secure
payment and performance in full of his obligations under this Agreement and the
Note.
C. The Shares are being issued as an Award pursuant to the terms of the
Company's Amended and Restated 1996 Stock Incentive Compensation Plan, a copy of
which is attached hereto as Exhibit B (the "Plan").
D. In order to induce the Company to issue the Shares, the Shareholder has
agreed that the Shares will be subject to a repurchase option in favor of the
Company as set forth herein.
E. Capitalized terms used and not otherwise defined herein shall have the
meanings assigned thereto in the Plan.
AGREEMENTS
In consideration of the foregoing and the other provisions set forth
herein, the parties hereby agree as follows:
1. Purchase Option
The Shares shall be subject to the following option (the "Purchase
Option"):
<PAGE>
(a) In the event that, prior to the termination of this Agreement,
the Shareholder ceases to be continuously employed by the Company, or a parent,
subsidiary, successor or affiliate of the Company (any such other company being
a "Related Company"), the Company may exercise the Purchase Option as to any or
all of the Shares then subject to the Purchase Option. For the purpose of this
paragraph 1, the Shareholder's "continuous employment" shall cease when the
Shareholder ceases to be actively employed by the Company or a Related Company,
as determined in the reasonable discretion of the Board of Directors of the
Company. The date when continuous employment ceases is hereinafter referred to
as the "Termination Date."
(b) The Purchase Option may be exercised by the Company at any time
within ninety (90) days after the Termination Date, provided that the
Termination Date is prior to the termination of this Agreement. The Purchase
Option shall entitle the Company to purchase from the Shareholder, at a price
per share of $.20 (appropriately adjusted for any stock split, dividend,
combination, or other recapitalization) (the "Repurchase Price"), up to but not
exceeding a number of Shares determined in accordance with the following table:
- -----------------------------------------------------------------------------
Period of Continuous Employment From Number of Shares Subject to Purchase
Date Hereof to Termination Date Option
- ------------------------------------ ---------------------------------------
- -----------------------------------------------------------------------------
Less than 12 months 1,000,000
- -----------------------------------------------------------------------------
12 months 760,000
- -----------------------------------------------------------------------------
Each additional month after 12 months 20,000 fewer shares
- -----------------------------------------------------------------------------
50 months 0 shares
- -----------------------------------------------------------------------------
(c) The Purchase Option, if exercised by the Company, shall be
exercised by written notice signed by an officer or director of the Company
after approval by the Board of Directors and shall be delivered to the
Shareholder on or prior to the expiration of the 90-day period referred to in
paragraph (b) above. The Company may pay for the Shares it has elected to
repurchase (i) by delivery to the Shareholder of a check in the amount of the
aggregate Repurchase Price for the number of Shares being repurchased, (ii) by
cancellation of an amount of the Shareholder's indebtedness to the Company equal
to the aggregate Repurchase Price for the number of Shares being repurchased or
(iii) by a combination of (i) and (ii). Payment of the Repurchase Price shall be
completed as promptly as practicable after notice of exercise of the Purchase
Option is delivered to the Shareholder.
-2-
<PAGE>
(d) In the event that, in connection with any exercise of the
Purchase Option under this Agreement, the Company elects to exercise the
Purchase Option as to fewer than all the Shares then subject thereto, the
Purchase Option shall expire as to any Shares that the Company has not elected
to repurchase.
(e) Notwithstanding subsections (b) and (c) of this Section, the
Company shall be entitled for a period of one year from the Termination Date
(rather than 90 days) to give notice to the Shareholder and to purchase the
shares to the extent that the Company reasonably determines that such an
extension of time is necessary to prevent the repurchase of the Shares from
causing other capital stock of the Company to not qualify as "small business
stock" under Section 1202 of the Internal Revenue Code of 1986, as amended.
2. Pledge
The Shareholder hereby grants to the Company a first priority, perfected
security interest in the Shares as security for payment of the Note. Upon
execution of this Agreement and receipt of the Note by the Company, the Company
shall deliver a certificate representing the Shares to the Shareholder, and
thereupon the Shareholder shall immediately pledge and deliver the certificate
to the Company, as pledgeholder, and shall execute and deliver to the Company an
assignment separate from certificate endorsed in blank in substantially the form
of Exhibit C. In the event that the Shareholder defaults with respect to any of
his obligations under the Note, the Company shall have all rights awarded upon
default to a secured party under the Uniform Commercial Code and other
applicable law (and in equity), including the right to sell the security at any
public or private sale in a commercially reasonable manner. The Company shall
also have the right to cancel some or all of the Shares and attribute the value
thereof to the obligations outstanding under the Note.
3. Legend
All certificates representing any Shares subject to this Agreement shall
have endorsed thereon the following legend, in addition to any other legend
required by the Company respecting the restricted nature of the Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN STOCK VESTING AND PLEDGE AGREEMENT THAT
INCLUDES A REPURCHASE RIGHT IN FAVOR OF THE CORPORATION RELATING TO THESE
SECURITIES. COPIES OF THE STOCK VESTING AND PLEDGE AGREEMENT MAY BE
OBTAINED
3
<PAGE>
UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
4. Rights as Shareholder
Subject to the terms hereof, the Shareholder shall have all the rights of
a shareholder with respect to the Shares during the term of this Agreement,
including without limitation the right to vote and receive any dividends or
other distributions declared thereon.
5. Adjustments for Stock Splits, Recapitalizations and Similar
Events
If, at any time or from time to time, there is (i) a dividend of any
security, stock split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) any consolidation, merger or
similar event in connection with which the Purchase Option does not lapse under
the terms of this Agreement, then, in such event, any and all new, substituted
or additional securities or other property to which the Shareholder is entitled
by reason of his ownership of the Shares then subject to the Purchase Option
shall be immediately included in the definition of "Shares" under this Agreement
and shall be subject to the Purchase Option with the same force and effect as
the Shares currently subject to this Agreement and the Purchase Option. The
Repurchase Price per Share shall be appropriately adjusted as determined by the
Board of Directors of the Company to reflect any such event referred to in this
Section 5.
6. Termination
This Agreement shall terminate in its entirety upon the lapse of the
Purchase Option in its entirety pursuant to Section 1 or otherwise, or upon the
completion of a repurchase transaction pursuant to an exercise of the Purchase
Option, in either case in accordance with the terms of this Agreement.
7. Corporate Transactions
In the event of any Corporate Transaction (as defined in the Plan), the
Shares shall be treated (as to vesting and related matters) in a manner that is
comparable to the treatment of options outstanding under the Plan, such that any
acceleration of the vesting provisions applicable to such options shall result
in the lapse of the Purchase Option to the same extent. The issuance of the
Shares as contemplated by this Agreement shall be treated as the grant of an
Award under the Plan, and the terms of the Plan (and any amendments or
modifications thereto) shall be applicable to the Shares to the extent so
provided in the Plan or in this Agreement.
4
<PAGE>
8. Tax Matters
The Shareholder acknowledges that he has considered and analyzed the
appropriate treatment by him of the transactions contemplated hereby under the
Internal Revenue Code of 1986, as amended (the "Code"), including without
limitation Section 83 thereof. The Shareholder agrees that any decision as to
whether to file an election relating thereto, and the due and proper filing of
any such election, are solely the Shareholder's responsibilities.
9. No Right to Continued Employment
Nothing in this Agreement shall create any right to continued employment
of the Shareholder, or to affect in any manner the right and power of the
Company to terminate the employment of the Shareholder for any reason or for no
reason.
10. Cooperation
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
11. Specific Enforcement
Each party expressly agrees that the other party would be irreparably
damaged if this Agreement were not specifically enforced. Upon a breach or
threatened breach of the terms, covenants and/or conditions of this Agreement by
any party, the other party shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of this Agreement.
12. Notices
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Shareholder, at the Shareholder's then current address on the
Company's books or at such other address as the Shareholder shall have furnished
to the Company in writing, or (b) if to the Company, at its principal executive
office, attention Board of Directors, with a copy to David C. Clarke, Perkins
Coie, 1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice is provided by
mail, it shall be deemed to be given three (3) business days after proper
deposit in the U.S. Mail, and if notice is given by hand or by messenger,
facsimile or courier, it shall be deemed to be given upon receipt.
5
<PAGE>
13. Entire Agreement
This Agreement and the Plan and other attachments and Exhibits hereto and
thereto constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede all prior agreements and undertakings, both
oral and written, among such parties, or any of them, with respect to such
subject matter. No such prior agreement or undertaking may contradict, vary or
supplement this Agreement.
14. Amendment and Waiver
Neither this Agreement nor any provision hereof may be modified, amended
or terminated except by a written agreement signed by the parties hereto, and no
waiver of any provision of this Agreement shall be effective unless in writing
and signed by or on behalf of the party to be bound by such waiver; provided,
however, that the Shareholder shall have no authority to bind the Company in
connection with any such modification, amendment, waiver or termination.
15. Governing Law
This Agreement shall be governed by and construed under the laws of the
state of Washington as applied to agreements among Washington residents, made
and to be performed entirely within Washington.
16. Successors and Assigns; Transfer Restriction
The provisions hereof shall inure to the benefit of, and be binding upon,
the successors, permitted assigns, heirs, executors, administrators and personal
representatives of the parties hereto. Notwithstanding anything to the contrary
contained in this Agreement, no Shares may be transferred by the Shareholder
under any circumstances without the prior written consent of the Company (which
may be withheld for any reason,) so long as such Shares are subject to the
Purchase Option contained in this Agreement. Any transfer or purported transfer
in violation of this Section 16 shall be void.
17. Headings
The headings of the sections and paragraphs of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
6
<PAGE>
18. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
19. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provisions shall be excluded from this Agreement and
the balance of this Agreement shall be interpreted as if such provisions were so
excluded and shall be enforceable in accordance with its terms.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
IMAGEX.COM, INC.
By /s/ F. JOSEPH VERSCHUEREN
--------------------------
Name: F. Joseph Verschueren
-----------------------
Title: Chairman
----------------------
Address: 10800 NE 8th Street
Suite 200
Bellevue, Washington 98004
SHAREHOLDER
/s/ RICHARD P. BEGERT
---------------------------------
Richard P. Begert
Address: 20419 NE 63rd Street
Redmond, Washington 98053
8
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Bellevue, Washington
$200,000 Principal Amount November 16, 1998
FOR VALUE RECEIVED, Richard P. Begert ("Maker") hereby promises to pay to
the order of ImageX.com, Inc., a Washington corporation ("Payee"), the principal
sum of two hundred thousand dollars ($200,000) (the "Original Principal
Amount"), together with simple interest on the unpaid principal balance at a
rate of seven percent (7%) per annum compounded monthly (calculated on the basis
of actual days elapsed). This Note is being made in connection with the purchase
by Maker from Payee of 1,000,000 shares of the Common Stock of Payee pursuant to
Payee's Amended and Restated 1996 Stock Incentive Compensation Plan, and in
connection with a Stock Vesting and Pledge Agreement of even date herewith (the
"Stock Vesting and Pledge Agreement") relating to such shares under which Maker
is agreeing that such shares shall be subject to repurchase by Payee under
certain conditions as provided therein, and that such shares shall be pledged by
Maker as security for payment of this Note. This Note is the Note referred to
in, and is secured by the pledge of stock described in Section 2 of, the Stock
Vesting and Pledge Agreement.
1. Payments. All payments on account of the indebtedness evidenced by
this Note shall be applied first to full payment of accrued interest and then to
reduction of the outstanding principal balance. All such payments shall be made
in the form of cash or check.
2. Maturity and Repayment Schedule. This Note shall mature, and all
unpaid principal and accrued interest shall be due and payable, on the earliest
to occur of (a) an Event of Default or (b) January 16, 2003. Principal and
accrued interest under this Note shall be repaid according to the following
schedule: (a) 24% of the Original Principal Amount, plus accrued interest
thereon, shall be paid in full on November 16, 1999; (b) thereafter 2% of the
Original Principal Amount, plus accrued interest thereon, shall be paid in full
on or before the 16th of each calendar month thereafter (e.g., December 16,
January 16, etc.) until the entire Original Principal Amount and all accrued
interest are repaid in full
3. Default. The entire unpaid principal of, and all accrued interest
on, this Note shall become immediately due and payable upon the occurrence of
any one or more of the following events of default (each, an "Event of
Default"):
(a) Failure to pay all or any part of the principal or accrued interest
on this Note when the same shall be due and payable as provided in
the repayment schedule set forth herein;
(b) Maker shall (i) be made the subject of any proceeding under
the Bankruptcy Code of the United States, as amended or any
similar statute and which proceeding shall not be dismissed
within 60 days thereafter, (ii) admit in writing its inability
to pay its debts generally as they become due, (iii)
<PAGE>
voluntarily seek the benefit of the Bankruptcy Code of the
United States, as amended, or any other applicable
liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or
similar debtor relief laws, from time to time in effect,
affecting the rights of creditors generally (collectively,
"Debtor Relief Laws"), or (iv) be made the subject of any
proceeding provided for by any Debtor Relief Laws that
suspends or otherwise materially affects any of the rights of
Payee under this Note and which proceeding shall not be
dismissed within 60 days thereafter;
(c) The 91st day after Maker's continuous employment with the Payee
terminates for any reason. The term "continuous employment" shall
have the meaning given to such term in the Stock Vesting Agreement;
or
(d) Payee's Repurchase Option (as defined in the Stock Vesting
Agreement) shall lapse as to all the shares of Stock subject
thereto.
4. Prepayment. Maker may, at any time, prepay all or any portion of the
principal and accrued interest due under this Note without premium or penalty.
5. Notices. Any notices to be given to Payee in connection with this
Note shall be deemed to be delivered (i) ten days after deposit in the United
States mail, first-class postage prepaid, registered or certified, and addressed
to the recipient or (ii) one business day after the transmission by facsimile.
6. Waiver. Maker hereby waives presentment, notice of dishonor,
protest, notice of protest and diligence in collection, and consents that the
time of payment on any part of this Note may be extended by Payee without
otherwise modifying, altering, releasing, affecting or limiting its liability.
7. Attorneys' Fees. If any suit or action arising out of or related to
this Note is brought by any party, the prevailing party or parties shall be
entitled to recover the costs and fees (including without limitation reasonable
attorneys' fees, the fees and costs of experts and consultants, and copying,
courier and telecommunication costs) incurred by such party or parties in such
suit or action, including without limitation any post-trial or appellate
proceeding, or in the collection or enforcement of any judgment or award entered
or made in such suit or action.
8. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Washington.
10. Assignment; Successors. This Note shall not be assignable by Maker,
by operation of law or otherwise, without the prior written consent of Payee.
This Note shall be binding upon, and shall inure to the benefit of, Maker, Payee
and their respective permitted successors, assigns, heirs and legal
representatives, as the case may be.
-2-
<PAGE>
Maker hereby executes and delivers this Note, and Payee hereby accepts
this Note, as of the date first set forth above.
/s/ RICHARD P. BEGERT
---------------------
Richard P. Begert
ACCEPTED:
IMAGEX.COM, INC.
By /s/ F. JOSEPH VERSCHUEREN
----------------------------
Title Chairman
-------------------------
-3-
<PAGE>
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Vesting and Pledge
Agreement dated as of November 16, 1998, _________________ hereby sells,
assigns, and transfers unto ______________ ______________ (___________) shares
of the Common Stock of IMAGEX.COM, INC., a Washington corporation (the
"Company"), standing in the undersigned's name on the books of the Company
represented by Certificate No. ___ delivered herewith, and does hereby
irrevocably constitute and appoint _____________ as attorney-in-fact to transfer
such stock on the books of the Company with full power of substitution in the
premises.
Dated: _____________________
Signature /s/ RICHARD P. BEGERT
----------------------------
Richard P. Begert
<PAGE>
[LETTERHEAD OF IMAGEX]
November 12, 1998
Mr. Richard P. Begert
20419 NE 63rd Street
Redmond, WA 98053
Dear Rich:
The Board of Directors and I personally are happy to extend to you an offer join
the ImageX.com team as President and Chief Executive Officer.
As Chief Executive Officer, you will report directly to the Board of Directors.
You will have complete responsibility for the development and implementation of
the strategic direction of ImageX.com; for development of the organization to
grow the company in revenues and profitability; and for marketing the company
within the corporate and financial sectors to position ImageX.com as a leading
e-commerce company.
The Board of Directors is pleased to offer you the following:
The full-time position of President and Chief Executive Officer reporting
directly to the Board of Directors of ImageX.com, beginning as soon as
practicable. You will also be appointed a member of the Board. This will require
an amendment to our shareholder's agreement that the company will obtain as
promptly as possible.
Your initial base cash compensation will be at the rate of two hundred
twenty-five thousand dollars ($225,000) per year. Your salary will be reviewed
annually. In addition, you will be eligible to participate in a bonus program
(at up to 100% of your base salary) for ImageX.com officers, the details of
which are to be determined by you and the Board of Directors based on the
Company's performance against measured criteria.
Further, you personally will be eligible for additional bonuses for the
achievement of profitability goals once we have approved your strategic plan for
the Company.
You will eligible to purchase one million (1,000,000) shares of the common stock
of ImageX.com at $.20 a share subject to the company obtaining a waiver of our
shareholder's preemptive rights. This amounts to an equity participation in the
Company equal to approximately 6% of the fully diluted outstanding shares. These
will be dwindling repurchase shares that the company will have the right to
repurchase on the same 50-month vesting schedule described in the company's
Stock Incentive Compensation Plan. You will need to make an IRS Section 83(b)
election within thirty days of your purchase of the stock.
The company will provide you a loan to purchase these shares. The loan will be
amortized over the same 50-month vesting period of the dwindling repurchase
shares (the loan will mature as your shares vest). You will be required to pay
the interest monthly until the loan matures. Your shares will be pledged to
secure payment of the loan.
<PAGE>
Mr. Richard P. Begert
November 5, 1998
Page Two
You will also receive Incentive Stock Options to purchase an additional 100,000
shares upon completion of the planned near-term private placement at a level of
$15 million or greater.
These options would vest over a four-year period in accordance with the
provisions of the existing company stock option plan. The terms of the option
plan regarding change of control transactions will apply to all of your shares.
This is for your protection and not to provide any incentive to sell the company
versus the pursuit of independent growth of ImageX.com. The exercise price of
these options will be the fair market value at the time of grant.
You will be eligible to participate in all existing company benefits. These
plans are subject to change at any time. All of your reasonable expenses
incurred during the conduct of Company business will be reimbursed.
As a condition of your employment, you will be required to sign ImageX.com's
Confidentiality, Non-competition and Invention Assignment Agreement, a copy of
which will be forwarded to you. Your employment with ImageX.com will be on an at
will basis, meaning that either you or the company will be free to terminate the
relationship at any time and for any reason.
If your employment is terminated by the company without Cause (as defined in the
company's Stock Incentive Compensation Plan, section 2.3), your base salary will
continue to be paid for a period of six months, to be reduced by the amount of
your gross compensation from any employment or consulting fees you receive
during that period.
Rich, we are very enthusiastic about your joining our team. We are confident
that you will provide the strategic vision and leadership necessary to build
ImageX.com into a world class enterprise.
Sincerely
/s/ F. Joseph Verschueren
- -------------------------
F. Joseph Verschueren
President/CEO, Chairman
(on behalf of the Board of Directors of ImageX.com)
I accept the terms and conditions of this offer for employment.
/s/ Richard P Begert 11/13/98
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Richard P. Begert Date
<PAGE>
[LETTERHEAD OF IMAGEX]
April 23, 1998
Ms. Dana Manciagli
11 Glenmore Circle
Pittsford, NY 14534
Dear Dana,
ImageX is pleased to offer you a position as Vice President of Marketing. You
will be responsible for the development and implementation of the strategic
marketing plan and the brand strategy for ImageX. Your responsibilities will
include the management of all marketing communications and public relations and
the management of all outside agencies employed in this area. You will also be
responsible for developing alternate distribution strategies and strategic
partnerships.
Your annual starting base salary will be $150,000. You will receive a guaranteed
$50,000 bonus on the first anniversary of your employment. You will be eligible
for an additional bonus of $50,000 and 25,000 additional options if we meet the
sales goals and marketing objectives that you and I will mutually develop. Your
second year and beyond compensation will consist of a base of $150,000 and a
bonus incentive package of $100,000 based on the attainment of the sales and
marketing objectives that you and I will mutually develop.
Subject to approval by the company's Board of Directors at its next meeting, you
will be granted 125,000 options for ImageX common stock. The exercise price of
the options will be equal to the fair market value per share of the company's
common stock as determined by the Board, which we currently anticipate will be
$.15 per share. After the options are approved by the Board, you will receive a
formal stock option letter agreement and a copy of the company's option plan.
ImageX will reimburse you for your documented moving expenses up to $24,000. The
company will also reimburse you for hotel, transportation and food costs
associated with the move, including your temporary housing from the time you
start with the company until your new house is available. It is presumed that
you will secure a home here by July 1, 1998. Image X will reimburse you for your
husband's trip to Seattle to search for a home. The company will reimburse you
for travel to visit your family every two weeks for a maximum of three trips
between your start date and their relocation.
<PAGE>
You and your family will receive medical benefits based on the company benefit
plan. You will earn two weeks of vacation in your first year. All company
benefits and policies are subject to change at any time.
All company-approved expenses will be reimbursed by the company, including a
mileage expense for the use of your car for company business.
As a condition of your employment, you will be required to sign ImageX's
Confidentiality, Noncompetition and Invention Assignment Agreement. Your
employment with ImageX will be on an at will basis, meaning that either you or
the company will be free to terminate the relationship at any time and for any
reason.
Dana, I look forward to your joining our team and helping to build ImageX into
the premier provider of automated printing solutions. I am confident that ImageX
will provide you the opportunity to meet your professional goals.
Sincerely,
/s/ Joe Verschueren
- -------------------
Joe Verschueren
President
- ----------------------------------
Accepted By: /s/ Dana F. Manciagli
- ----------------------------------
Date Accepted: April 30, 1998
- ----------------------------------
Start Date: May 12, 1998
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<PAGE>
[LETTERHEAD OF IMAGEX]
June 22, 1998
Mr. Eric Bean
5791 Capilano Drive
San Jose, CA 95138
Dear Eric,
ImageX is pleased to offer you a position as Vice President of Technology and
Business Development. You will be responsible for the management and oversight
of Business Development and Acquisitions. John Higgins, Director of Business
Development and Acquisitions will report to you.
Cory Klatt, CTO, will report to you. You will work closely with Cory Klatt to
map the future of ImageX's technology and product development initiatives to
ensure that they are in alignment with ImageX's overall business strategy and
objectives.
You will be responsible for the development of strategic alliances including the
deployment of ImageX's technology as well as the integration of complimentary
technology by ImageX.
As the Vice President of Technology and Business Development, you will be
responsible for the management and oversight of the ImageX program management
team. The program management team is responsible for the specification and
implementation of corporate-wide initiatives including the ImageX Online
Printing Center, print production systems, vendor integration, as well as
non-development initiatives such as the implementation and selection of color
proofing solutions.
Robert Smith, Director of Information Systems will report to you. You will be
responsible for strategic direction and management of all Information Systems
infrastructure including voice, data servers and server architecture,
application systems and implementation, supporting company's objectives.
Your annual starting base salary will be $150,000. You will receive a guaranteed
$50,000 bonus on the first anniversary of your employment. Subject to approval
by the company's Board of Directors at its next meeting, you will be granted
150,000 options of ImageX common stock. The exercise price of the options will
be equal to the fair market value per share of the company's common stock as
determined by the Board, which we currently anticipate will be $.15 per share.
After the options are approved by the Board, you will receive a formal stock
option letter agreement and a copy of the company's option plan.
ImageX will reimburse you for documented moving expenses up to $16,000, which
will include travel expenses for weekend family visits. The company will also
reimburse you for hotel, transportation and food costs associated with the move,
including your temporary housing from the time you start with the company until
your new house is available. It is presumed that you will
<PAGE>
secure a home here by September 1, 1998. ImageX will reimburse you for your
wife's trip to Seattle to search for a home.
On your start date, ImageX will pay you your first two months' salary, less
applicable deductions and withholding, in advance. Your pay will follow the
normal pay cycle at the end of the initial two months.
You and your family will receive medical benefits based on the company benefit
plan. You will earn two weeks of vacation in your first year. All company
benefits and policies are subject to change at any time.
All company-approved expenses will be reimbursed by the company, including a
mileage expense for the use of your car for company business.
As a condition of your employment, you will be required to sign ImageX's
Confidentiality, Noncompetition and Invention Assignment Agreement. Your
employment with ImageX will be on an at will basis, meaning that either you or
the company will be free to terminate the relationship at any time and for any
reason.
Eric, I look forward to your joining our team and helping to build ImageX into a
world class e-commerce company. I am confident that ImageX will provide you the
opportunity to meet your professional goals.
Sincerely,
/s/ Joe Verschueren
- -------------------
Joe Verschueren
President
- -----------------------------------
Accepted By: /s/ Eric Bean
----------------------
Date Accepted: June 23, 1998
-------------------
Start Date: July 15, 1998
----------------------
- -----------------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as
of April 13, 1999 by and between ImageX.com, Inc., a Washington corporation
("ImageX"), Keystone Acquisition Corp., a Washington corporation and wholly
owned subsidiary of ImageX ("Employer"), and
Nicholas J. Stanley ("Executive").
RECITALS
A. ImageX, Employer, Fine Arts Engravers Company, Inc., an Oregon
corporation ("Fine Arts"), and Executive have entered into an Asset Purchase
Agreement dated as of February 23, 1999 (the "Asset Purchase Agreement")
pursuant to which Employer will purchase substantially all of the assets and
other rights, and assume certain specified liabilities, of Fine Arts.
B. It is a condition precedent to the closing of the Asset Purchase
Agreement that Executive and Employer enter into this Agreement.
AGREEMENT
In consideration of the mutual covenants and agreements set forth herein,
the parties hereby agree as follows:
1. Employment
Employer will employ Executive and Executive will accept employment by
Employer as Employer's President. Executive will, subject to Employer's Articles
of Incorporation and Bylaws, perform such duties as are customarily performed by
a President of a corporation that is, in all respects, similar to Employer, and
such other duties consistent with this Agreement as may be assigned from time to
time by Employer's Board of Directors that relate to the business of Employer,
its subsidiaries, its parent corporation or any business ventures in which
Employer, its subsidiaries or its parent corporation may participate that are
related to printing, engraving or e-commerce in connection therewith; provided,
however, that at all times during the term of this Agreement, Executive will be
employed as the President of Employer and shall have responsibilities and
compensation relative to other employees of ImageX that are consistent with that
title. Executive and Employer agree that Executive's principal place of
employment under this Agreement shall be in the Portland metropolitan area and
that no person, other than the Chief Executive Officer of ImageX will be
appointed to an office of Employer senior to that of Executive.
2. Attention and Effort
Executive will devote his entire working time, ability, attention and
effort to Employer's business and will faithfully serve its interests during the
Term (as defined below) of this Agreement; provided, however, that Executive may
devote reasonable periods of time
<PAGE>
to (a) engaging in personal investment activities, (b) serving on the board of
directors of other corporations, if such service would not otherwise be
prohibited by Section 7 hereof, and (c) engaging in charitable or community
service activities, so long as none of the foregoing additional activities
materially interfere with Executive's duties under this Agreement. Without
limiting the generality of the foregoing, Executive may devote time and
attention to the activities identified on Exhibit A hereto at levels of
participation that do not materially interfere with his responsibilities as
President of Employer. The parties agree that the levels of participation
existing as of the date hereof do not materially interfere with such
responsibilities as they currently exist.
3. Term
Subject to Section 5 hereof or unless extended by mutual agreement of the
parties, Executive's initial term of employment under this Agreement (the
"Term") shall expire on the second anniversary of the date hereof.
4. Compensation
4.1 Base Salary
During the Term of this Agreement, Employer agrees to pay or cause to be
paid to Executive, and Executive agrees to accept in exchange for the services
rendered hereunder by him and the agreements undertaken by him herein, an annual
salary of One Hundred Twenty-Five Thousand Dollars ($125,000) before all
authorized or legally required payroll deductions. Such annual salary shall be
paid in substantially equal installments and at the same intervals as other
senior executives of Employer are paid as may be determined from time to time by
the Board. During the Term of this Agreement, Executive's annual base salary
shall not be reduced below the amount set forth in this Section 4.1. Such salary
shall be subject to increase from time to time as approved by the Board of
Directors of Employer in its sole discretion.
4.2 Bonus
Executive may be entitled to receive, in addition to the annual base
salary described above, an annual bonus in such amount, if any, as may be
determined by the Board of Directors of Employer in its sole discretion.
4.3 Benefits
During the term of this Agreement, Executive will be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs generally available to senior
executives of Employer, as those programs may currently exist or be modified
from time to time.
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<PAGE>
4.4 Warrants
In connection with the execution and delivery of this Agreement, ImageX
shall grant to Executive a warrant, in substantially the form of Exhibit B
hereto, to purchase One Hundred Fifty Thousand (150,000) shares of ImageX's
common stock, $.01 par value per share ("Common Stock") at an exercise price of
$2.00 per share; provided, however, that ImageX shall have the option,
exercisable in its sole discretion at any time prior to the issuance of the
warrant, to substitute a junior series of preferred stock in lieu of the Common
Stock.
4.5 Options
In connection with the execution and delivery of this Agreement, ImageX
shall grant to Executive (the "ImageX Board"), options to purchase Fifty
Thousand (50,000) shares of Common Stock, at an exercise price equal to the fair
market value per share of the Common Stock on the date such options are granted
by the ImageX Board, as such value is determined by the ImageX Board. Such
options shall be granted under, and shall be subject to all the terms and
conditions of, ImageX's employee stock option plan, as such plan may be amended
from time to time, and shall vest according to the customary vesting schedule
applicable to ImageX employees.
5. Termination
Employment of Executive pursuant to this Agreement may be terminated as
follows, but in any case the provisions of Section 7 hereof shall survive the
termination of this Agreement and the termination of Executive's employment
hereunder:
5.1 By Employer
Employer may terminate Executive's employment at any time upon giving
Notice of Termination (as hereinafter defined).
5.2 By Executive
Executive may terminate his employment at any time upon giving Notice of
Termination.
5.3 Automatic Termination
This Agreement and Executive's employment hereunder will terminate
automatically upon Executive's death or total disability. The term "total
disability" as used herein means Executive's inability to perform the duties set
forth in Section 1 hereof for a period of 60 consecutive days or periods
aggregating 120 calendar days in any 12-month period as a result of physical or
mental illness, loss of legal capacity or any other cause, unless Executive is
granted a leave of absence by Employer's Board of Directors. Executive and
Employer hereby acknowledge that Executive's ability to perform the duties
specified in Section 1
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<PAGE>
hereof is of the essence of this Agreement. Termination hereunder will be deemed
to be effective (a) on the date of Executive's death or (b) immediately upon a
determination by Employer's Board of Directors or the ImageX Board of
Executive's total disability, which determination shall be based on the advice
of a qualified physician or psychiatrist appointed by such Board in the case of
a determination of total disability based on a mental or physical illness or
condition, it being agreed that Executive will cooperate in any such physical or
mental examination as may be necessary.
5.4 Notice of Termination
5.4.1 Termination For Cause or Without Good Reason
With respect to any termination of Executive's employment by Employer for
Cause (as defined below) or by Executive without Good Reason (as defined below),
the term "Notice of Termination" means written notice of termination of
Executive's employment delivered to the other party in accordance with Section
11 below. The effective date of any such termination for Cause or without Good
Reason shall be the date on which such Notice of Termination is deemed to be
effective pursuant to Section 11 below.
5.4.2 Termination Without Cause or For Good Reason
With respect to any termination of Executive's employment by Employer
without Cause or by Executive for Good Reason, the term "Notice of Termination"
means at least 30 days' written notice of termination delivered to the other
party in accordance with Section 11 below, during which period Executive's
employment and performance of services will continue; provided, however, that
Employer may, upon notice to Executive and without reducing Executive's
compensation during such period, excuse Executive from any or all of his duties
during such period. The effective date of any such termination without Cause or
for Good Reason shall be the date which is 30 days after the date on which such
Notice of Termination is deemed to be effective pursuant to Section 11 below.
5.5 Transfer of Executive's Employment
If Executive's employment is transferred from Employer to ImageX or any
other subsidiary of ImageX, such transfer shall not, in and of itself, be deemed
a termination of Executive's employment under this Agreement and this Agreement
shall continue in effect without regard to the transfer; but only if Executive's
position and duties after the transfer are substantially the same as his
position and duties with Employer immediately prior to the transfer.
6. Termination Payments
In the event of termination of Executive's employment, all compensation
and benefits set forth in this Agreement will terminate upon the effective date
of such termination, except as specifically provided in this Section 6:
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<PAGE>
6.1 Termination by Employer
(a) If Employer terminates Executive's employment without Cause prior to
the end of the Term of this Agreement, Executive will be entitled to receive (i)
termination payments equal to the sum of (A) the annual base salary Executive
would have received if his employment hereunder had continued from the effective
date of the termination until the end of the Term of this Agreement and (B)
Seventy-Five Thousand Dollars ($75,000), subject to adjustment as provided in
Section 7.4 below; and (ii) any unpaid annual base salary and benefits that have
accrued for services already performed as of the date termination of Executive's
employment becomes effective.
(b) If Employer terminates Executive's employment with Cause, Executive
will not be entitled to receive any of the foregoing benefits, other than those
set forth in clauses (i)(B) and (ii) above.
6.2 Termination by Executive
(a) If Executive terminates his employment for Good Reason prior to the
end of the term of this Agreement, Executive will be entitled to receive the
payments set forth in Section 6.1(a) hereof.
(b) If Executive terminates his employment for any reason other than Good
Reason prior to the end of the term of this Agreement, Executive will not be
entitled to any payments hereunder, other than those set forth in clauses (i)(B)
and (ii) of Section 6.1(a) hereof.
6.3 Termination Because of Death or Total Disability
In the case of the termination of Executive's employment as a result of
his death or total disability as defined above, Executive shall not be entitled
to receive any payments or benefits hereunder, other than those set forth in
clause (ii) of Section 6.1(a) hereof plus an amount equal to three months' base
salary.
6.4 Termination Because of Expiration of Term
In the case of the termination of Executive's employment as a result of
the expiration of the Term of this Agreement, Executive will not be entitled to
receive any payments or benefits hereunder, other than those set forth in
clauses (i)(B) and (ii) of Section 6.1(a) hereof.
6.5 Payment Schedule
All payments under this Section 6 will be made to Executive at the same
interval as payments of salary would have been made hereunder if such employment
had not been terminated.
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<PAGE>
6.6 Certain Definitions
(a) Wherever reference is made in this Agreement to termination being with
or without Cause, "Cause" means the occurrence of one or more of the following
events:
(i) Executive's willful material misconduct or dishonesty in the
performance of, or the willful failure to perform, any duty assigned to
Executive consistent with the terms of this Agreement or incident to his
employment responsibilities as President of Employer;
(ii) Executive's willful injury of Employer or its affiliates,
Executive's breach of a fiduciary duty owed to Employer or its affiliates, or
any act of Executive involving moral turpitude and materially adversely
affecting (or which Employer has a reasonable basis for believing will
materially adversely affect) the business, goodwill or reputation of Employer or
its affiliates;
(iii) Conviction of Executive of a violation of (including plea of
nolo contendere) a state or federal criminal law involving the commission of a
crime against Employer or its affiliates or any felony, in each case, materially
adversely affecting (or which Employer has a reasonable basis for believing will
materially adversely affect) the business, goodwill or reputation of Employer or
its affiliates;
(iv) Habitual misuse by Executive of alcohol or controlled
substances that materially impairs Executive's ability to perform his duties
under this Agreement; or
(v) Any material violation by Executive of any provision of Section
7 of this Agreement.
(b) Wherever reference is made in this Agreement to termination being with
or without "Good Reason," "Good Reason" means the occurrence of any of the
following without the consent of the Executive:
(i) the assignment to Executive of duties materially inconsistent
with and detrimental to Executive's position, authority, duties or
responsibilities as contemplated by this Agreement; provided, however, that the
reduction of Executive's position, authority, duties and responsibilities by
Employer following Executive's written notice to Employer that he intends to
resign his position with Employer under circumstances that would not constitute
Good Reason shall not constitute Good Reason under this Agreement;
(ii) Employer requiring the Executive to spend materially more time
traveling than is customarily spent by executive officers of comparable
companies performing similar functions; or
(iii) Any material violation by Employer of any provision of this
Agreement.
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<PAGE>
(iv) Relocation of Executive's principal place of employment outside
of the Portland metropolitan area.
(c) For purposes of Sections 6.6(a)(i) and (ii), no act, or omission to
act, on Executive's part shall be considered "willful" unless done, or omitted
to be done, by him not in good faith or without reasonable belief that his
action or omission was in the best interest of Employer; provided, however, that
any act, or omission to act, on Executive's part in reliance upon the advice of
counsel to Employer, or counsel to Executive, shall not be deemed to be willful.
7. Noncompetition and Nonsolicitation
7.1 Applicability
This Section 7 will survive the termination of Executive's employment with
Employer or the expiration of the term of this Agreement. Executive agrees that
the duration and scope of his obligations under this Section 7 are reasonable.
7.2 Scope of Competition
Executive agrees that he will not, directly or indirectly, during his
employment and for eighteen (18) months after the date on which his employment
is terminated, be employed by, consult with or otherwise perform services for,
own, manage, operate, join, control or participate in the ownership, management,
operation or control of, or otherwise be connected with or related to, in any
manner, directly or indirectly, any Competitor (as defined below), unless
released from such obligation in writing by Employer's Board of Directors. A
"Competitor" consists of any entity that produces, markets, distributes or
otherwise derives benefit from the production, marketing or distribution of
products or services that compete with products or services then produced,
marketed or distributed by Employer (excluding any such products or services
that are wholly unrelated to Executive's responsibilities with Employer and as
to which he possesses no material confidential or proprietary information of
Employer), or any entity that is preparing to market or is developing products
that will be in competition with the products or services then produced,
marketed or distributed or being developed by Employer (excluding any such
products or services that are wholly unrelated to Executive's responsibilities
with Employer and as to which he possesses no material confidential or
proprietary information of Employer), anywhere in North America. Without
limiting the generality of the foregoing, Executive shall be deemed to be
related to or connected with a Competitor if, among other things, such
Competitor is (a) a partnership in which he is a general or limited partner or
employee, (b) a corporation or association of which he is a shareholder,
officer, employee or director, (c) a limited liability company in which he is a
member or employee, or (d) a partnership, corporation, limited liability company
or association of which he is a member, consultant or agent; provided, however,
that nothing herein will prevent the purchase or ownership by Executive of
shares of a Competitor that constitute less than 1% of the outstanding equity
securities of a publicly or privately held corporation, if Executive has no
other relationship with such corporation.
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<PAGE>
7.3 Scope of Nonsolicitation
Executive will not (a) directly or indirectly solicit, influence or
entice, or attempt to solicit, influence or entice, any employee, consultant or
third-party contractor of Employer to cease his or her relationship with
Employer or (b) solicit, influence, entice or in any way divert any customer,
distributor, partner, joint venturer or supplier of Employer from continuing to
do business with Employer at historic or previously planned or intended levels.
This Section 7.3 will apply during the time period and geographical area
described in Section 7.2 hereof.
7.4 Waiver of Noncompetition and Nonsolicitation Provisions
In the event of any termination of Executive's employment for any reason
prior to expiration of the Term of this Agreement, Executive shall promptly
notify Employer in writing of the identity of any company or other entity with
whom Executive (a) will be working (in whatever capacity) or (b) is discussing a
possible working relationship. On or prior to the effective date of Executive's
termination of employment other than by death or total disability, and within 30
days thereafter in the event of a termination of Executive's employment by the
Company for Cause, Employer may, by executing a written waiver or modification,
reduce the time period during which the prohibitions set forth in Sections 7.2
and 7.3 hereof shall apply and, to the extent such time period is reduced, any
termination payment set forth in Section 6.1(a)(i)(B) of this Agreement
otherwise due to Executive, shall be proportionately reduced. By way of example,
if Employer timely elects to reduce the time period from 18 months to nine
months (a 50% reduction in the time period), the termination payment under
Section 6.1(a)(i)(B) shall be reduced by 50% to $37,500. A waiver or
modification by Employer of the time period pursuant to this Section 7.4 need
not comply with Section 16 hereof to the extent such Section would require the
signature of Executive in order for the waiver or modification to be effective.
7.5 Assignment of Intellectual Property
Executive's interest in all proprietary concepts, designs, machines,
devices, uses, processes, technology, trade secrets, works of authorship,
customer lists, plans, embodiments, inventions, improvements or related work
product (collectively, "Intellectual Property") that Executive develops,
conceives or first reduces to practice during the term of his employment
hereunder, whether working alone or with others, shall be Employer's sole and
exclusive property, together with any and all Intellectual Property rights,
including, without limitation, patent or copyright rights, relating thereto, and
Executive hereby assigns to Employer all of such Intellectual Property. The
Intellectual Property so assigned shall include only such concepts, designs,
machines, devices, uses, processes, technology, trade secrets, works of
authorship, customer lists, plans, embodiments, inventions, improvements and
related work product that (a) relate to Executive's performance of services
under this Agreement, to Employer's field of business or to Employer's actual or
demonstrably anticipated research or development (excluding any field of
business or area of research and development that is wholly unrelated to
Executive's responsibilities with Employer and as to which he possesses
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<PAGE>
no material confidential or proprietary information of Employer, it being agreed
that printing and engraving and the manufacturing and distribution of printed or
engraved materials, and e-commerce related thereto, are not so excluded) ,
whether or not developed, conceived or first reduced to practice during normal
business hours or with the use of any equipment, supplies, facilities or trade
secret information or other resource of Employer or (b) are developed in whole
or in any material part on Employer's time or developed using Employer's
equipment, supplies (other than occasional and immaterial uses of such
supplies), facilities or trade secret information, or other resources of
Employer, whether or not the work product relates to Employer's field of
business.
NOTICE: Notwithstanding any other provision of this Agreement to the
contrary, this Agreement does not obligate Executive to assign or offer to
assign to Employer any of Executive's rights in any invention for which no
equipment, supplies, facilities or trade secret information of Executive was
used and which was developed entirely on Executive's own time, unless (except to
the extent further restricted above) (a) the invention relates (i) directly to
the business of Employer or (ii) to Employer's actual or demonstrably
anticipated research or development, or (b) the invention results from any work
performed by Executive for Employer. This satisfies the written notice and other
requirements of RCW 49.44.140, to the extent applicable.
7.6 Disclosure and Protection of Inventions
Executive shall disclose in writing all concepts, designs, processes,
technology, plans, embodiments, inventions or improvements constituting
Intellectual Property to Employer promptly after the development thereof. At
Employer's request and at no cost or expense to Executive, Executive will assist
Employer or its designee in efforts to protect all rights relating to such
Intellectual Property. Such assistance may include, without limitation, the
following: (a) making application in the United States and in other countries
for a patent or copyright on any work products specified by Employer; (b)
executing documents of assignment to Employer or its designee of all of
Executive's right, title and interest in and to any work product and related
intellectual property rights; and (c) taking such additional action (including,
without limitation, the execution and delivery of documents) to perfect,
evidence or vest in Employer or its designee all right, title and interest in
and to any Intellectual Property and any rights relating thereto.
7.7 Nondisclosure; Return of Materials
(a) During the term of his employment by Employer and following
termination of such employment, Executive will not disclose (except as required
by his duties to Employer) any concept, design, process, technology, trade
secret, customer list, plan, embodiment or invention, any other Intellectual
Property or any other confidential information, whether patentable or not, of
Employer of which Executive becomes informed or aware during his employment,
whether or not developed by Executive; provided, however, that the foregoing
obligations of confidentiality and nondisclosure shall not apply to any
information which (i) at the time of disclosure or use is, or thereafter
becomes, available in the public domain
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through no breach of this Agreement by Executive; or (ii) is obtained by
Executive from a source other than Employer and other than one who would be
breaching a commitment of confidentiality to Employer by disclosing the
information to Executive and Executive can bear the burden of proving that it
was so obtained; or (iii) is developed by Executive independently of Employer's
confidential information; or (v) is required by law to be disclosed by
Executive, provided that written notice is delivered to Employer prior to any
such disclosure to afford Employer a reasonable opportunity to object to such
disclosure.
(b) In the event of the termination of his employment with Employer or the
expiration of this Agreement, Executive will return all documents, data and
other materials of whatever nature, including, without limitation, drawings,
specifications, research, reports, embodiments, software and manuals to Employer
that pertain to his employment with Employer or to any Intellectual Property and
shall not retain or cause or allow any third party to retain photocopies or
other reproductions of the foregoing.
7.8 Equitable Relief
Executive acknowledges that the provisions of this Section 7 are essential
to Employer, that Employer would not enter into this Agreement if it did not
include this Section 7 and that damages sustained by Employer as a result of a
breach of this Section 7 cannot be adequately remedied by damages, and Executive
agrees that Employer, notwithstanding any other provision of this Agreement,
including, without limitation, Section 14 hereof, in addition to any other
remedy it may have under this Agreement or at law, will be entitled to
injunctive and other equitable relief to prevent or curtail any breach of any
provision of this Agreement, including, without limitation, this Section 7. The
prevailing party in any proceedings under this Section 7 will be entitled to
recover costs and expenses, including attorneys' fees.
7.9 Effect of Violation
Executive and Employer acknowledge and agree that additional consideration
has been given for Executive's entering into this Section 7, such additional
consideration including, without limitation, certain provisions for termination
payments pursuant to Section 7 hereof. Violation by Executive of this Section 7
will relieve Employer of any obligation it may have to make such termination
payments, but shall not relieve Executive of his obligations, as required
hereunder, not to compete.
7.10 Definition of Employer
For purposes of this Section 7, "Employer" shall include (in addition to
the corporation defined as Employer in Recital A above), Fine Arts and all other
current and future entities controlling, controlled by or under common control
with Employer.
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8. Representations and Warranties
To induce Employer to enter into this Agreement, Executive represents and
warrants to Employer as follows:
8.1 No Violation of Other Agreements
Neither the execution nor the performance of this Agreement by Executive
will violate or conflict in any way with any other agreement by which Executive
may be bound, or with any other duties imposed on Executive by corporate or
other statutory or common law.
8.2 Patents, Etc.
Executive has prepared and attached hereto as Schedule A a list of all
inventions, patent applications and patents made or conceived by Executive prior
to the date hereof that (a) otherwise would be affected by this Agreement and
(ii) are subject to prior agreement or that Executive desires to exclude from
this Agreement, or, if no such list is attached, Executive hereby represents and
warrants to Employer that there are no such inventions, patent applications or
patents.
9. Young Presidents Organization ("YPO") Eligibility
Notwithstanding anything in this Agreement to the contrary, Employer
agrees to use commercially reasonable efforts to provide Executive with a
position and level of responsibility consistent with YPO eligibility
requirements.
10. Notice and Cure of Breach
Whenever a breach of this Agreement by any party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of "Cause" set forth in
Section 6.6(a)(iii) hereof, before such action is taken, the party asserting the
breach of this Agreement shall give the other party at least 20 days' prior
written notice of the existence and nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during such 20-day period;
provided, however, that if the cure reasonably cannot be completed within such
20-day period, such period shall be extended to the period of time reasonably
necessary to effect such cure, up to a maximum of 60 days in the aggregate from
the date of the notice referred to above. No such extension shall be permitted
unless the party purportedly in breach begins such cure immediately upon
receiving notification thereof and continues to diligently pursue such cure to
completion.
11. Notices
All notices and other communications required or permitted to be given
under this Agreement shall be in writing and shall be sent by facsimile
transmission, or mailed postage
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prepaid by first-class certified or registered mail, or sent for next business
morning delivery via a nationally recognized express courier service, or
hand-delivered, addressed as follows:
If to Executive:
Nicholas J. Stanley
121 S.W. Salmon, Suite 1430
Portland, Oregon 97204
Fax: (503) 221-0550
Attention: Wayne Slovick
with a copy to:
Miller, Nash, Wiener, Hager & Carlsen LLP
3500 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, OR 97204
Fax: (503) 224-0155
Attention: Donald W. Douglas
If to Employer or ImageX:
ImageX.com, Inc.
10800 NE 8th Street; Suite 200
Bellevue, WA 98004
Fax: (425) 452-9266
Attention: President
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Fax: (206) 583-8500
Attention: David C. Clarke
Any party may change the persons, fax numbers or addresses to which any
notices or other communications to it should be addressed by notifying the other
party as provided above. Any notice or other communication, if addressed and
sent, mailed or delivered as provided above, shall be deemed given or received
five days after the date sent as indicated on the certified or registered mail
receipt, or on the next business day if mailed by express courier service, or on
the date of delivery or transmission if hand-delivered or sent by facsimile
transmission.
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12. Assignment
This Agreement is personal to Executive and shall not be assignable or
delegable by Executive. Employer may assign its rights and obligations hereunder
to (a) ImageX, (b) any corporation resulting from any merger, consolidation or
other reorganization to which Employer or ImageX is a party, or (c) any
corporation, partnership, association or other person to which Employer or
ImageX may transfer all or substantially all its assets. All the terms and
provisions of this Agreement shall be binding on and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
13. Waivers
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, will constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance will not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
14. Arbitration
Subject to the provisions of subparagraph 7.8 hereof, any controversies or
claims arising out of or relating to this Agreement shall be fully and finally
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect (the "AAA Rules"), conducted
by one arbitrator either mutually agreed on by Employer and Executive or chosen
in accordance with the AAA Rules, except that the parties thereto shall have any
right to discovery as would be permitted by the Federal Rules of Civil Procedure
for a period of 90 days following the commencement of such arbitration and the
arbitrator thereof shall resolve any dispute that arises in connection with such
discovery. The prevailing party shall be entitled to costs, expenses and
reasonable attorneys' fees, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
15. Amendments in Writing
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, will be effective unless the same is in writing, specifically
identifying this Agreement and the provision intended to be amended, modified,
waived, terminated or discharged and signed by the party to be bound thereby,
and each such amendment, modification, waiver, termination or discharge will be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement will be varied, contradicted or explained
by any oral agreement, course of dealing or performance or any other matter not
set forth in an agreement in writing and signed by Employer and Executive.
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16. Governing Law
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Oregon as though made and to be fully performed in that
State.
17. Severability
If any provision of this Agreement is held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law (a) all other provisions hereof will remain in full force and
effect in such jurisdiction and will be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability will not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover will have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. Headings
All headings used herein are for convenience only and will not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
19. Counterparts
This Agreement, and any amendment or modification entered into pursuant to
Section 15 hereof, may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.
20. Entire Agreement
This Agreement on and as of the date hereof constitutes the entire
agreement between Employer and Executive with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between Employer and Executive with respect to such
subject matter are hereby superseded and nullified in their entireties.
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IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EXECUTIVE
/s/ Nicholas J. Stanley
------------------------------------------
Nicholas J. Stanley
KEYSTONE ACQUISITION CORP.
By /s/ Richard P. Begert
------------------------------------------
Richard P. Begert
Its
------------------------------------
IMAGEX.COM, INC.
By /s/ Richard P. Begert
------------------------------------------
Richard P. Begert
Its
------------------------------------
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TABLE OF CONTENTS
1. LEASE DATA; DEFINITIONS................................................ 1
2. GRANT.................................................................. 2
3. TERM................................................................... 2
4. RENT................................................................... 2
5. SECURITY DEPOSIT....................................................... 3
6. USES................................................................... 3
7. SERVICES AND UTILITIES................................................. 4
8. INTENTIONALLY DELETED.................................................. 5
9. TAX ON RENTALS; TENANT'S PERSONAL PROPERTY TAXES....................... 5
10. ALTERATIONS AND CARE OF PREMISES....................................... 5
11. TENANT IMPROVEMENTS.................................................... 6
12. ACCESS TO PREMISES..................................................... 7
13. LIEN FOR RENT.......................................................... 7
14. DAMAGE OR DESTRUCTION.................................................. 8
15. WAIVER OF SUBROGATION.................................................. 8
16. INDEMNIFICATION AND INSURANCE.......................................... 9
17. HAZARDOUS SUBSTANCES................................................... 10
18. ASSIGNMENT AND SUBLETTING.............................................. 11
19. LIENS AND INSOLVENCY................................................... 12
20. DEFAULT................................................................ 12
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21. MORTGAGE SUBORDINATION AND ATTORNMENT.......................... 14
22. ACTIONS AT EXPIRATION OR TERMINATION OF LEASE.................. 15
23. CONDEMNATION................................................... 16
24. MISCELLANEOUS.................................................. 17
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U.S. BANK PLAZA BUILDING
LEASE AGREEMENT
1. LEASE DATA; DEFINITIONS
1.1 Lease Date: January 31, 1997.
1.2 Landlord: Bellevue Associates, a Washington limited partnership.
1.3 Tenant: ImageX Corporation, a Washington corporation.
1.4 Building; Building Manager: U.S. Bank Plaza Building, 10800. N.E.
Eighth Street, Bellevue, Washington, and all other improvements located on the
Land. Landlord's Building Manager is Norris, Beggs & Simpson, 10900 N.E. 8th
Street, Suite 200, Bellevue, Washington 98004. The rentable area of the Building
is deemed to be 116,578 square feet.
1.5 Land: See Exhibit C for the legal description of the Land.
1.6 Premises: Suite number 200 on the second floor of the Building. The
Premises shall be deemed to contain 10,042 square feet of floor area. A floor
plan of the Premises is outlined on Exhibit A. The Premises include the Tenant
Improvements, if any, set forth on Exhibit B.
1.7 Tenant's Proportionate Share: Tenant's Proportionate Share is a
fraction, the numerator of which is the 10,042 and the denominator of which is
the approximate rentable square feet of the Building. Tenant's Proportionate
Share shall be deemed to be 8.00% (0.08).
1.8 Lease Term: Subject to Section 3 below, from March 1, 1997 (the
"Projected Commencement Date"), to 5:00 p.m. 60 months following the actual
Commencement Date (the "Expiration Date").
1.9 Base Year: 1997.
1.10 Base Rent: $16,318.25 per month.
1.11 Prepaid Rent: Concurrently with execution of this Lease, Tenant will
pay Landlord $16,318.25 to be applied to the first Base Rent payment due.
1.12 Security Deposit: Concurrently with execution of this Lease, and
subject to the terms of Section 5 below, Tenant will deposit with Landlord
$16,318.25 as a security deposit.
<PAGE>
1.13 Permitted Use: General office purposes, and no other purpose.
1.14 Notice and Payment Addresses: Unless otherwise specified in writing,
Landlord's notice address shall be its Building Manager and Tenant's notice
address shall be the Premises.
1.15 Parking: A Parking Agreement is attached as Exhibit D to this Lease.
2. GRANT
Subject to the terms of this Lease, Landlord leases to Tenant, and Tenant
leases from Landlord, the Premises specified in Section 1.6, together with
rights of ingress and egress over Building common areas.
3. TERM
The Projected Commencement Date listed in Section 1.8 represents an
estimate of the Commencement Date. The actual Commencement Date shall be first
to occur of the following events: (i) five days after the date on which Landlord
notifies Tenant that the Tenant Improvements are substantially completed in
accordance with Exhibit B, (ii) the date on which Tenant takes possession or
commences beneficial occupancy of the Premises, or (iii) if substantial
completion of the Premises is delayed due to Tenant's failure to perform its
obligations under this Lease, then the date determined by Landlord as the date
upon which the Premises would have been substantially completed, but for
Tenant's failure to perform. The term "substantial completion" shall mean such
date as: (i) Landlord's architect has certified in writing to Landlord and
Tenant that the improvements to be completed by Landlord have been completed
subject only to minor "punch list" items not necessary for Tenant's occupancy of
the Premises, and (ii) a certificate of occupancy has been issued allowing
Tenant to occupy the Premises and conduct its business thereon. If the actual
Commencement Date is earlier or later than the Projected Commencement Date: (i)
this Lease shall not be void or voidable, (ii) Landlord shall not be liable to
Tenant for any loss or damage resulting therefrom, and (iii) the Expiration Date
shall be adjusted to reflect the total number of months set forth in Section
1.8, provided delays in the Commencement Date were not caused by Tenant.
Landlord shall confirm the Commencement Date by written notice to Tenant within
2 weeks after the Commencement Date.
4. RENT
4.1 Payment. Tenant shall pay the Base Rent specified in Section 1.10, the
Additional Rent specified in Sections 7.2, 16.1, Exhibit B and Exhibit E,
Parking Fees and all other charges due under this Lease, without demand,
deduction or offset, in advance, on or before the first day of each month. Rent
shall be paid to Landlord's Building Manager, or to such other person or place
as may be designated by Landlord
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from time to time. For purposes of this Lease, Base Rent, Additional Rent,
Parking Fees and all other amounts payable by Tenant to Landlord are
collectively referred to in this Lease as "Rent," and are deemed to constitute
rent for purpose of all applicable laws. Rent for any partial month shall be
prorated.
4.2 Late Rent. If any payment is not received by Landlord within five days
after the due date, Tenant shall pay Landlord, in addition to the Rent due, a
handling fee equal to the greater of $100 or five percent (5%) of the delinquent
amount. In addition, the delinquent amount will bear interest at a rate equal to
one and one-half percent (1.5%) per month, or the highest rate permitted by law,
whichever is less, calculated from the original due date to the date of full
payment.
4.3 Acceptance of Partial Payment. Landlord's acceptance (through
negotiation of Tenant's check or otherwise) of less than the full amount of Rent
or other sums due will not be deemed an accord and satisfaction unless Landlord
specifically agrees in writing to the contrary.
5. SECURITY DEPOSIT
As security for Tenant's performance of every provision in this Lease,
Tenant has paid to Landlord the Security Deposit specified in Section 1.12. If
Tenant defaults under any provision of this Lease beyond any applicable cure
period, and in addition to any other remedy which Landlord may possess, after
written notice to Tenant Landlord may apply all or any part of the Security
Deposit to the payment of sums due, including damages suffered by Landlord due
to such default. In such event, Tenant shall, within five days after written
demand by Landlord, deposit with Landlord the amount so applied so that Landlord
shall have the full Security Deposit on hand at all times during the term of
this Lease. Any application of the Security Deposit to cure Defaults shall not
be construed as a payment of liquidated damages for the Default. If Tenant fully
complies with all of the provisions of this Lease, the Security Deposit will be
repaid to Tenant without interest within 30 days after the Expiration Date.
6. USES
6.1 Permitted Use. The Premises may be used only for the Permitted Use
specified in Section 1.13, and for no other purpose without Landlord's written
consent.
6.2 Compliance with Laws. No act shall be done in or about the Premises
that is unlawful or that will increase insurance rates on the Building. Tenant
shall not commit or permit any waste, or any public or private nuisance, or
other act which disturbs other tenants in the Building. Tenant shall comply with
all laws, regulations, ordinances, codes or conditions relating to its use of
the Premises, and shall observe Landlord's rules and regulations for the
Building.
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6.3 Signage. So long as Tenant occupies the Premises, Tenant shall have
the right to have its business name displayed on any reader board located in the
first floor Building lobby, second floor skybridge lobby, elevator lobby on the
floors where the Premises are located and in the vicinity of the Premises, all
in the Building's standard size, typeface, materials and locations, which shall
be determined by Landlord. Tenant shall not place or display any other sign,
notice, picture, placard or poster, or any advertising material whatsoever,
visible either directly or indirectly (as an outline or shadow on a glass pane)
from anywhere outside the Premises without first obtaining Landlord's written
consent. Any consent by Landlord shall be upon the condition that Tenant will
remove the advertising promptly on Landlord's request, and in any event at the
expiration or sooner termination of this Lease, that Tenant shall repair any
damage to the Premises or the Building caused thereby and that same signage
comply with Landlord's requirements as to size, materials and design. Landlord
shall pay the initial cost associated with displaying Tenant's business name on
one strip on the reader boards located in the first floor Building lobby, second
floor skybridge lobby and the elevator lobby on the floor where the Premises are
located. Tenant shall pay the costs associated with any other signage, including
but not limited to additional strips on the above-mentioned reader boards for
individual names or other purposes, any strips on other reader boards within the
Building and all signage within or about the Premises. Tenant shall also pay the
costs for any changes requested by Tenant to the reader boards or other signage.
7. SERVICES AND UTILITIES
7.1 Standard Services. Landlord will maintain the Premises and the common
areas of the Building, such as lobbies, elevators, stairs, corridors and
rest-rooms, in reasonably good condition. Between 7:00 a.m. and 7:00 p.m.,
Monday through Friday, and between 8:00 a.m. and 5:00 p.m. Saturday (excluding
legal holidays), Landlord will furnish the Premises with electricity, water,
HVAC, and elevator service (subject to card key access from time to time).
Landlord will also provide light replacement service for landlord-furnished
lighting fixtures, toilet room supplies and window washing (excluding relites)
at reasonable intervals. Janitorial service will be provided five days per week,
excluding holidays.
7.2 Additional Services. Before installing any equipment or lights in the
Premises that generate, in combination with all other lights and equipment in
the Premises, more than 2.5 watts per square foot of floor area, or which
consume more electricity than the typical complement of office machinery, Tenant
shall obtain Landlord's written permission. Landlord may refuse to grant such
permission if, in its reasonable judgment, the amount of heat so generated would
place an above average burden on the HVAC or electrical systems for the
Building. Landlord may require Tenant to agree to pay as Additional Rent amounts
reasonably determined by Landlord to cover the additional installation and
maintenance costs, as well as increased HVAC costs
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generated by Tenant's equipment and lights. Landlord shall be entitled to
install and operate, at Tenant's cost, a monitoring/metering system in the
Premises to measure the added demands on electricity and HVAC systems.
7.3 Interruption of Services. In the event of an interruption or failure
of Building services, Landlord will use reasonable diligence to restore such
service; however, Landlord will in no event be liable for any damages to
business, persons or property directly or indirectly resulting from any
variation, interruption, or failure of such services. No temporary interruption
or failure of services incident to the making of repairs, alterations, or
improvements, or due to accident or strike, or events beyond Landlord's
reasonable control shall be deemed a default by Landlord or an eviction of
Tenant, or shall it relieve Tenant from any of its obligations under this Lease.
8. INTENTIONALLY DELETED
9. TAX ON RENTALS; TENANT'S PERSONAL PROPERTY TAXES
9.1 Tax on Rentals. If any tax is placed on Rent payable under this Lease
or accruing from use of property, or such a tax in any form against Landlord
measured by income derived from the rental of the Building, such tax shall be
paid by Tenant either directly or through Landlord; provided, however, that
Tenant will not be liable to pay any net income tax imposed on Landlord.
9.2 Personal Property Taxes. Tenant shall pay prior to delinquency all
personal property taxes payable with respect to all property of Tenant located
on the Premises or in the Building and shall provide promptly upon request of
Landlord written proof of payment.
10. ALTERATIONS AND CARE OF PREMISES
10.1 Tenant's Duty. Tenant shall take good care of the Premises and shall
promptly make all necessary repairs and maintenance except those to be made by
Landlord as provided below. All damage to the Premises, Building or parking
garage not covered by insurance maintained by Landlord (including windows and
doors) caused directly or indirectly by Tenant, or Tenant's employees, agents,
independent contractors, licensees or invitees, shall be promptly paid for by
Tenant. If Tenant fails to maintain the Premises as required by this Lease,
Landlord may at any time and at its option, cause the same to be put in the
condition Landlord deems appropriate, and in such case, upon receipt of
Landlord's invoice, Tenant shall promptly pay the entire cost of those repairs
as Additional Rent. Pursuant to Section 14, Landlord shall have the right to
enter the Premises for the purpose of undertaking such work upon the failure of
Tenant to do so.
10.2 Alterations. Tenant may not, without first obtaining Landlord's
written consent which shall not be unreasonably withheld and, where required by
Landlord, in
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accordance with plans and specifications prepared at Tenant's expense and
reasonably approved by Landlord, (a) make alterations to the Premises, (b)
install, modify, replace or in any way change any floor or wall covering,
ceiling, lighting, fixtures, plumbing, wiring, or signage, (c) install, modify,
replace or in any way change curtains, draperies or other hangings on or beside
the windows. Tenant may not change locks to any doors between the Premises and
Building common areas under any circumstances. Tenant shall be solely
responsible for making sure that its alterations to the Premises comply with all
laws, including applicable provisions of the Americans with Disabilities Act, 42
U.S.C. Ch. 126 (the "ADA"). Landlord's approval of Tenant's plans and
specifications shall create no responsibility or liability on the part of
Landlord for compliance with applicable laws, regulations or ordinances,
including the ADA. Tenant shall reimburse Landlord for any reasonable sums
expended for examination and approval of the architectural and mechanical plans
and specifications for alterations. Tenant shall reimburse Landlord for its
direct costs incurred during any inspection or supervision of the alterations.
All approved work shall be at Tenant's expense and shall be performed by workmen
and contractors designated by Landlord. Landlord's consent may be withdrawn by
written notice to Tenant if, in Landlord's reasonable judgment, Tenant's
contractors, workmen or suppliers are unreasonably interfering with workmen or
contractors of Landlord or of another tenant.
10.3 Normal Wear and Tear. Except as otherwise provided herein, all
repairs necessitated by normal wear and tear in order to maintain the Premises
and the Building in a tenantable condition shall be performed by or under the
direction of Landlord and as an Operating Cost. Landlord shall be the sole judge
of necessary repairs.
10.4 Notice of Damage. Tenant shall promptly inform Landlord and
Landlord's Building Manager of any damage to the Premises or Building, whether
or not caused by Tenant.
10.5 Repair and Maintenance of the Building. Landlord shall be
responsible for reasonably necessary maintenance and repairs to the portions of
the Building, parking garage and common areas which are not Tenant's
responsibility (the Building Work"). Building Work shall include the repair,
maintenance and replacement of the roof, electrical, plumbing and other
mechanical systems, structure and exterior of the Building. If any of the
Building Work is necessitated due to damage caused by Tenant, its agents or
employees, and if such damage is not insured by Landlord, Landlord may require
Tenant to pay the cost of that work within 10 days of receipt by Tenant of the
invoice.
11. TENANT IMPROVEMENTS
11.1 Inspection. If this Lease is entered into before completion of
Tenant Improvements to the Premises, Tenant shall have the right to defer
acceptance of the Premises until Tenant completes an inspection of the
improvements. The inspection must
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be completed within five days after Tenant's receipt of a written notice by
Landlord that the Improvements have been substantially completed in accordance
with Exhibit B. Except as otherwise specified by Tenant in writing to Landlord
within such period, Tenant shall be deemed to have accepted the Premises in
their then condition, except with respect to defects that could not reasonably
be found by Tenant during its inspection. If, as a result of Tenant's
inspection, minor variations are discovered from the plans and specifications of
a nature commonly found on a "punch list" (as that term is used in the
construction industry), Landlord will exercise good faith in having minor
violations corrected as quickly as possible. The existence of Tenant's punch
list items shall not postpone the Commencement Date of this Lease.
11.2 Responsibility for Improvements. Unless otherwise specified in this
Lease, Exhibit B or any amendment hereto, Tenant shall reimburse Landlord for
the cost of making all Improvements to the Premises requested by Tenant. Tenant
shall, within ten days of receipt of a written request from Landlord, pay
Landlord for the cost of such Improvements made, absent which Landlord shall
have the same rights as if Tenant failed to pay Rent when due. All Improvements
made in accordance with this Lease, Exhibit B. or any amendment hereto, whether
or not paid for by Landlord, shall at all times be the property of Landlord.
Tenant shall be solely responsible for ensuring that the design and construction
of any Improvements to the Premises, except for the initial buildout described
in Exhibit B complies with all laws, including the ADA, and Landlord's approval
of Tenant's plans and specifications shall create no responsibility or liability
of the part of Landlord.
12. ACCESS TO PREMISES
Tenant shall permit Landlord, Landlord's Building Manager, and any other
persons designated by Landlord, to enter the Premises at all reasonable times
for inspection purposes, or for the purpose of cleaning, repairing, altering or
improving the Premises or the Building, or for the purpose of showing the
Premises try prospective tenants. When necessary, Landlord may temporarily close
entrances, doors, corridors, elevators or other facilities without liability to
Tenant by reason of such closure and without such action by Landlord being
construed as an eviction of Tenant or relieving or releasing Tenant from the
duty of observing each provision of this Lease. Landlord shall not be liable for
the consequences of admitting by passkey or refusing to admit to the Premises
Tenant or any of Tenant's agents or employees or other persons claiming a right
of admittance.
13. LIEN FOR RENT
Landlord shall have any statutory Landlord's liens provided by Washington
law.
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14. DAMAGE OR DESTRUCTION
14.1 Damage and Repair. If the Premises or Building are rendered
untenantable by fire or other casualty, either wholly or in part, Landlord may,
at its option, either (a) terminate this Lease, or (b) repair the damages. If
the Premises are damaged, the Rent shall be abated in the same proportion as the
untenantable portion of the Premises bears to the whole thereof during the
period of the damage unless the damage directly results from, any act or
omission of Tenant, or its officers, contractors, licensees, agents, servants,
employees, guests, invitees or visitors. If, within 60 days after damage by fire
or other casualty, Landlord fails to notify Tenant of its election to restore
the Premises within 120 days after the damage, then Tenant may, at its option,
terminate the Lease subject to the provisions set forth below. Tenant, in order
to so terminate, must provide written notice to Landlord by certified mail of
its intention to terminate within 30 days after the expiration of said 60 day
period. If Tenant gives notice of its intention to terminate the Lease as
provided above, the Lease shall terminate as of the date of such notice.
14.2 Business Interruption. No damages, compensation or claim shall be
payable by Landlord for inconvenience, loss of business or annoyance arising
from any repair or restoration of any portion of the Premises or of the
Building.
14.3 Tenant Improvements and Tenant's Personal Property. Landlord will
not carry insurance of any kind for the protection of Tenant or any improvements
paid for by Tenant or on Tenant's furniture on any fixtures, equipment,
improvements or appurtenances of Tenant under this Lease, and Landlord shall not
be obligated to repair any damage thereto or replace the same.
15. WAIVER OF SUBROGATION
Whether any loss or damage is due to the negligence of either Landlord or
Tenant, their agents or employees, or any other cause, Landlord and Tenant
hereby release the other and any other tenant, their agents or employees, from
responsibility for, and waive their entire claim of recovery for (a) any loss or
damage to the Building or the property of either located anywhere in the
Building arising out of or incident to the occurrence of any of the perils which
may be covered by their respective insurance policies required under this Lease,
or (b) any loss resulting from business interruption at the Premises or loss of
rental income from the Building, arising out of or incident to the occurrence of
any of the perils which may be covered by business interruption or rental income
insurance policies held by either party. Each party shall cause its insurance
carriers to consent to such waiver and to waive all rights of subrogation
against the other parry.
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16. INDEMNIFICATION AND INSURANCE
16.1 Tenant's Indemnity. Tenant shall indemnify, defend and hold Landlord
harmless from and against all claims, liabilities, damages, costs, or expenses
(including attorneys' fees), arising out of or in connection with the breach of
this Lease by Tenant or any act or omission of Tenant or its officers,
contractors, licensees, agents, servants, employees, licensees or invitees in or
about the Building or Premises.
16.2 Tenant's Insurance. Tenant shall, at its own expense, maintain
during the term of this Lease: (a) a policy of commercial general liability
insurance covering Tenant's activities and those of Tenant's employees,
officers, contractors, licenses, agents, servants, employees, licensees or
invitees with respect to the Premises or the Building against loss, damage or
liability for personal injury or death or loss or damage to property with a
limit of not less than $1,000,000 combined single limit; and (b) property
insurance covering (i) alterations, additions, or improvements made by or for
Tenant, and (ii) Tenant's trade fixtures, merchandise and other personal
property on or about the Premises; all in amounts not less than 100% of their
actual replacement cost. Following a peril as set forth herein, the proceeds
under (b)(i) above shall be paid to Landlord, and the proceeds under (b)(ii)
shall be paid to Tenant. All insurance shall contain loss payable clauses
consistent with the foregoing which are acceptable to Landlord. Insurance
required under this Section shall be with companies rated A-XV or better in
Best's Insurance Guide. No insurance policy shall be canceled or reduced in
coverage and each such policy shall provide that it is not subject to
cancellation or a reduction in coverage except after 30 days prior written
notice to Landlord. No later than the Commencement Date, and from time to time
thereafter, Tenant shall provide Landlord with evidence of such insurance in a
form reasonably acceptable to Landlord. In no event shall the limit of such
policies be considered as limiting the liability of Tenant under this Lease.
16.3 Landlord's Negligence/Indemnity. The foregoing provisions shall not
be construed to make Tenant responsible for loss, damage, liability or expense
resulting from injuries to third parties caused by the gross negligence of
Landlord; provided, however, that in no event shall Landlord be liable to Tenant
for any damage to the Premises or for any loss, damage or injury to any property
therein or thereon resulting from acts by third parties or occasioned by
bursting, rupture, leakage or overflow of any plumbing or other pipes
(including, without limitation, water, steam, and/or refrigerant lines),
sprinklers, tanks, drains, drinking fountains or washstands or other similar
cause in, above, upon or about the Premises or the Building. Landlord shall not
be liable for any loss or damage to person or property sustained by Tenant or
other persons, which may be caused by theft, or by any act or neglect of any
tenant or occupant of the Building or any third parties. Landlord shall defend
and indemnify Tenant and save it harmless from and against any and all
liability, damages, costs, or expenses, including attorneys' fees, arising from
the breach of this Lease by Landlord or gross negligence or willful misconduct
of Landlord
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and its officers, contractors, licensees, agents, servants, employees, guests,
invitees, or visitors in or about the Building or Premises.
17. HAZARDOUS SUBSTANCES
17.1 Environmental Indemnity. Tenant shall not cause or permit any
Hazardous Substances other than ordinary office supplies, to be brought upon,
kept or used in or about the Premises, Building or Land without Landlord's prior
written consent. If Tenant breaches its obligations set forth herein, or if the
presence of Hazardous Substances on or about the Premises, Building, or Land
caused or permitted by Tenant results in contamination for which Tenant or
Landlord may be legally liable, then Tenant shall indemnify, defend and hold
Landlord harmless from and against all claims, judgments, damages, penalties,
fines, costs, liabilities, or losses arising out of or in connection therewith.
Tenant's obligations under this Section shall survive the expiration or
termination of this Lease.
17.2 Hazardous Substances Defined. Hazardous Substances shall mean: (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" in CERCLA, as
amended by Superfund Amendments and Reauthorization Act of 1986 (Publ. L.
99-499, 100 Stat. 1613) ("SARA"), the Resource Conservation and Recovery Act of
1976 (42 U.S.C. ss. 6901 et seq.) ("RCRA"), and the Hazardous Materials
Transportation Act, 49 U.S.C. ss. 1801 et seq., and in the regulations
promulgated pursuant to said laws, all as amended; (ii) those substances listed
in the United States Department of Transportation Table (49 C.F.R. 172.101 and
amendments thereto) or by the Environmental Protection Agency (or any successor
agency) as hazardous substances (40 C.F.R. Part 302 and amendments thereto);
(iii) any material, waste or substance which is (A) petroleum, (B) asbestos, (C)
polychlorinated biphenyl, (D) designated as a "hazardous substance" pursuant to
Section 311 of the Clean Water Act, 33 U.S.C. 1251 et seq. (33 U.S.C. ss. 1321)
or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss. 1317);
(E) flammable explosives; or (F) radioactive materials; (iv) those substances
defined as "dangerous wastes," "hazardous wastes" or as "hazardous substances"
under the Water Pollution Control Act, RCW 90.48.010 et seq., the Hazardous
Waste Management Statute, RCW 70.105.010 et seq., and the Toxic Substance
Control Act (Senate Bill No. 6085) RCW 70.105B.010 et seq., the Model Toxics
Control Act, RCW 70.105D.010 et seq., and the Toxic Substance Control Act, 15
U.S.C. ss. 2601 et seq., and in the regulations promulgated pursuant to said
laws all as amended; and (v) such other substances which are or become regulated
or classified as hazardous or toxic under applicable local, state or federal
laws or regulations.
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18. ASSIGNMENT AND SUBLETTING
18.1 General. Tenant may assign, mortgage, encumber or otherwise transfer
this Lease or sublet the whole or any part of the Premises (collectively, a
"transfer") by first, in each case, obtaining Landlord's written consent, which
shall not be unreasonably withheld. No transfer shall relieve Tenant of any
liability under this Lease. Consent to any transfer shall not operate as a
waiver of the necessity for consent to any subsequent transfer. If Landlord's
consent is requested for the entire Premises, Landlord reserves the right to
terminate this Lease, or, if consent is requested for less than the entire
Premises, to terminate this Lease with respect to the portion for which
Landlord's consent is requested, at the proposed effective date of such transfer
in which event Landlord shall enter into the relationship of Landlord and Tenant
with any such sub-tenant or assignee, based on the rent (and/or other
compensation) and the term agreed to by such subtenant or assignee and otherwise
upon the same terms of this Lease. Each request for an assignment or subletting
must be accompanied by a processing fee of $250 in order to reimburse Landlord
for expenses, including attorneys' fees, incurred in connection with such
request.
18.2 Entity Ownership. The cumulative transfer of an aggregate of 50% or
more of the voting interests or power in Tenant (stock in a corporation,
partnership interests in a partnership, or ownership interests in a limited
liability company), including by creation or issuance of new ownership interests
of an entity which is (i) Tenant; (ii) an assignee of Tenant; or (iii) an entity
which controls Tenant directly or indirectly (except as the result of transfers
by gift or inheritance) shall be deemed a Transfer of this Lease.
18.3 Assignee/Sub-Tenant Obligations. As a condition to Landlord's
approval, any potential assignee or sub-tenant shall assume all obligations of
Tenant under this Lease, and any amendments thereto, and shall be jointly and
severally liable with Tenant and any guarantors hereof for the payment of Rent
and performance of all terms, covenants and conditions of this Lease. In
connection with any sublease or assignment, Tenant shall provide Landlord with
copies of all assignments, subleases and assumption instruments.
18.4 Permitted Transfers. Anything contained herein to the contrary
notwithstanding, Landlord hereby consents to (a) a Transfer of this Lease to the
parent of Tenant or to a wholly-owned subsidiary of Tenant or of such parent,
(b) a Transfer of this Lease to any corporation into which or with which Tenant
may be merged or consolidated, (c) any Transfer under Section 18.2 or (d) a
Transfer of this Lease to any entity to which Tenant sells all or substantially
all of its assets; provided that the resulting entity expressly assumes all of
Tenant's obligations hereunder and that the net worth of the resulting entity is
at least equal to the greater of (i) the net worth of Tenant on the date hereof,
or (ii) the net worth of Tenant immediately prior to such Transfer.
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19. LIENS AND INSOLVENCY
19.1 Liens. Tenant shall keep the Premises and the Building free from any
liens arising out of any work performed and materials ordered or obligations
incurred by or on behalf of Tenant, except for Improvements performed in
accordance with Exhibit B. In the event any lien is filed against the Building,
the Land or the Premises by any person claiming by, through or under Tenant, if
not released within 5 days after written notice from Landlord, Tenant shall be
in Default hereunder and Tenant shall (at its expense), upon request of
Landlord, and in addition to any other remedy which Landlord may possess,
immediately furnish to Landlord a bond in form and amount and issued by a surety
satisfactory to Landlord, indemnifying Landlord, the Land and the Building
against all liability and expenses, including attorneys' fees, which Landlord
could possibly incur as a result thereof. Landlord shall, at all times, have the
right to post notices of nonresponsibility on or around the Premises and/or
record such notices in the county where the Building is located.
19.2 Insolvency. If Tenant becomes insolvent, voluntarily or
involuntarily bankrupt, or if a receiver, or assignee or other liquidating
officer is appointed for the business of Tenant, then Landlord may terminate
Tenant's right of possession under this Lease at Landlord's option and in no
event shall this Lease or any rights or privileges hereunder be an asset of
Tenant under any bankruptcy, insolvency or reorganization proceedings. The
appointment of a trustee in bankruptcy or of a receiver for the business or
property of Tenant shall be deemed a material Default of this Lease by Tenant,
unless the trustee or receiver, within five days after appointment in the case
of any delinquency in any payment required as and when due, our within 15 days
after appointment in the case of any Default other than the making of any
payment, (i) cures any outstanding Default, (ii) fully compensates Landlord for
any loss resulting from such Default, and (iii) provides adequate assurances of
future performance under this Lease, which assurances may include at Landlord's
option, depositing with Landlord additional security in an amount not to exceed
the equivalent of two (2) months rent as determined at the time of appointment.
20. DEFAULT
20.1 Default is Immediate. Time is of the essence, and Tenant shall be
immediately in default for failing to comply with any term of this Lease beyond
the cure periods described in Section 20.2 (a "Default").
20.2 Tenant's Right to Cure.
20.2.1 For the nonpayment of Rent, or any other amounts due under
this Lease, Tenant shall have a period of five days after written notice from
Landlord ("Notice of Non-Compliance") within which to cure by paying all amounts
past due, together with
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interest at the rate equal to one and one-half percent (1.5%) per month, or the
highest rate permitted by law, whichever is less, calculated from the original
due date to the date of full payment and, in the case of Rent, the greater of
$100 or five percent (5%) of the delinquent amount.
20.2.2 If Tenant fails to comply with any other term of this Lease,
Tenant shall have a period of 15 days from the receipt of a Notice of
Non-Compliance within which to cure. If, notwithstanding Tenant's good faith
efforts to cure, any such non-compliance under this subsection cannot be cured
within the 15 day period, the non-compliance shall not be deemed to be uncured
if Tenant continues exercising good faith and due diligence to cure such
non-compliance.
20.2.3 In the event Tenant receives from Landlord three or more
Notices of NonCompliance within a 12-month period during Tenant's occupancy of
the Premises, regardless of whether such non-compliance was subsequently cured,
Tenant shall thereafter forfeit any further rights to cure.
20.3 Vacation and Abandonment. Notwithstanding anything to the contrary
in Section 20.2, any vacation or abandonment by Tenant shall be considered a
Default with no right to cure, allowing Landlord to exercise all rights
contained in Section 20.4 and 20.5 of this Lease. Vacation shall be defined as
an absence from the Premises for more than 30 days. Abandonment shall be defined
as an absence from the Premises for more than ten days while Tenant is in
Default.
20.4 Landlord's Re-Entry; Acceleration of Rent. Following the expiration
of any applicable cure period for a Default by Tenant, Landlord, in addition to
other rights it may have, may at its option enter the Premises, either with or
without process of law, and remove Tenant or any other persons who may be
therein, together with all personal property found therein; and Landlord may
terminate this Lease, or it may from time to time, without terminating this
Lease and as agent of Tenant, relet the Premises or any part thereof upon such
terms as Landlord may deem advisable, with the right to repair and remodel the
Premises. Tenant shall remain liable for any deficiencies under this Lease,
computed as set forth below. In the case of any uncured Default, re-entry and/or
dispossession by summary proceedings or otherwise, all Rent and other sums due
pursuant to this Lease for the balance of the term shall become immediately due,
together with such expenses as Landlord may incur including, but not limited to,
attorneys' fees, advertising expenses, brokerage fees and/or putting the
Premises in good order or preparing the same for re-rental, together with
interest and handling charges as provided in Section 4 above, accruing from the
date of any such expenditure by Landlord.
20.5 Re-Letting the Premises. At the option of Landlord, rents received
by Landlord from re-letting the Premises shall be applied first to the payment
of any indebtedness from Tenant to Landlord other than Rent and other sums due;
second to the
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payment of any costs resulting from such re-letting, including, but not limited
to, attorneys' fees, advertising fees and brokerage fees, and to the payment of
any repairs or remodeling to the Premises; third, to the payment of Rent due and
to become due hereunder, and, if after applying these amounts, there is any
deficiency in the Rent to be paid by Tenant under this Lease, Tenant shall pay
any deficiency to Landlord monthly on the dates specified herein and any payment
made or suits brought to collect the amount of the deficiency for any month
shall not prejudice in any way the right of Landlord to collect the deficiency
for any subsequent month. The failure or refusal of Landlord to re-let the
Premises or any part or parts thereof shall not release or affect Tenant's
liability hereunder, nor shall Landlord be liable for failure to re-let, or in
the event of re-letting, or failure to collect the Rent thereof, and in no event
shall Tenant be entitled to receive any excess of net rents collected over sums
payable by Tenant to Landlord hereunder. No such re-entry or taking possession
of the Premises shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant. Notwithstanding any such re-letting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous Default.
Should Landlord at any time terminate this Lease by reason of any Default, in
addition to any other remedy it may have, it may recover from Tenant the amount
of Rent reserved in this Lease for the balance of the term, as it may have been
extended over the then fair market value of the Premises for the same period,
plus all court costs and attorneys' fees incurred by Landlord in the collection
of the same.
20.6 Waiver of Redemption Rights. Tenant, for itself, and on behalf of
any and all persons claiming through or under it, including creditors of all
kinds, hereby waives all rights which they or any of them might have under or by
reason of any present or future law, to redeem the Premises or to have a
continuance of this Lease for the term hereof, after applicable cure periods
under this Lease have expired, and before being dispossessed or ejected
therefrom by process of law.
20.7 Cumulative Remedies. All rights and remedies of Landlord provided in
this Lease shall be cumulative, and none shall exclude any other right or remedy
allowed by law. In addition to the other remedies provided in this Lease,
Landlord shall be entitled to restrain by injunction the violation or attempted
violation of any of the provisions of this Lease.
21. MORTGAGE SUBORDINATION AND ATTORNMENT
This Lease shall be subordinate to any mortgage or deed of trust now
existing or hereafter placed upon the Land, the Building or the Premises created
by or at the instance of Landlord, and to any and all advances to be made
thereunder, and to interest thereon and all modifications, renewals and
replacements or extensions thereof ("Landlord's Mortgage"); provided, however,
that if the holder of any Landlord's Mortgage or any person or persons
purchasing or otherwise acquiring the Land, Building or Premises at
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any sale or other proceeding under any Landlord's Mortgage shall elect to
continue this Lease in full force and effect; and, in such event, Tenant shall
attorn to such person or persons. Tenant shall properly execute, acknowledge and
deliver reasonable documents which the holder of any Landlord's Mortgage may
require to effectuate the provisions of this Section.
22. ACTIONS AT EXPIRATION OR TERMINATION OF LEASE
22.1 Surrender of Possession. Subject to the terms of Section 14 relating
to damage and destruction, upon expiration of the term of this Lease, whether by
lapse of time or otherwise, Tenant shall promptly and peacefully surrender the
Premises, together with all keys thereto, to Landlord in as good condition as
when received by Tenant from Landlord or as thereafter improved, reasonable wear
and tear and damage by fire or other casualty (except to the extent caused by
Tenant and not insured by Landlord) excepted.
22.2 Holdover. If Tenant shall, without the written consent of Landlord,
hold over after the expiration or termination of this Lease, such tenancy shall
continue only on a month-to-month basis and may be terminated by Landlord in
accordance with Washington law. During the holdover tenancy, Tenant shall pay
Landlord 150% of the Rent (including Additional Rent and Parking Fees). All
other Lease terms shall remain in full force and effect.
22.3 Movable Property. Tenant shall remove all its movable property and
trade fixtures which can be removed without damage to the Premises prior to the
Expiration Date or sooner termination of this Lease and shall pay Landlord for
the cost of repairing any damages to the Premises or Building resulting front
such removal.
22.4 Immovable Property. All other property in the Premises, and any
alterations or additions thereto (including, without limitation, wall-to-wall
carpeting, paneling, wall covering, window dressings, coverings or shades, or
lighting fixtures and apparatus), whether provided by Landlord or Tenant, and
any other article affixed to the floor, wall or ceiling of the Premises is the
Landlord's property and shall remain with the Premises without any compensation
to Tenant. If, however, Landlord requests in writing, Tenant will, prior to the
Expiration Date or sooner termination of this Lease, remove such alterations,
additions, fixtures, equipment and property placed or installed by it in the
Premises and will immediately repair any damages caused by or resulting from
such removal to the condition of the Premises prevailing at the Commencement
Date, reasonable wear and tear excepted.
22.5 Failure to Remove Property. If Tenant fails to remove any of its
property from the Premises or the Building at the termination of this Lease or
when Landlord has the right of reentry, landlord may, at its option, remove and
store the property without liability for loss thereof or damage thereto, and at
Tenant's expense. If Tenant fails to pay
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the cost of storing Tenant's property after it has been stored for a period of
30 days or more, Landlord may, at its option, sell any or all of such property
at public or private sale (and Landlord may become a purchaser at such sale), in
such manner and at such times and places as Landlord may reasonably deem proper,
without notice to Tenant, and shall apply the proceeds of such sale in the
following order: (a) to sale costs, including attorneys' fees actually incurred;
(b) to the payment of storage costs; (c) to the payment of any other costs or
amounts which may then be or thereafter become due; and (d) the balance, if any,
to Tenant.
23. CONDEMNATION
23.1 Entire Taking. If all of the Building or such portions of the
Building as may be required for the reasonable use thereof are taken by eminent
domain, or conveyed under a threat of condemnation, this Lease shall
automatically terminate as of the date title vests in the condemning authority
and all Rent shall be paid to that date.
23.2 Constructive Taking of Entire Premises. In the event of a taking of
a material part but less than all of the Building, where Landlord shall
reasonably determine that the remaining portions of the Building cannot be
economically and effectively used by it (whether on account of physical,
economic, aesthetic or other reasons), Landlord shall forward a written notice
to Tenant of such determination not more than 60 days after the date of taking.
The Lease term shall expire upon such date as Landlord shall specify in such
notice but not earlier than 60 days after the date of such notice.
23.3 Partial Taking. In case of a partial taking of the Premises, or a
portion of the Building not required for the reasonable use of the Premises,
then this Lease shall continue in full force and effect and the Rent shall be
equitably reduced in proportion to the reduction of the Floor Area of the
Premises. The Rent reduction shall be effective as of the date title to such
portion vests in the condemning authority.
23.4 Termination by Landlord. In the event that title to a part of the
Building other than the Premises shall be condemned or taken under threat of
condemnation, and if, in the opinion of Landlord, the Building should be
restored in such a way as to alter the Premises materially, Landlord may
terminate this Lease. Landlord shall notify Tenant of such termination within 60
days following the date of vesting of title of the property taken in the
condemning authority. This Lease shall expire on the date specified in the
notice of termination, but not less than 60 days after the giving of such
notice, and the Rent shall be apportioned as of such date.
23.5 Awards and Damages. Landlord reserves all rights to damages to the
Premises for any partial, constructive, or entire taking by eminent domain, and
Tenant hereby assigns to Landlord any right Tenant may have to such damages or
award, and neither Tenant nor anyone acting on behalf of or through Tenant shall
make a claim
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against Landlord or the condemning authority for damages for termination of the
leasehold interest or interference with Tenant's business.
24. MISCELLANEOUS
24.1 Notices. All notices under this Lease shall be in writing and
delivered in person or sent by registered or certified mail, return receipt
requested to Landlord at the addresses specified in Section 1.4 and to Tenant at
the Premises, or such other addresses as may from time to time be designated by
such party in writing. Notices mailed as aforesaid shall be deemed received on
the date which is three days following the date of mailing.
24.2 Costs and Attorneys' Fees. If Tenant or Landlord shall engage the
services of an attorney to collect monies due or to bring any action for any
relief against the other, declaratory or otherwise, arising out of this Lease,
and the losing party shall pay the prevailing party a reasonable sum for
attorneys' fees and costs in such matter, including any fees and costs incurred
at trial and on appeal.
24.3 Limitation on Landlord's Liability. Notwithstanding any other
provision in this Lease, the obligations and agreements made on the part of
Landlord are not made and intended to be personal obligations or agreements, or
for the purpose of binding Landlord personally or the assets of Landlord except
for Landlords interest in the Premises and Building, but are made and intended
for the purpose of binding only the Landlords interest in the Premises and the
Building as the same may from time to time be encumbered. No personal liability
or personal responsibility is assumed by, nor shall at any time be asserted or
enforceable against, Landlord or its partners or their respective heirs, legal
representatives, successors, and assigns on account of this Lease or on account
of any covenant, undertaking or agreement of Landlord in this Lease contained.
24.4 Estoppel Certificates. Landlord and Tenant shall, from time to time,
upon written request of the other, execute, acknowledge and deliver to the other
or its designee a written statement certifying: (i) this Lease is unmodified and
in full force and effect (or if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the Rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are no uncured Defaults
hereunder, or specifying such Defaults if any are claimed. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer of
the Premises. If Landlord or Tenant shall fail to respond within 10 days of
receipt of a written request as herein provided, the nonresponsive party shall
be deemed to have given such certificate as above provided without modification.
24.5 Transfer of Landlord's Interest. This Lease shall be assignable by
Landlord without the consent of Tenant. In the event of any transfer or
transfers of
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Landlord's interest in the Premises or in the Building, other than a transfer
for security purposes only, the transferor shall be automatically relieved of
all obligations and liabilities on the part of Landlord accruing from and after
the date of such transfer and Tenant agrees to attorn to the transferee.
24.6 Heirs and Assigns. This Lease shall be binding upon Landlord and
Tenant and their respective heirs, executors, administrators, successors and
assigns.
24.7 No Brokers. Tenant represents and warrants to Landlord that it has
not engaged any broker except Kidder, Mathews & Segner, finder or other person
who would be entitled to any commission or fees in respect of the negotiation,
execution, or delivery of this Lease and shall indemnify and hold harmless
Landlord against any loss, cost, liability or expense incurred by Landlord as a
result of any claim asserted by any such broker, finder or other person on the
basis of any arrangements or agreements made or alleged to have been made by or
on behalf of Tenant. The provisions of this subparagraph shall not apply to
brokers with whom Landlord has an express written brokerage agreement, including
Clarke Commercial, Inc.
24.8 Entire Agreement. This Lease contains all of the agreements between
Landlord and Tenant relating in any manner to the rental, use and occupancy of
the Premises and Tenant's use of the Building and other matters set forth in
this Lease. No prior agreements or understanding pertaining to the same shall be
valid, and this Lease shall not be modified except in writing signed by Landlord
and Tenant.
24.9 Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and the remaining provisions hereof shall nevertheless remain
in full force and effect.
24.10 Force Majeure. Time periods for Landlord's performance under any
provision of this Lease shall be extended for periods of time during which the
Landlord's performance is prevented due to circumstances beyond the Landlord's
reasonable control, including without limitation, fires, floods, earthquakes,
lockouts, strikes, embargoes, governmental regulations, acts of God, public
enemy, war or other strife.
24.11 Transit. Tenant shall request its employees to participate with
Landlord and the City of Bellevue for the purpose of coordination of transit and
high-occupancy vehicle (HOV) alternatives for commuting to and from work.
24.12 Right to Change Public Spaces. Landlord shall have the right,
without thereby creating an actual or constructive eviction or incurring any
liability to Tenant therefor, to change the arrangement or location of such of
the following as are not contained within the Premises or any part thereof:
entrances, lobbies, passageways, doors and doorways, corridors, stairs, toilets
and other like public service portions of the
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<PAGE>
Building. Nevertheless, in no event shall Landlord make any change which shall
diminish the area of the Premises.
24.13 Right to Establish Building Rules and Regulations. Landlord shall
have the right to and enforce such reasonable, generally applicable rules and
regulations for the Building as Landlord may deem necessary, provided such rules
and regulations are consistent with the terms of this Lease.
24.14 Substituted Premises. If the Premises contain an area of 3,000
square feet or less, Landlord shall have the right upon giving Tenant not less
than 30 days' written notice, to relocate Tenant to comparable space (including
comparable improvements) elsewhere in the Building ("Substitute Premises"). If
Landlord moves Tenant to such Substitute Premises, this Lease shall remain in
full force and effect and be deemed applicable to such Substitute Premises, and
such Substitute Premises shall thereafter be deemed to be the "Premises."
24.15 Authority. Each person executing this Lease on behalf of Landlord
and Tenant warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of such party. Upon request from Landlord, Tenant shall
provide a certified copy of an applicable resolution evidencing authorization or
ratification of this Lease.
24.16 Non-Waiver. Landlord's failure to insist on strict performance of
any of the terms of this Lease shall not be deemed a waiver of any rights or
remedies which Landlord may have against Tenant at law or equity, and shall not
be deemed a waiver of any subsequent Default in any of such terms.
24.17 Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Washington. Any action to enforce the
provisions hereof shall be in King County, Washington.
24.18 Exhibits. The following exhibits or riders are made a part of this
Lease:
Exhibit A - Floor Plan of Premises
Exhibit B - Tenant Improvements
Exhibit C - Legal Description of Land
Exhibit D - Parking Agreement
Exhibit E - Lease Riders
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<PAGE>
IN WITNESS WHEREOF this Lease has been executed on the date specified in
Section 1.1 above.
LANDLORD:
BELLEVUE ASSOCIATES, a
Washington limited partnership
By: AB Bellevue General Partnership,
a Washington general partnership
Its: General Partner
By: /s/ Al James
---------------------------
Al James
Managing General Partner
TENANT:
IMAGEX CORPORATION,
a Washington corporation
By: /s/ Jack Hooper
------------------------------------
Name: Jack Hooper
----------------------------------
Its: CFO
-----------------------------------
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
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<PAGE>
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Al James is the
person who appeared before me, and said person acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument and
acknowledged it as the Managing General Partner of AB BELLEVUE GENERAL
PARTNERSHIP, a Washington general partnership, the General Partner of BELLEVUE
ASSOCIATES, a Washington limited partnership, to be the free and voluntary act
of such party for the uses and purposes mentioned in this instrument.
Date: Feb. 3, 1997
------------
/s/ E. M. Kristoferson
----------------------------------------
[SEAL OF
E M KRISTOFERSON E. M. Kristoferson
NOTARY PUBLIC] ----------------------------------------
(Printed Name of Notary Public)
My Appointment expires 6/1/97
-----------------
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Jack Hooper is
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the CFO of ImageX Corporation to be the free
and voluntary act of such party for the uses and purposes mentioned in the
instrument.
Date: 1-31-97
------------
/s/ Billie A. Hess Billie A. Hess
----------------------------------------
[SEAL OF
BILLIE A. HESS Billie A. Hess
NOTARY PUBLIC] ----------------------------------------
(Printed Name of Notary Public)
My Appointment expires 10-1-97
-----------------
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<PAGE>
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
____________________ is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the
____________________ of ImageX Corporation to be the free and voluntary act of
such party for the uses and purposes mentioned in the instrument.
Dated:______________________
---------------------------------
(Signature of Notary Public)
---------------------------------
(Printed Name of Notary Public)
My Appointment expires
<PAGE>
EXHIBIT E
LEASE RIDERS
1. Suite 215. Suite 215 is a portion of the Premises containing
approximately 3,802 square feet. In order to accommodate Tenant, Landlord shall
allow Tenant to occupy Suite 215 prior to the Commencement Date on the terms set
forth herein. Any Tenant Improvements to Suite 215 will be completed after the
remainder of the Tenant Improvements so that Landlord may deliver Suite 215 to
Tenant as soon as reasonably possible. The date upon which Landlord causes Suite
215 to be available to Tenant shall be the "Suite 215 Delivery Date." Delivery
of Suite 215 to Tenant shall not constitute the Commencement Date of the Lease
Term, and the Lease Term shall continue to be 60 months from the Commencement
Date. From the Suite 215 Delivery Date to the Commencement Date, Tenant shall
pay Base Rent in the amount of $6,178.25 per month. Upon the Suite 215 Delivery
Date, all terms of the Lease, except for Rent as set forth in this Section,
shall apply to Suite 215. Upon the Commencement Date, Suite 215 shall become
part of Suite 200, and Tenant shall pay Rent in accordance with the terms of the
Lease. Landlord shall use reasonable diligence to make the Suite 215 Delivery
Date as soon as possible after this Lease is executed.
2. Option to Extend.
2.1 Provided that Tenant is not then in default under the terms and
conditions of the Lease and otherwise has timely cured all defaults, then Tenant
shall have one (1) option to extend the Lease term for three (3) years (the
"Extended Term"). In order to exercise such option, Tenant shall provide written
notice to Landlord of its election no later than one hundred twenty (120) days
before the end of such Lease term. The exercise of such option to extend shall
be for all space occupied by Tenant at the time of the exercise of such option
and shall be on the same terms and conditions as set forth in the Lease except
for the monthly rental which is set forth below in Section 2.3 of this Exhibit E
and Additional Rent for operating expenses which is set forth below in Section
2.2 of this Exhibit E.
2.2 In the event Tenant validly exercises its option to extend the
term of this Lease as herein provided, no later than four (4) months prior to
the expiration of the initial Lease Term, Landlord shall submit to Tenant a copy
of the terms for the Additional Rent for operating expenses upon which Landlord
is prepared to extend the Lease Term (the "Additional Rent Terms"). The
operating expenses set forth in the Additional Rent Terms shall be calculated
based on the average of the actual increase in Landlord's operating costs for
the calendar years 1998, 1999 and 2000. On or before the 15th day after the date
of the Additional Rent Terms to Tenant, Tenant shall have the right to give
Landlord notice in accordance with this Lease stating that Tenant accepts the
<PAGE>
Additional Rent Terms. If Tenant does not provide Landlord with Tenant's notice
of acceptance of the Additional Rent Terms within 15 days of Landlord's offer as
described in this Section 2.2, Landlord shall have no obligation to lease the
Expansion Area to Tenant.
2.3 In the event Tenant validly exercises its option to extend the
term of this Lease as herein provided, and if Tenant has duly and timely
accepted the Additional Rent Terms as set forth in Section 2.2 of this Exhibit
E, monthly rental shall be adjusted as of the Commencement Date of the Extended
Term as follows:
2.3.1 Commencing at the beginning of the month which is four
(4) months prior to the expiration of the initial Lease Term, Landlord and
Tenant shall attempt to agree upon monthly rental for the Premises for the
Extended Term, such monthly rental to equal the fair market rental value of the
Premises for such Extended Term. If the parties are unable to agree upon the
monthly rental for the Extended Term prior to the end of such month, then within
ten (10) days thereafter each party, at its own cost and by giving notice to the
other party, shall appoint a real estate appraiser with at least five (5) years
full-time commercial real estate appraisal experience in the area in which the
Premises are located to appraise and set monthly rental for the Extended Term.
If a party does not appoint an appraiser within thirty (30) days after the other
party has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall set monthly rental for the
Extended Term. If each party shall have so appointed an appraiser, the two
appraisers shall meet promptly and attempt to set the monthly rental for the
Extended Term. If the two appraisers are 5% or less apart in their determination
of monthly rental, and are otherwise unable to reach an agreement, then the two
numbers shall be averaged to determine the monthly rental. Otherwise, if the two
appraisers are unable to agree within thirty (30) days after the second
appraiser has been appointed, they shall attempt to select a third appraiser
meeting the qualifications herein stated within ten (10) days after the last day
the two appraisers are given to set monthly rental. If the two appraisers are
unable to agree on the third appraiser within such ten (10) days after the last
day the two appraisers are given to set monthly rental. If the two appraisers
are unable to agree on the third appraiser within such ten (10) period, either
of the parties to this Lease, by giving ten (10) days' notice to the other
party, may apply to the then presiding judge of the Superior Court of King
County for the selection of a third appraiser meeting the qualifications stated
in this paragraph. Each of the parties shall bear one-half (1/2) of the cost of
appointing the third appraiser and of paying the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party.
2.3.2 Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers shall set monthly rental for the
Extended Term. If a majority of the appraisers are unable to set monthly rental
within the stipulated period of
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<PAGE>
time, the three appraisals shall be added together and their total divided by
three (3). The resulting quotient shall be the monthly rental for the Premises
during the Extended Term. If, however, the low appraisal and/or the high
appraisal is/are more than five percent (5%) lower and/or higher than the middle
appraisal, the low appraisal and/or the high appraisal shall be disregarded. If
only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be
added together and their total divided by two (2), and the resulting quotient
shall be monthly rental for the Premises during the Extended Term.
2.3.3 For purposes of the appraisal, the term "fair rental
value" shall mean the price that a ready and willing tenant would pay, as of the
Commencement Date of the Extended Term, as annual rent to a ready and willing
landlord of premises comparable to the Premises if such premises were exposed
for Lease on the open market for a reasonable period of time.
3. Options to Expand. Tenant shall have two periods in which Tenant may
expand the premises (each, an "Expansion Opportunity Period"). The first
Expansion Opportunity Period shall commence on the first day of the 18th full
calendar month of the Lease Term and shall end at 5:00 p.m. on the last day of
the 20th full calendar month of the Lease Term. The second Expansion Opportunity
Period shall commence on the first day of the 36th full calendar month of the
Lease Term and shall end at 5:00 p.m. on the last day of the 38th full calendar
month of the Lease Term. If at any time during an Expansion Opportunity Period,
there is a vacancy (meaning not occupied and not under lease) in the Building of
5,000 or more contiguous square feet on a single floor (the "Expansion Area"),
Landlord shall so notify Tenant, and Landlord agrees that prior to leasing the
Expansion Area to a person or entity other than (i) any existing tenant in the
Building occupying 13,000 square feet or more on the date the Expansion Area
becomes vacant, (ii) Ragen MacKenzie who, as of the date of this Lease occupies
Suite 400 of the Building, or (iii) any other person or entity who as of the
date of this Lease already has a right of first refusal over the Expansion Area,
Landlord shall submit to Tenant a copy of the terms upon which Landlord is
prepared to enter into a lease amendment with Tenant to expand the Premises into
the Expansion Area (the "Offered Terms"). The Offered Terms shall include all
material terms of such expansion of the Premises including the agreed rentable
square footage for the Expansion Area (which shall be determined by Landlord on
a basis consistent with Landlord's standard practices in the Building),
additional monthly rent for the Expansion Area, and Tenant allowance, if any,
offered by Landlord with respect to the Expansion Area. The additional monthly
rent for the Expansion Area shall be the fair market rental value of the
Expansion Area, determined using the same procedure as set forth in paragraph
2.3 above. Upon determination of the fair market, Tenant shall have the right to
give Landlord notice in accordance with this Lease stating that Tenant elects to
rent the Expansion Area upon the Offered Terms. If Tenant duly and timely elects
to rent the Expansion Area upon the Offered Terms, Landlord and Tenant shall
amend this Lease to reflect Tenant's lease of the Expansion
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<PAGE>
Area on the Offered Terms and to make the Expansion Area part of the Premises.
If Tenant does not provide Landlord with Tenant's notice within 15 days of
Landlord's offer as described in this Section 3, Landlord shall have no
obligation to lease the Expansion Area to Tenant. In addition, Landlord shall
have no obligation to offer the Expansion Area to Tenant if at the time such
space becomes vacant or Landlord wishes to enter into a lease with respect to
the same with a third party, Tenant is in default under this Lease beyond any
applicable cure period. Landlord shall not be in default hereunder if Landlord
is unable to deliver possession of the Expansion Area to Tenant as provided
herein due to circumstances beyond Landlord's reasonable control.
4. Additional Rent. Tenant shall pay to Landlord as Additional Rent the
Operating Cost Contribution and Property Taxes as more specifically set forth in
this Section 4.
4.1 Operating Cost Contribution.
4.1.1 Each month of the Lease Term, Tenant shall pay to Landlord as
Additional Rent one-twelfth of the Operating Cost Contribution, which is set
forth below. The Operating Cost Contribution for 1997 is $0. The Operating Cost
Contribution for 1998 is calculated by multiplying the agreed square footage of
the Premises by $.15. The Operating Cost Contribution for 1999, and all
subsequent years during the original Lease Term, is calculated by multiplying
the agreed rentable square footage of the Premises by $.15 and adding the
Operating Cost Contribution for the prior year. The current agreed rentable
square footage of the Premises is 10,042, as set forth in Section 1.6 of this
Lease. The schedule of Operating Cost Contributions, using the above
calculations and based on 10,042 square feet, is as follows:
Calendar Year Annual Operating Cost Contribution
- ------------------------------------- ----------------------------------
1997 $0
1998 $1,506.30
1999 $3,012.60
2000 $4,518.90
2001 $6,025.20
2002 $7,531.50
4.1.2 If the Premises is increased pursuant to Tenant's Option
to Expand as set forth in Section 3 of this Exhibit E, Tenant shall pay to
Landlord in addition to the Operating Cost Contribution stated in para. 4.1.1
the Operating Cost Contribution as follows. For the period commencing on the
first day of the calendar month in which Tenant occupies the Expansion Area and
ending on the last day of the 11th full calendar month after Tenant occupies the
Expansion Area (the "First Expansion Area Lease Year"), the Operating Cost
Contribution shall be $0. For the Second Expansion Area Lease Year (which shall
commence on the expiration of the First
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<PAGE>
Expansion Area Lease Year), the Operating Cost Contribution shall be calculated
by multiplying the new agreed rentable square footage of the Expansion Area
(which shall be determined as set forth in Section 3 of this Exhibit E) by $.15.
If applicable, The Operating Cost Contribution for the third and all subsequent
Expansion Area Lease Years (which shall commence on the expiration of the prior
Expansion Area Lease Year) shall be calculated by multiplying the new agreed
rentable square footage of the Expansion Area by $.15 and adding the Operating
Cost Contribution for the prior Expansion Area Lease Year.
4.1.3. If Tenant exercises its option to extend the Lease Term
as set forth in Section 2 of this Exhibit E, Landlord and Tenant shall use the
method set forth in Section 2 of this Exhibit E to determine the Additional Rent
for operating expenses for the Extended Term.
4.2 Payment of Additional Rent Based on Property Taxes. If the
amount of Property Taxes (defined below) on the Land and the Building payable in
a calendar year during the Lease term exceeds the amount of such taxes payable
in the calendar year the Lease term commenced, then Landlord shall notify Tenant
in writing and commencing on and retroactive to January 1 of each calendar year,
one-twelfth (1/12th) of Tenant's proportionate share of such excess shall be
paid by Tenant to Landlord as Additional Rent on the first day of each month
during the ensuing one-year period (or for the balance of the Lease term if it
is then less than one year). If the amount of Property Taxes on the Land and the
Building payable in a calendar year during the Lease term is less than the
amount of such taxes payable in the calendar year the Lease term commenced,
Landlord shall credit Tenants Proportionate Share of such deficit towards future
rent due under this Lease. As used herein, Property Taxes means all real
property taxes and personal property taxes, charges and assessments levied with
respect to the Land, the Building, and any improvements, fixtures and equipment
and all other properly of Landlord, real or personal, located in or on the
Building and used in connection with the operation of the Building.
5. Vacation by Prior Tenants. Tenant acknowledges that this Lease, and
Landlord's obligation to deliver Suite 215 and the remainder of the Premises to
Tenant, is conditioned upon (i) Landlord entering into Termination Agreements
with the current tenants of the area comprising the Premises, and (ii) the
vacation of the Premises by the current tenants. This Lease shall become void if
either (i) or (ii) does not occur by February 28, 1997, and neither party shall
have any further rights under this Lease. If Tenant has occupied Suite 215
pursuant to Section 1 of this Rider, and If the Lease becomes void pursuant to
this Section 4, Tenant no later than March 15, 1997 (i) remove any trade
fixtures, as well as remaining documents, computers, furniture and other items
of personal property from Suite 215, (ii) leave Suite 215 in "broomclean"
condition and free from any unreasonable damages (nominal wear and tear for the
period of occupancy
E-5
<PAGE>
of Suite 215 is excepted), and (iii) deliver possession of Suite 215 to
Landlord, upon which time neither parry shall have any further rights under this
Lease.
6. Landlord's Insurance. Landlord shall maintain fire and extended
coverage insurance on the Buildings and other improvements located on the Land,
with a policy limit that is reasonable, using good business judgment.
E-6
<PAGE>
Basic Lease Information
US Bank Plaza
OFFICE LEASE
Lease Date: May 15, 1998
Landlord: Spieker Properties, L.P.,
a California limited partnership
Address of Landlord: 10900 N.E. 8th Street, Suite 200
Bellevue, Washington 98004
Tenant: ImageX Corporation
a Washington corporation
Address of Tenant: 10800 N.E. 8th Street
Suite 200
Bellevue, Washington 98004
Contact: Kris Reightley
Telephone: 425-452-0011
Paragraph 1 Premises: Approximately 3,550 Rentable Square Feet
located in Suite 210, 10800 N.E. 8th Street,
Bellevue, Washington 98004
Project: That certain building commonly known as US
Bank Plaza located in Bellevue, Washington.
Property: The real property on which the Building is
located, as more fully and legally described
on Exhibit E attached.
Paragraph 2 Lease Term: Forty-five Months, commencing on June 1,
1998 and ending on February 28, 2002.
Paragraph 3 Base Rent: Months 1-12 $7,396.00 /month.
---------
Months 13-24 $7,692.00 /month.
---------
Months 25-36 $7,988.00 /month.
---------
Months 37-45 $8,283.00 /month.
---------
Paragraph 27 "Base Year" for Operating Cost: 1998
"Fiscal Year" for Operating Costs: January 1 - December 31
Paragraph 27(c) "Tenant's Share" of Operating Costs: 2.68%
Paragraph 32 Security Deposit: See Addendum to Paragraph 32
The foregoing Basic Lease Information is hereby incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information set forth above and shall be
construed to incorporate all of the terms provided under the particular Lease
paragraph pertaining to such information. If there is any conflict between any
Basic Lease Information and the Lease, the Lease shall control.
LANDLORD: TENANT:
Spieker Properties, L.P., ImageX Corporation
a California limited partnership a Washington corporation
By: Spieker Properties, Inc.,
a Maryland corporation
Its: General Partner
/s/ James C. Eddy /s/ Jack Hooper
- --------------------------------- -------------------------------------
By: James C. Eddy By: Jack Hooper
Its: Senior Vice President Its: Chief Financial Officer
Date: 6/8/98 Date: 5/28/98
--------------------------- -------------------------------
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<PAGE>
Lease Agreement
THIS LEASE made as of this 15th day of May, 1998, between Spieker
Properties, L.P., A California limited partnership
(hereinafter called "Landlord") and ImageX Corporation, a Washington
corporation (hereinafter called "Tenant").
Landlord hereby leases to Tenant and tenant hereby leases from Landlord
those premises (herein called "premises" outlined in red on Exhibit "B"
attached hereto and made a part hereof, specified in the Basic Lease
Information attached
OCCUPANCY 1. Tenant shall use and occupy the premises for general
office purposes and for no other use or purpose without
the prior written consent of Landlord.
TERM AND 2. (a) The Term of this Lease shall be for the period
POSSESSION specified in the Basic Lease Information (or until
sooner terminated as herein provided). If Landlord, for
any reason whatsoever, cannot deliver possession of the
premises to Tenant at the commencement of the Term, this
lease shall not be void or voidable, nor shall Landlord
or its agent be liable to Tenant for any loss or damage
resulting therefrom. In that event, however, Tenant
shall not be liable for any rent until Landlord delivers
possession of the premises to Tenant. If Landlord
tenders possession of the premises to Tenant prior to
the commencement of the term and Tenant chooses to
accept such possession, then the Term and Tenant's
obligations hereunder shall commence on the date that it
accepts such possession. Any failure to deliver
possession at the stated commencement of the term of
this lease or delivery of possession prior to the stated
commencement date shall not in any way affect the
obligations of Tenant hereunder or the expiration date
hereof.
(b) Landlord agrees to complete the building now under
construction (and shall perform the "Building Standard
Work" or "Building Nonstandard Work" in the premises as
provided in the separate Improvement Agreement attached
as Exhibit "C" and made a part hereof) with diligence,
subject to events and delays due to Force Majeure
(defined in Paragraph 37).
(c) The premises shall be deemed completed and
possession delivered when Landlord has substantially
completed the work to be constructed or installed
pursuant to the provisions of the Improvement Agreement,
subject only to the completion of items on Landlord's
punch list (and exclusive of the installation of all
computer wiring, telephone and other communications
facilities and equipment and other finish work or
decorating work to be performed by or for Tenant).
Tenant shall accept the premises upon notice from
Landlord that the work to be constructed or installed by
Landlord pursuant to the Improvement Agreement has been
substantially completed and Tenant's obligation to pay
rent hereunder shall commence on the earlier to occur
of: (i) the date on which such work has been
substantially completed, or (ii) the date on which
Tenant takes possession of any or all of the premises.
Landlord shall use its best efforts to advise Tenant of
the anticipated date of
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<PAGE>
completion at least five (5) days prior to such date,
but the failure to give such notice shall not constitute
a default by Landlord. At Landlord's request, Tenant
will execute, acknowledge and deliver to Landlord a
written statement specifying the commencement date and
expiration date of the Term.
RENT 3. (a) Tenant shall pay to Landlord throughout the
term of this lease Base Rent as specified in the Basic
Lease Information, payable in monthly installments in
advance on the first day of each month during every year
of the term hereby demised in lawful money of the United
States, without deduction or offset whatsoever, to
Landlord at the address specified in the Basic Lease
Information, or to such other firm or to such other
place as Landlord may from time to time designate in
writing. If this lease commences on a day other than the
first day of a calendar month or ends on a day other
than the last day of a calendar month, the monthly
rental for the fractional month shall be prorated based
on a thirty (30) day month. "Rent" means Base Rent and
Tenant's Share of Operating Costs.
(b) Tenant recognizes that late payment of any Rent or
other sum due hereunder from Tenant to Landlord will
result in administrative expense to Landlord, the extent
of which additional expense is extremely difficult and
economically impractical to ascertain. Tenant therefore
agrees that if Rent or any other payment due hereunder
from Tenant to Landlord remains unpaid ten (10) days
after the amount is due, the amount of unpaid Rent or
other payment shall be increased by a late charge to be
paid to Landlord by Tenant as additional rent in an
amount equal to five percent (5%) of the amount of the
delinquent rent or other payment. The amount of the late
charge to be paid to Landlord by Tenant on any unpaid
Rent or other payment shall be reassessed and added to
Tenant's obligation for each successive monthly period
accruing after the date on which the late charge is
initially imposed. Tenant agrees that such amount is a
reasonable estimate of the loss and expense to be
suffered by Landlord as a result of such late payment by
Tenant and may be charged by Landlord to defray its loss
and expense. The provisions of this paragraph in no way
relieve Tenant of the obligations to pay Rent or other
payments on or before the date on which they are due,
nor do the terms of this paragraph in any way affect
Landlord's remedies pursuant to Paragraph 19 of this
lease if Rent or other payment is unpaid after the date
due.
RESTRICTIONS 4. Tenant shall not do or permit anything to be done
ON USE in or about the premises that will in any way
obstruct or interfere with the rights of other tenants
or occupants of the building or injure or annoy them,
nor use or allow the premises to be used for any
improper, immoral, unlawful or objectionable purpose,
nor shall Tenant cause or maintain or permit any
nuisance in, on, or about the premises. Tenant shall not
commit or suffer the commission of any waste in, on, or
about the premises, nor permit any use of the premises
which may be dangerous to persons or property. Tenant
shall not do nor permit anything to be done on or about
the premises or bring or keep anything therein which
will in any way increase the rate of any insurance upon
the Project or any of its contents or cause a
cancellation
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<PAGE>
of or otherwise affect in any manner any insurance on
the Project. No retail sales shall be permitted upon the
premises without the prior written consent of Landlord.
COMPLIANCE 5. (a) Tenant shall not use the premises or permit
WITH LAWS anything to be done in or about the premises that
will in any way conflict with any law, statute,
ordinance, or governmental rule or regulation now in
force or which may hereafter be enacted or promulgated.
Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances, and
governmental rules, regulations, or requirements now in
force or which may hereafter be in force, and with the
requirements of any board of fire underwriters or other
similar body now or hereafter constituted relating to or
affecting the condition, use or occupancy of the
premises, excluding structural changes not related to or
affected by alterations or improvements made by or for
Tenant or Tenant's acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in an
action against Tenant, whether Landlord be a party
thereto or not, that Tenant has so violated any such
law, statute, ordinance, rule, regulation, or
requirement, shall be conclusive of such violation as
between Landlord and Tenant.
(b) "Accessibility Law" means any local, state or
federal law, regulation, ordinance, order or directive
relating to access, use or enjoyment of the premises by,
or employment there, of disabled persons, or to the
removal of any tangible or intangible barrier or
impediment to access, use or enjoyment of the premises
by disabled persons, including but not limited to, the
Americans with Disabilities Act.
(c) Notwithstanding anything in this Lease to the
contrary, Tenant shall make no Tenant Alteration that
violates any provision of any Accessibility Law. Tenant
shall not adopt or otherwise allow to exist any policy
or practice related to its use or occupancy of the
premises or the conduct of its activities thereon that
violates any Accessibility Law. Tenant shall adopt any
economically feasible policy or practice relating to the
conduct of its business at the premises that would cure
any existing or future violation of any Accessibility
Law relating to the premises. Tenant shall bear all cost
and expense of performing its duties under this
Paragraph 5. Tenant shall reimburse Landlord on demand
for any cost or expense required to alter any portion of
the Property to comply with any Disability Law as a
result of any Tenant Alteration.
(d) Notwithstanding any contrary provision of this
Lease, Landlord shall have no obligation to approve any
Tenant Alteration if Landlord, in its sole discretion
determines that the Tenant Alteration would obligate
Landlord to make alterations of or additions to any part
of the Property in order to comply with any
Accessibility Law, unless Tenant agrees to make such
alterations or additions at its cost in the manner
provided for other Tenant Alterations and Tenant
deposits with Landlord before undertaking the design or
construction of such alterations a sum equal to
Landlord's estimate of the total costs of designing and
construction of such alterations.
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(e) If any claim is asserted against Landlord under any
Accessibility Law relating directly or indirectly to any
violation by Tenant of any of the provisions of this
Paragraph 5, Tenant shall defend, indemnify and hold
harmless Landlord from and against any claims, charges,
liabilities, obligations, penalties, damages, judgments,
costs and expenses (including attorneys fees) arising
directly or indirectly from such violation. Landlord has
made no covenant, representation or warranty regarding
the compliance or extent of noncompliance of any portion
of the Project with any Accessibility Law and hereby
disclaims any implied warranties with respect thereto,
including any implied warranty of habitability or
fitness for a particular purpose. No approval by
landlord of any plans or specifications for any Tenant
Alterations, or failure to disapprove any such plans,
specifications or Tenant Alterations shall constitute a
representation or warranty by Landlord, whether express
or implied, that such plans will comply with any
Accessibility Law.
ALTERATIONS 6. Tenant shall not make or suffer to be made any
alterations, additions, or improvements (an
"Alteration") in, on, or to the premises or any part
thereof without the prior written consent of Landlord;
and any such Alteration in, on or to said premises,
except for Tenant's movable furniture and equipment,
shall immediately become Landlord's property and, at the
end of the term hereof, shall remain on the premises
without compensation to Tenant. In the event Landlord
consents to the making of any such Alteration by Tenant,
the same shall be made by Tenant, at Tenant's sole cost
and expense, in accordance with plans and specifications
approved by Landlord, and any contractor or person
selected by Tenant to make the same must first be
approved in writing by Landlord, or, at Landlord's
option, the Alteration shall be made by Landlord for
Tenant's account and Tenant shall reimburse Landlord for
the cost thereof within twenty (20) days after receipt
of a statement. Upon the expiration or sooner
termination of the Term, Tenant shall upon demand by
Landlord, at Tenant's sole cost and expense forthwith
and with all due diligence remove any or all Alterations
made by or for the account of Tenant, designated by
Landlord to be removed, and Tenant shall forthwith and
with all due diligence, at its sole cost and expense,
repair and restore the premises to their original
condition.
REPAIR 7. By taking possession of the premises, Tenant accepts the
premises as being in the condition in which Landlord is
obligated to deliver them and otherwise in good order,
condition and repair. Tenant shall, at all times during
the Term at Tenant's sole cost and expense, keep the
premises and every part thereof in good order, condition
and repair. Tenant shall upon the expiration or sooner
termination of the Term, surrender to Landlord the
premises and all repairs, changes, alterations,
additions, and improvements thereto, neat and clean and
in the same condition as when received except for
reasonable wear and tear as determined by Landlord.
Tenant agrees that Landlord has no obligation to alter,
remodel, improve, repair, decorate, or paint the
premises or any part thereof except as specified in
Exhibit "C" and that no representations respecting the
condition of the premises, the Building or the Project
have been made by Landlord to Tenant, except as
specifically set forth in this Lease.
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LIENS 8. Tenant shall keep the premises free from any liens
arising out of any work performed, material furnished,
or obligations incurred by Tenant. In the event that
Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the same to be
released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other
remedies provided in this Lease and by law, the right,
but no obligation, to cause the same to be released by
such means as it deems proper, including payment of the
claim giving rise to such lien. All sums paid by
Landlord and all expenses incurred by it in connection
therewith shall be considered additional rent and shall
be payable to it by Tenant on demand with interest at
the rate payable of eighteen percent (18%) per annum or
four percent (4%) above the prime rate of Seattle First
National Bank, whichever is more (the "Default Rate").
Landlord shall have the right at all times to post and
keep posted on the premises any notices permitted or
required by law, or which Landlord shall deem proper,
for the protection of Landlord, the premises, the
Project, and any other party having an interest therein,
from mechanics' and materialmen's liens. Tenant shall
give Landlord at least five (5) business days' notice
before commencing any construction on the premises.
ASSIGNMENT 9. (a) Tenant shall not sell, assign, encumber or otherwise
AND transfer by operation of law or otherwise this Lease
SUBLETTING or any interest herein, sublet the premises or any part
thereof, or suffer any person to occupy or use the
premises or any portion thereof, without the prior
written consent of Landlord, as provided herein, nor
shall Tenant permit any lien to be placed on the
Tenant's interest by operation of law. A transfer by the
present majority shareholders of ownership and control
of the voting stock of a corporate tenant, or a transfer
of a controlling interest in a partnership or
proprietorship, as applicable, shall be deemed an
assignment for the purposes of this paragraph. Tenant
shall, by written notice, advise Landlord of its desire
from and after a stated date (which shall not be less
than thirty (30) days nor more than ninety (90) days
after the date of Tenant's notice), to assign this Lease
or sublet the premises or any portion thereof for any
part of the Term. Landlord shall have the right, to be
exercised by giving written notice to Tenant ten (10)
days after receipt of Tenant's notice, to terminate this
Lease as to the portion of the premises described in
Tenant's notice and such notice shall, if given,
terminate this Lease with respect to the portion of the
premises therein described as of the date stated in
Tenant's notice and sums payable by Tenant under this
Lease shall be prorated to that date. If Tenant proposes
to sublet only a portion of the Premises and Landlord
exercises its right to recapture that portion, the
effective date of recapture by Landlord shall be the
effective date of the proposed subletting, and on such
date:
(i) That portion shall not be a part of the
premises;
(ii) The Base Rent payable under this Lease shall
be reduced by the per rentable square foot
rental rate payable for such portion
multiplied by the number of rentable square
feet in such portion;
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(iii) Tenant's Share of Operating Costs and Real
Estate Taxes shall be reduced
proportionately; and
(iv) Landlord shall at its sole cost and expense
do all that is necessary to separate the
remainder of the Premises from the portion
recaptured by Landlord.
Said notice by Tenant shall state the name and address
of the proposed assignee or subtenant, and Tenant shall
deliver to Landlord a true and complete copy of the
proposed assignment or sublease with said notice. If
Tenant's notice specifies all of the premises and
Landlord elects to terminate this Lease, this Lease
shall terminate on the date stated in Tenant's notice.
If Landlord, upon receiving Tenant's notice with respect
to any of the premises, shall not exercise its right to
terminate, Landlord will not unreasonably withhold its
consent to Tenant's subletting the premises specified in
said notice.
(b) Any assignment or subletting by Tenant shall not
result in Tenant being released or discharged from any
liability under this Lease. As a condition to Landlord's
prior written consent as provided for in this paragraph,
the subtenant or assignee shall agree in writing to
comply with and be bound by all of the terms, covenants,
conditions, provisions, and agreement of this Lease, and
Tenant shall deliver to Landlord, promptly after
execution, an executed copy of each assignment and
sublease and the agreement to comply of the assignee or
sublessee.
(c) Landlord's consent to any sale, assignment,
encumbrance, subletting, occupation, lien or other
transfer shall not release Tenant from any of Tenant's
obligations under this Lease or be deemed to be a
consent to any subsequent occurrence. Any sale,
assignment, encumbrance, subletting, occupation, lien or
other transfer of this Lease which does not comply with
the provisions of this Paragraph 9 shall be void.
(d) The joint and several liability of Tenant named in
this Lease and any immediate and remote successor in
interest of Tenant (by assignment or otherwise), and the
due performance of the obligations of this Lease on
Tenant's part to be performed or observed, shall not in
any way be discharged, released or impaired by any (a)
agreement which modifies any of the rights or
obligations of the parties under this Lease, (b)
stipulation that extends the time within which an
obligation under this Lease is to be performed, (c)
waiver of the performance of an obligation required
under this Lease, or (d) failure to enforce any of the
obligations set forth in this Lease.
(e) Without limiting any of the provisions of this
Paragraph 9, if Tenant has entered into any sublease of
any portion of the premises, the voluntary or other
surrender of this Lease by Tenant, or a mutual
cancellation by Landlord and Tenant, shall not work a
merger, and shall, at the option of Landlord, terminate
all or any existing subleases or subtenancies or, at the
option of Landlord, operate as an assignment to Landlord
of any or all such subleases or subtenancies.
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<PAGE>
INSURANCE 10. (a) Landlord shall not be liable to Tenant and Tenant
AND hereby waives all claims against Landlord for any
INDEMNIFICATION injury or damage to any person or property in or about
the premises by or from any cause whatsoever, other than
Landlord's gross negligence or willful acts or
omissions, and, without limiting the generality of the
foregoing, whether caused by water leakage of any
character from the roof, walls, basement, or any other
portion of the premises, the Building, or caused by gas,
fire, oil, or electricity in or about the premises, the
Building or the Project.
(b) Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all claims or
liability for any injury or damage to any person or
property whatsoever: (i) occurring in, on, or about the
premises or any part thereof, (ii) occurring in, on, or
about any facilities in the Building (including, without
prejudice to the generality of the term "facilities",
elevators, stairways, passageways, or hallways), the use
of which Tenant may have in conjunction with other
tenants of the Building, when such injury or damage
shall be caused in part or in whole by the act, neglect,
fault of, or omission of any duty with respect to the
same by Tenant, its agents, servants, employees, or
invitees. Tenant further agrees to indemnify and hold
harmless Landlord against and from any and all claims by
or on behalf of any person, firm or corporation, arising
from the conduct or management of any work or thing
whatsoever done by the Tenant in or about or from
transactions of the Tenant concerning the premises, and
will further indemnify and hold Landlord harmless
against and from any and all claims arising from any
breach or default on the part of the Tenant in the
performance of any covenant or agreement of this Lease
on the part of the Tenant, or any of its agents,
contractors, servants, employees, or licensees and all
costs, counsel fees, expenses and liabilities incurred
in connection with any such claim or action or
proceeding brought thereon. If any action or proceeding
is brought against Landlord by reason of any claim or
liability, Tenant agrees to defend such action or
proceeding at Tenant's sole expense by counsel
reasonably satisfactory to Landlord. The provisions of
this Paragraph 10 shall survive the expiration or
termination of this Lease with respect to any claims or
liability occurring prior to such expiration or
termination.
(c) The indemnification obligations contained in this
Paragraph 10 shall not be limited by any worker's
compensation, benefit or disability laws, and each
indemnifying party hereby waives any immunity that said
indemnifying party may have under the Industrial
Insurance Act, Title 51 RCW and similar worker's
compensation, benefit or disability laws. Landlord and
Tenant acknowledge by their execution of this Lease that
each of the indemnification provisions of this Lease
(specifically including but not limited to those
relating to worker's compensation benefits and laws)
were specifically negotiated and agreed to by Landlord
and Tenant.
(d) Landlord shall not be liable for injury to Tenant's
business or loss of income or from damage which may be
sustained by the person, goods, wares, merchandise or
property of Tenant, its authorized representatives, or
any other person in or about the premises, caused by or
resulting from fire, steam,
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<PAGE>
electricity, gas, water or rain, which may leak or flow
from or into any part of the premises, or from the
breakage, leakage, obstruction or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures of the same, whether
the damage or injury resulting from conditions arising
upon the premises or upon other portions of the Building
or the Project unless such injury or damage is caused by
the gross negligence or intentional acts of Landlord or
its authorized representatives.
(e) Tenant agrees to purchase at its own expense and to
keep in force during the term of this lease a policy or
policies of worker's compensation and commercial general
liability insurance, including personal injury and
property damage, endorsed to state the insurance is
primary over any insurance carried by Landlord, and to
include coverage for premises/ operations, independent
contractors and contractual liability in the amount of
Two-Million Dollars ($2,000,000) combined single limit,
or such other amount or coverages as Landlord shall deem
necessary, based on periodic insurance reviews with
respect to injury or damage to persons or property. The
policies shall: (i) name Landlord as an additional
insured and insure Landlord's contingent liability under
this Lease, (ii) be issued by an insurance company which
is acceptable to Landlord and licensed to do business in
the State of Washington and (iii) provide that such
insurance shall not be canceled unless thirty (30) days'
prior written notice shall have been given to Landlord.
The policy or policies or certificates thereof shall be
delivered to Landlord by Tenant upon commencement of the
term of the Lease and upon each renewal of said
insurance.
WAIVER OF 11. Landlord and Tenant hereby waive any right that each may
SUBROGATION have against the other on account of any loss or
damage arising in any manner which is covered by
policies of insurance for fire and extended coverage,
theft, public liability, workmen's compensation or other
insurance now or hereafter existing during the term
hereof, provided, however, the parties each shall first
have their respective insurance companies waive any
rights of subrogation that such companies may have
against Landlord or Tenant, as the case may be.
SERVICES AND 12. (a) Landlord shall maintain the public and common areas
UTILITIES of the Building and Project, including lobbies,
stairs, elevators, corridors and restrooms, the windows
in the Building, the mechanical, plumbing and electrical
equipment serving the Building, and the structure
itself, in reasonably good order and condition except
for damage occasioned by the act of the Tenant, which
damage shall be repaired by Landlord at Tenant's
expense.
(b) Provided the Tenant shall not be in default
hereunder, and subject to the rules and regulations of
the Project, Landlord agrees to furnish to the premises
during ordinary business hours of generally recognized
business days, to be determined by Landlord (but
exclusive, in any event, of Saturdays, Sundays, and
legal holidays), water and electricity suitable for the
intended use of the premises, heat and air conditioning
required in Landlord's judgment for the comfortable use
and occupation of the premises, janitorial services
during the times and in the
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<PAGE>
manner that such services are, in Landlord's judgment,
customarily furnished in comparable office buildings in
the immediate market area, and automatic elevator
service. Landlord shall be under no obligation to
provide additional or after-hours heating or air
conditioning, but if Landlord elects to provide such
services at Tenant's request, Tenant shall pay to
Landlord a reasonable charge for such services as
determined by Landlord. Tenant agrees to keep and cause
to be kept closed all window coverings when necessary
because of the sun's position, and Tenant also agrees at
all times to cooperate fully with Landlord and to abide
by all the regulations and requirements which Landlord
may prescribe for the proper functioning and protection
of the heating, ventilating, and air-conditioning
system. Wherever heat-generating machines, excess
lighting or equipment are used in the premises which
affect the temperature otherwise maintained by the
air-conditioning system, Landlord reserves the right to
install supplementary air-conditioning units in the
premises, and the cost thereof, including the cost of
installation and the cost of operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand
by Landlord. Landlord shall in no event be liable for
any interruption or failure of utility services on the
premises.
(c) Tenant will not without the written consent of
Landlord use any apparatus or device in the premises,
including without limitation, electronic data processing
machines and machines using excess lighting or current
that will in any way increase the amount of electricity
or water usually furnished or supplied for use of the
premises as general office space; nor connect with
electric current, except through existing electrical
outlets in the premises, or water pipes, any apparatus
or device for the purposes of using electrical current
or water. If Tenant shall require water or electric
current or any other resource in excess of that usually
furnished or supplied for use of the premises as general
office space, Tenant shall first procure the consent of
Landlord which Landlord may refuse, to the use thereof,
and Landlord may cause a special meter to be installed
in the premises to measure the amount of water, electric
current or other resource consumed for any such other
use. The cost of any such meters and of installation,
maintenance, and repair thereof shall be paid for by
Tenant, and Tenant agrees to pay Landlord promptly upon
demand by Landlord for all such water, electric current
or other resource consumed, as shown by said meters, at
the rate charged by the local public utility, furnishing
the same, plus any additional expense incurred in
keeping account of the water, electric current or other
resource so consumed. Landlord shall not be in default
hereunder or be liable for any damages directly or
indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (i) the installation,
use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing
utilities and services, (ii) failure to furnish or delay
in furnishing any utilities or services when the failure
or delay is caused by Force Majeure or by the making of
repairs or improvements to the premises or the Building,
or (iii) the limitation, curtailment, rationing, or
restriction on use of water or electricity, gas or any
other form of energy or any other service or utility
whatsoever serving the premises or the Building.
Furthermore, Landlord
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<PAGE>
shall be entitled to cooperate voluntarily in a
reasonable manner with the efforts of national, state or
local governmental agencies or utilities suppliers in
reducing energy or other resources consumption.
(d) Any sums payable under this Paragraph 12 shall be
considered additional rent and may be added to any
installment of rent thereafter becoming due.
ESTOPPEL 13. (a) Within ten (10) days following any written request
CERTIFICATE which Landlord may make from time to time, Tenant shall
execute and deliver to Landlord a certificate
substantially in the form attached as Exhibit "D" and
made a part hereof, indicating thereon any exceptions
which may exist at that time. If Tenant fails to execute
and deliver such certificate when due, Tenant shall be
deemed to have accepted the premises and acknowledged
that the statements included in Exhibit "D" are true and
correct without exception and Landlord irrevocably is
appointed as Tenant's attorney-in-fact for the purpose
of signing the certificate on Tenant's behalf. Landlord
and Tenant intend that any statement delivered pursuant
to this paragraph may be relied upon by any mortgagee,
beneficiary, purchaser or prospective purchaser of the
Property or any interest therein.
(b) Within ten (10) days following any written request
from Landlord, Tenant shall furnish current financial
statements to Landlord.
HOLDING 14. (a) Any holding over after the expiration of the term
OVER of this Lease with the written consent of Landlord shall
be a tenancy from month to month. The terms, covenants
and conditions of such tenancy shall be the same except
that Basic Rent shall be the then fair market value of
the premises as determined by Landlord, but in no event
less than one hundred fifty percent (150%) of the
monthly Base Rent for the last period prior to the
expiration, plus Tenant's Share of increased Operating
Costs. Acceptance by Landlord of rent after such
expiration shall not result in any other tenancy or any
renewal of the term of this Lease, and the provisions of
this paragraph are in addition to and do not affect
Landlord's right of re-entry or other rights provided
under this Lease or by applicable law.
(b) If Tenant retains possession of the premises or any
part thereof without Landlord's consent following the
expiration or sooner termination of this Lease for any
reason, then Tenant shall pay to Landlord double the
Basic Rent for the last period prior to the date of such
expiration or termination. Tenant shall also indemnify
and hold harmless from any loss or liability resulting
from delay by Tenant in surrendering the premises,
including, without limitation, any claims made by any
succeeding tenant founded on such delay. Acceptance of
rent by Landlord following expiration or termination
shall not constitute a renewal of this Lease, and
nothing contained in this paragraph shall waive
Landlord's right of re-entry of any other right. Tenant
shall be only a Tenant at sufferance, whether or not
Landlord accepts any rent from Tenant while Tenant is
holding over without Landlord's written consent.
SUBORDINA- 15. Without the necessity of any additional document being
TION executed by Tenant for the purpose of effecting a
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subordination, this lease shall be subject and
subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be
executed affecting the Building or the land upon which
the Building is situated or both, and (b) the lien of
any mortgage or deed of trust which may now exist or
hereafter be executed in any amount for which said
Building, land, ground leases or underlying leases, or
Landlord's interest or estate in any of said items, is
specified as security. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to
be subordinated any such ground leases or underlying
leases or any such liens to this Lease. If any ground
lease or underlying lease terminates for any reason or
any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in
interest to Landlord at the option of such successor in
interest. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form
requested by Landlord, any additional documents
evidencing the priority or subordination of this lease
with respect to any such ground leases or underlying
leases or the lien of any mortgage or deed of trust.
Tenant hereby irrevocably appoints Landlord as
attorney-in-fact of Tenant to execute, deliver and
record any such documents in the name and on behalf of
Tenant.
RULES AND 16. Tenant shall faithfully observe and comply with the
REGULATIONS rules and regulations attached to this Lease as Exhibit
A and all reasonable modifications thereof and additions
thereto from time to time put into effect by Landlord.
Landlord shall not be responsible for the nonperformance
by any other tenant or occupant of the Project of the
rules and regulations.
RE-ENTRY BY 17. Landlord reserves and shall at all times have the right
LANDLORD to re-enter the premises to inspect the same, to supply
janitor service and any other service to be provided by
Landlord to Tenant hereunder, to show the premises to
prospective purchasers, mortgagees or tenants, to post
notices of nonresponsibility, and to alter, improve or
repair the premises and any portion of the building of
which the premises are a part, without abatement of
rent, and may for that purpose erect, use and maintain
scaffolding, pipes, conduit, and other necessary
structures in and through the premises where reasonably
required by the character of the work to be performed,
provided that entrance to the premises shall not be
blocked thereby, and further provided that the business
of Tenant shall not be interfered with unreasonably.
Tenant waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business,
any loss of occupancy or quiet enjoyment of the
premises, and any other loss occasioned thereby. For
each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all of
the doors in the premises, excluding Tenant's vaults and
safes, or special security areas (designated in
advance), and Landlord shall have the right to use
whatever means Landlord may deem necessary or proper to
open Tenant's doors in an emergency, in order to obtain
entry to any portion of the premises, and any entry to
the premises, or portions thereof obtained by Landlord
by any means, or otherwise, shall not under any
circumstances be
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<PAGE>
construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the premises, or an
eviction, actual or constructive, of Tenant from the
premises or any portions thereof. Landlord shall also
have the right at any time, without the same
constituting an actual or constructive eviction and
without incurring any liability to Tenant therefor,
to change the arrangement and/or location of
entrances, passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other
public parts of the Building and to change the name,
number or designation by which the Project is
commonly known.
INSOLVENCY 18. (a) If Tenant becomes a Debtor under Chapter 7 of the
OR Bankruptcy Code("Code") or a petition for reorganization
BANKRUPTCY or adjustment of debts is filed concerning Tenant
under Chapters 11 or 13 of the Code, or a proceeding is
filed under Chapter 7 of the Code and is transferred to
Chapters 11 or 13 of the Code, the Trustee or Tenant, as
Debtor and as Debtor-In-Possession, may not elect to
assume this Lease unless, at the time of such
assumption, the Trustee or Tenant has:
(i) Cured all defaults under the Lease and paid
all sums due and owing under the Lease or provided
Landlord with "Adequate Assurance" (as defined
below) that: (i) within ten (10) days from the
date of such assumption, the Trustee or Tenant
will completely pay all sums due and owing under
this Lease and compensate Landlord for any actual
pecuniary loss resulting from any existing default
or breach of this Lease, including without
limitation, Landlord's reasonable costs, expenses,
accrued interest, and attorneys' fees incurred as
a result of the default or breach; (ii) within
twenty (20) days from the date of such assumption,
the Trustee or Tenant will cure all non-monetary
defaults and breaches under this Lease, or, if the
nature of such non-monetary defaults is such that
more than twenty (20) days are reasonably required
for such cure, that the Trustee or Tenant will
commence to cure such non-monetary defaults within
twenty (20) days and thereafter diligently
prosecute such cure to completion; and (iii) the
assumption will be subject to all of the
provisions of this Lease.
(ii) For purposes of this Paragraph, Landlord and
Tenant acknowledge that, in the context of a
bankruptcy proceeding involving Tenant, at a
minimum, "Adequate Assurance" shall mean: (i) the
Trustee or Tenant has and will continue to have
sufficient unencumbered assets after the payment
of all secured obligations and administrative
expenses to assure Landlord that the Trustee or
Tenant will have sufficient funds to fulfill the
obligations of Tenant under this Lease; (ii) the
Bankruptcy Court shall have entered an Order
segregating sufficient cash payable to Landlord
and/or the Trustee or Tenant shall have granted a
valid and perfected first lien and security
interest and/or mortgage in or on property of
Trustee or Tenant acceptable as to value and kind
to Landlord, to secure to Landlord the obligation
of the Trustee or Tenant to cure the monetary
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and/or non-monetary defaults and breaches under
this Lease within the time periods set forth
above; and (iii) the Trustee or Tenant, at the
very minimum, shall deposit a sum equal to two (2)
months' Basic Rent to be held by Landlord (without
any allowance for interest thereon) to secure
Tenant's future performance under the Lease.
(b) If the Trustee or Tenant has assumed the Lease
pursuant to the provisions of this Paragraph for the
purpose of assigning Tenant's interest hereunder to any
other person or entity, such interest may be assigned
only after the Trustee, Tenant or the proposed assignee
has complied with all of the terms, covenants and
conditions of this Lease, including, without limitation,
those with respect to additional rent. Landlord and
Tenant acknowledge that such terms, covenants and
conditions are commercially reasonable in the context of
a bankruptcy proceeding of Tenant. Any person or entity
to which this Lease is assigned pursuant to the
provisions of the Code shall be deemed without further
act or deed to have assumed all of the obligations
arising under this Lease on and after the date of such
assignment. Any such assignee shall upon request execute
and deliver to Landlord an instrument confirming such
assignment.
(c) Upon the filing of a petition by or against Tenant
under the Code, Tenant, as Debtor and as
Debtor-In-Possession, and any Trustee who may be
appointed agree to adequately protect Landlord as
follows: (i) to perform each and every obligation of
Tenant under this Lease until such time as this Lease is
either rejected or assumed by Order of the Bankruptcy
Court; (ii) to pay all monetary obligations required
under this Lease, including without limitation, the
payment of Basic Rent, Tenant's Share of the increase in
Operating Costs and any other sums payable by Tenant to
Landlord under this Lease which is considered reasonable
compensation for the use and occupancy of the Premises;
(iii) provide Landlord a minimum of thirty (30) days
prior written notice, unless a shorter period is agreed
to in writing by the parties, of any proceeding relating
to any assumption of this Lease or any intent to abandon
the Premises, which abandonment shall be deemed a
rejection of this Lease; and (iv) to perform to the
benefit of Landlord as otherwise required under the
Code. The failure of Tenant to comply with the above
shall result in an automatic rejection of this Lease.
DEFAULT 19. The failure to perform or honor any covenant,
condition or representation made under this Lease shall
constitute a default hereunder by Tenant. Tenant shall
not have any grace period within which to cure any
default in the payment of rental or adjustments thereto,
and Landlord shall not be required to give any notice to
Tenant of any such default before exercising any
remedies available to Landlord. Tenant shall have a
period of ten (10) days from the date of written notice
from Landlord within which to cure any default under
this Lease other than a default in the payment of rental
or adjustments thereto; provided, however, that with
respect to any default which cannot reasonably be cured
within ten (10) days, Tenant shall have additional time
necessary to cure the default so long as Tenant
commences to cure within ten (10) days from Landlord's
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notice, and continues diligently to prosecute the cure
to completion. Upon a default under this Lease by
Tenant, and failure to cure the default by Tenant within
the permissible time period, if any, Landlord shall have
the following rights and remedies in addition to, or as
an alternative to, any other rights or remedies
available to Landlord at law or in equity:
(a) The Lease may be terminated at the option of
Landlord by notice in writing to Tenant. The Lease will
be deemed terminated as of the date specified in
Landlord's notice and Tenant shall have no further
rights or obligations under the Lease except as provided
in this Paragraph 19 which shall survive termination of
the Lease.
(b) Unless the Lease is terminated as provided in
subparagraph (a), the Lease will continue in full force
and effect, except Tenant's right to possession of the
premises may be terminated at any time, at the option of
Landlord, by notice in writing to Tenant. Tenant's right
to possession of the premises will be deemed terminated
as of the date specified in Landlord's notice, and
Landlord, as attorney-in-fact for Tenant, may from time
to time, but shall not be obligated to, sublet the
premises or any part thereof for such term or terms and
at such rent and such other terms as Landlord in its
sole discretion deems advisable, with the right to make
alterations and repairs to the premises. Upon each
subletting, at the option of Landlord, (i) either Tenant
shall be immediately liable to pay to Landlord, in
addition to indebtedness other than rent due hereunder,
the cost of such subletting and such alterations and
repairs incurred by Landlord and the amount, if any, by
which the rent hereunder for the period of such
subletting exceeds the amount to be paid as rent for the
premises for such period, or (ii) Landlord shall apply
rents received from such subletting first, to payment of
any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any costs
of subletting and of any alterations and repairs; third,
to payment of rent due and unpaid hereunder; and the
residue, if any, shall be held by Landlord and applied
in payment of future rent as the same becomes due
hereunder. If, under option (i), the rent shall not be
promptly paid to Landlord by the subtenant(s), or if,
under option (ii), the rentals received from the
subletting during any month are less than all amounts
owed for that month by Tenant hereunder, Tenant shall
pay any such deficiency to Landlord. Such deficiency
shall be calculated and paid monthly. Unless and until
the Lease is terminated as provided in subparagraph (a),
Landlord is hereby irrevocably appointed
attorney-in-fact for Tenant, with power of substitution.
No taking possession of the premises by Landlord, as
attorney-in-fact for Tenant, shall be construed as an
election on its part to terminate this Lease unless a
written notice of such intention is given to Tenant as
provided in subparagraph (a). Notwithstanding any action
taken by Landlord under this subparagraph, Landlord may
at any time thereafter elect to terminate this Lease for
such previous breach.
(c) Upon termination of the Lease as provided in
subparagraph (a), or upon termination of Tenant's right
to possession of the premises, as provided in
subparagraph (b), Landlord may reenter and take
possession of the premises, and
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may remove any persons or property by any lawful means
and without liability for damages. Any of Tenant's
property remaining on the premises, including, without
limitation, equipment, inventory, furnishings and trade
fixtures, shall be deemed to have been abandoned by
Tenant and shall be and become the property of Landlord;
provided, however, that Landlord may, in its sole
discretion, reject the property and elect instead to
store such property in a public warehouse or elsewhere
at the cost of and for the account of Tenant, and
further may, but shall not be obligated to, sell such
property and apply the proceeds therefrom in accordance
with applicable law.
(d) If the Lease is terminated as provided in
subparagraph (a), Landlord shall be entitled to recover
immediately, without waiting until the due date of any
future Rent or until the date fixed for expiration of
the Lease Term, the following amounts as damages:
(1) All past-due rent and other amounts owing by
Tenant to Landlord pursuant to the terms of this
Lease as of the date of termination of the Lease.
(2) All costs associated with Tenant's default,
whether or not suit was commenced, including,
without limitation, costs of reentry and
reletting, costs of clean-up, refurbishing,
removal of Tenant's property and fixtures, other
expenses occasioned by Tenant's failure to quit
the premises upon termination and to leave them in
the required condition, any remodeling costs,
attorneys' fees and costs, court costs, broker
commissions, and advertising costs.
(3) The loss of reasonable rental value from the
date of termination of the Lease until a new
tenant has been, or with the exercise of
reasonable efforts could have been, secured.
(4) Any excess of the value of the rent and all of
Tenant's other obligations under this Lease, as if
the Lease has not been terminated, over the
reasonable expected return from the premises for
the period commencing on the earlier of the date
of trial or the date the premises are relet and
continuing through the end of the term. The
present value of future amounts will be computed
using a discount rate equal to the lowest prime
interest rate publicly announced by a major
Washington bank on short-term commercial loans for
its most credit-worthy customers, in effect on the
earlier of the date of trial or the date the
premises are relet.
(e) Landlord may, in its sole discretion, sue
periodically to recover damages during the period
corresponding with the remainder of the Lease term,
whether or not the Lease has been terminated, and no
action for damages shall bar a later action for damages
subsequently accruing.
(f) Landlord may elect to call the entire amount of
rental for the balance of the term, or what would have
been the balance of the term if the Lease had not been
terminated as provided in subparagraph (a), immediately
due and payable,
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which rent shall be paid by Tenant to Landlord as
liquidated damages.
DAMAGE BY 20. If the premises or the Building are damaged by fire or
FIRE, other casualty, Landlord shall forthwith repair the
ETC. same, provided such repairs can be made within two
hundred ten (210) days from the date of such damage
under the laws and regulations of the federal, state,
and local government authorities having jurisdiction
thereof. In such event, this Lease shall remain in full
force and effect except that Tenant shall be entitled to
a proportionate reduction of rent while such repairs to
be made hereunder by Landlord are being made. The rent
reduction shall be based on the extent to which making
repairs by Landlord interferes with the business carried
on by Tenant on the premises. Within twenty (20) days
from the date of such damage, Landlord shall notify
Tenant whether or not repairs can be made within two
hundred ten (210) days from the date of damage and
Landlord's determination thereof shall be binding on
Tenant. If repairs cannot be made within two hundred ten
(210) days from the date of damage, Landlord shall have
the option within thirty (30) days of the date of damage
either to: (a) notify Tenant of Landlord's intention to
repair the damage and diligently prosecute such repairs,
in which event this Lease shall continue in full force
and effect and the rent shall be reduced as provided
above or (b) notify Tenant of Landlord's intention to
terminate this Lease as of a date specified in the
notice, which date shall be not less than thirty (30)
days nor more than sixty (60) days after the notice is
given. In the event that notice to terminate is given by
Landlord, this Lease shall terminate on the date
specified in the notice and the rent shall be reduced by
a proportionate amount based upon the extent to which
the damage interfered with the business carried on by
Tenant in the premises, and the Tenant shall pay such
reduced rent up to the date of termination. Landlord
shall refund to Tenant any rent previously paid for any
period of time subsequent to the date of termination.
The repairs to be made by Landlord shall not include,
and Landlord shall not be required to repair, any damage
by fire or other cause to the property of Tenant or any
repair or replacement of any alterations, additions,
fixtures or improvements installed on the premises by or
at the expense of Tenant, all of which shall be promptly
repaired and restored by Tenant at its expense.
EMINENT 21. If any part of the Project shall be taken or
DOMAIN appropriated under the power of eminent domain or
conveyed in lieu thereof, Landlord shall have the right
to terminate this lease at its sole option. In such
event Landlord shall receive (and Tenant shall assign to
Landlord upon demand from Landlord) any and all income,
rent, award or any interest thereon which may be paid or
owed in connection with the exercise of such power of
eminent domain or conveyance in lieu thereof, and Tenant
shall have no claim against Landlord or against the
agency exercising such power or receiving such
conveyance, for any part of such sum paid by virtue of
such proceedings, whether or not attributable to the
value of the unexpired term of this lease. If a part of
the Project shall be so taken or appropriated or
conveyed and Landlord shall elect not to terminate this
Lease, Landlord shall nonetheless receive (and Tenant
shall assign to Landlord upon demand from Landlord) any
and all income,
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<PAGE>
rent, award or any interest thereon paid or owed in
connection with such taking, appropriation or conveyance
and if the premises have been damaged as a consequence
of such partial taking or appropriation or conveyance,
Landlord shall restore the premises continuing under
this lease at Landlord's cost and expense provided that
such restoration can be made, in Landlord's sole
opinion, within 360 days of the time the property so
taken is appropriated or conveyed. If restoration cannot
be made, in Landlord's sole opinion, within three
hundred sixty (360) days from the time of taking,
Landlord shall notify Tenant within sixty (60) days of
such taking and Tenant shall have the right to cancel
this lease by giving Landlord written notice of its
intention to cancel within thirty (30) days of the date
of Landlord's notice. If Tenant elects not to cancel
this lease, it shall remain in full force and effect
except that Tenant shall be entitled to an appropriate
reduction in rent while restoration is being made by
Landlord. Such proportionate reduction shall be based
upon the extent to which the restoration being made by
Landlord interferes with the business carried on by
Tenant in the demised premises. Landlord will not be
required to repair or restore any injury or damage to
the property of Tenant or make any repairs or
restoration to any alterations, additions, fixtures or
improvements installed in the premises by or at the
expense of Tenant. Notwithstanding anything to the
contrary contained in this paragraph, if the temporary
use or occupancy of any part of the premises is taken or
appropriated under power of eminent domain during the
term of this Lease, this Lease shall be and remain
unaffected by the taking or appropriation and Tenant
shall continue to pay in full all rent payable hereunder
by Tenant during the term of this Lease; in the event of
any temporary appropriation or taking, Tenant shall be
entitled to receive that portion of any award which
represents compensation for the use or occupancy of the
premises during the term of this Lease, and Landlord
shall be entitled to receive that portion of any award
which represents the cost of restoration of the premises
and the use and occupancy of the premises after the end
of the term of this Lease.
SALE BY 22. A sale or conveyance by Landlord of the Project
LANDLORD shall operate to release Landlord from any future
liability under this Lease, and in such event Tenant
agrees to look solely to the successor in interest of
Landlord in and to this Lease. This Lease shall not be
affected by any such sale, and Tenant agrees to attorn
to the purchaser or assignee.
RIGHT OF 23. All covenants and agreements to be performed by
LANDLORD TO Tenant under any of the terms of this Lease shall be
PERFORM performed by Tenant at Tenant's sole cost and expense
and without any abatement of rent. If Tenant fails to
pay any sum of money, other than Basic Rent or Tenant's
Share of Operating Costs, required to be paid by it
under this Lease or fails to perform any other act on
its part to be performed under this Lease, and the
failure continues for ten (10) days after notice thereof
by Landlord, Landlord may, but shall not be obligated so
to do, and without waiving or releasing Tenant from any
obligations of Tenant, make the payment or perform the
act on Tenant's part to be made or performed. Tenant
shall pay to Landlord on demand all sums so paid by
Landlord and all necessary incidental costs together
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<PAGE>
with interest thereon at the Default Rate from the date
of payment by Landlord.
SURRENDER OF 24. (a) Tenant shall, at least ninety (90) days before the
PREMISES last day of the Term, give to Landlord a written notice
of intention to surrender the premises on that date, but
nothing contained herein shall be construed as an
extension of the term hereof or as consent of Landlord
to an holding over by Tenant.
(b) At the end of the term or other sooner termination
of this Lease, or upon termination of Tenant's right to
possession, Tenant will peaceably deliver up to Landlord
possession of the premises, together with all
improvements or additions upon or belonging to same, by
whomsoever made, in the same condition as received or
first installed, damage by fire, earthquake, or the
elements alone excepted. Tenant shall, prior to the
termination of this lease or termination of Tenant's
right to possession, remove all movable furniture and
equipment belonging to Tenant, at Tenant's sole cost,
title to which shall be in Tenant until such
termination, repairing any damage caused by removal.
Property not so removed upon the termination of this
lease or upon termination of Tenant's right to
possession shall be deemed abandoned by Tenant, and
title to the same at Landlord's election shall thereupon
pass to Landlord. Unless otherwise agreed to in writing
by Landlord, Tenant shall remove, at Tenant's sole cost,
any or all permanent improvements or additions to the
premises installed by or at the expense of Tenant and
repair any damage resulting from such removal.
(c) The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work
a merger, and shall, at the option of Landlord,
terminate all or any existing subleases or subtenancies,
or may, at the option of Landlord, operate as an
assignment to it of any or all such subleases or
subtenancies.
WAIVER 25. If either Landlord or Tenant waives the performance of
any provision of this Lease, such waiver shall not be
deemed a waiver of any subsequent breach of the same or
any other provision of this Lease. Furthermore, the
acceptance of rent by Landlord shall not constitute a
waiver of any preceding breach by Tenant of any
provision of this Lease, regardless of Landlord's
knowledge of such preceding breach at the time Landlord
accepted such rent. Failure by Landlord to enforce any
provision of this Lease for any length of time shall not
be deemed to waive or decrease the right of Landlord to
insist thereafter upon strict performance by Tenant.
Waiver by Landlord of any provision of this Lease may
only be made by a written document signed by Landlord.
NOTICES 26. All notices and demands which may be or are required to
be given by either party to the other hereunder shall be
in writing. All notices and demands by Landlord to
Tenant shall be sent by United States certified or
registered mail, postage prepaid, addressed to Tenant at
the premises, or to such other place as Tenant may from
time to time designate in a notice to Landlord. All
notices and demands by Tenant to Landlord shall be sent
by United States certified or registered mail, postage
prepaid,
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<PAGE>
addressed to Landlord at the address specified in the
Basic Lease Information, or to such other firm or to
such other place as Landlord may from time to time
designate in a notice to Tenant. All notices and demands
shall be deemed given on the date personally delivered
to the address designated above or on the date mailed as
provided above.
RENTAL 27. (a) Definition. The terms used in this Paragraph 27
ADJUSTMENTS shall have the following meanings:
(1) "Operating Costs" means all expenses and costs
of every kind and nature which Landlord shall pay
or become obligated to pay because of or in
connection with the ownership and operation of the
Project and Landlord's personal property used in
connection with the Project and supporting
facilities of the Project, and such additional
facilities now and in subsequent years as may be
determined by Landlord to be necessary to the
Project, including, but not limited to, the
following:
(i) All wages, salaries and related expenses
and benefits of all on-site and off-site
employees engaged directly in the operation,
management, maintenance, engineering and
security of the Project, and the costs and
rental value of an office in Project;
provided, however, that Operating Costs
shall not include leasing commissions paid
to any real estate broker, salesperson or
agent.
(ii) Supplies, materials, tools and rental
of equipment used in the operation,
management and maintenance of the Project.
(iii) Utilities, including water and power,
gas, sewer, heating, lighting, air
conditioning and ventilating and the cost of
electrical surveys of the Project.
(iv) All maintenance, janitorial and service
agreements for the Project and the equipment
therein, including without limitation, alarm
services, garbage and waste disposal,
security service, water treatment, vermin
extermination, facade maintenance, roof
maintenance, landscaping, window cleaning
and elevator maintenance.
(v) A management cost recovery equal to four
percent (4%) of Gross Rent derived from the
Project.
(vi) Legal expenses, accounting expenses and
the cost of audits by certified public
accountants; provided, however, that legal
expenses chargeable as Basic Operating Cost
shall not include the cost of negotiating
leases, collecting rents, evicting tenants
nor shall it include costs incurred in legal
proceedings with or against any tenant or to
enforce the provisions of any lease.
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<PAGE>
(vii) All insurance premiums and costs,
including but not limited to, the premiums
and cost of fire, casualty, flood and
liability coverage and rental abatement and
earthquake insurance (if Landlord elects to
provide such coverage) applicable to the
Project and Landlord's personal property
used in connection therewith, and any
deductible payments incurred by reason of
loss.
(viii) Repairs, replacements and general
maintenance (excluding repairs and general
maintenance paid by proceeds of insurance or
by Tenant or other third parties, and the
alterations attributable solely to tenants
of the Project other than Tenant).
(ix) All maintenance costs relating to
public and service areas of the Project,
including (but without limitation)
sidewalks, landscaping, service areas,
mechanical rooms and building exteriors.
(x) All Real Property Taxes.
(xi) Amortization (together with reasonable
financing charges) of capital improvements
made to the Project subsequent to the Term
Commencement Date which will improve the
operating efficiency of the Project or which
may be required to comply with laws,
ordinances, rules or regulations
promulgated, adopted or enforced after
completion of the initial construction of
the Project and improvement of the premises
pursuant to the Office Lease Improvement
Agreement.
(xii) All costs of contesting any law
applicable to the Project or the amount of
any taxes or assessments affecting the
Project.
Notwithstanding anything to the contrary herein
contained, Operating Costs shall not include (aa)
the initial construction cost of the Building;
(bb) depreciation on the initial construction of
the Project; (cc) the cost of providing Tenant
Improvements to tenant or any other tenant; (dd)
debt service (including, but without limitation,
interest, principal and any impound payments)
required to be made on any mortgage or deed of
trust recorded with respect to the Building,
Project or Property other than debt service and
financing charges imposed pursuant to paragraph
27(a)(1)(xi) above; and (ee) the cost of special
services, goods or materials provided to any
tenant. If the Project is not fully occupied
during any fiscal year of the Term as determined
by Landlord, an adjustment shall be made in
computing the Basic Operating Cost for such year
so that Basic Operating Cost shall be computed as
though the Project had been ninety-five percent
(95%) occupied; provided, however, that in no
event shall Landlord be entitled to collect in
excess of one hundred
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percent (100%) of the total Operating Costs from
all of the tenants in the Project including
Tenant. All costs and expenses shall be determined
in accordance with generally accepted accounting
principles which shall be consistently applied
(with accruals appropriate to Landlord's
business). Operating Costs shall not include
specific costs incurred for the account of,
separately billed to and paid by specific tenants.
(2) "Real Property Taxes" means any form of tax,
assessment, general assessment, special
assessment, lien, levy, bond obligation, license
fee, license tax, tax or excise on rent, or any
other levy, charge or expense, together with any
statutory interest thereon, (individually and
collectively, the "Impositions"), now or hereafter
imposed or required by any authority having the
direct or indirect power to tax, including any
federal, state, county or city government or any
school, agricultural, lighting, drainage or other
improvement or special assessment district
thereof, (individually and collectively, the
"Governmental Agencies") on any interest of
Landlord or Tenant or both (including any legal or
equitable interest of Landlord or its mortgagee,
if any) in the Building, or the Property,
including without limitation:
(i) any Impositions upon, allocable to or
measured by the area of the Premises or the
Project, or the rental payable hereunder,
including without limitation, any gross
income tax or excise tax levied by any
Governmental Agencies with respect to the
receipt of such rental; or
(ii) any Impositions upon or with respect to
the possession, leasing, operation,
management, maintenance, alteration, repair
or use or occupancy by Tenant of the
premises or any portion thereof; or
(iii) any Impositions upon this Lease or
this transaction or any document to which
Tenant is a party creating or transferring
an interest or an estate in the premises; or
(iv) any Impositions by Governmental
Agencies (whether or not such impositions
constitute tax receipts) in substitution,
partially or totally, of any impositions now
or previously included within the definition
of real property taxes, including those
calculated to increase tax increments to
Governmental Agencies and to pay for such
services as fire protection, water drainage,
street, sidewalk and road maintenance,
refuse removal or other governmental
services formerly provided without charge to
property owners or occupants; or
(v) any and all costs, including without
limitation, the fees of attorneys, tax
consultants
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<PAGE>
and experts, incurred by Landlord should
Landlord elect to negotiate or contest
the amount of such real property
taxes in formal or informal proceedings
before the Governmental Agency imposing such
real property taxes;
provided, however, that Real Property Taxes shall
in no event include Landlord's general income,
inheritance, estate, gift or franchise taxes.
(3) "Estimated Operating Costs" for any Fiscal
Year shall mean Landlord's estimate of the
Operating Costs for such Fiscal Year. Landlord
shall have the right from time to time to revise
its Fiscal Year and interim accounting periods so
long as the periods as so revised are reconciled
with prior periods in accordance with generally
accepted accounting principles applied in a
consistent manner.
(b) Payment of Estimated Basic Operating Cost. During
the last month of each Fiscal Year during the Term, or
as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Costs
for the ensuing Fiscal Year. The Fiscal Year is
specified in the Basic Lease Information. Tenant shall
pay to Landlord, as additional rent, monthly, in
advance, on the first day of each month during the Term,
an amount equal to one-twelfth (1/12th) of Tenant's
Share of the increase in the Operating Costs of the
Property for each Fiscal Year during the Term over the
Operating Costs for the Base Year, which amount is
exclusive of any sales, franchise, business or
occupation or other tax based on rents and should such
taxes apply during the Term.
(c) Proration. Tenant's Share of the increase in
Operating Costs shall be prorated on the basis of a
360-day year to account for any fractional portion of a
year included in the Term at its commencement and
expiration. If at any time during the course of a Fiscal
Year, Landlord determines that Basic Operating Cost will
apparently vary from the then Estimated Operating Costs
by more than five percent (5%), Landlord may, by written
notice to Tenant, revise the Estimated Operating Costs
for the balance of the Fiscal Year and Tenant shall pay
Tenant's Share of the Estimated Operating Costs as so
revised for the balance of the then current Fiscal Year
on the first day of each calendar month thereafter, as
additional rent.
(d) Computation of Operating Costs Adjustment. Within
one hundred twenty (120) days after the end of each
Fiscal Year or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of
Operating Costs for the Fiscal Year just ended,
accompanied by a computation of Tenant's share of
increased Operating Costs. If the statement shows that
Tenant's payment based upon Estimated Operating Costs is
less than Tenant's Share of Operating Costs, then Tenant
shall pay as additional rent the difference within
twenty (20) days after receipt of the statement. If the
statement shows that Tenant's payment of Estimated
Operating Costs exceeded Tenant's Share of Operating
Costs, then (provided that Tenant is not in default
under this Lease) Tenant shall receive a credit for the
amount of the overpayment against Tenant's obligation
for payment of
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Tenant's Share of Estimated Operating Costs next
becoming due hereunder. If this Lease has been
terminated or the Term has expired before the date of
the statement, then the Basic Operating Cost Adjustment
shall be paid by the appropriate party within twenty
(20) days after the date of delivery of the statement.
(e) Tenant Audit. Tenant shall have the right, at
Tenant's expense, and upon not less than seven (7) days
prior written notice to Landlord, to review at
reasonable times Landlord's books and records for any
fiscal year, a portion of which falls within the Term,
for purposes of verifying Landlord's calculation of
Basic Operating Cost and Basic Operating Cost
Adjustment. If Tenant disputes the amount set forth in
any statement provided by Landlord under Paragraph 27(c)
above, Tenant shall have the right not later than twenty
(20) days following the receipt of such statement, and
upon condition that Tenant shall first deposit with
Landlord the full amount in dispute, to cause Landlord's
books and records with respect to such Fiscal Year to be
audited by certified public accountants selected by
Tenant subject to Landlord's reasonable right of
approval. The Basic Operating Cost Adjustment shall be
appropriately adjusted on the basis of the audit. If the
audit discloses a liability for a refund or credit by
Landlord to Tenant in excess of ten percent (10%) of
Tenant's Share of Operating Costs Adjustment previously
reported, the cost of the audit shall be borne by
Landlord. Otherwise the cost of the audit shall be paid
by Tenant. If Tenant does not request an audit in
accordance with the provisions of this Paragraph 27(e)
within twenty (20) days of receipt of Landlord's
statement provided pursuant to Paragraph 27(d),
Landlord's statement shall be final and binding for all
purposes.
TAXES 28. Tenant shall pay before delinquency any and all taxes
PAYABLE levied or assessed and which become payable by Landlord
BY TENANT (or Tenant) during the term of this Lease (excluding,
however, state and federal personal or corporate income
taxes measured by the income of Landlord from all
sources, capital stock taxes, and estate and inheritance
taxes), whether or not now customary or within the
contemplation of the parties hereto, which are based
upon, measured by or otherwise calculated with respect
to: (a) the gross or net rent payable under this Lease,
including, without limitation, any gross receipts tax
levied by any taxing authority, or any other gross
income tax or excise tax levied by any taxing authority
with respect to the receipt of the rental hereunder; (b)
the value of Tenant's equipment, furniture, fixtures or
other personal property located in the premises; (c) the
possession, Lease, operation, management, maintenance,
alteration, repair, use of occupancy by Tenant of the
premises or any portion thereof; (d) the value of any
leasehold improvements, alterations or additions made in
or to the premises, regardless of whether title to such
improvements, alterations or additions shall be in
Tenant or Landlord; or (e) this transaction or any
document to which Tenant is a party creating or
transferring an interest or an estate in the premises.
In the event that it shall not be lawful for Tenant to
so reimburse Landlord, the rent payable to Landlord
under this Lease shall be revised to net Landlord the
same net rent after imposition of any such tax upon
Landlord as would have been
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payable to Landlord prior to the imposition of any such
tax. All taxes payable by Tenant under this Paragraph 28
shall be deemed to be, and shall be paid as, additional
rent.
ABANDON- 29. Tenant shall not vacate or abandon the premises at any
MENT time during the term, and any such vacation or
abandonment shall be a breach of this Lease. If Tenant
shall abandon, vacate or surrender said premises or be
dispossessed by process of law, or otherwise, any
personal property belonging to Tenant and left on the
premises shall, at the option of Landlord, be deemed to
be abandoned and title thereto shall pass to Landlord,
except such property as may be mortgaged to Landlord.
SUCCESSORS 30. Subject to the provisions of Paragraph 9 hereof,
AND the terms, covenants and conditions contained herein
ASSIGNS shall be binding upon and inure to the benefit of the
heirs, successors, executors, administrators and assigns
of the parties hereto.
ATTORNEYS' 31. If this Lease is referred to an attorney for
FEES enforcement of its terms or provisions or if any action
must be taken to enforce any term, covenant or condition
of this Lease, Landlord shall be entitled to payment by
Tenant of all reasonable costs incurred in connection
with such enforcement, whether or not litigation is
commenced, including, without limitation, reasonable
attorneys' fees and costs.
SECURITY 32. (a) By execution of this Lease, Landlord acknowledges
DEPOSIT receipt of Tenant's security deposit for the faithful
performance of all terms, covenants and conditions of
this Lease. The sum of the security deposit is specified
in the Basic Lease Information. Tenant agrees that
Landlord may apply the security deposit to remedy any
failure by Tenant to repair or maintain the premises or
to perform any other provisions of this Lease. If Tenant
has kept and performed all terms, covenants and
conditions of this Lease during the Term, Landlord will
promptly return the security deposit to Tenant or the
last permitted assignee of Tenant's interest hereunder
at the expiration of the Lease Term. Should Landlord use
any portion of the security deposit to cure any default
by Tenant, Tenant shall promptly replenish the security
deposit to its original amount. Landlord shall not be
required to keep any security deposit separate from its
general funds, and Tenant shall not be entitled to
interest on any such deposit.
(b) No mortgagee, mortgagee in possession, or successor
in title to the property, shall be accountable for any
security deposit required by the Landlord under this
Lease, unless the deposit has actually been received by
such mortgagee or successor as security for the Tenant's
performance of this lease.
SUBSTITUTION 33. (a) Landlord shall have the right at any time through
SPACE the end of the Term of this Lease to substitute, instead
of the leased premises, other space (of approximately
the same area as the leased premises) hereinafter
referred to as "Substitution Space", in the Project.
(b) If Landlord desires to exercise such right, it shall
give Tenant at lease sixty (60) days prior written
notification that Tenant is to relocate to another
space. Tenant shall then give Landlord written notice
within ten (10) days of receipt of
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<PAGE>
Landlord's notification whether Tenant agrees to
relocate, or whether Tenant elects to terminate the
Lease and vacate the premises as of the sixtieth (60th)
day following the date of Landlord's notification.
Should Tenant fail to give Landlord written notice
within ten (10) days of receipt of Landlord's
notification, then Tenant shall be deemed to have
elected to terminate, and this Lease shall automatically
terminate sixty (60) days following the date of
Landlord's notification. If Tenant retains possession of
the premises or any part thereof following the
termination date, Tenant shall be liable to Landlord,
for each day it retains possession, for double the
amount of the Basic Rent and Tenant's Share of Operating
Costs for the last period prior to the date of
termination, plus actual damages incurred by Landlord
resulting from delay by Tenant in surrendering the
premises, including without limitation any claims made
against Landlord by any succeeding tenant to the
premises and Landlord's costs in taking any action at
law, in equity or self help to evict Tenant from the
premises.
(c) If Tenant elects to move to the Substitution Space,
the move shall be at the sole cost of Landlord including
all costs and expenses related to improving the space
with leasehold improvements equal to those then in
Tenant's premises, moving the furniture, office
equipment and other contents of the premises to the new
space, reinstating telecommunications equipment,
printing of new stationary, business cards and other
printed matter bearing the address of Tenant and such
other reasonable expenses as Tenant may incur. After the
move, this Lease shall continue in full force and effect
and shall apply to the Substitution Space except that
(a) if the then unexpired balance of the term of the
Lease shall be less than one year, the term of this
Lease shall be extended so that the unexpired balance of
the term of this Lease shall be from one year from the
date of the move and (b) if the Substitution Space
contains more square footage than the leased premises,
Base Rent and Tenant's Share of Operating Costs shall be
increased proportionately (provided that such rental
increase shall not exceed five percent (5%) of the
rental immediately preceding an increase).
CORPORATE 34. If Tenant is a corporation, each of the persons
AUTHORITY executing this Lease on behalf of Tenant does hereby
covenant and warrant that Tenant is a duly authorized
and existing corporation, that Tenant has and is
qualified to do business in Washington, that the
corporation has full right and authority to enter into
this Lease, and that each and both of the persons
signing on behalf of the corporation were authorized to
do so. Upon Landlord's request, Tenant shall provide
Landlord with evidence reasonably satisfactory to
Landlord confirming the foregoing covenants and
warranties.
LEASE NOT AN 35. Submission of this instrument for examination or
OFFER signature by Tenant does not constitute a reservation
of or option for lease, and it is not effective as a
lease or otherwise until execution and delivery by both
Landlord and Tenant.
BROKERAGE 36. Tenant represents and warrants that it has dealt
with no broker, agent or other person in connection with
this transaction, and/or that no broker, agent or other
person brought about this
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<PAGE>
transaction and Tenant agrees to indemnify and hold
Landlord harmless from and against any claims by any
other broker, agent or other person claiming a
commission or other form of compensation by virtue of
having dealt with Tenant with regard to this leasing
transaction. The provisions of this Article shall
survive the termination of this Lease.
FORCE 37. Whenever a period of time is prescribed for action
MAJEURE to be taken by Landlord, Landlord shall not be liable
or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due
to strikes, riots, Acts of God, shortages of labor or
materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever
which are beyond the control of Landlord ("Force
Majeure").
CERTAIN 38. Landlord shall have the following rights, exercisable
RIGHTS without notice and without liability to Tenant for
RESERVED BY damage or injury to property, persons or business and
LANDLORD without effecting an eviction, constructive or actual,
or disturbance of Tenant's use or possession or giving
rise to any claim for setoff or abatement of rent:
(a) To decorate, expand and make repairs, alterations,
additions, changes or improvements, whether structural
or otherwise, in and about the Building and Project, or
any part thereof, and for such purposes to enter upon
the leased premises and, during the continuance of any
such work, to temporarily close doors, entryways, public
space and corridors in the Building, to interrupt or
temporarily suspend Building services and facilities and
to change the arrangement and location of entrances or
passageways, doors and doorways, corridors, elevators,
stairs, toilets, or other public parts of the Building
to install, use, maintain, repair, replace and relocate
pipes, ducts, conduits, wires and appurtenant meters and
equipment to other parts of the Building above the
ceiling surfaces, below the floor surfaces or within the
walls, all without abatement of rent or affecting any of
Tenant's obligations hereunder, so long as the leased
premises are reasonably accessible.
(b) To have and retain a paramount title to the premises
free and clear of any act of Tenant purporting to burden
or encumber them.
(c) To make changes to common areas including, without
limitation, changes in the location, size, shape, and
number of driveways, entrances, parking spaces, parking
areas, loading and unloading areas, ingress, egress and
direction of traffic, landscaping and walkways, to close
any common areas temporarily so long as reasonable
access to the Premises remains available, and to use the
common areas as a staging area.
(d) To change the name by which the Building or Project
is designated.
(e) To grant to anyone the exclusive right to conduct
any business or render any service in or to the Building
or Project,
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<PAGE>
provided the exclusive right does not operate to exclude
Tenant from the use expressly permitted under this
Lease.
(f) To prohibit the placing of vending or dispensing
machines of any kind in or about the premises without
the prior written permission of Landlord.
(g) To have access for Landlord and other tenants of the
Building to any mail chutes located on the leased
premises according to the rules of the United States
Postal Service.
(h) To take all reasonable measures as Landlord may deem
advisable for the security of the Building or Project
and its occupants, including without limitation, the
search of all persons entering or leaving the Building,
access to the premises for cause, suspected cause, or
for drill purposes, the temporary denial of access to
the Building or Project, and the closing of the Building
or Project after normal business hours and on Saturdays,
Sundays and holidays, subject, however, to Tenant's
right to admittance when the Building or Project is
closed after normal business hours under such reasonable
regulations as Landlord may prescribe form time to time
which may include by way of example but not of
limitation, that persons entering or leaving the
Building, whether or not during normal business hours,
identify themselves to a security officer by
registration or otherwise and that such persons
establish their right to enter or leave the Building.
PERSONAL 39. Landlord may sell or otherwise transfer all or
LIABILITY part of its interest in the premises and if the proposed
purchaser or transferee shall assume Landlord's
obligations under this Lease for so long as it retains
an interest in the premises, then Landlord shall be
relieved of any obligation under this Lease accruing
after the date of transfer. If any security deposit or
prepaid rent has been paid by Tenant and Landlord shall
transfer such security deposit or prepaid rent to
Landlord's successor, then Landlord shall be discharged
from any further liability with respect to such security
deposit or prepaid rent. The liability of Landlord to
Tenant for any default by Landlord under this Lease or
arising in connection with this Lease or any other
matter relating to the premises, shall be limited to the
interest of Landlord in the premises and Landlord shall
not be liable personally for any deficiency. Tenant
agrees to look solely to Landlord's interest in the
premises for the recovery of any judgment against
Landlord, and Landlord shall not be personally liable
for any such judgment or deficiency after execution
thereon. In furtherance of the foregoing limitation: (a)
no general or limited partner of Landlord shall be sued
or named as a party in any action or suit (except as may
be necessary to secure jurisdiction of the partnership);
(b) no service of process shall be made against any
general or limited partner of Landlord (except as may be
necessary to secure jurisdiction of the partnership);
(c) no general or limited partner of Landlord shall be
required to answer or otherwise plead to any service of
process; (d) no adjustment will be taken against any
general or limited partner of Landlord; (e) any judgment
taken against any general or limited partner of Landlord
may be vacated or set aside at any time nunc pro tunc;
(f) no writ of execution will ever be levied against the
assets of any general or limited
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<PAGE>
partner of Landlord; and (g) these covenants are
enforceable both by Landlord and also by any partner of
Landlord. In addition, Landlord shall not be liable to
Tenant or anyone claiming by or through Tenant for lost
profits or consequential damages incurred due to a
breach of this Lease by Landlord or due to Landlord's
acts or omissions.
MISCELLAN- 40. Additional Definitions.
EOUS
(a) The term "premises" wherever it appears herein
includes and shall be deemed or taken to include (except
where such meaning would be clearly repugnant to the
context) the office space demised and improvements now
or at any time hereinafter comprising or built in the
space hereby demised. The term "Landlord" includes the
Landlord, its successors, and assigns. In any case where
this Lease is signed by more than one person, the
obligations hereunder shall be joint and several. The
term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the
singular or plural number, individuals, firms or
corporations, and their and each of their respective
successors, executors, administrators, and permitted
assigns, according to the context hereof.
(b) Time is of the essence of this lease and all its
provisions. This Lease shall in all respects be governed
by the laws of the State of Washington. Captions are for
convenience of reference only and shall in no way
define, increase, limit or describe the scope or intent
of any provision of this Lease. This Lease, together
with its exhibits, contains all the agreements of the
parties and supersedes any previous negotiations. There
have been no representations made by the Landlord or
understandings made between the parties other than those
expressly set forth in this Lease and its exhibits. This
Lease may not be modified except by a written instrument
signed by the parties.
(c) If for any reason any provision of this Lease shall
be unenforceable or ineffective, all of the other
provisions shall be and remain in full force and effect.
(d) The waiver by Landlord of any term or provision of
this Lease shall not be deemed a waiver of the same term
or provision or any subsequent breach thereof or of any
other term or provision of this Lease.
(e) If, in connection with obtaining construction,
interim or permanent financing for the Property, the
lender shall request modifications in this Lease as a
condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not
increase the obligation of Tenant under this Lease or
materially affect the leasehold interest created or
Tenant's rights under this Lease.
(f) Neither Tenant nor Landlord shall record this Lease
without the written consent of the other party.
(g) No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly rent or any other sum due
Landlord
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<PAGE>
under this Lease shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any
endorsement or statement of any check or any letter
accompanying any check or payment of rent be deemed an
accord and satisfaction or a modification of Tenant's
obligations under this Lease, or a limitation on
Landlord's right to recover the balance of such rent or
pursue any other remedy provided in this Lease.
(h) If Tenant requests Landlord's consent or approval
and Landlord fails or refuses to give such consent or
approval, Tenant shall not be entitled to any damages
for any withholding or delay by Landlord of its consent
or approval if Landlord is entitled to withhold such
consent or approval in its sole discretion or if such
consent or approval is not to be unreasonably withheld
or delayed by Landlord and in its good faith judgment
Landlord determines that it is required under any
document evidencing or securing financing of the
Property and the lender withholds its consent or
approval. In any instance where the consent or approval
of the lender is required, Landlord shall not be
required to expend money or make any concession to the
lender to induce its consent or approval.
(i) Landlord retains all statutory lien rights
per Washington State Law.
DISCLOSURE 41. The officers and agents of Landlord's property
manager and other related parties are licensed real
estate brokers or salespersons. This disclosure is made
pursuant to RCW 18.85.230.
SEE ADDENDUM Attached hereto and made a part hereof by this reference.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease the day and year first above written.
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<PAGE>
LANDLORD: TENANT:
Spieker Properties, L.P. ImageX Corporation
a California limited partnership a Washington corporation
By: Spieker Properties, Inc.,
a Maryland corporation
Its: General Partner
/s/ James C. Eddy /s/ Jack Hooper
- ----------------------------------- ---------------------------------------
By: James C. Eddy By: Jack Hooper
Its: Senior Vice President Its: Chief Financial Officer
Date: /s/ 6/8/98 Date: /s/ 5/28/98
STATE OF )
) ss.
COUNTY OF )
On this 28th day of May, 1998, personally appeared before me Jack Hooper,
to me known to be the Chief Financial Officer of the corporation that executed
the within and foregoing instrument, and acknowledged said instrument to be the
free and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned, and on oath stated that he was authorized to execute said
instrument and that the seal affixed (if any) is the corporate seal of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official
Seal the day and year first above written.
/s/ illegible
---------------------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at 5108 Woodlawn
Ave., Seattle, WA 98103
My commission expires: 1/29/02
-------------
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<PAGE>
STATE OF OREGON )
) ss.
COUNTY OF CLACKAMAS )
On this 8th day of June, 1998, personally appeared before me JAMES C.
EDDY, to me known to be the Senior Vice President of the corporation that
executed the within and foregoing instrument, and acknowledged said instrument
to be the free and voluntary act and deed of said corporation, for the uses and
purposes therein mentioned, and on oath stated that he was authorized to execute
this instrument and that the seal affixed (if any) is the corporate seal of said
corporation.
/s/ Susan N. Zuercher
------------------------------------------
[Seal of Susan N. NOTARY PUBLIC in and for the State of
Zuercher] Oregon, residing at Lake Oswego, OR.
My commission expires: 4/20/99
--------------------
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<PAGE>
ADDENDUM
to
LEASE AGREEMENT
dated May 14, 1998 between
Spieker Properties, L.P., a California limited partnership (Landlord)
and
ImageX, a Washington corporation (Tenant)
For Premises Located in US Bank Plaza Building
Addendum to Paragraph 32: SECUR1TY DEPOSIT.
Tenant shall deposit with Landlord a security deposit in the amount of Eight
Thousand, Two Hundred, Eighty Three and no/100 Dollars ($8,283.00). In addition
this Lease shall not be effective unless and until Tenant shall have provided to
Landlord a letter of credit in the total amount of Twenty-Four Thousand, Eight
Hundred, Forty-Nine and No/100 Dollars ($24,849.00) issued by a United States
bank that is a member of the Federal Reserve System in the forms attached hereto
as Exhibit G, or with such variations as Landlord may approve in advance in
writing, which approval may be withheld for any or no reason. If letter of
credit is not issued and delivered within seven (7) days after execution of this
Lease, this Lease shall be null, void and of no force or effect. If, and only
if, all of the financial conditions hereinafter set forth in this Addendum to
Lease Paragraph 32 (the "Conditions") shall have been met and the Tenant is not
then in breach or default under any term of this Lease, and Landlord shall not
by then have presented a draft upon the same, Landlord shall promptly surrender
the original letter of credit in the form of Exhibit G-2 to Tenant for
cancellation. The Conditions are as follows:
A. The Tenant's achievement of pre-tax profitability of no less than
One Hundred Thousand and No/100 Dollars ($100,000.00) per month for
not less than three (3) consecutive months and a net worth equal to
One Hundred Ninety Thousand and No/100 Dollars ($190,000.00)
evidenced by true, accurate and tenant-verified financial statements
prepared by the Tenant in accordance with generally accepted
accounting principles.
or
B. The Tenant's achievement of a net worth of at least Five Million
Dollars ($5,000,000.00) evidenced by true, accurate and
tenant-verified financial statements prepared by the Tenant in
accordance with generally accepted accounting principles.
Additional Paragraph 42: Availability of Premises
Landlord and Tenant recognize that the Premises is currently leased to a third
party tenant, Prosoft Development, Inc. This Lease agreement is conditioned upon
Landlord and Prosoft Development Inc. entering into an agreement to terminate
the lease currently in effect for the Premises on or before May 31, 1998. Should
that not occur, Landlord reserves the right (but not the obligation) to
terminate this Lease Agreement by notice to Tenant, whereupon this Lease
Agreement shall be null and void and without further force and effect.
Additional Paragraph 43 : Option to Extend
Provided Tenant is not, and has not been, in default of any of its obligations
under the Lease, it shall have an option to renew this Lease for the Premises in
"as is" condition for a term of three (3) years, on the same terms and
conditions as set forth in this Lease except that the Base Rent shall be the
then current market rents, including interim escalations. In no event will the
monthly rental be less than the rental for the last month of the previous term.
<PAGE>
Tenant shall give Landlord written notice of its intent to exercise this Option
to Extend at least one hundred eighty (180) days prior to the expiration of the
current lease term. Within fifteen (15) days after Tenant exercises its Option
to Extend, Landlord will provide Tenant with the current market rental rate, as
determined by Landlord, as well as terms and conditions for the extended term.
Tenant shall have Ten (10) days from notification by Landlord of current rent
and conditions to accept Landlord's current market figure and terms and
conditions. It Tenant does not accept Landlord's rental figure and terms and
conditions within the fifteen (15) day period, this option shall be null and
void and Landlord shall have no further obligation to Tenant and Landlord may
enter into a lease for the Premises with a third party.
Notwithstanding anything to the contrary herein contained, Tenant's right to
extend the term by exercise of the foregoing option shall be conditioned upon
the following: (i) at the time of the exercise of the option, and at the time of
the commencement of the extended term, Tenant shall be in possession of and
occupying the Premises for the conduct of its business therein and the same
shall not be occupied by any assignee, subtenant or licensee; and (ii) the
notice of exercise shall constitute a representation by Tenant to Landlord,
effective as of the date of the exercise and as of the date of commencement of
the extended term, that Tenant does not intend to seek to assign the Lease in
whole or in part, or sublet all or any portion of the Premises, the election to
extend the term being for purposes of utilizing the Premises for Tenant's
purpose in the conduct of Tenant's business therein.
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<PAGE>
BASIC LEASE INFORMATION
OFFICE GROSS
US BANK PLAZA
<TABLE>
<S> <C>
LEASE DATE: October 19, 1998
TENANT: ImageX Corporation, a Washington Corporation
TENANT'S NOTICE ADDRESS: 10800 N.E. 8th Street, Suite 200, Bellevue, Washington 98004-1455
TENANT'S BILLING ADDRESS: 10800 N.E. 8th Street, Suite 200, Bellevue, Washington 98004-1455
TENANT CONTACT: Chris Reightley PHONE NUMBER: 425-452-0011
FAX NUMBER: 425-452-9266
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 1150 - 114th Avenue S.E., Bellevue, Washington 98004
LANDLORD'S REMITTANCE ADDRESS: P.O. Box 24827, Dept. 20351, Seattle, Washington 98124-0827
PROJECT DESCRIPTION: That certain building commonly known as US Bank Plaza located in
Bellevue, Washington and the real property on which the
Building is located, as more fully and legally described on
Exhibit A-1 attached
BUILDING DESCRIPTION: That certain building commonly known as US Bank Plaza located at
10800 N.E. 8th Street, Bellevue, Washington 98004-1455
PREMISES: Approximately 1,824 rentable square feet in Suite 300
10800 N.E. 8th Street, Bellevue, Washington 98004-1455
PERMITTED USE: General office use.
OCCUPANCY DENSITY: 5 employees per 1,000 Rentable Square Feet
PARKING DENSITY: 2.5 per 1,000 Rentable Square Feet
PARKING AND PARKING CHARGE: 5 non-exclusive spaces at $90.00 per space/per month
including 8.6% Washington Sales Tax.
SCHEDULED TERM COMMENCEMENT DATE: November 1, 1998
SCHEDULED LENGTH OF TERM: 40 Months
SCHEDULED TERM EXPIRATION DATE: February 28, 2002
RENT: Months 1-4 $4,028.00 per month
BASE RENT Months 5-16 $4,180.00 per month
Months 17-28 $4,332.00 per month
Months 29-40 $4,484.00 per month
(subject to adjustment as provided in
Paragraph 39. hereof)
BASE YEAR FOR OPERATING
EXPENSES: 1998
SECURITY DEPOSIT: $5,020.00
TENANT'S PROPORTIONATE SHARE OF
BUILDING: 1.38%
The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each
reference in this Lease to any of the Basic Lease Information shall mean the respective
information above and shall be construed to incorporate all of the terms provided under the
particular Lease paragraph pertaining to such information. In the event of any conflict
between the Basic Lease Information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., ImageX Corporation,
a California limited partnership a Washington corporation
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner /s/ Jopseh Vetschueren
--------------------------------
/s/ Richard T. Leider By: Joseph Vetschueren
----------------------------- Its: President
By: Richard T. Leider
Its: Vice President
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Basic Lease Information............................................. 1
Table of Contents................................................... 2
1. Premises............................................................ 3
2. Possession and Lease Commencement................................... 3
3. Term................................................................ 3
4. Use................................................................. 3
5. Rules and Regulations............................................... 4
6. Rent................................................................ 4
7. Operating Expenses.................................................. 4
8. Insurance and Indemnification....................................... 6
9. Waiver of Subrogation............................................... 7
10. Landlord's Repairs and Maintenance.................................. 7
11. Tenant's Repairs and Maintenance.................................... 8
12. Alterations......................................................... 8
13. Signs............................................................... 8
14. Inspection/Posting Notices.......................................... 9
15. Services and Utilities.............................................. 9
16. Subordination....................................................... 10
17. Financial Statements................................................ 10
18. Estoppel Certificate................................................ 10
19. Security Deposit.................................................... 10
20. Limitation of Tenant's Remedies..................................... 10
21. Assignment and Subletting........................................... 10
22. Authority of Tenant................................................. 11
23. Condemnation........................................................ 11
24. Casualty Damage..................................................... 12
25. Holding Over........................................................ 12
26. Default............................................................. 12
27. Liens............................................................... 13
28. Substitution........................................................ 14
29. Transfers by Landlord............................................... 14
30. Right of Landlord to Perform Tenant's Covenants..................... 14
31. Waiver.............................................................. 14
32. Notices............................................................. 14
33. Attorney's Fees..................................................... 14
34. Successors and Assigns.............................................. 15
35. Force Majeure....................................................... 15
36. Surrender of Premises............................................... 15
37. Parking............................................................. 15
38. Miscellaneous....................................................... 15
39. Additional Provisions............................................... 16
40. Jury Trial Waiver................................................... 17
Signatures.......................................................... 17
Exhibits
Exhibit A..........................................Rules and Regulations
Exhibit A-1............................................Legal Description
Exhibit B................................Site Plan, Property Description
Exhibit C.........................Tenant Improvements and Specifications
Exhibit D.....................................Form of Tenant Certificate
Exhibit E..............................................Parking Agreement
Exhibit F.........................................Prior Right of Refusal
</TABLE>
2
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LEASE
THIS LEASE is made as of the 12TH DAY OF OCTOBER, 1998, by and between
SPIEKER PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP (hereinafter
called "LANDLORD"), and IMAGEX CORPORATION, A WASHINGTON CORPORATION
(hereinafter called "TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereinafter set forth, those premises (the "PREMISES")
outlined in red on EXHIBIT B end described in the Basic Lease Information. The
Premises shall be all or part of a building (the "BUILDING") and of a project
(the "PROJECT"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are situated at the real property described on EXHIBIT A-1 and are
outlined in blue and green respectively on EXHIBIT B. Landlord end Tenant
acknowledge that physical changes may occur from time to time in the Premises,
Building or Project, and that the number of buildings and additional facilities
which constitute the Project may change from time to time, which may result in
an adjustment in Tenant's Proportionate Share, as defined in the Basic Lease
Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in
which the interior improvements have already been constructed ("EXISTING
IMPROVEMENTS"), the provisions of this Paragraph 2.A. shall apply and the
term commencement date ("TERM COMMENCEMENT DATE") shall be the earlier of the
date on which; (1) Tenant takes possession of some or all of the Premises; or
(2) Landlord notifies Tenant that Tenant may occupy the Premises. If for any
reason Landlord cannot deliver possession of the Promises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any
liability therefor, nor shall Landlord be in default hereunder nor shall such
failure affect the validity of this Lease, and Tenant agrees to accept
possession of the Premises at such time as Landlord is able to deliver the
same, which date shall then be deemed the Term Commencement Date. Tenant
shall not be liable for any Rent (defined below) for any period prior to the
Term Commencement Date. Tenant acknowledges that Tenant has inspected and
accepts the Premises in their present condition, "as is," and as suitable
for, the Permitted Use (as defined below) and for Tenant's intended
operations in the Premises. Tenant agrees that the Premises and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the
condition or repair of the Premises nor promises to alter, remodel or improve
the Premises have been made by Landlord or any agents of Landlord unless such
are expressly set forth in this Lease. Upon Landlord's request, Tenant shall
promptly execute and return to Landlord a "Start-Up Letter" in which Tenant
shall agree, among other things, to acceptance of the Premises and to the
determination of the Term Commencement Date, in accordance with the terms of
this Lease, but Tenant's failure or refusal to do so shall not negate
Tenant's acceptance of the Promises or affect determination of the Term
Commencement Date.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building
to be constructed or improvements to be constructed within a Building, the
provisions of this Paragraph 2.B. shall apply in lieu of the provisions of
Paragraph 2.A. above and the term commencement date ("TERM COMMENCEMENT
DATE") shall be the earlier of the date on which: (1) Tenant takes possession
of some or all of the Premises; or (2) the improvements to be constructed or
performed in the Premises by Landlord (if any) shall have been substantially
completed in accordance with the plans and specifications, if any, described
on EXHIBIT C and Tenant's taking of possession of the Premises or any part
thereof shall constitute Tenant's confirmation of substantial completion for
all purposes hereof, whether or not substantial completion of the Building or
Project shall have occurred. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on the scheduled Term Commencement Date,
Landlord shall not be subject to any liability therefor, nor shall Landlord
be in default hereunder nor shall such failure affect the validity of this
Lease, and Tenant agrees to accept possession of the Premises at such time as
such improvements have been substantially completed, which date shall then be
deemed the Term Commencement Date. Tenant shall not be liable for any Rent
for any period prior to the Term Commencement Date (but without affecting any
obligations of Tenant under any improvement agreement appended to this
Lease). In the event of any dispute as to substantial completion of work
performed or required to be performed by Landlord, the certificate of
Landlord's architect or general contractor shall be conclusive, Substantial
completion shall have occurred notwithstanding Tenant's submission of a
punchlist to Landlord, which Tenant shall submit, if at all, within three (3)
business days after the Term Commencement Date or otherwise in accordance
with any improvement agreement appended to this Lease. Upon Landlord's
request, Tenant shall promptly execute and return to Landlord a "Start-Up
Letter" in which Tenant shall agree, among other things, to acceptance of the
Premises and to the determination of the Term Commencement Date, in
accordance with the terms of this Lease, but Tenant's failure or refusal to
do so shall not negate Tenant's acceptance of the Promises or affect
determination of the Term Commencement Date.
3. TERM
The term of this Lease (the "TERM") shall commence on the Term
Commencement Date and continue in full force and effect for the number of months
specified as the Length of Term in the Basic Lease Information or until this
Lease is terminated as otherwise provided herein. If the Term Commencement Date
is a date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term In addition to the remainder of the
calendar month following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use
specified in the Basic Lease Information ("PERMITTED USE") and for no other
use or purpose. Tenant shall control Tenant's employees, agents, customers,
visitors, invitees, licensees, contractors, assignees and subtenants
(collectively, "TENANT'S PARTIES") in such a manner that Tenant and Tenant's
Parties cumulatively do not exceed the occupant density (the "OCCUPANCY
DENSITY") or the parking density (the "PARKING DENSITY") specified in the
Basic Lease Information at tiny time. Tenant shall pay the Parking Charge
specified in the Basic Lease Information as Additional Rent (as hereinafter
defined) hereunder. So long as Tenant is occupying the Premises, Tenant and
Tenant's Parties shall have the nonexclusive right to use, in common with
other parties occupying the Building or Project, the parking areas, driveways
and other common areas or the Building and Project, subject to the terms of
this Lease and such rules and regulations as Landlord may from time to time
prescribe. Landlord reserves the right, without notice or liability to
Tenant, and without the same constituting an actual of constructive eviction,
to alter or modify the common areas from time to time, including the location
and configuration thereof, and the amenities and facilities which Landlord
may determine to provide from time to time.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises or from any portion
of the common areas as a result of Tenant's or any Tenant's Party's use thereof,
nor take any action which would constitute a nuisance or would disturb,
obstruct or endanger any other tenants or occupants of the Building or Project
or elsewhere, or
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interfere with their use of their respective premises or common areas. Storage
outside the Premises of materials, vehicles or any other items is prohibited.
Tenant shall not use or allow the Premises to be used for any immoral, improper
or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer the commission
of any waste in, on or about the Premises. Tenant shall not allow any sale by
auction upon the Premises, or place any loads upon the floors, walls or ceilings
which could endanger the structure, or place any harmful substances in the
drainage system of the Building or Project. No waste, materials or refuse shall
be dumped upon or permitted to remain outside the Premises. Landlord shall not
be responsible to Tenant for the non-compliance by any other tenant or occupant
of the Building or Project with any of the above-referenced rules or any other
terms or provisions of such tenant's or occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant
accepts the Premises in the condition existing as of the date of such entry.
Tenant shall at its sole cost and expense strictly comply with all existing
or future applicable municipal, state and federal and other governmental
statutes, rules, requirements, regulations, laws and ordinances, including
zoning ordinances and regulations, and covenants, easements and restrictions
of record governing and relating to the use, occupancy or possession of the
Premises, to Tenant's use of the common areas, or to the use, storage,
generation or disposal of Hazardous Materials (hereinafter defined)
(collectively "REGULATIONS"). Tenant shall at its sole cost and expense
obtain any and all license or permits necessary for Tenant's use of the
Premises. Tenant shall at its sole cost and expense promptly comply with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted. Tenant shall not do or permit anything to be done in,
on, under or about the Project or bring or keep anything which will in any
way increase the rate of any insurance upon the Premises, Building or Project
or upon any contents therein or cause a cancellation of said insurance or
otherwise affect said insurance in any manner. Tenant shall indemnify, defend
(by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any loss, cost, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any Regulation.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIAL"
shall include, but not be limited to, hazardous, toxic and radioactive
materials and those substances defined as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or other similar
designations in any Regulation. Tenant shall not cause, or allow any of
Tenant's Parties to cause, any Hazardous Materials to be handled, used,
generated, stored, released or disposed of in, on, under or about the
Premises, the Building or the Project or surrounding land or environment in
violation of any Regulations. Tenant must obtain Landlord's written consent
prior to the introduction of any Hazardous Materials onto the Project.
Notwithstanding the foregoing, Tenant may handle store, use and dispose of
products containing small quantities of Hazardous Materials for "general
office purposes" (such as toner for copiers) to the extent customary and
necessary for the Permitted Use of the Premises; provided that Tenant shall
always handle, store, use, and dispose of any such Hazardous Materials in a
safe and lawful manner and never allow such Hazardous Materials to
contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which
Tenant becomes aware, whether or not caused by Tenant. Landlord shall have
the right at all reasonable times to inspect the Premises and to conduct
tests and investigations to determine whether Tenant is in compliance with
the foregoing provisions, the costs of all such inspections, tests and
investigations to be borne by Tenant. Tenant shall indemnify, defend (by
counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any and all claims, liabilities, losses, costs,
loss of rents, liens, damages, injuries or expenses (including attorneys' and
consultants' fees and court costs). demands, causes of action, or judgments
directly or indirectly arising out of or related to the use, generation,
storage, release, or disposal of Hazardous Materials by Tenant or any of
Tenant's Parties in, on, under or about the Premises, the Building or the
Project or surrounding land or environment, which indemnity shall include,
without limitation, damages for personal or bodily injury, property damage,
damage to the environment or natural resources occurring on or off the
Premises, losses attributable to diminution in value or adverse effects on
marketability, the cost of any investigation, monitoring, government
oversight, repair, removal, remediation, restoration, abatement, and disposal,
and the preparation of any closure or other required plans, whether such
action is required or necessary prior to or following the expiration or
earlier termination of this Lease. Neither the consent by Landlord to the
use, generation, storage, release or disposal of Hazardous Materials nor the
strict compliance by Tenant with all laws pertaining to Hazardous Materials
shall excuse Tenant from Tenant's obligation of indemnification pursuant to
this Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity
shall survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules
and regulations attached hereto as EXHIBIT A and any other rules and
regulations and any modifications or additions thereto which Landlord may
from time to time prescribe in writing for the purpose of maintaining the
proper care, cleanliness, safety, traffic flow and general order of the
Premises or the Building or Project. Tenant shall cause Tenant's Parties to
comply with such rules and regulations. Landlord shall not be responsible to
Tenant for the noncompliance by any other tenant or occupant of the Building
or Project with any of such rules and regulations, any other tenant's or
occupant's lease or any Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive,
without notice or demand throughout the Term, Base Rent as specified in the
Basic Lease Information, payable in monthly installments in advance on or
before the first day of each calendar month, in lawful money of the United
States, without deduction or offset whatsoever, at the Remittance Address
specified in the Basic Lease Information or to such other place as Landlord
may from time to time designate in writing. Base Rent for the first full
month of the Term shall be paid by Tenant upon Tenant's's execution of this
Lease. If the obligation for payment of Base Rent commences on a day other
than the first day of a month, then Base Rent shall be prorated and the
prorated installment shall be paid on the first day of the calendar month
next succeeding the Term Commencement Date. The Base Rent payable by Tenant
hereunder is subject to adjustment as provided elsewhere in this Lease, as
applicable. As used herein, the term "Base Rent" shall mean the Base Rent
specified in the Basic Lease Information as it may be so adjusted from time
to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be
paid by Tenant hereunder, including, but not limited to, Tenant's
Proportionate Share of Operating Expenses, as specified in Paragraph 7 of
this Lease, charges to be paid by Tenant under Paragraph 15, the interest and
late charge described in Paragraphs 26.C. and D., and any monies spent by
Landlord pursuant to Paragraph 30, shall he considered additional rent
("ADDITIONAL RENT"). "RENT" shall mean Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be
paid hereunder, beginning with the expiration of the Base Year specified in
the Basic Lease Information (the "BASE YEAR"), Tenant shall pay as Additional
Rent, Tenant's Proportionate Share of the Building and/or Project (as
applicable), as defined in the Basic Lease Information, of increases in
Operating Expenses (defined below) over the Operating Expenses incurred by
Landlord during the Base Year (the "BASE YEAR OPERATING EXPENSES"), in the
manner set forth below. Tenant shall pay the applicable Tenant's
Proportionate Share of each such Operating Expenses. Landlord and Tenant
acknowledge that if the number of buildings which constitute the Project
increases or decreases, or if physical changes are made to the Premises,
Building or Project or the configuration of any thereof, Landlord may at its
discretion reasonably adjust Tenant's Proportionate
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<PAGE>
Share of the building or Project of reflect the change. Landlord's
determination of Tenant's Proportionate Share of the Building and of the
Project shall be conclusive so long as it is reasonably and consistently
applied. "OPERATING EXPENSES" shall mean all expenses and costs of every kind
and nature which Landlord shall pay or become obligated to pay, because of or
in connection with the ownership, management, maintenance, repair,
preservation, replacement and operation of the Building or Project and its
supporting facilities and such additional facilities now and in subsequent
years as may be determined by Landlord to be necessary or desirable to the
Building and/or Project (as determined in a reasonable manner) other than
those expenses and costs which are specifically attributable to Tenant or
which are expressly made the financial responsibility of Landlord or specific
tenants of the Building or Project pursuant to this Lease. Operating Expenses
shall include, but are not limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory
interest taxes, sales taxes, personal property taxes, business or
license taxes or fees, gross receipts taxes, service payments in
lieu of such taxes or fees, annual or periodic license or use fees,
excises, transit charges, and other impositions, general and
special, ordinary and extraordinary, unforeseen as well as
foreseen, of any kind (including fees "in-lieu" of any such tax or
assessment) which am now or hereafter assessed, levied, charged,
confirmed, or imposed by any public authority upon the Building or
Project, its operations or the Rent (or any portion or component
thereof), or any tax, assessment or fee imposed in substitution,
partially or totally, of any of the above. Operating Expenses shall
also include any taxes, assessments, reassessments, or other fees
or impositions with respect to the development, leasing,
management, maintenance, alteration, repair, use or occupancy of
the Premises, Building or Project or any portion thereof,
including, without limitation, by or for Tenant, and all increases
therein or reassessments thereof whether the increases or
reassessments result from increased rate and/or valuation (whether
upon a transfer of the Building or Project or any portion thereof
or any interest therein or for any other reason). Operating
Expenses shall not include inheritance or estate taxes imposed upon
or assessed against the interest of any person in the Project, or
taxes computed upon the basis of the net income of any owners of
any interest in the Project. If it shall not be lawful for Tenant
to reimburse Landlord for all or any part of such taxes, the
monthly rental payable to Landlord under this Lease shall be
revised to net Landlord the same net rental after imposition of any
such taxes by Landlord as would have been payable to Landlord prior
to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but
not limited to, any deductible amounts, premiums and other costs of
insurance incurred by Landlord, including for the insurance coverage
set forth in Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and
for the Building and Project and public and common areas and
facilities of and comprising the Building and Project,
including, but not limited to, the roof and roof membrane,
windows, elevators, restrooms, conference rooms, health club
facilities, lobbies, mezzanines, balconies, mechanical
rooms, building exteriors, alarm systems, pest extermination
landscaped areas, parking and service areas, driveways,
sidewalks, loading areas, fire sprinkler systems, sanitary,
and storm sewer lines, utility services,
heating/ventilation/air conditioning systems, electrical,
mechanical or other systems, telephone equipment and wiring
servicing, plumbing, lighting, and any other items or areas
which affect the operation or appearance of the Building or
Project, which determination shall be at Landlord's
discretion, except for: those items expressly made the
financial responsibility or Landlord pursuant to Paragraph
10 hereof those items to the extent paid for by the proceeds
of insurance; and those items attributable solely or jointly
to specific tenants of the Building or Project.
(b) Repairs, replacements, and general maintenance shall
include the cost of any capital improvements made to or
capital assets acquired for the Project or Building that in
Landlord's discretion may reduce any other Operating
Expenses, including present or future repair work, are
reasonably necessary for the health and safety of the
occupants of the Building or Project, or are required to
comply with any Regulation, such costs or allocable portions
thereof to be amortized over such reasonable period as
Landlord shall determine, together with interest on the
unamortized balance at the publicly announced "prime rate"
charged by Wells Fargo Bank, N.A. (San Francisco) or its
successor at the time such improvements or capital assets
are constructed or acquired, plus two (2) percentage points,
or in the absence of such prime rate, then at the U.S.
Treasury six-month market note (or bond, if so designated)
rate as published by any national financial publication
selected by Landlord, plus four (4) percentage points, but
in no event more than the maximum rate permitted by law,
plus reasonable financing charges.
(c) Payment under or for any easement, license, permit,
operating agreement, declaration, restrictive covenant or
instrument relating to the Building or Project.
(d) All expenses and rental related to services and costs
of supplies, materials and equipment used in operating,
managing and maintaining the Premises, Building and Project,
the equipment therein and the adjacent sidewalks, driveways,
parking and service areas, including, without limitation,
expenses related to service agreements regarding security,
fire and other alarm systems, janitorial services, window
cleaning, elevator maintenance, Building exterior
maintenance, landscaping and expenses related to the
administration, management and operation of the Project,
including without limitation salaries, wages and benefits
and management office rent.
(e) The cost of supplying any services and utilities which
benefit all or a portion or the Premises, Building or
Project, including without limitation services and utilities
provided pursuant to Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified
public accountants; provided, however, that legal expenses
chargeable as Operating Expenses shall not include the cost
of negotiating leases, collecting rents, evicting tenants
nor shall it include costs incurred in legal proceedings
with or against any tenant or to enforce the provisions
of any lease.
(g) A management and accounting cost recovery fee equal to
five percent (5%) of the sum of the Project's base rents and
Operating Expenses to the extent not included in such base
rents (other than such management and accounting fee).
If the rentable area of the Building and/or Project is not fully
occupied during any fiscal year of the Term as determined by Landlord, an
adjustment shall be made in computing the basic operating cost for such year
so that basic operating cost shall be computed as though the project had been
ninety-five percent (95%) occupied; provided, however, that in no event shall
Landlord be entitled to collect in excess of one hundred percent (100%) of
the total Operating Expenses from all of the tenants in the Building or
Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant
improvements or other specific costs incurred for the account of, separately
billed to and paid by specific tenants of the Building or Project, the initial
construction costs of the Building, or debt service on any mortgage or deed of
trust recorded with respect to the Project other than pursuant to Paragraph
7.A.(3)(b) above. Notwithstanding
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anything herein to the contrary, in any instance wherein Landlord, in Landlord's
sole discretion, deems Tenant to be responsible for any amounts greater than
Tenant's Proportionate Share, Landlord shall have the right to allocate costs in
any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed
to impose an obligation on Landlord to make available or provide such services
or facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that it
shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING
EXPENSES" for any particular year shall mean Landlord's estimate of the
Operating Expenses for such fiscal year made with respect to such fiscal year
as hereinafter provided. Landlord shall have the right from time to time to
revise its fiscal year and interim accounting periods so long as the periods
as so revised are reconciled with prior periods in a reasonable manner.
During the last month of each fiscal year during the Term, or as soon
thereafter as practicable, Landlord shall give Tenant written notice of the
Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay
Tenant's Proportionate Share of the difference between Estimated Operating
Expenses and Base Year Operating Expenses with installments of Base Rent for
the fiscal year to which the Estimated Operating Expenses applies in monthly
installments on the first day of each calendar month during such year, in
advance. Such payment shall be construed to be Additional Rent for all
purposes hereunder. If at any time during the course of the fiscal year,
Landlord determines that Operating Expenses are projected to vary from the
then Estimated Operating Expenses by more than five percent (5%), Landlord
may, by written notice to Tenant, revise the Estimated Operating Expenses for
the balance of such fiscal year, and Tenant's monthly installments for the
remainder of such year shall be adjusted so that by the end of such fiscal
year Tenant has paid to Landlord Tenant's Proportionate Share of the revised
difference between Estimated Operating Expenses and Base Year Operating
Expenses for such year, such revised installment amounts to be Additional
Rent for all purposes hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE
ADJUSTMENT" shall mean the difference between Estimated Operating Expenses
and actual Operating Expenses for any fiscal year, over Base Year Operating
Expenses, determined as hereinafter provided. Within one hundred twenty (120)
days after the end of each fiscal year, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of actual Operating Expenses for
the fiscal year just ended, accompanied by a computation of Operating Expense
Adjustment. If such statement shows that Tenant's payment based upon
Estimated Operating Expenses is less than Tenant's Proportionate Share of
actual increases in Operating Expenses over the Base Year Operating Expenses,
then Tenant shall pay to Landlord the difference within twenty (20) days
after receipt of such statement, such payment to constitute Additional Rent
for all purposes hereunder. If such statement shows that Tenant's payments of
Estimated Operating Expenses exceed Tenant's Proportionate Share of actual
increases in Operating Expenses over the Base Year Operating Expenses, then
(provided that Tenant is not in default under this Lease) Landlord shall pay
to Tenant the difference within twenty (20) days after delivery of such
statement to Tenant. If this Lease has been terminated or the Term hereof has
expired prior to the date of such statement, then the Operating Expense
Adjustment shall be paid by the appropriate party within twenty (20) days
after the date of delivery of the statement. Tenant's obligation to pay
increases in Operating Expenses over the Base Year Operating Expenses shall
commence on January 1 of the year succeeding the Base Year. Should this Lease
terminate at any time other than the last day of the fiscal year, Tenant's
Proportionate Share of the Operating Expense Adjustment shall be prorated
based on a month of 30 days and the number of calendar months during such
fiscal year that this Lease is in effect. Tenant shall in no event be
entitled to any credit if Operating Expenses in any year are less than Base
Year Operating Expenses. Notwithstanding anything to the contrary contained
in Paragraph 7.A or 7.B, Landlord's failure to provide any notices or
statements within the time periods specified in those paragraphs shall in no
way excuse Tenant from its obligation to pay Tenant's Proportionate Share of
increases in Operating Expenses.
D. GROSS LEASE. This shall be a gross Lease; however, it is intended
that Base Rent shall be paid to Landlord absolutely net of all costs and
expenses other than Operating Expenses each year equal to Tenant's
Proportionate Share of Base Year Operating Expenses, except as otherwise
specifically provided to the contrary in this Lease. The provisions for
payment of increases in Operating Expenses and the Operating Expense
Adjustment are intended to pass on to Tenant and reimburse Landlord for all
costs and expenses of the nature described in Paragraph 7.A. incurred in
connection with the ownership, management, maintenance, repair, preservation,
replacement and operation of the Building and/or Project and its supporting
facilities and such additional facilities, in excess of the Base Year
Operating Expenses, now and in subsequent years as may be determined by
Landlord to be necessary or desirable to the Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any
statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant
shall have the right, not later than twenty (20) days following receipt of
such statement and upon the condition that Tenant shall first deposit with
Landlord the full amount in dispute, to cause Landlord's books and records
with respect to Operating Expenses for such fiscal year to be audited by
certified public accountants selected by Tenant and subject to Landlord's
reasonable right of approval. The Operating Expense Adjustment shall be
appropriately adjusted on the basis of such audit. If such audit discloses a
liability for a refund in excess of ten percent (10%) of Tenant's
Proportionate Share of the Operating Expenses previously reported, the cost
of such audit shall be borne by Landlord; otherwise the cost of such audit
shall be paid by Tenant. If tenant shall not request an audit in accordance
with the provisions of this Paragraph 7.E. within twenty (20) days after
receipt of Landlord's statement provided pursuant to Paragraph 7.B. or 7.C.,
such statement shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be
for the sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property
insurance insuring the Building against damage or destruction due to
risk including fire, vandalism, and malicious mischief in an amount
not less than the replacement cost thereof, in the form and with
deductibles and endorsements as selected by Landlord. At its election,
Landlord may instead (but shall have no obligation to) obtain "All
Risk" coverage, and may also obtain earthquake, pollution, and/or
flood insurance in amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also
(but shall have no obligation to) cam insurance against loss of rent,
in an amount equal to the amount of Base Rent and Additional Rent that
Landlord could be required to abate to all Building tenants in the
event of condemnation or casualty damage for a period of twelve (12)
months. Landlord may also (but shall have no obligation to) carry such
other insurance as Landlord may deem prudent or advisable, including,
without limitation, liability insurance in such amounts and on such
terms as Landlord shall determine. Landlord shall not be obligated to
insure, and shall have no responsibility whatsoever for any damage to,
any furniture, machinery, goods, inventory or supplies, or other
personal property or fixtures which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations
within the Premises.
B. TENANT'S INSURANCE.
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(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost
and expense and keep in effect from the date of this Lease and at all
times until the end of the Term, insurance on all personal property
and fixtures of Tenant and all improvements, additions or alterations
made by or for Tenant to the Premises on an "All Risk" basis, insuring
such property for the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost
and expense and keep in effect from the date of this Lease and at
all times until the end of the Term Commercial General Liability
insurance covering bodily injury and property damage liability
occurring in or about the Premises or arising out of the use and
occupancy of the Premises and the Project, and any part of either,
and any areas adjacent thereto, and the business operated by Tenant
or by any other occupant of the Premises. Such insurance shall
include contractual liability insurance coverage insuring all of
Tenant's indemnity obligations under this Lease. Such coverage
shall have a minimum combined single limit of liability of at least
Two Million Dollars (2,000,000.00), and a minimum general aggregate
limit of Three Million Dollars ($3,000,000.00), with an "Additional
Insured - Managers or Lessors of Premises Endorsement." All such
policies shall be written to apply to all bodily injury (including
death), property damage or loss, personal and advertising injury
and other covered loss, however occasioned, occurring during the
policy term, shall be endorsed to add Landlord and any party
holding an interest to which this Lease may be subordinated as an
additional insured, and shall provide that such coverage shall be
"PRIMARY" and non-contributing with any insurance maintained by
Landlord, which shall be excess insurance only. Such coverage shall
also contain endorsements including employees as additional
insureds if not covered by Tenant's Commercial General Liability
Insurance. All such insurance shall provide for the severability of
interests of insureds; and shall be written on an "OCCURRENCE"
basis, which shall afford coverage for all claims based on acts,
omissions, injury and damage, which occurred or arose (or the onset
of which occurred or arose) in whole or in part during the policy
period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit for
bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation or change In terms; and (ii)
waive all rights of subrogation by the insurance carrier against
Landlord. If at any time during the Term the amount or coverage of
insurance which Tenant is required to carry under this Paragraph
8.B. is, in Landlord's reasonable judgment, materially less than
the amount or type of insurance coverage typically carried by
owners or tenants of properties located in the general area in
which the Premises are located which are similar to and operated
for similar purposes as the Premises or if Tenant's use of the
Premises should change with or without Landlord's consent, Landlord
shall have the right to require Tenant to increase the amount or
change the types of insurance coverage required under this
Paragraph 8.B. All insurance policies required to be carried by
Tenant under this Lease shall be written by companies rated A X or
better in "Best's Insurance Guide" and authorized to do business in
the State of Washington. In any event deductible amounts under all
insurance policies required to be carried by Tenant under this
Lease shall not exceed Five Thousand Dollars ($5,000.00) per
occurrence. Tenant shall deliver to Landlord on or before the Term
Commencement Date, and thereafter at least thirty (30) days before
the expiration dates of the expired policies, certified copies of
Tenant's insurance policies, or a certificate evidencing the same
issued by the insurer thereunder; and, if Tenant shall fail to
procure such insurance, or to deliver such policies or
certificates, Landlord may, at Landlord's option and in addition to
Landlord's other remedies in the event of a default by Tenant
hereunder, procure the same for the account of Tenant, and the cost
thereof shall be paid to Landlord as Additional Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel
reasonably acceptable to Landlord, protect and hold Landlord harmless from
and against any and all claims, liabilities, losses, costs, loss of rents,
liens, damages, injuries or expenses, including reasonable attorneys' and
consultants' fees and court costs, demands, causes of action, or judgments,
directly or indirectly arising out of or related to; (1) claims of injury to
or death or persons or damage to property occurring or resulting directly or
indirectly from the use or occupancy of the Premises, Building or Project by
Tenant or Tenant's Parties, or from activities or failures to act of Tenant
or Tenant's Parties, (2) claims arising from work or labor performed, or for
materials or supplies furnished to or at the request or for the account of
Tenant in connection with performance of any work done for the account of
Tenant within the Premises or Project; (3) claims arising from any breach or
default on the part of Tenant in the performance of any covenant contained in
this Lease; and (4) claims arising from the negligence or intentional acts or
omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant
shall not be applicable to claims to the extent arising from the gross
negligence or willful misconduct or Landlord. Landlord shall not be liable to
Tenant and Tenant hereby waives all claims against Landlord for any injury or
damage to any person or property in or about the Premises, Building or
Project by or from any cause whatsoever (other than Landlord's gross
negligence or willful misconduct) and, without limiting the generality of the
foregoing, whether caused by water leakage of any character from the roof,
walls, basement or other portion of the Premises, Building or Project, or
caused by gas, fire, oil or electricity in, on or about the Premises,
Building or Project. The provisions of this Paragraph shall survive the
expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the
other for: (a) damages for injury to or death of persons: (b) damages to
property, including personal property; (e) damages to the Premises or any
part thereof; and (d) claims arising by reason of the foregoing due to
hazards covered by insurance maintained or required to be maintained pursuant
to this Lease to the extent of proceeds recovered therefrom, or proceeds
which would have been recoverable therefrom in the case of the failure of any
party to maintain any insurance coverage required to be maintained by such
party pursuant to this Lease. This provision is intended to waive fully, any
rights and/or claims arising by reason of the foregoing, but only to the
extent that any of the foregoing damages and/or claims referred to above are
covered or would be covered, and only to the extent of such coverage, by
insurance actually carried or required to be maintained pursuant to this
Lease by either Landlord or Tenant. This provision is also intended to waive
fully, and for the benefit of each party, any rights and/or claims which might
give rise to a right of subrogation on any insurance carrier. Subject to all
qualifications of this Paragraph 9, Landlord waives its rights as specified
in this Paragraph 9 with respect to any subtenant that it has approved
pursuant to Paragraph 21 but only in exchange for the written waiver of such
rights to be given by much subtenant to Landlord upon such subtenant taking
possession of the Premises or a portion thereof. Each party shall cause each
insurance policy obtained by it to provide that the insurance company waives
all right of recovery by way of subrogation against either party in
connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair,
reasonable wear and tear excepted, the structural soundness of the roof,
foundations, and exterior walls of the Building. The term "exterior walls" as
used herein shall not include windows, glass or plate glass, doors, special
store fronts or office entries. Any damage caused by or repairs necessitated
by any negligence or act of Tenant or
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Tenant's Parties may be repaired by Landlord at Landlord's option and
Tenant's expense. Tenant shall immediately give Landlord written notice of
any defect or need of repairs in such components of the Building for which
Landlord is responsible, after which Landlord shall have a reasonable
opportunity and the right to enter the Premises at all reasonable times to
repair same. Landlord's liability with respect to any defects, repairs, or
maintenance for which Landlord is responsible under any of the provisions of
this Lease shall be limited to the cost of such repairs or maintenance, and
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making
of repairs, alterations or improvements in or to any portion of the Premises,
the Building or the Project as to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24. By taking possession of the
Premises, Tenant accepts them "as is," as being in good order, condition and
repair and the condition in which Landlord is obligated to deliver them and
suitable for the Permitted Use and Tenant's intended operations in the
Premises, whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense
maintain all parts of the Premises and such portions of the Building as are
within the exclusive control of Tenant in a first-class, good, clean and
secure condition and promptly make all necessary repairs and replacements, as
determined by Landlord, with materials and workmanship of the same character,
kind and quality as the original. Notwithstanding anything to the contrary
contained herein, Tenant shall, at its expense, promptly repair any damage to
the Premises or the Building or Project resulting from or caused by any
negligence or act of Tenant or Tenant's Parties. Nothing herein shall
expressly or by implication render Tenant, Landlord's agent or contractor to
effect any repairs or maintenance required of Tenant under this Paragraph 11,
as to all of which Tenant shall be solely responsible.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations,
physical additions, improvements or partitions, including without limitation
the attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord,
which consent shall not be unreasonably withheld with respect to proposed
Alterations which: (a) comply with all applicable Regulations; (b) are, in
Landlord's opinion, compatible with the Building or the Project and its
mechanical, plumbing, electrical, heating/ventilation/air conditioning
systems, and will not cause the Building or Project or such systems to be
required to be modified to comply with any Regulations (including, without
limitation, the Americans With Disabilities Act); and (c) will not interfere
with the use and occupancy of any other portion of the Building or Project by
any other tenant or its invitees. Specifically, but without limiting the
generality of the foregoing, Landlord shall have the right of written consent
for all plans and specifications for the proposed Alterations, construction
means and methods, all appropriate permits and licenses, any contractor or
subcontractor to be employed on the work of Alterations, and the time for
performance of such work, and may impose rules and regulations for
contractors and subcontractors performing such work. Tenant shall also supply
to Landlord any documents and information reasonably requested by Landlord in
connection with Landlord's consideration of a request for approval hereunder.
Tenant shall cause all Alterations to be accomplished in a first-class, good
and workmanlike manner, and to comply with all applicable Regulations and
Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any
additional work required under applicable Regulations due to the Alterations
hereunder. No review or consent by Landlord of or to any proposed Alteration
or additional work shall constitute a waiver of Tenant's obligations under
this Paragraph 12, nor constitute any warranty or representation that the
same complies with all applicable Regulations, for which Tenant shall at all
times be solely responsible. Tenant shall reimburse Landlord for all costs
which Landlord may incur in connection with granting approval to Tenant for
any such Alterations, including any costs or expenses which Landlord may
incur in electing to have outside architects and engineers review said plans
and specifications, and shall pay Landlord an administration fee of fifteen
percent (15%) of the cost of the Alterations as Additional Rent hereunder.
All such Alterations shall remain the property of Tenant until the expiration
or earlier termination of this Lease, at which time they shall be and become
the property of Landlord; provided, however, that Landlord may, at Landlord's
option, require that Tenant, at Tenant's expense, remove any or all
Alterations made by Tenant and restore the Premises by the expiration or
earlier termination of this Lease, to their condition existing prior to the
construction of any such Alterations. All such removals and restoration shall
be accomplished in a first-class and good and workmanlike manner so as not to
cause any damage to the Premises or Project whatsoever. If Tenant fails to
remove such Alterations or Tenant's trade fixtures or furniture or other
personal property, Landlord may keep and use them or remove any of them and
cause them to be stored or sold in accordance with applicable law, at
Tenant's sole expense. In addition to and wholly apart from Tenant's
obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant
shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu
of any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the
value of Alterations within the Premises, and on Tenant's interest pursuant
to this Lease, or any increase in any of the foregoing based on such
Alterations. To the extent that any such taxes are not separately assessed or
billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant
by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without
obligation), all or any portion of the Alterations shall be performed by
Landlord for Tenant's account and Tenant shall pay Landlord's estimate of the
cost thereof (including a reasonable charge for Landlord's overhead and profit)
prior to commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of
removing any such Alterations and restoring the Promises to their original
condition such cost to include a reasonable charge for Landlord's overhead and
profit as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease.
B. In compliance with Paragraph 27 hereof, at least ten (10) business
days before beginning construction of any Alteration, Tenant shall give
Landlord written notice of the expected commencement date of that
construction to permit Landlord to post and record a notice of
non-responsibility. Upon substantial completion of construction, if the law
so provides, Tenant shall cause a timely notice of completion to be recorded
in the office of the recorder of the county in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs,
notices, graphics or banners whatsoever at any window decor which is visible
in or from public view or corridors, the common areas or the exterion of the
Premises or the Building, in or on any exterior window or window fronting
upon any common areas or service area without Landlord's prior written
approval which Landlord shall have the right to withhold in its absolute and
sole discretion; provided that Tenant's name shall be included in any
Building-standard door and directory signage, if any, in accordance with
Landlord's Building signage program, including without limitation, payment by
Tenant of any fee charged by Landlord for maintaining such signage, which fee
shall constitute Additional Rent hereunder. Any installation of signs,
notices, graphics or banners on or about the Premises or Project approved by
Landlord shall be subject to any Regulations and to any other requirements
imposed by Landlord. Tenant shall remove all such signs or graphics by the
expiration or the earlier termination of this Lease. Such installations and
removals shall be made in such manner as to avoid injury to or defacement of
the Premises, Building or Project and any other improvements contained
therein, and Tenant shall repair any injury or defacement including without
limitation discoloration caused by such installation or removal.
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14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice
shall be required, Landlord and Landlord's agents and representatives, shall
have the right to enter the Premises to inspect the same, to clean, to
perform such work as may be permitted or required hereunder, to make repairs,
improvements or alterations to the Premises, Building or Project or to other
tenant spaces therein, to deal with emergencies, to post such notices as may
be permitted or required by law to prevent the perfection of liens against
Landlord's interest in the Project or to exhibit the Premises to prospective
tenants, purchasers, encumbrances or to others, or for any other purpose as
Landlord may deem necessary or desirable; provided, however, that Landlord
shall use reasonable efforts not to unreasonably interfere with Tenant's
business operations. Tenant shall not be entitled to any abatement of Rent by
reason of the exercise of any such right of entry. Tenant waives any claim
for damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. Landlord shall at all times have and retain a
key with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem necessary or proper to open said doors in an emergency, in
order to obtain entry to any portion of the Premises, and any entry to the
Premises or portions thereof obtained by Landlord by any of said means, or
otherwise, shall not be construed to be a forcible or unlawful entry into, or
a detainer of, the Premises, or an eviction, actual or constructive, of
Tenant from the Premises or any portions thereof. At any time within six (6)
months prior to the expiration of the Term or following any earlier
termination of this Lease or agreement to terminate this Lease, Landlord
shall have the right to erect on the Premises, Building and/or Project a
suitable sign indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord shall furnish to the Premises during ordinary business
hours of generally recognized business days, to be determined by Landlord
(but exclusive, in any event, of Saturdays, Sundays and legal holidays),
water for lavatory and drinking purposes and electricity, heat and air
conditioning as usually furnished or supplied for use of the Premises for
reasonable and normal office use as of the date Tenant takes possession of
the Premises as determined by Landlord (but not including above-standard or
continuous cooling for excessive heat-generating machines, excess lighting or
equipment), janitorial services during the times and in the manner that such
services are, in Landlord's judgment, customarily furnished in comparable
office buildings in the immediate market area, and elevator service, which
shall mean service either by nonattended automatic elevators or elevators
with attendants, or both, at the option of Landlord. Tenant acknowledges that
Tenant has inspected and accepts the water, electricity, heat and air
conditioning and other utilities and services being supplied or furnished to
the Premises as of the date Tenant takes possession of the Premises, as being
sufficient for use of the Premises for reasonable and normal office use in
their present condition, "as is," and suitable for the Permitted Use, and for
Tenant's intended operations in the Premises. Landlord shall have no
obligation to provide additional or after-hours electricity, heating or air
conditioning, but if Landlord elects to provide such services at Tenant's
request, Tenant shall pay to Landlord a reasonable charge for such services
as determined by Landlord. Tenant agrees to keep and cause to be kept closed
all window covering when necessary because of the sun's position, and Tenant
also agrees at all times to cooperate fully with Landlord and to abide by all
of the regulations and requirements which Landlord may prescribe for the
proper functioning and protection of electrical, heating, ventilating and air
conditioning systems. Wherever heat-generating machines, excess lighting or
equipment are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord reserves the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
B. Tenant shall not without written consent of Landlord use any
apparatus, equipment or device in the Premises, including without limitation,
computers, electronic data processing machines, copying machines, and other
machines, using excess lighting or using electric current, water, or any
other resource in excess of or which will in any way increase the amount of
electricity, water, or any other resource being furnished or supplied for the
use of the Premises for reasonable and normal office use, in each case as of
the date Tenant takes possession of the Premises as determined by Landlord,
or which will require additions or alterations to or interfere with the
Building power distribution systems; nor connect with electric current,
except through existing electrical outlets in the Premises or water pipes,
any apparatus, equipment or device for the purpose of using electrical
current, water, or any other resource. If Tenant shall require water or
electric current or any other resource in excess of that being furnished or
supplied for the use of the Premises as of the date Tenant takes possession
of the Premises as determined by Landlord, Tenant shall first procure the
written consent of Landlord which Landlord may refuse, to the use thereof,
and Landlord may cause a special meter to be installed in the Premises so as
to measure the amount of water, electric current or other resource consumed
for any such other use. Tenant shall pay directly to Landlord as an addition
to and separate from payment or Operating Expenses the cost or all such
additional resources, energy, utility service and meters (and of
installation, maintenance and repair thereof and of any additional circuits
or other equipment necessary to furnish such additional resources, energy,
utility or service). Landlord may add to the separate or metered charge a
recovery of additional expense incurred in keeping account of the excess
water, electric current or other resource so consumed. Landlord shall not be
liable for any damages directly or indirectly resulting from nor shall the
Rent or any monies owed Landlord under this Lease herein reserved be abated
by reason of: (a) the installation, use or interruption of use of any
equipment used in connection with the furnishing of any such utilities or
services, or any change in the character or means of or supplying or
providing any such utilities or services or any supplier thereof; (b) the
failure to furnish or delay in funishing any such utilities or services when
such failure or delay is caused by acts of God or the elements, labor
disturbances of any character, or any other accidents or other conditions
beyond the reasonable control of Landlord or because of any interruption of
service due to Tenant's use of water, electric current or other resource in
excess of that being supplied or furnished for the use of the Premises as of
the date Tenant takes possession of the Premises; (c) the inadequacy,
limitation, curtailment, rationing or restriction on use of water,
electricity, gas or any other form of energy or any other service or
utility whatsoever serving the Premises or Project, whether by Regulation or
otherwise; or (d) the partial or total unavailability of any such utilities
or services to the Promises or the Building, whether by Regulation or
otherwise; nor shall any such occurrence constitute an actual or constructive
eviction of Tenant. Landlord shall further have no obligation to protect or
preserve any apparatus, equipment or device installed by Tenant in the
Premises, including without limitation by providing additional or after-hours
heating or air conditioning. Landlord shall be entitled to cooperate
voluntarily and in a reasonable manner with the efforts of national, state or
local governmental agencies or utility suppliers in reducing one or other
resource consumption. The obligation to make services available hereunder
shall be subject to the limitations of any such voluntary, reasonable
program. In addition, Landlord reserves the right to change the supplier or
provider of any such utility or service from time to time. Tenant shall have
no right to contract with or otherwise obtain any electrical or other such
service for or with respect to the Premises or Tenant's operations therein
from any supplier or provider or any such service. Tenant shall cooperate
with Landlord and any supplier or provider of such services designated by
Landlord from time to time to facilitate the delivery of such services to
Tenant at the Premises and to the Building and Project, including without
limitation allowing Landlord and Landlord's suppliers or providers, and their
respective agents and contractors, reasonable access to the Premises for the
purpose of installing, maintaining, repairing, replacing or upgrading such
service or any equipment or machinery associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the
Premises, or if not separately billed to or metered to Tenant, Tenant's
Proportionate Share of all charges jointly serving the Project in accordance
with Paragraph 7. All sums payable under this Paragraph 15 shall constitute
Additional Rent hereunder.
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16. SUBORDINATION
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, the Lease shall be and
is hereby declared to be subject and subordinate at all times to: (a) all
ground leases or underlying leases which may now exist or hereafter be
executed affecting the Premises and/or the land upon which the Premises and
Project are situated, or both; and (b) any mortgage or deed of trust which
may now exist or be placed upon the Building, the Project and/or the land
upon which the Premises or the Project are situated, or said ground leases or
underlying leases, or Landlord's interest or estate in any of said items
which is specified as security. Notwithstanding the foregoing, Landlord shall
have the right to subordinate or cause to be subordinated any such ground
leases or underlying leases or any such liens to this Lease. If any ground
lease or underlying lease terminates for any reason or any mortgage or deed
of trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and become
the Tenant of the successor in interest to Landlord provided that Tenant
shall not be disturbed in its possession under this Lease by such successor
in interest so long as Tenant is not in default under this Lease. Within ten
(10) days after request by Landlord, Tenant shall execute and deliver any
additional documents evidencing Tenant's attornment or the subordination of
this Lease with respect to any such ground leases or underlying leases or any
such mortgage or deed of trust, in the form requested by Landlord or by any
ground landlord, mortgagee, or beneficiary under a deed of trust, subject to
such nondisturbance requirement. If requested in writing by Tenant, Landlord
shall use commercially reasonable efforts to obtain a subordination,
nondisturbance and attornment agreement for the benefit of Tenant reflecting
the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's
expense, subject to such other terms and conditions as the ground landlord,
mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to
Landlord Tenant's and any guarantor's current financial statements or other
information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with the
ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this
Lease has not been modified (or stating all modifications, written or oral,
to this Lease), the date to which Rent has been paid, the unexpired portion
of this Lease, that there are no current defaults by Landlord or Tenant under
this Lease (or specifying any such defaults), that the leasehold estate
granted by this Lease is the sole interest of Tenant in the Premises and/or
the land at which the Premises are situated, and such other matters
pertaining to this Lease as may be reasonably requested by Landlord or any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
Project or any interest therein. Failure by Tenant to execute and deliver
such certificate shall constitute an acceptance of the Premises and
acknowledgment by Tenant that the statements included are true and correct
without exception. Tenant agrees that if Tenant fails to execute and deliver
such certificate within such ten (10) day period, Landlord may execute and
deliver such certificate on Tenant's behalf and that such certificate shall
be binding on Tenant. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or Project or any interest
therein. The parties agree that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of the Lease, and shall be an event of default (without any cure
period that might be provided under Paragraph 26.A(3) of this Lease) if
Tenant fails to fully comply or makes any material misstatement in any such
certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a
security deposit as stated in the Basic Lease Information (the "SECURITY
DEPOSIT"), which sum shall be held and owned by Landlord, without obligation
to pay interest, as security for the performance of Tenant's covenants and
obligations under this Lease. The Security Deposit is not an advance rental
deposit or a measure of damages incurred by Landlord in case of Tenant's
default. Upon the occurrence of any event of default by Tenant, Landlord may
from time to time, without prejudice to any other remedy provided herein or
by law, use such fund as a credit to the extent necessary to credit against
any arrears of Rent or other payments due to Landlord hereunder, and any
other damage, injury, expense or liability caused by such event of default,
and Tenant shall pay to Landlord, on demand, the amount so applied in order
to restore the Security Deposit to its original amount. Although the Security
Deposit shall be deemed the property of Landlord, any remaining balance of
such deposit shall be returned by Landlord to Tenant at such time after
termination of this Lease that all of Tenant's obligations under this Lease
have been fulfilled, reduced by such amounts as may be required by Landlord
to remedy defaults on the part of Tenant in the payment of Rent or other
obligations of Tenant under this Lease, to repair damage to the Premises,
Building or Project caused by Tenant or any Tenant's Parties and to clean the
Premises. Landlord may use and commmingle the Security Deposit with other
funds of Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of
Landlord or of the individual or other partners of Landlord or its or their
partners, directors, officers, or shareholders, and Tenant agrees to look
solely to Landlord's interest in the Project for the recovery of any amount
from Landlord, and shall not look to other assets of Landlord nor seek
recourse against the assets of the individual or other partners of Landlord
or its or their partners, directors, officers or shareholders. Any lien
obtained to enforce any such judgment and any levy of execution thereon shall
be subject and subordinate to any lien, mortgage or deed of trust on the
Project. Under no circumstances shall Tenant have the right to offset against
or recoup Rent or other payments due and to become due to Landlord hereunder
except as expressly provided in Paragraph 23.B. below, which Rent and other
payments shall be absolutely due and payable hereunder in accordance with the
terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted
as an accommodation to Tenant. Accordingly, this Lease is personal to
Tenant, and Tenant's rights granted hereunder do not include the right
to assign this Lease or sublease the Premises, or to receive any
excess, either in installments or lump sum, over the Rent which is
expressly reserved by Landlord as hereinafter provided, except as
otherwise expressly hereinafter provided. Tenant shall not assign or
pledge this Lease or sublet the Premises or any part thereof, whether
voluntarily or by operation of law, or permit the use or occupancy of
the Premises or any part thereof by anyone other than Tenant, or
suffer or permit any such assignment, pledge, subleasing or occupancy,
without Landlord's prior written consent except as provided herein.
If Tenant desires to assign this Lease or sublet any or all of the
Premises, Tenant shall give Landlord written notice (the "TRANSFER
NOTICE") at least sixty (60) days prior to the anticipated effective
date of the proposed assignment or sublease, which shall contain all
of the information reasonably requested by Landlord to address
Landlord's decision criteria specified hereinafter. Landlord shall
then have a period of thirty (30) days following receipt of the
Transfer Notice to notify Tenant in writing that Landlord elects
either: (i) to terminate this Lease as to the space so affected as of
the date so requested by Tenant; or (ii) to consent to the proposed
assignment or sublease, subject, however, to Landlord's prior written
consent of the proposed assignee or subtenant and of any related
documents or agreements associated with the assignment or sublease.
If Landlord should fail to notify Tenant in writing of such election
within said
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period, Landlord shall be deemed to have waived option (i) above, but
written consent by Landlord of the proposed assignee or subtenant
shall still be required. If Landlord does not exercise option (i)
above, Landlord's consent to a proposed assignment or sublease shall
not be unreasonably withheld. Consent to any assignment or subletting
shall not constitute consent to any subsequent transaction to which
this Paragraph 21 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other
instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to
withhold Landlord's consent in the following instances: if the
proposed assignee does not agree to be bound by and assume the
obligations of Tenant under this Lease in form and substance
satisfactory to Landlord; the use of the Premises by such proposed
assignee or subtenant would not be a Permitted Use or would violate
any exclusivity or other arrangement which Landlord has with any
other tenant or occupant or any Regulation or would increase the
Occupancy Density or Parking Density of the Building or Project, or
would otherwise result in an undesirable tenant mix for the Project
as determined by Landlord; the proposed assignee or subtenant is
not of sound financial condition as determined by Landlord in
Landlord's sole discretion; the proposed assignee or subtenant is a
governmental agency; the proposed assignee or subtenant does not
have a good reputation as a tenant of property or a good business
reputation; the proposed assignee or subtenant is a person with
whom Landlord is negotiating to lease space in the Project or is a
present tenant of the Project; the assignment or subletting would
entail any Alterations which would lessen the value of the
leasehold improvements in the Premises or use of any Hazardous
Materials or other noxious use or use which may disturb other
tenants of the Project; or Tenant is in default of any obligation
of Tenant under this Lease, or Tenant has defaulted under this
Lease on three (3) or more occasions during any twelve (12) months
preceding the date that Tenant shall request consent. Failure by or
refusal of Landlord to consent to a proposed assignee or subtenant
shall not cause a termination of this Lease. Upon a termination
under Paragraph 21.A.(1)(i), Landlord may lease the Premises to any
party, including parties with whom Tenant has negotiated an
assignment or sublease, without incurring any liability to Tenant.
At the option of Landlord, a surrender and termination of this
Lease shall operate as an assignment to Landlord of some or all
subleases or subtenancies. Landlord shall exercise this option by
giving notice of that assignment to such subtenants on or before the
effective date of the surrender and termination. In connection with
each request for assignment or subletting, Tenant shall pay to
Landlord Landlord's standard fee for approving such requests, as
well as all costs incurred by Landlord or any mortgagee or ground
lessor in approving each such request and effecting any such
transfer, including, without limitation, reasonable attorneys' fees.
B. BONUS RENT. Any Rent or other consideration realized by Tenant
under any such sublease or assignment in excess of the Rent payable
hereunder, after amortization of a reasonable brokerage commission incurred
by Tenant, shall be divided and paid, ten percent (10%) to Tenant, ninety
percent (90%) to Landlord. In any subletting or assignment undertaken by
Tenant, Tenant shall diligently seek to obtain the maximum rental amount
available in the marketplace for comparable space available for primary
leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate
shares by sale, assignment, bequest, inheritance, operation of law or other
disposition (including such a transfer to or by a receiver or trustee in
federal or state bankruptcy, insolvency or other proceedings) resulting in a
change in the present control of such corporation or any of its parent
corporations by the person or persons owning a majority of said corporate
shares, shall constitute an assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business
form, a transfer of the interest of persons, firms or entities responsible
for managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests
of said entity and/or a change in the identity of the persons responsible for
the general credit obligations of said entity shall constitute an assignment
for all purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or
otherwise, shall relieve Tenant of any obligation under this Lease or alter
the primary liability of the Tenant named herein for the payment of Rent or
for the performance of any other obligations to be performed by Tenant,
including obligations contained in Paragraph 25 with respect to any assignee
or subtenant. Landlord may collect rent or other amounts or any portion
thereof from any assignee, subtenant, or other occupant of the Premises,
permitted or otherwise, and apply the net rent collected to the Rent payable
hereunder, but no such collection shall be deemed to be a waiver of this
Paragraph 21, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of the
obligations of Tenant under this Lease. Any assignment or subletting which
conflicts with the provisions hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to
enter into this Lease and to perform all of Landlord's obligations hereunder
and that all persons signing this Lease on its behalf are authorized to do.
Tenant and the person or persons, if any, signing on behalf of Tenant,
jointly and severally represent and warrant that Tenant has full right and
authority to enter into this Lease, and to perform all of Tenant's
obligations hereunder, and that all persons signing this Lease on its behalf
are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any
substantial part of the Premises should be taken or condemned for any public
use under any Regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the taking would prevent or materially
interfere with the Permitted Use of the Premises, either party shall have the
right to terminate this Lease at its option. If any material portion of the
Building or Project is taken or condemned for any public use under any
Regulation, or by right of eminent domain or by private purchase in lieu
thereof, Landlord may terminate this Lease at its option. In either of such
events, the Rent shall be abated during the unexpired portion of this Lease,
effective when the physical taking of said Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the
Project of which the Premises are a part should be taken or condemned for any
public use under any Regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the taking prevents or materially interferes
with the Permitted Use of the Premises, and this Lease is not terminated as
provided in Paragraph 23.A. above, the Rent payable hereunder during the
unexpired portion of the Lease shall be reduced, beginning on the date when
the physical taking shall have occurred, to such amount as may be fair and
reasonable under all of the circumstances, but only after giving Landlord
credit for all sums received or to be received by Tenant by the condemning
authority. Notwithstanding anything to the contrary contained in this
Paragraph, if the temporary use or occupancy of any part of the Premises
shall be taken or appropriated under power of eminent domain during the Term,
this Lease shall be and remain unaffected by such taking or appropriation and
Tenant shall continue to pay in full all Rent payable hereunder by Tenant
during the Term; in the event of any such temporary appropriation or taking,
Tenant shall be entitled to receive that portion of any award which
represents compensation for the use of or occupancy of the Premises during
the Term, and Landlord shall be entitled to receive that portion of any award
which represents the cost of restoration of the Premises and the use and
occupancy of the Premises.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to
Landlord) any and all payment, income, rent, award or any interest therein
whatsoever which may be paid or made in connection with such taking or
conveyance and Tenant shall have no claim
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against Landlord or otherwise for any sums paid by virtue of such
proceedings, whether or not attributable to the value of any unexpired
portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by
fire, tornado, or other casualty (collectively, "CASUALTY"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made within one hundred eighty (180) days from the date of such notice and
receipt of required permits for such restoration. Landlord's determination
shall be binding on Tenant.
B. WITHIN 180 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that material restoration can in Landlord's
estimation be reasonably completed within one hundred eighty (180) days after
the date of such notice and receipt of required permits for such restoration,
this Lease shall not terminate. Provided that insurance proceeds are received
by Landlord to fully repair the damage, Landlord shall proceed to rebuild and
repair the Premises in the manner determined by Landlord, except that
Landlord shall not be required to rebuild, repair or replace any part of the
Alterations which may have been placed on or about the Premises by Tenant. If
the Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable shall
be abated proportionately, but only to the extent of rental abatement
insurance proceeds received by Landlord during the time and to the extent the
Premises are unfit for occupancy.
C. GREATER THAN 180 DAYS. If the Premises or Building should be
damaged by Casualty to such extent that rebuilding or repairs cannot in
Landlord's estimation be reasonably completed within one hundred eighty (180)
days after the date of such notice and receipt of required permits for such
rebuilding or repair, then Landlord shall have the option of either: (1)
terminating this Lease effective upon the date of the occurrence of such
damage, in which event the Rent shall be abated during the unexpired portion
of this Lease; or (2) electing to rebuild or repair the Premises diligently
and in the manner determined by Landlord. Landlord shall notify Tenant of its
election within thirty (30) days after Landlord's receipt of notice of the
damage or destruction. Notwithstanding the above, Landlord shall not be
required to rebuild, repair or replace any part of any Alterations which may
have been placed, on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be abated
proportionately, but only to the extent of rental abatement insurance
proceeds received by Landlord during the time and to the extent the Premises
are unfit for occupancy.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if
the Premises or any other portion of the Building are damaged by Casualty
resulting from the fault, negligence, or breach of this Lease by Tenant or any
of Tenant's Parties, Base Rent and Additional Rent shall not be diminished
during the repair of such damage and Tenant shall be liable to Landlord for the
cost and expense of the repair and restoration of the Building caused thereby to
the extent such cost and expense is not covered by insurance proceeds.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the
contrary, if the Premises or Building are damaged or destroyed and are not
fully covered by the insurance proceeds received by Landlord or if the holder
of any indebtedness secured by a mortgage or deed of trust covering the
Premises requires that the insurance proceeds be applied to such
indebtedness, then in either case Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within
thirty (30) days after the date of notice to Landlord that said damage or
destruction is not fully covered by insurance or such requirement is made by
any such holder, as the case may be, whereupon this Lease shall terminate.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy
in the event of damage or destruction to the Premises or the Building. As a
material inducement to Landlord entering into this Lease, Tenant hereby waives
any rights it may have under any law, statute or ordinance now or hereafter in
effect or also with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or
destruction of the Premises or the Building, under no circumstances shall
Landlord be required to repair any injury or damage to, or make any repairs
to or replacements of, Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over,
Tenant shall be unlawfully and illegally in possession of the Premises,
whether or not Landlord accepts any rent from Tenant or any other person
while Tenant remains in possession of the Premises without Landlord's written
consent. If Tenant shall retain possession of the Premises or any portion
thereof without Landlord's consent following the expiration of this Lease or
sooner termination for any reason, then Tenant shall pay to Landlord for each
day of such retention triple the amount of daily rental as of the last month
prior to the date of expiration or earlier termination. Tenant shall also
indemnify, defend, protect and hold Landlord harmless from any loss,
liability or cost, including consequential and incidental damages and
reasonable attorneys' fees, incurred by Landlord resulting from delay by
Tenant in surrendering the Premises, including, without limitation, any
claims made by the succeeding tenant founded on such delay. Acceptance of
Rent by Landlord following expiration or earlier termination of this Lease,
or following demand by Landlord for possession of the Premises, shall not
constitute a renewal of this Lease, and nothing contained in this Paragraph 25
shall waive Landlord's right of reentry or any other right. Additionally, if
upon expiration or earlier termination of this Lease, or following demand by
Landlord for possession of the Premises, Tenant has not fulfilled its
obligation with respect to repairs and cleanup of the Premises or any other
Tenant obligations as set forth in this Lease, then Landlord shall have the
right to perform any such obligations as it deems necessary at Tenant's sole
cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of
this Paragraph 25 shall apply. The provisions of this Paragraph 25 shall
survive any expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment or vacation of the Premises for a
continuous period in excess of five (5) days.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder upon the date when said payment
is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for fifteen (15) days after written notice of such failure,
as to which time is of the essence.
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(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the
benefit of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a
period of thirty (30) days. If under applicable law, the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue
to perform the obligations of Tenant hereunder, such trustee or Tenant
shall, in such time period as may be permitted by the bankruptcy court
having jurisdiction, cure all defaults of Tenant hereunder outstanding
as of the date of the affirmance of this Lease and provide to Landlord
such adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such appointment remains undismissed or undischarged for
a period of fifteen (15) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of
the Premises, if such attachment or other seizure remains undismissed
or undischarged for a period or fifteen (15) days after the levy
thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT
(1) TERMINATION. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all Rent in arrears and all costs and
expenses incurred by or on behalf of Landlord hereunder shall have
been paid by Tenant and all other events of default of this Lease by
Tenant at the time existing shall have been fully remedied to the
satisfaction of Landlord. At any time after such termination, Landlord
may recover possession of the Premises or any part thereof and expel
and remove therefrom Tenant and any other person occupying the same,
including any subtenant or subtenants notwithstanding Landlord's
consent to any sublease, by any lawful means, and again repossess and
enjoy the Premises without prejudice to any of the remedies that
Landlord may have under this Lease, or at law or equity by any reason
of Tenant's default or of such termination. Landlord hereby reserves
the right, but shall not have the obligation, to recognize the
continued possession of any subtenant. The delivery or surrender to
Landlord by or on behalf of Tenant of keys, entry codes, or other
means to bypass security at the Premises shall not terminate this
Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may
have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under
Paragraph 26.B.(1) hereof, and Landlord may enforce all of Landlord's
rights and remedies under this Lease and at law or in equity,
including without limitation, the right to recover Rent as it becomes
due. Acts of maintenance, preservation or efforts to lease the
Premises or the appointment of a receiver under application of
Landlord to protect Landlord's interest under this Lease or other
entry by Landlord upon the Premises shall not constitute an election
to terminate Tenant's right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under
Paragraph 26.A.(2) hereof and such default remains uncured for ten
(10) days after such occurrence or such default occurs more than three
times in any twelve (12) month period, Landlord may require that
Tenant increase the Security Deposit to the amount of three times the
current month's Rent at the time of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease
pursuant to the provisions of Paragraph 26.B.(1) hereof, Landlord
shall have the rights and remedies to which Landlord may be entitled
under this Lease or under applicable law or at equity. In addition,
Landlord shall be entitled to recover from Tenant: (1) the unpaid
Rent and other amounts which had been earned at the time of
termination, (2) the amount by which the unpaid Rent and other
amounts that would have been earned after the date of termination
until the time of award exceeds the amount of such Rent loss that
Tenant proves could have been reasonably avoided; (3) the amount by
which the unpaid Rent and other amounts for the balance of the Term
after the time of award exceeds the amount of such Rent loss that
the Tenant proves could be reasonably avoided; and (4) any other
amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which, in the ordinary
course of things, would be likely to result therefrom. If this
Lease provides for any periods during the Term during which Tenant
is not required to pay Base Rent or if Tenant otherwise receives a
Rent concession, then upon the occurrence of an event of default,
Tenant shall owe to Landlord the full amount of such Base Rent or
value of such Rent concession, plus interest at the Applicable
Interest Rate (defined below), calculated from the date that such
Base Rent or Rent concession would have been payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall
have the right without notice or demand to add to the amount of any
payment required to be made by Tenant hereunder, and which is not paid
and received by Landlord on or before the first day of each calendar
month, an amount equal to five percent (5%) of the delinquency for
each month or portion thereof that the delinquency remains outstanding
to compensate Landlord for the loss of the use of the amount not paid
and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would
be extremely difficult and impracticable to compute and the amount
stated herein represents a reasonable estimate thereof. Any waiver by
Landlord of any late charges or failure to claim the same shall not
constitute a waiver of other late charges or any other remedies
available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due
hereunder at the lesser of eighteen percent (18%) per annum or the
maximum interest rate allowed by law ("APPLICABLE INTEREST RATE")
from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or
remedies of the parties are cumulative and not alternative, to the
extent permitted by law and except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from
liens arising out of or related to work or services performed, materials or
supplies furnished or obligations incurred by or on behalf of Tenant or in
connection with work made, suffered or done by or on behalf of Tenant in or
on the Premises or Project. If Tenant shall not, within ten (10) days
following the imposition of any such lien, cause the same to be released of
record by payment or posting of a proper bond, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as Landlord
shall deem proper, including payment of the claim giving rise to such lien.
All sums paid by Landlord on behalf of Tenant and all expenses incurred by
Landlord in connection therefor shall be payable to Landlord by Tenant on
demand with interest at the Applicable Interest Rate as Additional Rent.
Landlord shall have the right at all times to post and keep posted on the
Premises any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord, the Premises, the Project and
any other party having an interest therein, from mechanics' and materialmen's
liens, and Tenant shall give Landlord not less than ten (10) business days
prior written notice
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of the commencement of any work in the Premises or Project which could lawfully
give rise to a claim for mechanics' or materialmen's liens to permit Landlord to
post and record a timely notice of non-responsibility, as Landlord may elect to
proceed or as the law may from time to time provide, for which purpose, if
Landlord shall so determine, Landlord may enter the Premises. Tenant shall not
remove any such notice posted by Landlord without Landlord's consent, and in any
event not before completion of the work which could lawfully give rise to a
claim for mechanics' or materialmen's liens.
28. SUBSTITUTION
A. At any time after execution of this Lease, Landlord may substitute for
the Premises other premises in the Project or owned by Landlord in the
vicinity of the Project (the "NEW PREMISES") upon not less than ONE HUNDRED
TWENTY (120) days prior written notice, in which event the New Premises shall
be deemed to be the Premises for all purposes hereunder and this Lease shall
be deemed modified accordingly to reflect the new location and "shall remain
in full force and effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function
for Tenant's purposes; and
(2) If Tenant is occupying the Premises at the time of such
substitution, Landlord shall pay the expense of physically moving
Tenant, Tenant's property and equipment to the New Premises and
shall, at Landlord's sole cost, improve the New premises with
improvements substantially similar to those the Landlord has
committed to provide or has provided in the Premises.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express
or implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after
the passing of title to Landlord's successor-in-interest. This Lease shall
not be affected by any such sale and Tenant agrees to attorn to the purchaser
or assignee. Landlord's successor(s)-in-interest shall not have liability to
Tenant with respect to the failure to perform any of the obligations of
"Landlord," to the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Rent. If Tenant shall fail to pay any
sum of money, other than Base Rent, required to be paid by Tenant hereunder
or shall fail to perform any other act on Tenant's part to be performed
hereunder, including Tenant's obligations under Paragraph 11 hereof, and such
failure shall continue for fifteen (15) days after notice thereof by
Landlord, in addition to the other rights and remedies of Landlord, Landlord
may make any such payment and perform any such act on Tenant's part. In the
case of an emergency, no prior notification by Landlord shall be required.
Landlord may take such actions without any obligation and without releasing
Tenant from any of Tenant's obligations. All sums so paid by Landlord and all
incidental costs incurred by Landlord and interest thereon at the Applicable
Interest Rate, from the date of payment by Landlord, shall be paid to
Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant
or condition of this Lease, regardless of Landlord's knowledge of such
preceding breach at the time Landlord accepted such Rent. Failure by Landlord
to enforce any of the terms, covenants or conditions of this Lease for any
length of time shall not be deemed to waive or decrease the right of Landlord
to insist thereafter upon strict performance by Tenant. Waiver by Landlord of
any term, covenant or condition contained in this Lease may only be made by a
written document signed by Landlord, based upon full knowledge of the
circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord
or Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. RENT. All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at Landlord's Remittance
Address set forth in the Basic Lease Information, or at such other address as
Landlord may specify from time to time by written notice delivered in
accordance herewith. Tenant's obligation to pay Rent and any other amounts to
Landlord under the terms of this Lease shall not be deemed satisfied until
such Rent and other amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in
writing and either personally delivered, sent by commercial overnight
courier, mailed, certified or registered, postage prepaid or sent by
facsimile with confirmed receipt (and with an original sent by commercial
overnight courier), and in each case addressed to the party to be notified at
the Notice Address for such party as specified in the Basic Lease Information
or to such other place as the party to be notified may from time to time
designate by at least fifteen (15) days notice to the notifying party.
Notices shall be deemed served upon receipt or refusal to accept delivery.
Tenant appoints as its agent to receive the service of all default notices
and notice of commencement of unlawful detainer proceedings the person in
charge of or apparently in charge of occupying the Premises at the time, and,
if there is no such person, then such service may be made by attaching the
same on the main entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of
any notice of a violation or a potential or alleged violation of any Regulation
that relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or
the collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Tenant brings to
14
<PAGE>
enforce its respective rights hereunder, the unsuccessful party shall pay all
costs incurred by the prevailing party including reasonable attorneys' fees,
to be fixed by the court, and said costs and attorneys' fees shall be a part
of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord,
its successors and assigns, and shall be binding upon and inure to the
benefit of Tenant, its successors, and to the extent assignment is approved
by Landlord as provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made
impossible by any prevention, delay, or stoppage caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes for those items, government actions,
civil commotions, fire or other casualty, or other causes beyond the
reasonable control of the party obligated to perform, performance by that
party for a period equal to the period of that prevention, delay, or stoppage
is excused. Tenant's obligation to pay Rent, however, is not excused by this
Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease,
surrender the Premises to Landlord in the same condition as existed on the
date Tenant originally took possession thereof, including, but not limited
to, all interior walls cleaned, all interior painted surfaces repainted in
the original color, all holes in walls repaired, all carpets shampooed and
cleaned, and all floors cleaned, waxed, and free of any Tenant-introduced
marking or painting, all to the reasonable satisfaction of Landlord. Tenant
shall remove all of its debris from the Project. At or before the time of
surrender, Tenant shall comply with the terms of Paragraph 12.A. hereof with
respect to Alterations to the Premises and all other matters addressed in
such Paragraph. If the Premises are not so surrendered at the expiration or
sooner termination of this Lease, the provisions of Paragraph 25 hereof shall
apply. All keys to the Premises or any part thereof shall be surrendered to
Landlord upon expiration or sooner termination of the Term. Tenant shall give
written notice to Landlord at least thirty (30) days prior to vacating the
Premises and shall meet with Landlord for a joint inspection of the Premises
at the time of vacating, but nothing contained herein shall be construed as
an extension of the Term or as a consent by Landlord to any holding over by
Tenant. In the event of Tenant's failure to give such notice or participate
in such joint inspection, Landlord's inspection at or after Tenant's vacating
the Premises shall conclusively be deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration. Any delay caused by
Tenant's failure to carry out its obligations under this Paragraph 36 beyond
the term hereof, shall constitute unlawful and illegal possession of Premises
under Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties
shall have the right to use up to the number of parking spaces, if any,
specified in the Basic Lease Information on an unreserved, nonexclusive,
first come, first served basis, for passenger-size automobiles, in the
parking areas in the Project designated from time to time by Landlord for use
in common by tenants of the Building.
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces
available for use by Tenant, such spaces shall be provided on a
month-to-month unreserved and nonexclusive basis (unless otherwise agreed in
writing by Landlord), and subject to such parking charges as Landlord shall
determine, and shall otherwise be subject to such terms and conditions as
Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties
and visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system,
and hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other
items located in the parking areas of the Project, nor for any personal
injuries or death arising out of the use of parking areas in the Project by
Tenant or any Tenant's Parties. Without limiting the foregoing, if Landlord
arranges for the parking areas to be operated by an independent contractor
not affiliated with Landlord, Tenant acknowledges that Landlord shall have no
liability for claims arising through acts or omissions of such independent
contractor. In all events, Tenant agrees to look first to its insurance
carrier and to require that Tenant's Parties look first to their respective
insurance carriers for payment of any losses sustained in connection with any
use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to
park in any such assigned or reserved spaces. Tenant may validate visitor
parking by such method as Landlord may approve, at the validation rate from
time to time generally applicable to visitor parking. Landlord also reserves
the right to alter, modify, relocate or close all or any portion of the
parking areas in order to make repairs or perform maintenance service, or to
restripe or renovate the parking areas, or if required by casualty,
condemnation, act of God, Regulations or for any other reason deemed
reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), As Additional Rent hereunder, the monthly
charges established from time to time by Landlord for parking in such parking
areas (which shall initially be the charge specified in the Basic Lease
Information, as applicable). Such parking charges shall be payable in advance
with Tenant's payment of Basic Rent. No deductions from the monthly parking
charge shall be made for days on which the Tenant does not use any of the
parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its
provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of Washington.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
15
<PAGE>
E. MODIFICATION. This Lease may not be modified except by a written
instrument signed by the parties hereto. Tenant accepts the area of the
Premises as specified in the Basic Lease Information as the approximate area
of the Premises for all purposes under this Lease, and acknowledges and
agrees that no other definition of the area (rentable, usable or otherwise)
of the Premises shall apply. Tenant shall in no event be entitled to a
recalculation of the square footage of the Premises, rentable, usable or
otherwise, and no recalculation, if made, irrespective or its purpose, shall
reduce Tenant's obligations under this Lease in any manner, including without
limitation the amount of Base Rent payable by Tenant or Tenant's
Proportionate Share of the Building and of the Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions
hereof shall be unenforceable or ineffective, all of the other provisions
shall be and remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective
otherwise until execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than
the total Rent due nor any endorsement on any check or letter accompanying
any check or payment of Rent shall be deemed an accord and satisfaction of
full payment of Rent, and Landlord may accept such payment without prejudice
to Landlord's right to recover the balance of such Rent or to pursue other
remedies. All offers by or on behalf of Tenant of accord and satisfaction are
hereby rejected in advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted
Use of the Premises. Upon Landlord's request, Tenant shall execute,
acknowledge and deliver to Landlord documents, instruments, maps and plats
necessary to effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that
this Lease has been agreed to by both the parties, that both Landlord and
Tenant have consulted with attorneys with respect to the terms of this Lease
and that no presumption shall be created against Landlord because Landlord
drafted this Lease. Except as otherwise specifically set forth in this Lease,
with respect to any consent, determination or estimation of Landlord required
or allowed in this Lease or requested of Landlord, Landlord's consent,
determination or estimation shall be given or made solely by Landlord in
Landlord's good faith opinion, whether or not objectively reasonable. If
Landlord fails to respond to any request for its consent within the time
period, if any, specified in this Lease, Landlord shall be deemed to have
disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light,
air or view by any structure which may be erected on lands adjacent to or in
the vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and
Tenant and nothing herein is intended to create any third party benefit.
0. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the
observance and performance of all of the other covenants, terms and
conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby demised
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under Landlord, subject,
nevertheless, to all of the other terms and conditions of this Lease.
Landlord shall not be liable for any hindrance, interruption, interference or
disturbance by other tenants or third persons, nor shall Tenant be released
from any obligations under this Lease because of such hindrance, interruption,
interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant
hereunder for any fractional month shall be prorated based on a month of 30
days. As used herein, the term "fiscal year" shall mean the calendar year or
such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
AVAILABILITY OF PREMISES
This Lease agreement is conditioned upon Landlord and ImageX Corporation
entering into an agreement to terminate the lease currently in effect for
Suite 1414 at Plaza Center on or before October 31, 1998. Should that not
occur, Landlord reserves the right (but not the obligation) to terminate this
Lease Agreement by notice to Tenant, whereupon this Lease Agreement shall be
null and void and without further force and effect.
OPTION TO EXTEND
Provided Tenant is not, and has not been, in default of any of its obligations
under the Lease, it shall have an option to renew this Lease for the Premises
in "as is" condition for a term of five (5) years, on the same terms and
conditions as set forth in this Lease except that the Base Rent shall be the
then current market rents, including interim escalations. In no event will
the monthly rental be less than the rental for the last month of the previous
term.
Tenant shall give Landlord written notice of its intent to exercise this
Option to Extend at least one hundred eighty (180) days prior to the
expiration of the current lease term. Within fifteen (15) days after Tenant
exercises its Option to Extend, Landlord will provide Tenant with the current
market rental rate, as determined by Landlord, as well as terms and
conditions for the extended term. Tenant shall have Ten (10) days from
notification by Landlord of current rent and conditions to accept Landlord's
current market figure and terms and conditions. If Tenant does not accept
Landlord's rental figure and terms and conditions within the fifteen (15) day
period, this option shall be null and void and Landlord shall have no further
obligation to Tenant and Landlord may enter into a lease for the Premises
with a third party.
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<PAGE>
Notwithstanding anything to the contrary herein contained, Tenant's right to
extend the term by exercise of the foregoing option shall be conditioned upon
the following: (i) at the time of the exercise of the option, and at the time
of the commencement of the extended term, Tenant shall be in possession of
and occupying the Premises for the conduct of its business therein and the
same shall not be occupied by any assignee, subtenant or licensee; and (ii)
the notice of exercise shall constitute a representation by Tenant to
Landlord, effective as of the date of the exercise and as of the date of
commencement of the extended term, that Tenant does not intend to seek to
assign the Lease in whole or in part, or sublet all or any portion of the
Premises, the election to extend the term being for purposes of utilizing the
Premises for Tenant's purpose in the conduct of Tenant's business therein.
OCCUPANCY DENSITY
Tenant's Occupancy Density is 5 employees per square foot, as referenced on
cover page. This number is an average of Suite 200, Suite 210 and Suite 300.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL
BY JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN
WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL
JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN
ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST
THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR
OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE
ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE, WHETHER
ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY
REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL
CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE PROVISIONS OF THE PARAGRAPH
40 SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
/s/ Richard T. Leider
--------------------------
By: Richard T. Leider
Its: Vice President
Date: 11/4/98
--------------------------
TENANT
ImageX Corporation
a Washington corporation
/s/ Joseph Verschueren
-----------------------------
By: Joseph Verschueren
Its: President
Date: 10-28-98
----------------------------
17
<PAGE>
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 28th day of October, 1998, personally appeared before me JOSEPH
VERSCHUEREN, to me known to be the PRESIDENT of the CORPORATION that executed
the within and foregoing instrument, and acknowledged said instrument to be
the free and voluntary act and deed of said CORPORATION, for the uses and
purposes therein mentioned, and on oath stated that he was authorized to
execute said instrument and that the seal affixed (if any) is the corporate
seal of said CORPORATION.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official
Seal the day and year first above written.
/s/ Illegible
------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at
8031 [Illegible] Ave N., Seattle, WA.
My commission expires: 1-29-02
------------
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 4th day of November, 1998, personally appeared before me RICHARD
T. LEIDER, to me known to be the VICE PRESIDENT of the CORPORATION that
executed the within and foregoing instrument, and acknowledged said
instrument to be the free and voluntary act and deed of said CORPORATION, for
the uses and purposes therein mentioned, and on oath stated that he was
authorized to execute this instrument and that the seal affixed (if any) is
the corporate seal of said CORPORATION.
/s/ Phyllis A. Ferraris
--------------------------------
NOTARY PUBLIC in and for the State of
WASHINGTON, residing at
Bellevue
------------------------
My commission expires: 7/29/99
-----------------
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made this 19th day of October, 1998 by
and between Spieker Properties L. P., a California limited partnership (the
"Landlord") and ImageX Corporated, a Washington corporation (the "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
February 2, 1998 (the "Lease") for certain premises located at the Plaza
Center Building, 10900 NE 8th Street, Suite 1414, Bellevue, Washington 98011
(the "Premises"), as more fully described in the Lease; and
WHEREAS, Landlord and Tenant desire to terminate the Lease Agreement for
the Premises and to modify the Lease accordingly;
NOW THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereby mutually agree as follows:
1. Effective October 31, 1998, the Lease Agreement shall terminate. As
of this date the Tenant shall surrender the Premises in accordance with the
provisions of the Lease. All rights and obligations of Tenant under the Lease
accruing prior to the termination hereof shall remain in full force and
effect and shall survive the termination of the Lease. It is explicitly
agreed that no further rent or shared common costs and expenses shall accrue
after the termination of the Lease.
2. This First Amendment to Lease is conditioned upon Landlord and
ImageX Corporation entering into a lease for Suite 300 at the US Bank Plaza
on or before November 1, 1998. Should this not occur, Landlord reserves the
right, but shall not be required, to terminate this Third Amendment to Lease by
notice to Tenant, whereupon this Third Amendment shall be null and void and
without further force and effect.
3. Tenant agrees to reimburse Landlord for cost of painting Premises.
4. Upon satisfactory completion of all of the above items, this lease
shall be terminated as of October 31, 1998.
<PAGE>
5. Tenant warrants that all necessary corporate actions have been duly
taken to permit Tenant to enter into this Amendment to Lease and that each
undersigned officer has been duly authorized and instructed to execute this
Amendment to Lease.
Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.
LANDLORD: TENANT:
Spieker Properties, L. P. ImageX Corporation
A California limited partnership a Washington corporation
By: Spieker Properties, Inc.,
a Maryland corporation
Its: General Partner
/s/ Richard T. Leider /s/ Joseph Verschueren
- -------------------------------- ---------------------------------
By: Richart T. Leider By: Joseph Verschueren
Its: Vice President Its: President
Date: 11/4/98 Date:
-------------------------- --------------------------
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 28th day of October, 1998, personally appeared before me JOSEPH
VERSCHUEREN, to me known to be the President of the CORPORATION that executed
the within and foregoing instrument, and acknowledged said instrument to be
the free and voluntary act and deed of said CORPORATION, for the uses and
purposes therein mentioned, and on oath stated that he was authorized to
execute said instrument and that the seal affixed (if any) is the corporate
seal of said CORPORATION.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official
Seal the day and year first above written.
[Illegible]
-------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at
8031 [Illegible], Seattle, WA
My commission expires: 1-29-02
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 4th day of November, 1998, personally appeared before me RICHARD
T. LEIDER, to me known to be the VICE PRESIDENT of the CORPORATION that
executed the within and foregoing instrument, and acknowledged said
instrument to be the free and voluntary act and deed of said CORPORATION, for
the uses and purposes therein mentioned, and on oath stated that he was
authorized to execute this instrument and that the seal affixed (if any) is
the corporate seal of said CORPORATION.
Phyllis A. Ferraris
-------------------------
NOTARY PUBLIC in and for the State of
WASHINGTON, residing at
Bellevue, WA
My commission expires: 7/29/99
<PAGE>
BASIC LEASE INFORMATION
OFFICE GROSS
US BANK PLAZA
LEASE DATE: April 22, 1999
TENANT: ImageX.com CORPORATION, A
WASHINGTON CORPORATION
TENANT'S NOTICE ADDRESS: 10800 N.E. 8th Street, Suite 200,
Bellevue, Washington 98004-4429
TENANT'S BILLING ADDRESS: 10800 N.E. 8th Street, Suite 200,
Bellevue, Washington 98004-4429
TENANT CONTACT: Chris Reightley PHONE NUMBER: 425-452-0011
FAX NUMBER: 425-452-9266
LANDLORD: SPIEKER PROPERTIES, L.P., A
CALIFORNIA LIMITED PARTNERSHIP
LANDLORD'S NOTICE ADDRESS: 1150-114th Avenue S.E., Bellevue,
Washington 98004
LANDLORD'S REMITTANCE ADDRESS: P.O. Box 24827, Dept. 20351,
Seattle, Washington 98124-0827
PROJECT DESCRIPTION: That certain building commonly
known as US Bank Plaza located in
Bellevue, Washington and the real
property on which the Building is
located, as more fully and legally
described on Exhibit A-1 attached
BUILDING DESCRIPTION: That certain building commonly
known as US Bank Plaza located at
10800 N.E. 8th Street, Bellevue
Washington 98004-4429
PREMISES: Approximately 3,023 rentable
square feet in Suite 815 10800
N.E. 8th Street, Bellvue,
Washington 98004-4429
PERMITTED USE: General office use.
OCCUPANCY DENSITY: 5 employees per 1,000 Rentable
Square Feet
PARKING DENSITY: 2.5 per 1,000 Rentable Square Feet
PARKING AND PARKING CHARGE: 8 non-exclusive spaces at market
rate which is currently $90.00 per
space/per month including 8.6%
Washington Sales Tax.
SCHEDULED TERM COMMENCEMENT DATE: May 17, 1999
SCHEDULED LENGTH OF TERM: 60 Months
SCHEDULED TERM EXPIRATION DATE: May 31, 2004
RENT: Months 1-12 $6,928.00 per month
BASE RENT Months 13-24 $7,180.00 per month
Months 25-36 $7,432.00 per month
Months 37-48 $7,683.00 per month
Months 49-60 $7,935.00 per month
BASE YEAR FOR OPERATING EXPENSES: 1999
SECURITY DEPOSIT: $7,935.00
TENANT'S PROPORTIONATE SHARE OF BUILDING: 2.28%
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the later shall control.
LANDLORD TENANT
SPIEKER PROPERTIES, L.P., ImageX.com CORPORATION,
A CALIFORNIA LIMITED PARTNERSHIP A WASHINGTON CORPORATION
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
/s/ Richard T. Leider /s/ Richard Begert
------------------------- -------------------------
By: Richard T. Leider By: Richard Begert
Its: Vice President Its: President
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Basic Lease Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1. Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2. Possession and Lease Commencement . . . . . . . . . . . . . . . . . . . . . . .3
3. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
7. Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
8. Insurance and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . .6
9. Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
10. Landlord's Repairs and Maintenance. . . . . . . . . . . . . . . . . . . . . . .7
11. Tenant's Repairs and Maintenance. . . . . . . . . . . . . . . . . . . . . . . .8
12. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
13. Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
14. Inspection/Posting Notices. . . . . . . . . . . . . . . . . . . . . . . . . . .9
15. Services and Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
16. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
18. Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
19. Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
20. Limitation of Tenant's Remedies . . . . . . . . . . . . . . . . . . . . . . . 10
21. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . 10
22. Authority of Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
23. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
24. Casualty Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
25. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
26. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
27. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
28. Substitution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
29. Transfers by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
30. Right of Landlord to Perform Tenant's Covenants . . . . . . . . . . . . . . . 14
31. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
32. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
33. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
34. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
35. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
36. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
37. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
38. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
39. Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
40. Jury Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
Exhibits
<TABLE>
<S><C>
Exhibit A . . . . . . . . . . . . . . . . . . .Rules and Regulations
Exhibit A-1 . . . . . . . . . . . . . . . . . . . .Legal Description
Exhibit B . . . . . . . . . . . . . .Site Plan, Property Description
Exhibit C . . . . . . . . . . Tenant Improvements and Specifications
Exhibit D . . . . . . . . . . . . . . . . Form of Tenant Certificate
</TABLE>
2
<PAGE>
LEASE
THIS LEASE is made as of the 22nd day of April, 1999, by and between SPIEKER
PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP (hereinafter called
"LANDLORD"), AND ImageX.com CORPORATION, A WASHINGTON CORPORATION (hereinafter
called "TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "PREMISES") outlined
in red on EXHIBIT B and described in the Basic Lease Information. The Premises
shall be all or part of a building (the "BUILDING") and of a project (the
"PROJECT"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are situated at the real property described on EXHIBIT A-1 and are
outlined in blue and green respectively on EXHIBIT B. Landlord and Tenant
acknowledge that physical changes may occur from time to time in the Premises
Building or Project, and that the number of buildings and additional facilities
which constitute the Project may change from time to time, which may result in
an adjustment in Tenant's Proportionate Share, as defined in the Basic Lease
Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in which
the interior improvements have already been constructed ("EXISTING
IMPROVEMENTS"), the provision of this Paragraph 2.A. shall apply and the term
commencement date ("TERM COMMENCEMENT DATE") shall be the earlier of the date
on which: (1) Tenant takes possession of some or all of the Premises; or (2)
Landlord notifies Tenant that Tenant may occupy the Premises. If for any
reason Landlord cannot deliver possession of the Premises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any
liability therefor, nor shall Landlord be in default hereunder nor shall such
failure affect the validity of this Lease, and Tenant agrees to accept
possession of the Premises at such time as Landlord is able to deliver the
same, which date shall then be deemed the Term Commencement Date. Tenant
shall not be liable for any Rent (defined below) for any period prior to the
Term Commencement Date. Tenant acknowledges that Tenant has inspected and
accepts the Premises in their present condition, "as is," and as suitable
for, the Permitted Use (as defined below), and for Tenant's intended
operations in the Premises. Tenant agrees that the Premises and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the
condition or repair of the Premises nor promises to alter, remodel or improve
the Premises have been made by Landlord or any agents of Landlord unless such
are expressly set forth in this Lease. Upon Landlord's request, Tenant shall
promptly execute and return to Landlord a "Start-Up Letter" in which Tenant
shall agree, among other things, to acceptance of the Premises and to the
determination of the Term Commencement Date, in accordance with the terms of
this Lease, but Tenant's failure or refusal to do so shall not negate
Tenant's acceptance of the Premises or affect determination of the Term
Commencement Date.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to
be constructed or improvements to be constructed within a Building, the
provisions of this Paragraph 2.B. shall apply in lieu of the provisions of
Paragraph 2.A. above and the term commencement date ("TERM COMMENCEMENT
DATE") shall be the earlier of the date on which: (1) Tenant takes possession
of some or all of the Premises; or (2) the improvements to be constructed or
performed in the Premises by Landlord (if any) shall have been substantially
completed in accordance with the plans and specifications, if any, described
on EXHIBIT C and Tenant's taking of possession of the Premises or any part
thereof shall constitute Tenant's confirmation of substantial completion for
all purposes hereof, whether or not substantial completion of the Building or
Project shall have occurred. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on the scheduled Term Commencement Date,
Landlord shall not be subject to any liability therefor, nor shall Landlord
be in default hereunder nor shall such failure affect the validity of this
Lease, and Tenant agrees to accept possession of the Premises at such time as
such improvements have been substantially completed, which date shall then be
deemed the Term Commencement Date. Tenant shall not be liable for any Rent
for any period prior to the Term Commencement Date (but without affecting any
obligations of Tenant under any improvement agreement appended to this
Lease). In the event of any dispute as to substantial completion of work
performed or required to be performed by Landlord, the certificate of
Landlord's architect or general contractor shall be conclusive. Substantial
completion shall have occurred notwithstanding Tenant's submission of a
punchlist to Landlord, which Tenant shall submit, if at all, within three (3)
business days after the Term Commencement Date or otherwise in accordance
with any improvement agreement appended to this Lease. Upon Landlord's
request, Tenant shall promptly execute and return to Landlord a "Start-Up
Letter" in which Tenant shall agree, among other things, to acceptance of the
Premises and to the determination of the Term Commencement Date, in
accordance with the terms of this Lease but Tenant's failure or refusal to do
so shall not negate Tenant's acceptance of the Premises or affect
determination of the Term Commencement Date.
3. TERM
The term of this Lease (the "TERM") shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified as
the Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a
date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified
in the Basic Lease Information ("PERMITTED USE") and for no other use or
purpose. Tenant shall control Tenant's employees, agents, customers,
visitors, invitees, licensees, contractors, assignees and subtenants
(collectively, "TENANT'S PARTIES") in such a manner that Tenant and Tenant's
Parties cumulatively do not exceed the occupant density (the "OCCUPANCY
DENSITY") or the parking density (the "PARKING DENSITY") specified in the
Basic Lease Information at any time. Tenant shall pay the Parking Charge
specified in the Basic Lease Information as Additional Rent (as hereinafter
defined) hereunder. So long as Tenant is occupying the Premises, Tenant and
Tenant's Parties shall have the nonexclusive right to use, in common with
other parties occupying the Building or Project, the parking areas, driveways
and other common areas of the Building and Project, subject to the terms of
this Lease and such rules and regulations as Landlord may from time to time
prescribe. Landlord reserves the right, without notice or liability to
Tenant, and without the same constituting an actual or constructive eviction,
to alter or modify the common areas from time to time, including the location
and configuration thereof, and the amenities and facilities which Landlord
may determine to provide from time to time.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises or from any portion
of the common areas as a result of Tenant's or any Tenant's Party's use thereof,
nor take any action which would constitute a nuisance or would disturb, obstruct
or endanger any other tenants or occupants of the Building or Project or
elsewhere, or
3
<PAGE>
interfere with their use of their respective premises or common areas.
Storage outside the Premises of materials, vehicles or any other items is
prohibited. Tenant shall not use or allow the Premises to be used for any
immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer the commission of any waste in, on or about the Premises. Tenant shall
not allow any sale by auction upon the Premises, or place any loads upon the
floors, walls or ceilings which could endanger the structure, or place any
harmful substances in the drainage system of the Building or Project. No
waste, materials or refuse shall be dumped upon or permitted to remain
outside the Premises. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project
with any of the above-referenced rules or any other terms or provisions of
such tenant's or occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts
the Premises in the condition existing as of the date of such entry. Tenant
shall at its sole cost and expense strictly comply with all existing or
future applicable municipal, state and federal and other governmental
statutes, rules, requirements, regulations, laws and ordinances, including
zoning ordinances and regulations, and covenants, easements and restrictions
of record governing and relating to the use, occupancy or possession of the
Premises, to Tenant's use of the common areas, or to the use, storage,
generation or disposal of Hazardous Materials (hereinafter defined)
(collectively "REGULATIONS"). Tenant shall at its sole cost and expense
obtain any and all licenses or permits necessary for Tenant's use of the
Premises. Tenant shall at its sole cost and expense promptly comply with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted. Tenant shall not do or permit anything to be done in,
on, under or about the Project or bring or keep anything which will in any
way increase the rate of any insurance upon the Premises, Building or Project
or upon any contents therein or cause a cancellation of said insurance or
otherwise affect said insurance in any manner. Tenant shall indemnify, defend
(by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any loss, cost, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any Regulation.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS"
shall include, but not be limited to, hazardous, toxic and radioactive
materials and those substances defined as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or other similar
designations in any Regulation. Tenant shall not cause, or allow any of
Tenant's Parties to cause, any Hazardous Materials to be handled, used,
generated, stored, released or disposed of in, on, under or about the
Premises, the Building or the Project or surrounding land or environment in
violation of any Regulations. Tenant must obtain Landlord's written consent
prior to the introduction of any Hazardous Materials onto the Project.
Notwithstanding the foregoing, Tenant may handle, store, use and dispose of
products containing small quantities of Hazardous Materials for "general
office purposes" (such as toner for copiers) to the extent customary and
necessary for the Permitted Use of the Premises; provided that Tenant shall
always handle, store, use, and dispose of any such Hazardous Materials in a
safe and lawful manner and never allow such Hazardous Materials to
contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which
Tenant becomes aware, whether or not caused by Tenant. Landlord shall have
the right at all reasonable times to inspect the Premises and to conduct
tests and investigations to determine whether Tenant is in compliance with
the foregoing provisions, the costs of all such inspections, tests and
investigations to be borne by Tenant. Tenant shall indemnify, defend (by
counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any and all claims, liabilities, losses, costs,
loss of rents, liens, damages, injuries or expenses (including attorneys' and
consultants' fees and court costs), demands, causes of action, or judgments
directly or indirectly arising out of or related to the use, generation,
storage, release, or disposal of Hazardous Materials by Tenant or any of
Tenant's Parties in, on, under or about the Premises, the Building or the
Project or surrounding land or environment, which indemnity shall include,
without limitation, damages for personal or bodily injury, property damage,
damage to the environment or natural resources occurring on or off the
Premises, losses attributable to diminution in value or adverse effects on
marketability, the cost of any investigation, monitoring, government
oversight, repair, removal, remediation, restoration, abatement, and
disposal, and the preparation of any closure or other required plans, whether
such action is required or necessary prior to or following the expiration or
earlier termination of this Lease. Neither the consent by Landlord to the
use, generation, storage, release or disposal of Hazardous Materials nor the
strict compliance by Tenant with all laws pertaining to Hazardous Materials
shall excuse Tenant from Tenant's obligation of indemnification pursuant to
this Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity
shall survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as EXHIBIT A and any other rules and regulations
and any modifications or additions thereto which Landlord may from time to
time prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project
with any of such rules and regulations, any other tenant's or occupant's
lease or any Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive,
without notice or demand throughout the Term, Base Rent as specified in the
Basic Lease Information, payable in monthly installments in advance on or
before the first day of each calendar month, in lawful money of the United
States, without deduction or offset whatsoever, at the Remittance Address
specified in the Basic Lease Information or to such other place as Landlord
may from time to time designate in writing. Base Rent for the first full
month of the Term shall be paid by Tenant upon Tenant's execution of this
Lease. If the obligation for payment of Base Rent commences on a day other
than the first day of a month, then Base Rent shall be prorated and the
prorated installment shall be paid on the first day of the calendar month
next succeeding the Term Commencement Date. The Base Rent payable by Tenant
hereunder is subject to adjustment as provided elsewhere in this Lease, as
applicable. As used herein, the term "Base Rent" shall mean the Base Rent
specified in the Basic Lease Information as it may be so adjusted from time
to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid
by Tenant hereunder, including, but not limited to, Tenant's Proportionate
Share of Operating Expenses, as specified in Paragraph 7 of this Lease,
charges to be paid by Tenant under Paragraph 15, the interest and late charge
described in Paragraphs 26.C. and D., and any monies spent by Landlord
pursuant to Paragraph 30, shall be considered additional rent ("ADDITIONAL
RENT"). "RENT" shall mean Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, beginning with the expiration of the Base Year specified in the
Basic Lease Information (the "BASE YEAR"). Tenant shall pay as Additional
Rent, Tenant's Proportionate Share of the Building and or Project (as
applicable), as defined in the Basic Lease Information, of increases in
Operating Expenses (defined below) over the Operating Expenses incurred by
Landlord during the Base Year (the "BASE YEAR OPERATING EXPENSES"), in the
manner set forth below. Tenant shall pay the applicable Tenant's
Proportionate Share of each such Operating Expenses. Landlord and Tenant
acknowledge that if the number of buildings which constitute the Project
increases or decreases, or if physical changes are made to the Premises,
Building or Project or the configuration of any thereof, Landlord may at its
discretion reasonably adjust Tenant's Proportionate
4
<PAGE>
Share of the Building or Project to reflect the change. Landlord's
determination of Tenant's Proportionate Share of the Building and of the
Project shall be conclusive so long as it is reasonably and consistently
applied. "OPERATING EXPENSES" shall mean all expenses and costs of every kind
and nature which Landlord shall pay or become obligated to pay, because of or
in connection with the ownership, management, maintenance, repair,
preservation, replacement and operation of the Building or Project and its
supporting facilities and such additional facilities now and in subsequent
years as may be determined by Landlord to be necessary or desirable to the
Building and/or Project (as determined in a reasonable manner) other than
those expenses and costs which are specifically attributable to Tenant or
which are expressly made the financial responsibility of Landlord or specific
tenants of the Building or Project pursuant to this Lease. Operating
Expenses shall include, but are not limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory
interest taxes, sales taxes, personal property taxes, business or
license taxes or fees, gross receipts taxes, service payments in lieu
of such taxes or fees, annual or periodic license or use fees, excises,
transit charges, and other impositions, general and special, ordinary
and extraordinary, unforeseen as well as foreseen, of any kind
(including fees "in-lieu" of any such tax or assessment) which are now
or hereafter assessed, levied, charged, confirmed, or imposed by any
public authority upon the Building or Project, its operations or the
Rent (or any portion or component thereof), or any tax, assessment or
fee imposed in substitution, partially or totally, of any of the above.
Operating Expenses shall also included any taxes, assessments,
reassessments, or other fees or impositions with respect to the
development, leasing, management, maintenance, alteration, repair, use
or occupancy of the Premises, Building or Project or any portion
thereof, including, without limitation, by or for Tenant, and all
increases therein or reassessments thereof whether the increases or
reassessments result from increased rate and/or valuation (whether upon
a transfer of the Building or Project or any portion thereof or any
interest therein or for any other reason). Operating Expenses shall
not include inheritance or estate taxes imposed upon or assessed
against the interest of any person in the Project, or taxes computed
upon the basis of the net income of any owners of any interest in the
Project. If it shall not be lawful for Tenant to reimburse Landlord
for all or any part of such taxes, the monthly rental payable to
Landlord under this Lease shall be revised to net Landlord the same net
rental after imposition of any such taxes by Landlord as would have
been payable to Landlord prior to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of insurance
incurred by Landlord, including for the insurance coverage set forth in
Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for the
Building and Project and public and common areas and facilities of and
comprising the Building and Project, including, but not limited to,
the roof and roof membrane, windows, elevators, restrooms, conference
rooms, health club facilities, lobbies, mezzanines, balconies,
mechanical rooms, building exteriors, alarm systems, pest
extermination, landscaped areas, parking and service areas, driveways,
sidewalks, loading areas, fire sprinkler systems, sanitary and storm
sewer lines, utility services, heating/ventilation/air conditioning
systems, electrical, mechanical or other systems, telephone equipment
and wiring servicing, plumbing, lighting, and any other items or areas
which affect the operation or appearance of the Building or Project,
which determination shall be at Landlord's discretion, except for:
those items expressly made the financial responsibility of Landlord
pursuant to Paragraph 10 hereof; those items to the extent paid for by
the proceeds of insurance; and those items attributable solely or
jointly to specific tenants of the Building or Project.
(b) Repairs, replacements, and general maintenance shall include the
cost of any capital improvements made to or capital assets acquired
for the Project or Building that in Landlord's discretion may reduce
any other Operating Expenses, including present or future repair work,
are reasonably necessary for the health and safety of the occupants
of the Building or Project, or are required to comply with any
Regulation, such costs or allocable portions thereof to be amortized
over such reasonable period as Landlord shall determine, together with
interest on the unamortized balance at the publicly announced "prime
rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its
successor at the time such improvements or capital assets are
constructed or acquired, plus two (2) percentage points, or in the
absence of such prime rate, then at the U.S. Treasury six-month market
note (or bond, if so designated) rate as published by any national
financial publication selected by Landlord, plus four (4) percentage
points, but in no event more than the maximum rate permitted by law,
plus reasonable financing charges.
(c) Payment under or for any easement, license, permit, operating
agreement, declaration, restrictive covenant or instrument relating to
the Building or Project.
(d) All expenses and rental related to services and costs of
supplies, materials and equipment used in operating, managing and
maintaining the Premises, Building and Project, the equipment therein
and the adjacent sidewalks, driveways, parking and service areas,
including, without limitation, expenses related to service agreements
regarding security, fire and other alarm systems, janitorial services,
window cleaning, elevator maintenance, Building exterior maintenance,
landscaping and expenses related to the administration, management and
operation of the Project, including without limitation salaries, wages
and benefits and management office rent.
(e) The cost of supplying any services and utilities which benefit
all or a portion of the Premises, Building or Project including
without limitation services and utilities provided pursuant to
Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified public
accountants; provided, however, that legal expenses chargeable as
Operating Expenses shall not include the cost of negotiating leases,
collecting rents, evicting tenants nor shall it include costs incurred
in legal proceedings with or against any tenant or to enforce the
provisions of any lease.
(g) A management and accounting cost recovery fee equal to five
percent (5%) of the sum of the Project's base rents and Operating
Expenses to the extent not included in such base rents (other than
such management and accounting fee).
If the rentable area of the Building and/or Project is not fully occupied during
any fiscal year of the Term as determined by Landlord, an adjustment shall be
made in computing the Basic Operating Cost for such year so that Basic Operating
Cost shall be computed as though the Project had been ninety-five percent (95%)
occupied; provided, however, that in no event shall Landlord be entitled to
collect in excess of one hundred percent (100%) of the total Operating Expenses
from all of the tenants in the Building or Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant improvements
or other specific costs incurred for the account of separately billed to and
paid by specific tenants of the Building or Project, the initial construction
cost of the Building, or debt service on any mortgage or deed of trust recorded
with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above.
Notwithstanding
5
<PAGE>
anything herein to the contrary, in any instance wherein Landlord, in
Landlord's sole discretion, deems Tenant to be responsible for any amounts
greater than Tenant's Proportionate Share, Landlord shall have the right to
allocate costs in any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to
impose an obligation on Landlord to make available or provide such services
or facilities except to the extent if any that Landlord has specifically
agreed elsewhere in this Lease to make the same available or provide the
same. Without limiting the generality of the foregoing, Tenant acknowledges
and agrees that it shall be responsible for providing adequate security for
its use of the Premises, the Building and the Project and that Landlord shall
have no obligation or liability with respect thereto, except to the extent if
any that Landlord has specifically agreed elsewhere in this Lease to provide
the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES"
for any particular year shall mean Landlord's estimate of the Operating
Expenses for such fiscal year made with respect to such fiscal year as
hereinafter provided. Landlord shall have the right from time to time to
revise its fiscal year and interim accounting periods so long as the periods
as so revised are reconciled with prior periods in a reasonable manner.
During the last month of each fiscal year during the Term, or as soon
thereafter as practicable, Landlord shall give Tenant written notice of the
Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay
Tenant's Proportionate Share of the difference between Estimated Operating
Expenses and Base Year Operating Expenses with installments of Base Rent for
the fiscal year to which the Estimated Operating Expenses applies in monthly
installments on the first day of each calendar month during such year, in
advance. Such payment shall be construed to be Additional Rent for all
purposes hereunder. If at any time during the course of the fiscal year,
Landlord determines that Operating Expenses are projected to vary from the
then Estimated Operating Expenses by more than five percent (5%), Landlord
may, by written notice to Tenant, revise the Estimated Operating Expenses for
the balance of such fiscal year, and Tenant's monthly installments for the
remainder of such year shall be adjusted so that by the end of such fiscal
year Tenant has paid to Landlord Tenant's Proportionate Share of the revised
difference between Estimated Operating Expenses and Base Year Operating
Expenses for such year, such revised installment amounts to be Additional
Rent for all purposes hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE
ADJUSTMENT" shall mean the difference between Estimated Operating Expenses
and actual Operating Expenses for any fiscal year, over Base Year Operating
Expenses, determined as hereinafter provided. Within one hundred twenty (120)
days after the end of each fiscal year, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of actual Operating Expenses for
the fiscal year just ended, accompanied by a computation of Operating Expense
Adjustment. If such statement shows that Tenant's payment based upon
Estimated Operating Expenses is less than Tenant's Proportionate Share of
actual increases in Operating Expenses over the Base Year Operating Expenses,
then Tenant shall pay to Landlord the difference within twenty (20) days
after receipt of such statement, such payment to constitute Additional Rent
for all purposes hereunder. If such statement shows that Tenant's payments of
Estimated Operating Expenses exceed Tenant's Proportionate Share of actual
increases in Operating Expenses over the Base Year Operating Expenses, then
(provided that Tenant is not in default under this Lease) Landlord shall pay
to Tenant the difference within twenty (20) days after delivery of such
statement to Tenant. If this Lease has been terminated or the Term hereof has
expired prior to the date of such statement, then the Operating Expense
Adjustment shall be paid by the appropriate party within twenty (20) days
after the date of delivery of the statement. Tenant's obligation to pay
increases in Operating Expenses over the Base Year Operating Expenses shall
commence on January 1 of the year succeeding the Base Year. Should this Lease
terminate at any time other than the last day of the fiscal year, Tenant's
Proportionate Share of the Operating Expense Adjustment shall be prorated
based on a month of 30 days and the number of calendar months during such
fiscal year that this Lease is in effect. Tenant shall in no event be
entitled to any credit if Operating Expenses in any year are less than Base
Year Operating Expenses. Notwithstanding anything to the contrary contained
in Paragraph 7.A. or 7.B. Landlord's failure to provide any notices or
statements within the time periods specified in those paragraphs shall in no
way excuse Tenant from its obligation to pay Tenant's Proportionate Share of
increases in Operating Expenses.
D. GROSS LEASE. This shall be a gross Lease; however, it is intended that
Base Rent shall be paid to Landlord absolutely net of all costs and expenses
other than Operating Expenses each year equal to Tenant's Proportionate Share
of Base Year Operating Expenses, except as otherwise specifically provided to
the contrary in this Lease. The provisions for payment of increases in
Operating Expenses and the Operating Expense Adjustment are intended to pass
on to Tenant and reimburse Landlord for all costs and expenses of the nature
described in Paragraph 7.A. incurred in connection with the ownership,
management, maintenance, repair, preservation, replacement and operation of
the Building and or Project and its supporting facilities and such additional
facilities, in excess of the Base Year Operating Expenses, now and in
subsequent years as may be determined by Landlord to be necessary or
desirable to the Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any
statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant
shall have the right, not later than twenty (20) days following receipt of
such statement and upon the condition that Tenant shall first deposit with
Landlord the full amount in dispute, to cause Landlord's books and records
with respect to Operating Expenses for such fiscal year to be audited by
certified public accountants selected by Tenant and subject to Landlord's
reasonable right of approval. The Operating Expense Adjustment shall be
appropriately adjusted on the basis of such audit. If such audit discloses a
liability for a refund in excess of ten percent (10%) of Tenant's
Proportionate Share of the Operating Expenses previously reported, the cost
of such audit shall be borne by Landlord; otherwise the cost of such audit
shall be paid by Tenant. If Tenant shall not request an audit in accordance
with the provisions of this Paragraph 7.E. within twenty (20) days after
receipt of Landlord's statement provided pursuant to Paragraph 7.B. or 7.C.,
such statement shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be
for the sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property
insurance insuring the Building against damage or destruction due to
risk including fire, vandalism, and malicious mischief in an amount not
less than the replacement cost thereof, in the form and with
deductibles and endorsements as selected by Landlord. At its election,
Landlord may instead (but shall have no obligation to) obtain "All Risk"
coverage, and may also obtain earthquake, pollution, and/or flood
insurance in amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also
(but shall have no obligation to) carry insurance against loss of rent,
in an amount equal to the amount of Base Rent and Additional Rent that
Landlord could be required to abate to all Building tenants in the
event of condemnation or casualty damage for a period of twelve (12)
months. Landlord may also (but shall have no obligation to) carry such
other insurance as Landlord may deem prudent or advisable, including,
without limitation, liability insurance in such amounts and on such
terms as Landlord shall determine. Landlord shall not be obligated to
insure, and shall have no responsibility whatsoever for any damage to,
any furniture, machinery, goods, inventory or supplies, or other
personal property or fixtures which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations
within the Premises.
B. TENANT'S INSURANCE.
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(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and
at all times until the end of the Term, insurance on all personal
property and fixtures of Tenant and all improvements, additions or
alterations made by or for Tenant to the Premises on an "All Risk"
basis, insuring such property for the full replacement value of
such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost
and expense and keep in effect from the date of this Lease and at all
times until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the Premises
and the Project, and any part of either, and any areas adjacent
thereto, and the business operated by Tenant or by any other occupant
of the Premises. Such insurance shall include contractual liability
insurance coverage insuring all of Tenant's indemnity obligations under
this Lease. Such coverage shall have a minimum combined single limit
of liability of at least Two Million Dollars ($2,000,000.00), and a
minimum general aggregate limit of Three Million Dollars
($3,000,000.00), with an "Additional Insured -- Managers or Lessors of
Premises Endorsement." All such policies shall be written to apply to
all bodily injury (including death), property damage or loss, personal
and advertising injury and other covered loss, however occasioned,
occurring during the policy term, shall be endorsed to add Landlord and
any party holding an interest to which this Lease may be subordinated
as an additional insured, and shall provide that such coverage shall
be "PRIMARY" and non-contributing with any insurance maintained by
Landlord, which shall be excess insurance only. Such coverage shall
also contain endorsements including employees as additional insureds if
not covered by Tenant's Commercial General Liability Insurance. All
such insurance shall provide for the severability of interests of
insureds; and shall be written on an "OCCURRENCE" basis, which shall
afford coverage for all claims based on acts, omissions, injury and
damage, which occurred or arose (or the onset of which occurred or
arose) in whole or in part during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit
for bodily injury by disease; and One Million Dollars ($1,000,000)
each employee for bodily injury by disease, throughout the Term at
Tenant's sole cost and expense.
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days notice of cancellation or change in terms; and (ii) waive all
rights of subrogation by the insurance carrier against Landlord. If
at any time during the Term the amount or coverage of insurance which
Tenant is required to carry under this Paragraph 8.B. is in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase
the amount or change the types of insurance coverage required under
this Paragraph 8.B. All insurance policies required to be carried by
Tenant under this Lease shall be written by companies rated A X or
better in "Best's Insurance Guide" and authorized to do business in the
State of Washington. In any event deductible amounts under all
insurance policies required to be carried by Tenant under this Lease
shall not exceed Five Thousand Dollars ($5,000.00) per occurrence.
Tenant shall deliver to Landlord on or before the Term Commencement
Date, and thereafter at least thirty (30) days before the expiration
dates of the expired policies, certified copies of Tenant's insurance
policies, or a certificate evidencing the same issued by the insurer
thereunder; and, if Tenant shall fail to procure such insurance, or to
deliver such policies or certificates, Landlord may, at Landlord's
option and in addition to Landlord's other remedies in the event of a
default by Tenant hereunder, procure the same for the account of
Tenant, and the cost thereof shall be paid to Landlord as Additional
Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against
any and all claims, liabilities, losses, costs, loss of rents, liens,
damages, injuries or expenses, including reasonable attorneys' and
consultants' fees and court costs, demands, causes of action, or judgments,
directly or indirectly arising out of or related to: (1) claims of injury to
or death of persons or damage to property occurring or resulting directly or
indirectly from the use or occupancy of the Premises, Building or Project by
Tenant or Tenant's Parties, or from activities or failures to act of Tenant
or Tenant's Parties; (2) claims arising from work or labor performed, or for
materials or supplies furnished to or at the request or for the account of
Tenant in connection with performance of any work done for the account of
Tenant within the Premises or Project; (3) claims arising from any breach or
default on the part of Tenant in the performance of any covenant contained in
this Lease; and (4) claims arising from the negligence or intentional acts or
omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant
shall not be applicable to claims to the extent arising from the gross
negligence or willful misconduct of Landlord. Landlord shall not be liable to
Tenant and Tenant hereby waives all claims against Landlord for any injury or
damage to any person or property in or about the Premises, Building or
Project by or from any cause whatsoever (other than Landlord's gross
negligence or willful misconduct) and, without limiting the generality of the
foregoing, whether caused by water leakage of any character from the roof,
walls, basement or other portion of the Premises, Building or Project, or
caused by gas, fire, oil or electricity in, on or about the Premises,
Building or Project. The provisions of this Paragraph shall survive the
expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the
other for: (a) damages for injury to or death of persons; (b) damages to
property, including personal property; (c) damages to the Premises or any
part thereof; and (d) claims arising by reason of the foregoing due to
hazards covered by insurance maintained or required to be maintained pursuant
to this Lease to the extent of proceeds recovered therefrom, or proceeds
which would have been recoverable therefrom in the case of the failure of any
party to maintain any insurance coverage required to be maintained by such
party pursuant to this Lease. This provision is intended to waive fully, any
rights and/or claims arising by reason of the foregoing, but only to the
extent that any of the foregoing damages and/or claims referred to above are
covered or would be covered, and only to the extent of such coverage, by
insurance actually carried or required to be maintained pursuant to this
Lease by either Landlord or Tenant. This provision is also intended to waive
fully, and for the benefit of each party, any rights and/or claims which
might give rise to a right of subrogation on any insurance carrier. Subject
to all qualifications of this Paragraph 9, Landlord waives its rights as
specified in this Paragraph 9 with respect to any subtenant that it has
approved pursuant to Paragraph 21 but only in exchange for the written waiver
of such rights to be given by such subtenant to Landlord upon such subtenant
taking possession of the Premises or a portion thereof. Each party shall
cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation against either
party in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair, reasonable
wear and tear excepted, the structural soundness of the roof, foundations,
and exterior walls of the Building. The term "exterior walls" as used herein
shall not include windows, glass or plate glass, doors, special store fronts
or office entries. Any damage caused by or repairs necessitated by any
negligence or act of Tenant or Tenant's
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Parties may be repaired by Landlord at Landlord's option and Tenant's
expense. Tenant shall immediately give Landlord written notice of any defect
or need of repairs in such components of the Building for which Landlord is
responsible, after which Landlord shall have a reasonable opportunity and the
right to enter the Premises at all reasonable times to repair same.
Landlord's liability with respect to any defects, repairs, or maintenance for
which Landlord is responsible under any of the provisions of this Lease shall
be limited to the cost of such repairs or maintenance, and there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of repairs,
alterations or improvements in or to any portion of the Premises, the
Building or the Project or to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24. By taking possession of the
Premises, Tenant accepts them "as is," as being in good order, condition and
repair and the condition in which Landlord is obligated to deliver them and
suitable for the Permitted Use and Tenant's intended operations in the
Premises, whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain
all parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a first-class, good, clean and secure
condition and promptly make all necessary repairs and replacements, as
determined by Landlord, with materials and workmanship of the same character,
kind and quality as the original. Notwithstanding anything to the contrary
contained herein, Tenant shall, at its expense, promptly repair any damage to
the Premises or the Building or Project resulting from or caused by any
negligence or act of Tenant or Tenant's Parties. Nothing herein shall
expressly or by implication render Tenant Landlord's agent or contractor to
effect any repairs or maintenance required of Tenant under this Paragraph 11,
as to all of which Tenant shall be solely responsible.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord,
which consent shall not be unreasonably withheld with respect to proposed
Alterations which: (a) comply with all applicable Regulations; (b) are, in
Landlord's opinion, compatible with the Building or the Project and its
mechanical, plumbing, electrical, heating/ventilation/air conditioning
systems, and will not cause the Building or Project or such systems to be
required to be modified to comply with any Regulations (including, without
limitation, the Americans With Disabilities Act); and (c) will not interfere
with the use and occupancy of any other portion of the Building or Project by
any other tenant or its invitees. Specifically, but without limiting the
generality of the foregoing, Landlord shall have the right of written consent
for all plans and specifications for the proposed Alterations, construction
means and methods, all appropriate permits and licenses, any contractor or
subcontractor to be employed on the work of Alterations, and the time for
performance of such work, and may impose rules and regulations for
contractors and subcontractors performing such work. Tenant shall also supply
to Landlord any documents and information reasonably requested by Landlord in
connection with Landlord's consideration of a request for approval hereunder.
Tenant shall cause all Alterations to be accomplished in a first-class, good
and workmanlike manner, and to comply with all applicable Regulations and
Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any
additional work required under applicable Regulations due to the Alterations
hereunder. No review or consent by Landlord of or to any proposed Alteration
or additional work shall constitute a waiver of Tenant's obligations under
this Paragraph 12, nor constitute any warranty or representation that the
same complies with all applicable Regulations, for which Tenant shall at all
times be solely responsible. Tenant shall reimburse Landlord for all costs
which Landlord may incur in connection with granting approval to Tenant for
any such Alterations, including any costs or expenses which Landlord may
incur in electing to have outside architects and engineers review said plans
and specifications, and shall pay Landlord an administration fee of fifteen
percent (15%) of the cost of the Alterations as Additional Rent hereunder.
All such Alterations shall remain the property of Tenant until the expiration
or earlier termination of this Lease, at which time they shall be and become
the property of Landlord; provided, however, that Landlord may, at Landlord's
option, require that Tenant, at Tenant's expense, remove any or all
Alterations made by Tenant and restore the Premises by the expiration or
earlier termination of this Lease, to their condition existing prior to the
construction of any such Alterations. All such removals and restoration shall
be accomplished in a first-class and good and workmanlike manner so as not to
cause any damage to the Premises or Project whatsoever. If Tenant fails to
remove such Alterations or Tenant's trade fixtures or furniture or other
personal property, Landlord may keep and use them or remove any of them and
cause them to be stored or sold in accordance with applicable law, at
Tenant's sole expense. In addition to and wholly apart from Tenant's
obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant
shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu
of any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the
value of Alterations within the Premises, and on Tenant's interest pursuant
to this Lease, or any increase in any of the foregoing based on such
Alterations. To the extent that any such taxes are not separately assessed or
billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant
by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without obligation),
all or any portion of the Alterations shall be performed by Landlord for
Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof
(including a reasonable charge for Landlord's overhead and profit) prior to
commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost
of removing any such Alterations and restoring the Premises to their original
condition such cost to include a reasonable charge for Landlord's overhead
and profit as provided above, and such amount may be deducted from the
Security Deposit or any other sums or amounts held by Landlord under this
Lease.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to
permit Landlord to post and record a notice of non-responsibility. Upon
substantial completion of construction, if the law so provides, Tenant shall
cause a timely notice of completion to be recorded in the office of the
recorder of the county in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices,
graphics or banners whatsoever or any window decor which is visible to or
from public view or corridors, the common areas or the exterior of the
Premises or the Building, in or on any exterior window or window fronting
upon any common areas or service area without Landlord's prior written
approval which Landlord shall have the right to withhold in its absolute and
sole discretion; provided that Tenant's name shall be included in any
Building-standard door and directory signage, if any, in accordance with
Landlord's Building signage program, including without limitation, payment by
Tenant of any fee charged by Landlord for maintaining such signage, which fee
shall constitute Additional Rent hereunder. Any installation of signs,
notices, graphics or banners on or about the Premises or Project approved by
Landlord shall be subject to any Regulations and to any other requirements
imposed by Landlord. Tenant shall remove all such signs or graphics by the
expiration or any earlier termination of this Lease. Such installations and
removals shall be made in such manner as to avoid injury to or defacement of
the Premises, Building or Project and any other improvements contained
therein, and Tenant shall repair any injury or defacement including without
limitation discoloration caused by such installation or removal.
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14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such
work as may be permitted or required hereunder, to make repairs, improvements
or alterations to the Premises, Building or Project or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted
or required by law to prevent the perfection of liens against Landlord's
interest in the Project or to exhibit the Premises to prospective tenants,
purchasers, encumbrancers or to others, or for any other purpose as Landlord
may deem necessary or desirable; provided, however, that Landlord shall use
reasonable efforts not to unreasonably interfere with Tenant's business
operations. Tenant shall not be entitled to any abatement of Rent by reason
of the exercise of any such right of entry. Tenant waives any claim for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. Landlord shall at all times have and retain a
key with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem necessary or proper to open said doors in an emergency, in
order to obtain entry to any portion of the Premises, and any entry to the
Premises or portions thereof obtained by Landlord by any of said means, or
otherwise, shall not be construed to be a forcible or unlawful entry into, or
a detainer of, the Premises, or an eviction, actual or constructive, of
Tenant from the Premises or any portions thereof. At any time within six (6)
months prior to the expiration of the Term or following any earlier
termination of this Lease or agreement to terminate this Lease, Landlord
shall have the right to erect on the Premises, Building and/or Project a
suitable sign indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord shall furnish to the Premises during ordinary business
hours of generally recognized business days, to be determined by Landlord
(but exclusive, in any event, of Saturdays, Sundays and legal holidays),
water for lavatory and drinking purposes and electricity, heat and air
conditioning as usually furnished or supplied for use of the Premises for
reasonable and normal office use as of the date Tenant takes possession of
the Premises as determined by Landlord (but not including above-standard or
continuous cooling for excessive heat-generating machines, excess lighting or
equipment), janitorial services during the times and in the manner that such
services are, in Landlord's judgment, customarily furnished in comparable
office buildings in the immediate market area, and elevator service, which
shall mean service either by nonattended automatic elevators or elevators
with attendants, or both, at the option of Landlord. Tenant acknowledges that
Tenant has inspected and accepts the water, electricity, heat and air
conditioning and other utilities and services being supplied or furnished to
the Premises as of the date Tenant takes possession of the Premises, as being
sufficient for use of the Premises for reasonable and normal office use in
their present condition, "as is," and suitable for the Permitted Use, and for
Tenant's intended operations in the Premises. Landlord shall have no
obligation to provide additional or after-hours electricity, heating or air
conditioning, but if Landlord elects to provide such services at Tenant's
request, Tenant shall pay to Landlord a reasonable charge for such services
as determined by Landlord. Tenant agrees to keep and cause to be kept closed
all window covering when necessary because of the sun's position, and Tenant
also agrees at all times to cooperate fully with Landlord and to abide by all
of the regulations and requirements which Landlord may prescribe for the
proper functioning and protection of electrical, heating, ventilating and air
conditioning systems. Wherever heat-generating machines, excess lighting or
equipment are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord reserves the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines,
using excess lighting or using electric current, water, or any other resource
in excess of or which will in any way increase the amount of electricity,
water, or any other resource being furnished or supplied for the use of the
Premises for reasonable and normal office use, in each case as of the date
Tenant takes possession of the Premises as determined by Landlord, or which
will require additions or alterations to or interfere with the Building power
distribution systems, nor connect with electric current, except through
existing electrical outlets in the Premises or water pipes, any apparatus,
equipment or device for the purpose of using electrical current, water, or any
other resource. If Tenant shall require water or electric current or any
other resource in excess of that being furnished or supplied for the use of
the Premises as of the date Tenant takes possession of the Premises as
determined by Landlord, Tenant shall first procure the written consent of
Landlord which Landlord may refuse, to the use thereof, and Landlord may
cause a special meter to be installed in the Premises so as to measure the
amount of water, electric current or other resource consumed for any such
other use. Tenant shall pay directly to Landlord as an addition to and
separate from payment of Operating Expenses the cost of all such additional
resources, energy, utility service and meters (and of installation,
maintenance and repair thereof and of any additional circuits or other
equipment necessary to furnish such additional resources, energy, utility or
service). Landlord may add to the separate or metered charge a recovery of
additional expense incurred in keeping account of the excess water, electric
current or other resource so consumed. Landlord shall not be liable for any
damages directly or indirectly resulting from nor shall the Rent or any
monies owed Landlord under this Lease herein reserved be abated by reason of:
(a) the installation, use or interruption of use of any equipment used in
connection with the furnishing of any such utilities or services, or any
change in the character or means of supplying or providing any such utilities
or services or any supplier thereof; (b) the failure to furnish or delay in
furnishing any such utilities or services when such failure or delay is
caused by acts of God or the elements, labor disturbances of any character,
or any other accidents or other conditions beyond the reasonable control of
Landlord or because of any interruption of service due to Tenant's use of
water, electric current or other resource in excess of that being supplied
or furnished for the use of the Premises as of the date Tenant takes
possession of the Premises; (c) the inadequacy, limitation, curtailment,
rationing or restriction on use of water, electricity, gas or any other form
of energy or any other service or utility whatsoever serving the Premises or
Project, whether by Regulation or otherwise; or (d) the partial or total
unavailability of any such utilities or services to the Premises or the
Building, whether by Regulation or otherwise, nor shall any such occurrence
constitute an actual or constructive eviction of Tenant. Landlord shall
further have no obligation to protect or preserve any apparatus, equipment or
device installed by Tenant in the Premises, including without limitation by
providing additional or after-hours heating or air conditioning. Landlord
shall be entitled to cooperate voluntarily and in a reasonable manner with
the efforts of national, state or local governmental agencies or utility
suppliers in reducing energy or other resource consumption. The obligation to
make services available hereunder shall be subject to the limitations of any
such voluntary, reasonable program. In addition, Landlord reserves the right
to change the supplier or provider of any such utility or service from time
to time. Tenant shall have no right to contract with or otherwise obtain any
electrical or other such service for or with respect to the Premises or
Tenant's operations therein from any supplier or provider of any such
service. Tenant shall cooperate with Landlord and any supplier or provider of
such services designated by Landlord from time to time to facilitate the
delivery of such services to Tenant at the Premises and to the Building and
Project, including without limitation allowing Landlord and Landlord's
suppliers or providers, and their respective agents and contractors,
reasonable access to the Premises for the purpose of installing, maintaining,
repairing, replacing or upgrading such service or any equipment or machinery
associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the
Premises, or if not separately billed to or metered to Tenant, Tenant's
Proportionate Share of all charges jointly serving the Project in accordance
with Paragraph 7. All sums payable under this Paragraph 15 shall constitute
Additional Rent hereunder.
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16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, the Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases
or underlying leases which may now exist or hereafter be executed affecting
the Premises and/or the land upon which the Premises and Project are
situated, or both; and (b) any mortgage or deed of trust which may now exist
or be placed upon the Building, the Project and/or the land upon which the
Premises or the Project are situated, or said ground leases or underlying
leases, or Landlord's interest or estate in any of said items which is
specified as security. Notwithstanding the foregoing, Landlord shall have the
right to subordinate or cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. If any ground lease or
underlying lease terminates for any reason or any mortgage or deed of trust
is foreclosed or a conveyance in lieu of foreclosure is made for any reason,
Tenant shall, notwithstanding any subordination, attorn to and become the
Tenant of the successor in interest to Landlord provided that Tenant shall
not be disturbed in its possession under this Lease by such successor in
interest so long as Tenant is not in default under this Lease. Within ten
(10) days after request by Landlord, Tenant shall execute and deliver any
additional documents evidencing Tenant's attornment or the subordination of
this Lease with respect to any such ground leases or underlying leases or any
such mortgage or deed of trust, in the form requested by Landlord or by any
ground landlord, mortgagee, or beneficiary under a deed of trust, subject to
such nondisturbance requirement. If requested in writing by Tenant, Landlord
shall use commercially reasonable efforts to obtain a subordination,
nondisturbance and attornment agreement for the benefit of Tenant reflecting
the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's
expense, subject to such other terms and conditions as the ground landlord,
mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to
Landlord Tenant's and any guarantor's current financial statements or other
information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with
the ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this
Lease has not been modified (or stating all modifications, written or oral,
to this Lease), the date to which Rent has been paid, the unexpired portion of
this Lease, that there are no current defaults by Landlord or Tenant under
this Lease (or specifying any such defaults), that the leasehold estate
granted by this Lease is the sole interest of Tenant in the Premises and/or
the land at which the Premises are situated, and such other matters
pertaining to this Lease as may be reasonably requested by Landlord or any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
Project or any interest therein. Failure by Tenant to execute and deliver
such certificate shall constitute an acceptance of the Premises and
acknowledgment by Tenant that the statements included are true and correct
without exception. Tenant agrees that if Tenant fails to execute and deliver
such certificate within such ten (10) day period, Landlord may execute and
deliver such certificate on Tenant's behalf and that such certificate shall
be binding on Tenant. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or Project or any interest
therein. The parties agree that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of the Lease, and shall be an event of default (without any cure
period that might be provided under Paragraph 26.A(3) of this Lease) if Tenant
fails to fully comply or makes any material misstatement in any such
certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a
security deposit as stated in the Basic Lease Information (the "SECURITY
DEPOSIT"), which sum shall be held and owned by Landlord, without obligation
to pay interest, as security for the performance of Tenant's covenants and
obligations under this Lease. The Security Deposit is not an advance rental
deposit or a measure of damages incurred by Landlord in case of Tenant's
default. Upon the occurrence of any event of default by Tenant, Landlord may
from time to time, without prejudice to any other remedy provided herein or
by law, use such fund as a credit to the extent necessary to credit against
any arrears of Rent or other payments due to Landlord hereunder, and any
other damage, injury, expense or liability caused by such event of default and
Tenant shall pay to Landlord, on demand, the amount so applied in order to
restore the Security Deposit to its original amount. Although the Security
Deposit shall be deemed the property of Landlord, any remaining balance of
such deposit shall be returned by Landlord to Tenant at such time after
termination of this Lease that all of Tenant's obligations under this Lease
have been fulfilled, reduced by such amounts as may be required by Landlord
to remedy defaults on the part of Tenant in the payment of Rent or other
obligations of Tenant under this Lease, to repair damage to the Premises,
Building or Project caused by Tenant or any Tenant's Parties and to clean the
Premises. Landlord may use and commingle the Security Deposit with other
funds of Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of
Landlord or of the individual or other partners of Landlord or its or their
partners, directors, officers, or shareholders, and Tenant agrees to look
solely to Landlord's interest in the Project for the recovery of any amount
from Landlord, and shall not look to other assets of Landlord nor seek
recourse against the assets of the individual or other partners of Landlord
or its or their partners, directors, officers or shareholders. Any lien
obtained to enforce any such judgment and any levy of execution thereon shall
be subject and subordinate to any lien, mortgage or deed of trust on the
Project. Under no circumstances shall Tenant have the right to offset against
or recoup Rent or other payments due and to become due to Landlord hereunder
except as expressly provided in Paragraph 23.B. below, which Rent and other
payments shall be absolutely due and payable hereunder in accordance with the
terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal to Tenant,
and Tenant's rights granted hereunder do not include the right to assign
this Lease or sublease the Premises, or to receive any excess, either in
installments or lump sum, over the Rent which is expressly reserved by
Landlord as hereinafter provided, except as otherwise expressly
hereinafter provided. Tenant shall not assign or pledge this Lease or
sublet the Premises or any part thereof, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises or any
part thereof by anyone other than Tenant, or suffer or permit any such
assignment, pledge, subleasing or occupancy, without Landlord's prior
written consent except as provided herein. If Tenant desires to assign
this Lease or sublet any or all of the Premises, Tenant shall give
Landlord written notice (the "TRANSFER NOTICE") at least sixty (60) days
prior to the anticipated effective date of the proposed assignment or
sublease, which shall contain all of the information reasonably
requested by Landlord to address Landlord's decision criteria specified
hereinafter. Landlord shall then have a period of thirty (30) days
following receipt of the Transfer Notice to notify Tenant in writing
that Landlord elects either: (i) to terminate this Lease as to the space
so affected as of the date so requested by Tenant; or (ii) to consent to
the proposed assignment or sublease, subject, however, to Landlord's
prior written consent of the proposed assignee or subtenant and of any
related documents or agreements associated with the assignment or
sublease. If Landlord should fail to notify Tenant in writing of such
election within said
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period. Landlord shall be deemed to have waived option (i) above, but
written consent by Landlord of the proposed assignee or subtenant shall
still be required. If Landlord does not exercise option (i) above,
Landlord's consent to a proposed assignment or sublease not be
unreasonably withheld. Consent to any assignment or subletting shall not
constitute consent to any subsequent transaction to which this Paragraph
21 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances
in which it may be reasonable for Landlord to withhold Landlord's
consent to an assignment or subletting, Landlord and Tenant acknowledge
that it shall be reasonable for Landlord to withhold Landlord's consent
in the following instances: if the proposed assignee does not agree to
be bound by and assume the obligations of Tenant under this Lease in
form and substance satisfactory to Landlord; the use of the Premises by
such proposed assignee or subtenant would not be a Permitted Use or
would violate any exclusivity or other arrangement which Landlord has
with any other tenant or occupant or any Regulation or would increase
the Occupancy Density or Parking Density of the Building or Project, or
would otherwise result in an undesirable tenant mix for the Project as
determined by Landlord; the proposed assignee or subtenant is not of
sound financial condition as determined by Landlord in Landlord's sole
discretion; the proposed assignee or subtenant is a governmental agency;
the proposed assignee or subtenant does not have a good reputation as a
tenant of property or a good business reputation; the proposed assignee
or subtenant is a person with whom Landlord is negotiating to lease
space in the Project or is a present tenant of the Project, the
assignment or subletting would entail any Alterations which would lessen
the value of the leasehold improvements in the Premises or use of any
Hazardous Materials or other noxious use or use which may disturb other
tenants of the Project; or Tenant is in default of any obligation of
Tenant under this Lease, or Tenant has defaulted under this Lease on
three (3) or more occasions during any twelve (12) months preceding the
date that Tenant shall request consent. Failure by or refusal of
Landlord to consent to a proposed assignee or subtenant shall not cause
a termination of this Lease. Upon a termination under Paragraph
21.A.(1)(i), Landlord may lease the Premises to any party, including
parties with whom Tenant has negotiated an assignment or sublease,
without incurring any liability to Tenant. At the option of Landlord, a
surrender and termination of this Lease shall operate as an assignment
to Landlord of some or all subleases or subtenancies. Landlord shall
exercise this option by giving notice of that assignment to such
subtenants on or before the effective date of the surrender and
termination. In connection with each request for assignment or
subletting, Tenant shall pay to Landlord Landlord's standard fee for
approving such requests, as well as all costs incurred by Landlord or
any mortgagee or ground lessor in approving each such request and
effecting any such transfer, including, without limitation, reasonable
attorneys' fees.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under any
such sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission incurred by Tenant, shall
be divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to
Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall
diligently seek to obtain the maximum rental amount available in the
marketplace for comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares
by sale, assignment, bequest, inheritance, operation of law or other
disposition (including such a transfer to or by a receiver or trustee in
federal or state bankruptcy, insolvency or other proceedings) resulting in a
change in the present control of such corporation or any of its parent
corporations by the person or persons owning a majority of said corporate
shares, shall constitute an assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business
form, a transfer of the interest of persons, firms or entities responsible
for managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests
of said entity and/or a change in the identity of the persons responsible for
the general credit obligations of said entity shall constitute an assignment
for all purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or
otherwise, shall relieve Tenant of any obligation under this Lease or alter
the primary liability of the Tenant named herein for the payment of Rent or
for the performance of any other obligations to be performed by Tenant,
including obligations contained in Paragraph 25 with respect to any assignee
or subtenant. Landlord may collect rent or other amounts or any portion
thereof from any assignee, subtenant, or other occupant of the Premises,
permitted or otherwise, and apply the net rent collected to the Rent payable
hereunder, but no such collection shall be deemed to be a waiver of this
Paragraph 21, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of the
obligations of Tenant under this Lease. Any assignment or subletting which
conflicts with the provisions hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to
enter into this Lease and to perform all of Landlord's obligations hereunder
and that all persons signing this Lease on its behalf are authorized to do.
Tenant and the person or persons, if any, signing on behalf of Tenant, jointly
and severally represent and warrant that Tenant has full right and authority
to enter into this Lease, and to perform all of Tenant's obligations
hereunder, and that all persons signing this Lease on its behalf are
authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial
part of the Premises should be taken or condemned for any public use under
any Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the
Permitted Use of the Premises, either party shall have the right to terminate
this Lease at its option. If any material portion of the Building or Project
is taken or condemned for any public use under any Regulation, or by right of
eminent domain, or by private purchase in lieu thereof, Landlord may
terminate this Lease at its option. In either of such events, the Rent shall
be abated during the unexpired portion of this Lease, effective when the
physical taking of said Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project
of which the Premises are a part should be taken or condemned for any public
use under any Regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the taking prevents or materially interferes
with the Permitted Use of the Premises, and this Lease is not terminated as
provided in Paragraph 23.A. above, the Rent payable hereunder during the
unexpired portion of the Lease shall be reduced, beginning on the date when
the physical taking shall have occurred, to such amount as may be fair and
reasonable under all of the circumstances, but only after giving Landlord
credit for all sums received or to be received by Tenant by the condemning
authority. Notwithstanding anything to the contrary contained in this
Paragraph, if the temporary use or occupancy of any part of the Premises
shall be taken or appropriated under power of eminent domain during the Term,
this Lease shall be and remain unaffected by such taking or appropriation and
Tenant shall continue to pay in full all Rent payable hereunder by Tenant
during the Term; in the event of any such temporary appropriation or taking.
Tenant shall be entitled to receive that portion of any award which
represents compensation for the use of or occupancy of the Premises during
the Term, and Landlord shall be entitled to receive that portion of any award
which represents the cost of restoration of the Premises and the use and
occupancy of the Premises.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to
Landlord) any and all payment, income, rent, award or any interest therein
whatsoever which may be paid or made in connection with such taking or
conveyance and Tenant shall have no claim
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against Landlord or otherwise for any sums paid by virtue of such
proceedings, whether or not attributable to the value of any unexpired
portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by
fire, tornado, or other casualty (collectively, "CASUALTY"), Tenant shall
give immediate written notice thereof to Landlord. Within thirty (30) days
after Landlord's receipt of such notice, Landlord shall notify Tenant whether
in Landlord's estimation material restoration of the Premises can reasonably
be made within one hundred eighty (180) days from the date of such notice and
receipt of required permits for such restoration. Landlord's determination
shall be binding on Tenant.
B. WITHIN 180 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that material restoration can in Landlord's
estimation be reasonably completed within one hundred eighty (180) days after
the date of such notice and receipt of required permits for such restoration,
this Lease shall not terminate. Provided that insurance proceeds are received
by Landlord to fully repair the damage, Landlord shall proceed to rebuild and
repair the Premises in the manner determined by Landlord, except that
Landlord shall not be required to rebuild, repair or replace any part of the
Alterations which may have been placed on or about the Premises by Tenant. If
the Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable shall
be abated proportionately, but only to the extent of rental abatement
insurance proceeds received by Landlord during the time and to the extent the
Premises are unfit for occupancy.
C. GREATER THAN 180 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs cannot in Landlord's
estimation be reasonably completed within one hundred eighty (180) days after
the date of such notice and receipt of required permits for such rebuilding
or repair, then Landlord shall have the option of either: (1) terminating
this Lease effective upon the date of the occurrence of such damage, in which
event the Rent shall be abated during the unexpired portion of this Lease; or
(2) electing to rebuild or repair the Premises diligently and in the manner
determined by Landlord. Landlord shall notify Tenant of its election within
thirty (30) days after Landlord's receipt of notice of the damage or
destruction. Notwithstanding the above, Landlord shall not be required to
rebuild, repair or replace any part of any Alterations which may have been
placed, on or about the Premises by Tenant. If the Premises are untenantable
in whole or in part following such damage, the Rent payable hereunder during
the period in which they are untenantable shall be abated proportionately, but
only to the extent of rental abatement insurance proceeds received by
Landlord during the time and to the extent the Premises are unfit for
occupancy.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty
resulting from the fault, negligence, or breach of this Lease by Tenant or
any of Tenant's Parties, Base Rent and Additional Rent shall not be
diminished during the repair of such damage and Tenant shall be liable to
Landlord for the cost and expense of the repair and restoration of the
Building caused thereby to the extent such cost and expense is not covered by
insurance proceeds.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if
the Premises or Building are damaged or destroyed and are not fully covered
by the insurance proceeds received by Landlord or if the holder of any
indebtedness secured by a mortgage or deed of trust covering the Premises
requires that the insurance proceeds be applied to such indebtedness, then in
either case Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within thirty (30) days
after the date of notice to Landlord that said damage or destruction is not
fully covered by insurance or such requirement is made by any such holder, as
the case may be, whereupon this Lease shall terminate.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in
the event of damage or destruction to the Premises or the Building. As a
material inducement to Landlord entering into this Lease, Tenant hereby
waives any rights it may have under any law, statute or ordinance now or
hereafter in effect or also with respect to any destruction of the Premises,
Landlord's obligation for tenantability of the Premises and Tenant's right to
make repairs and deduct the expenses of such repairs.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of
the Premises or the Building, under no circumstances shall Landlord be
required to repair any injury or damage to, or make any repairs to or
replacement of, Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over,
Tenant shall be unlawfully and illegally in possession of the Premises,
whether or not Landlord accepts any rent from Tenant or any other person
while Tenant remains in possession of the Premises without Landlord's written
consent. If Tenant shall retain possession of the Premises or any portion
thereof without Landlord's consent following the expiration of this Lease or
sooner termination for any reason, then Tenant shall pay to Landlord for each
day of such retention triple the amount of daily rental as of the last month
prior to the date of expiration or earlier termination. Tenant shall also
indemnify, defend, protect and hold Landlord harmless from any loss,
liability or cost, including consequential and incidental damages and
reasonable attorneys' fees, incurred by Landlord resulting from delay by
Tenant in surrendering the Premises, including, without limitation, any claims
made by the succeeding tenant founded on such delay. Acceptance of Rent by
Landlord following expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, shall not
constitute a renewal of this Lease, and nothing contained in this Paragraph 25
shall waive Landlord's right of reentry or any other right. Additionally, if
upon expiration or earlier termination of this Lease, or following demand by
Landlord for possession of the Premises, Tenant has not fulfilled its
obligation with respect to repairs and cleanup of the Premises or any other
Tenant obligations as set forth in this Lease, then Landlord shall have the
right to perform any such obligations as it deems necessary at Tenant's sole
cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of
this Paragraph 25 shall apply. The provisions of this Paragraph 25 shall
survive any expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment or vacation of the Premises for a
continuous period in excess of five (5) days.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder upon the date when said payment
is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for fifteen (15) days after written notice of such failure, as
to which time is of the essence.
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(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty
(30) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of
the date of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such appointment remains undismissed or undischarged for a
period of fifteen (15) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure
of all or substantially all of Tenant's assets or Tenant's leasehold of
the Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of fifteen (15) days after the levy thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all Rent in arrears and all costs and
expenses incurred by or on behalf of Landlord hereunder shall have been
paid by Tenant and all other events of default of this Lease by Tenant
at the time existing shall have been fully remedied to the satisfaction
of Landlord. At any time after such termination, Landlord may recover
possession of the Premises or any part thereof and expel and remove
therefrom Tenant and any other person occupying the same, including any
subtenant or subtenants notwithstanding Landlord's consent to any
sublease, by any lawful means, and again repossess and enjoy the
Premises without prejudice to any of the remedies that Landlord may have
under this Lease, or at law or equity by any reason of Tenant's default
or of such termination. Landlord hereby reserves the right, but shall
not have the obligation, to recognize the continued possession of any
subtenant. The delivery or surrender to Landlord by or on behalf of
Tenant of keys, entry codes, or other means to bypass security at the
Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may
have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under Paragraph
26.13.(1) hereof, and Landlord may enforce all of Landlord's rights and
remedies under this Lease and at law or in equity, including without
limitation, the right to recover Rent as it becomes due. Acts of
maintenance, preservation or efforts to lease the Premises or the
appointment of a receiver under application of Landlord to protect
Landlord's interest under this Lease or other entry by Landlord upon
this Premises shall not constitute an election to terminate Tenant's
right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under
Paragraph 26.A.(2) hereof and such default remains uncured for ten (10)
days after such occurrence or such default occurs more than three times
in any twelve (12) month period, Landlord may require that Tenant
increase the Security Deposit to the amount of three times the current
month's Rent at the time of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to
the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the right
and remedies to which Landlord may be entitled under this Lease or under
applicable law or at equity. In addition, Landlord shall be entitled to
recover from Tenant: (1) the unpaid Rent and other amounts which had been
carried at the time of termination, (2) the amount by which the unpaid Rent
and other amounts that would have been earned after the date of termination
until the time of award exceeds the amount of such Rent loss that Tenant
proves could have been reasonably avoided; (3) the amount by which the
unpaid Rent and other amounts for the balance of the Term after the time of
award exceeds the amount of such Rent loss that the Tenant proves be
reasonably avoided; and (4) any other amount and court costs necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure
to perform Tenant's obligations under this Lease or which, in the ordinary
course of things, would be likely to result therefrom. If this Lease provides
for any periods during the Term during which Tenant is not required to pay
Base Rent or if Tenant otherwise receives a Rent concession, then upon the
occurrence of an event of default, Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of
an event of default, Tenant shall owe to Landlord the full amount at such
Base Rent or value of such Rent concession, plus interest at the Applicable
Interest Rate (defined below), calculated from the date that such Base Rent
or Rent concession would have been payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the
right without notice or demand to add to the amount of any payment required
to be made by Tenant hereunder, and which is not paid and received by
Landlord on or before the first day of each calendar month, an amount equal
to five percent (5%) of the delinquency for each month or portion thereof
that the delinquency remains outstanding to compensate Landlord for the loss
of the use of the amount not paid and the administrative costs caused by the
delinquency, the parties agreeing that Landlord's damage by virtue of such
delinquencies would be extremely difficult and unpracticable to compute and
the amount stated herein represents a reasonable estimate thereof. Any waiver
by Landlord of any late charges or failure to claim the same shall not
constitute a waiver of other late charges or any other remedies available to
Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder
at the lesser of eighteen percent (18%) per annum or the maximum interest
rate allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies
of the parties are cumulative and not alternative, to the extent permitted by
law and except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or
supplies furnished or obligations incurred by or on behalf of Tenant or in
connection with work made, suffered or done by or on behalf of Tenant in or
on the Premises or Project. If Tenant shall not within ten (10) days
following the imposition of any such lien, cause the same to be released of
record by payment or posting of a proper bond. Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as Landlord
shall deem proper, including payment of the claim giving rise to such lien.
All sums paid by Landlord on behalf of Tenant and all expenses incurred by
Landlord in connection therefor shall be payable to Landlord by Tenant on
demand with interest at the Applicable Interest Rate in Additional Rent.
Landlord shall have the right at all times to post and keep posted on the
Premises any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord, the Premises, the Project and
any other party having an interest therein from mechanics and materialmen's
liens, and Tenant shall give Landlord not less than ten (10) business days
prior written notice
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of the commencement of any work in the Premises or Project which could
lawfully give rise to a claim for mechanics' or materialmen's liens to permit
Landlord to post and record a timely notice of non-rsponsibility, as Landlord
may elect to proceed or as the law may from time to time provide, for which
purpose, if Landlord shall so determine, Landlord may enter the Premises.
Tenant shall not remove any such notice posted by Landlord without Landlord's
consent, and in any event not before completion of teh work which could
lawfully give rise to a claim for mechanics' or materialmen's liens.
28. SUBSTITUTION
A. At any time after execution of this LEase, Landlord may substitute for
the Premises other premises in the Project or owned by Landlord in the
vicinity of the Project (the "NEW PREMISES") upon not less than ONE HUNDRED
TWENTY (120) days prior written notice, in which event the New Premises shall
be deemed to be the Premises for all purposes hereunder and this Lease shall
be deemed modified accordingly to reflect the new location and shall remain
in full force and effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function for
Tenant's purposes; and
(2) If Tenant is occupying the Premises at the time of such
substitution, Landlord shall pay the expense of physically moving
Tenant, Tenant's property and equipment to the New Premises and shall,
at Landlord's sole cost, improve the New Premises with improvements
substantially similar to those the Landlord has committed to provided or
has provided in the Premises.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express
or implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of teh
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlod" to be performed after
the passing of title in Landlord's successor-in-interest. This Lease shall
not be affected by any such sale and Tenant agrees to attorn to the purchaser
or assignee. Landlord's successor(s)-in-interest shall not have liability to
Tenant with respect to the failure to perform any of the obligations of
"Landlord," to the extent requried to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agerements to be performed by Tenant under any of the terms
of this LEase shall be performed by Tenant at Tenant's sole cost and expense
and without any abatement of Rent. If Tenant shall fail to pay any sum of
money, other than Base Rent, required to be paid by Tenant hereunder or shall
fail to perform any other act on Tenant's part to be performed hereunder,
incluidng Tenant's obligations under Paragraph 11 hereof, and such failure
shall continue for fifteen (15) days after notice thereof by Landlord, in
addition to the other rights and remedies of Landlord, Landlord may make any
such payment and perform anysuch act on Tenant's part. In the case of an
emergency, no prior notification by Landlord shall be required. Landlord may
take such actions without any obligation and without any obligation and
without releasing Tenant from any of Tenant's obligations. All sums so paid
by Landlord and all incidental costs incurred by Landlord and itnerest
thereon at the Applicable Interest Rate, from the date of payment by
Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expresed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant
or condition of this Lease, regardless of Landlord's knoweldge of such
preceding breach at the time Landlord accepted such Rent. Failure by Landlord
to enforce any of the terms, covenants or conditions of this Lease for any
length of time shall not be deemed to waive or decrease the right of Landlord
to insist thereafter upon strict performance by Tenant Waiver by Landlord of
any term, covenant or condition contained in this Lease may only be made by a
written document signed by Landlord based upon full knowlege of the
circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord
or Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. RENT. All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at Landlord's Remittance
Address set forth in the Basic Lease Information, or at such other address as
Landlord mayspecify from time to time by written notice delivered in
accordance hereawith. Tenant's obligation to pay Rent and any other amounts
to Landlord under the terms of this Lease shall not be deemed satisfied until
such Rent and other amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in
writing and either personally delivered, sent by commercial overnight
courier, mailed, certified or registered, postage prepaid or sent by
facsimile with confirmed receipt (and with an original sent by commercial
overnight courier), and in each case addressed in the party to be notified at
the Notice Address for such party its specified in the Basic LEase
Information or to such other place as the party to be notified may from time
tto time designate by a least fifteen (15) days notice to the notifying
party. Notices shall be deemed served upon receipt or refusal to accept
delivery. Tenant appoints as its agent to receive the service of all default
notices and notice of commencement of unlawful detainer proceedings the
person in charge of or apparently in charge of occupying the Premises at teh
time and, if there is no such person, then such service may be made by
attaching the same on the main entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of
any notice of a violation or a potential or alleged violation of any
regulation that relates to the Premises or the Project, or of any inquiry,
investigation, enforcement or other action that is instituted and threatened
by any governmental or regulatory agency against Tenant or any other occupant
of the Premises, or any claim that is instituted or threatened by any third
party that relates to the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorney's fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action
which landlord or Tenant brings to
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<PAGE>
enforce its respective rights hereunder, the unsuccessful party shall pay all
costs incurred by the prevailing party including reasonable attorneys' fees,
to be fixed by the court, and said costs and attorneys' fees shall be a part
of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord
as provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by
any prevention, delay, or stoppage caused by strikes, lockouts, labor
disputes, acts of God, inability to obtain services, labor, or materials or
reasonable substitutes for those items, government actions, civil commotions,
fire or other casualty, or other causes beyond the reasonable control of the
party obligated to perform, performance by that party for a period equal to
the period IN THE PERIOD of that prevention, delay, or stoppage is excused.
Tenant's obligation to pay Rent, however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender
the Premises to Landlord in the same condition as existed on the date Tenant
originally took possession thereof, including, but not limited to, all
interior walls cleaned, all interior painted surfaces repainted in the
original color, all holes in walls repaired, all carpets shampooed and
cleaned, and all floors cleaned, waxed, and free of any Tenant-introduced
marking or painting, all to the reasonable satisfaction of Landlord. Tenant
shall remove all of its debris from the Project. At or before the time of
surrender, Tenant shall comply with the terms of Paragraph 12.A. hereof with
respect to Alterations to the Premises and all other matters addressed in
such Paragraph. If the Premises are not so surrendered at the expiration or
sooner termination of this Lease, the provisions of Paragraph 25 hereof shall
apply. All keys to the Premises or any part thereof shall be surrendered to
Landlord upon expiration or sooner termination of the Term. Tenant shall give
written notice to Landlord at least thirty (30) days prior to vacating the
Premises and shall meet with Landlord for a joint inspection of the Premises
at the time of vacating, but nothing contained herein shall be construed as
an extension of the Term or as a consent by Landlord to any holding over by
Tenant. In the event of Tenant's failure to give such notice or participate
in such joint inspection, Landlord's inspection at or after Tenant's vacating
the Premises shall conclusively be deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration. Any delay caused by
Tenant's failure to carry out its obligations under this Paragraph 36 beyond
the term hereof, shall constitute unlawful and illegal possession of Premises
under Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties
shall have the right to use up to the number of parking spaces, if any,
specified in the Basic Lease Information on an unreserved, nonexclusive,
first come, first served basis, for passenger-size automobiles, in the
parking areas in the Project designated from time to time by Landlord for use
in common by tenants of the Building.
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces
available for use by Tenant, such spaces shall be provided on a
month-to-month unreserved and nonexclusive basis (unless otherwise agreed in
writing by Landlord), and subject to such parking charges as Landlord shall
determine, and shall otherwise be subject to such terms and conditions as
Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties
and visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system,
and hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other
items located in the parking areas of the Project, nor for any personal
injuries or death arising out of the use of parking areas in the Project by
Tenant or any Tenant's Parties. Without limiting the foregoing, if Landlord
arranges for the parking areas to be operated by an independent contractor
not affiliated with Landlord, Tenant acknowledges that Landlord shall have no
liability for claims arising through acts or omissions of such independent
contractor. In all events, Tenant agrees to look first to its insurance
carrier and to require that Tenant's Parties look first to their respective
insurance carriers for payment of any losses sustained in connection with any
use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to
park in any such assigned or reserved spaces. Tenant may validate visitor
parking by such method as Landlord may approve, at the validation rate from
time to time generally applicable to visitor parking. Landlord also reserves
the right to alter, modify, relocate or close all or any portion of the
parking areas in order to make repairs or perform maintenance service, or to
restripe or renovate the parking areas, or if required by casualty,
condemnation, act of God, Regulations or for any other reason deemed
reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), as Additional Rent hereunder, the monthly
charges established from time to time by Landlord for parking in such parking
areas (which shall initially be the charge specified in the Basic Lease
Information, as applicable). Such parking charges shall be payable in advance
with Tenant's payment of Basic Rent. No deductions from the monthly parking
charge shall be made for days on which the Tenant does not use any of the
parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural
number, individuals, firms or corporations, and their respective successors,
executors, administrators and permitted assigns, according to the context
hereof.
B. TIME. Time is of the essence regarding this Lease and all of its
provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws
of the State of Washington.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of
the parties hereto and supersedes any previous negotiations. There have been
no representations made by the Landlord or understandings made between the
parties other than those set forth in this Lease and its Exhibits, addenda
and attachments and the Basic Lease Information.
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<PAGE>
E. MODIFICATION. This Lease may not be modified except by a written
instrument signed by the parties hereto. Tenant accepts the area of the
Premises as specified in the Basic Lease Information as the approximate area
of the Premises for all purposes under this Lease, and acknowledges and
agrees that no other definition of the area (rentable, usable or otherwise)
of the Premises shall apply. Tenant shall in no event be entitled to a
recalculation of the square footage of the Premises, rentable, usable or
otherwise, and no recalculation, if made, irrespective of its purpose, shall
reduce Tenant's obligations under this Lease in any manner, including without
limitation the amount of Base Rent payable by Tenant or Tenant's
Proportionate Share of the Building and of the Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions
hereof shall be unenforceable or ineffective, all of the other provisions
shall be and remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form
memorandum hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective
otherwise until execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than
the total Rent due nor any endorsement on any check or letter accompanying
any check or payment of Rent shall be deemed an accord and satisfaction of
full payment of Rent, and Landlord may accept such payment without prejudice
to Landlord's right to recover the balance of such Rent or to pursue other
remedies. All offers by or on behalf of Tenant of accord and satisfaction are
hereby rejected in advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent, provided that no
such grant or dedication shall materially interfere with Tenant's Permitted
Use of the Premises. Upon Landlord's request, Tenant shall execute,
acknowledge and deliver to Landlord documents, instruments, maps and plats
necessary to effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that
this Lease has been agreed to by both the parties, that both Landlord and
Tenant have consulted with attorneys with respect to the terms of this Lease
and that no presumption shall be created against Landlord because Landlord
drafted this Lease. Except as otherwise specifically set forth in this Lease,
with respect to any consent, determination or estimation of Landlord required
or allowed in this Lease or requested of Landlord, Landlord's consent,
determination or estimation shall be given or made solely by Landlord in
Landlord's good faith opinion, whether or not objectively reasonable. If
Landlord fails to respond to any request for its consent within the time
period, if any, specified in this Lease, Landlord shall be deemed to have
disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference
and made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light,
air or view by any structure which may be erected on lands adjacent to or in
the vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and
Tenant and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the
observance and performance of all of the other covenants, terms and
conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby demised
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under Landlord, subject,
nevertheless, to all of the other terms and conditions of this Lease.
Landlord shall not be liable for any hindrance, interruption, interference or
disturbance by other tenants or third persons, nor shall Tenant be released
from any obligations under this Lease because of such hindrance,
interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant
hereunder for any fractional month shall be prorated based on a month of 30
days. As used herein, the term "fiscal year" shall mean the calendar year or
such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
A. MONTHLY RENTAL RATE
Should Tenant on or before July 31, 1999 extend the Lease Term on all their
Premises area on the second and third floors of the U.S. Bank Plaza Building
for a minimum of three (3) additional years. Landlord agrees to lower the
Base Rent stipulated in this Lease to the following:
<TABLE>
<CAPTION>
<S> <C>
Months 1-12 $6,676.00 per month
Months 13-24 $6,928.00 per month
Months 25-36 $7,180.00 per month
Months 37-48 $7,432.00 per month
Months 49-60 $7,683.00 per month
</TABLE>
B. OPTION TO EXTEND
Provided Tenant is not, and has not been, in default of any of its
obligations under this Lease, it shall have an option to renew this Lease for
the Premises in "as is" condition for a term of five (5) years, on the same
terms and conditions as set forth in this Lease except that the Base Rent
shall be the then current market rents, including interim escalations. In no
event will the monthly rental be less than the rental for the last month of
the previous term.
Tenant shall give Landlord written notice of its intent to exercise this
Option to Extend at least one hundred eighty (180) days prior to the
expiration of the current lease term. Within fifteen (15) days after Tenant
exercises its Option to Extend, Landlord will provide Tenant with the current
market rental rate, as determined by Landlord, as well as terms and
conditions for the extended term. Tenant shall have Ten (10) days from
notification by Landlord of current rent and conditions to accept Landlord's
current market figure and terms and
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conditions. If Tenant does not accept Landlord's rental figure and terms and
conditions within the fifteen (15) day period, this option shall be null and
void and Landlord shall have no further obligation to Tenant and Landlord may
enter into a lease for the Premises with a third party.
Notwithstanding anything to the contrary herein contained, Tenant's right to
extend the term by exercise of the foregoing option shall be conditioned upon
the following: (i) at the time of the exercise of the option, and at the time
of the commencement of the extended term, Tenant shall be in possession of
and occupying the Premises for the conduct of its business therein and the
same shall not be occupied by any assignee, subtenant or licensee; and (ii)
the notice of exercise shall constitute a representation by Tenant to
Landlord, effective as of the date of the exercise and as of the date of
commencement of the extended term, that Tenant does not intend to seek to
assign the Lease in whole or in part, or sublet all or any portion of the
Premises, the election to extend the term being for purposes of utilizing the
Premises for Tenant's purpose in the conduct of Tenant's business therein.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL
BY JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN
WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL
JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN
ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST
THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR
OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE
ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE, WHETHER
ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY
REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL
CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE PROVISIONS OF THE PARAGRAPH
40 SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
SPIEKER PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
/s/ Richard T. Leider
----------------------------------------
By: Richard T. Leider
Its: Vice President
Date: 5/4/99
-----------------------------------
TENANT
ImageX.com CORPORATION
A WASHINGTON CORPORATION
/s/ Richard Bergert
----------------------------------------
By: Richard Bergert
Its: President
Date: 4/28/99
-----------------------------------
17
<PAGE>
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 29th day of APRIL, 1999, personally appeared before me RICHARD
BEGERT, to me known to be the PRESIDENT of the CORPORATION that executed the
within and foregoing instrument, and acknowledged said instrument to be the
free and voluntary act and deed of said CORPORATION, for the uses and
purposes therein mentioned, and on oath stated that he was authorized to
execute said instrument and that the seal affixed (if any) is the corporate
seal of said CORPORATION.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official
Seal the day and year first above written.
/s/ Illegible
-------------------------------------
NOTARY PUBLIC in and for the State of
WASHINGTON , residing at
---------------
8031 MERIDIAN AVENUE, SEATTLE, WA
------------------------------------.
My commission expires: 1/29/02
--------------
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 4th day of MAY, 1999, personally appeared before me RICHARD T.
LEIDER, to me known to be the VICE PRESIDENT of the CORPORATION that executed
the within and foregoing instrument, and acknowledged said instrument to be
the free and voluntary act and deed of said CORPORATION, for the uses and
purposes therein mentioned, and on oath stated that he was authorized to
execute this instrument and that the seal affixed (if any) is the corporate
seal of said CORPORATION.
/s/ Illegible
-------------------------------------
NOTARY PUBLIC in and for the State of
WASHINGTON, residing at
SEATTLE, WA
------------------------------------.
My commission expires: 1-29-02
--------------
<PAGE>
LEASE ASSIGNMENT AND ASSUMPTION
This ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is made and
entered into as of April, 13, 1999, by and between Fine Arts Engravers Company,
Inc., an Oregon corporation ("Assignor") and Keystone Acquisition Corp.
("Assignee"), a Washington corporation and wholly owned subsidiary of
ImageX.com, Inc., a Washington corporation.
RECITALS
A. Assignor is the lessee under that certain lease (as amended, the
"Lease") in which Maria F. Stanley, Trustee, Richard Reiten, Trustee, Robert C.
Ridgley, Trustee and Nicholas J. Stanley, Trustee, all Trustees under the
Marital Trust established under Article IX of the Last Will of Edwin M. Stanley
are the lessors, which began as of July 1, 1996, with respect to that certain
real property and improvements thereon situated in county of Washington, state
of Oregon, which property is more particularly described on Exhibit A attached
hereto.
B. Assignor desires to assign its interest in the Lease to Assignee, and
Assignee wishes to assume Assignor's interest and obligations under the Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants set forth below, and for
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Assignment of Lease. Conditional upon the successful closing of the
transactions contemplated by the Asset Purchase Agreement among Assignor,
Assignee and ImageX dated February 23, 1999, Assignor assigns and transfers to
Assignee, as of the Effective Date (defined below) all of Assignor's right,
title and interest under the Lease, to have and to hold for the duration of the
Lease.
2. Assumption of Lease. Conditional upon the successful closing of the
transactions contemplated by the Asset Purchase Agreement among Assignor,
Assignee and ImageX dated February 23, 1999, assignee accepts assignment of the
Lease and covenants with the Assignor that Assignee will assume, observe and
perform all of the terms, conditions, covenants, obligations and provisions on
the part of the tenant under the Lease arising from and after the Effective
Date.
3. Effective Date. The Effective Date is April 13, 1999.
4. True and Correct Copy. A true and correct copy of the Lease, together
with all amendments, addenda, assignments and other related documents, is
attached hereto as Exhibit B.
<PAGE>
5. Further Assurances: Assignor will, at any time and from time to time
upon written request therefor, execute and deliver to Assignee, Assignee's
successors, nominees or assigns such documents as Assignee or they may
reasonably request in order to fully assign and transfer to and vest in Assignee
or Assignee's successors, nominees and assigns and protect Assignee or
assignee's successors', nominees' and assigns' rights under and interest in the
Lease, or to enable Assignee or Assignee's successors, nominees and assigns to
realize upon or otherwise enjoy such rights and property.
6. Modification: No modification, waiver or termination of this Assignment
will be valid unless the same is in writing and signed by the party against
which the enforcement of the modification, waiver or termination is sought.
7. Miscellaneous. This Assignment shall be construed in accordance with
the laws of the state of Oregon. This Assignment may be executed in
counterparts, which taken together shall comprise an original document. This
Assignment shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
[the remainder of this page is intentionally left blank]
-2-
<PAGE>
Assignor:
FINE ARTS ENGRAVERS COMPANY, INC.,
an Oregon corporation
By /s/ Wayne Slovick
-------------------------------------
Name Wayne Slovick
--------------------------------
Title Secretary
------------------------------
Assignee:
KEYSTONE ACQUISITION CORP.,
a Washington corporation
By /s/ Richard Begert
-------------------------------------
Name Richard F. Begert
--------------------------------
Title President
------------------------------
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<PAGE>
EXHIBIT B
Copy of Lease
<PAGE>
INDUSTRIAL REAL ESTATE LEASE INDEX
Wayne
4-25-96
1.0 Premises
2.0 Furnishings
3.0 Term
4.0 Renewal Terms
5.0 Holdover
6.0 Monthly Lease Payments
6.1 Late Payments
6.2 Non-Sufficient Funds
6.3 Security Deposit
7.0 Possession and Use of Premises
8.0 Remodeling and / or Structural Improvements
9.0 Maintenance and Repairs
10.0 Access by Landlord
11.0 Utilities and Services
12.0 Property Insurance
12.1 Liability Insurance
12.2 Taxes
13.0 Indemnity
14.0 Dangerous Materials
15.0 Destruction or Condemnation of Premises
15.1 Mechanics Liens
16.0 Defaults
17.0 Arbitration
18.0 Assignability / Subletting
19.0 Termination Upon Sale of Premises
20.0 Notices
20.1 Entire Agreement / Amendment
20.2 Severability
20.3 Waiver
20.4 Cumulative Rights
20.5 Governing Law
20.6 Subordination of Lease / Estoppel Certificate
31.0 Right of First Refusal
32.0 Surrender of Premises
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<PAGE>
INDUSTRIAL REAL ESTATE LEASE - - -
TRIPLE NET WITH LIMITED EXCEPTIONS
This Lease Agreement ("Lease") is made by and between Maria F. Stanley, Trustee,
Richard Reiten, Trustee, Robert L. Ridgely, Trustee and Nicholas J. Stanley,
Trustee, all Trustees of the Marital Trust established under Article IX of the
Will of Edwin M. Stanley ("Trustees") ("Landlord"), and Fine Arts Engravers
Company, Inc. ("Tenant"). The parties agree as follows:
1.0 PREMISES.
Landlord, in consideration of the lease payments provided in this Lease,
leases to Tenant the real property located at 10955 S.W. Avery Street, Tualatin,
Oregon 97062, Tax Lot 105 Assessor's Map 2S 127A, in Washington County, Oregon
("Premises"). Premises shall only be used as a Commercial Printing
establishment.
2.0 FURNISHINGS.
The lease of the Premises includes all furnishings which are attached to
the real property. Tenant shall return all such items at the end of the lease in
a condition as good as the condition at the beginning of the lease term, except
for such deterioration that might result from normal use.
3.0 TERM.
The lease term will begin on July 1, 1996 and will terminate on June 30,
2001 (a five year term).
4.0 RENEWAL.
This lease shall automatically renew for one additional period of five
years, unless either party gives written notice of the termination no later than
180 days prior to January 1, 2001.
If the Tenant desires to exercise the one option to renew, then said
option exercise shall be evidenced in a writing to Landlord prior to January 15,
2001.
Landlord shall respond no later than January 31, 2001 with its opinion of
fair market value (FMV).
If Tenant accepts the FMV and no written response is tendered to Landlord
by February 15, 2001, then the FMV will be used commencing July 1, 2001.
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<PAGE>
If Tenant rejects the FMV, then each party shall select a qualified
Qualified Commercial Real Estate Consultant to determine FMV, in a written
report to be received report no later than March 31, 2001.
Said reports shall be used by the Parties to an agreement on FMV no later
than April 30, 2001.
5.0 HOLDOVER.
If Tenant maintains possession of the Premises for any period after the
termination of this Lease ("Holdover Period"), Tenant shall pay to Landlord a
lease payment for the Holdover Period based on the terms of the following Lease
Payments paragraph. Such holdover shall constitute a month to month extension of
this Lease.
6.0 MONTHLY LEASE PAYMENTS.
Tenant shall pay to Landlord a total annual lease payment of $291,600
payable in advance, in installments of $24,300 per month on the first day of
each month. Lease payments shall be made to the Landlord attention Wayne J.
Slovick, at 121 S.W. Salmon, Suite #1430, Portland, Oregon 97204, as may be
changed from time to time by Landlord.
6.1 LATE PAYMENTS.
Tenant shall pay a late charge equal to 5% for each payment that is not
paid within 7 days of the due date.
6.2 NON-SUFFICIENT FUNDS.
Tenant shall be charged $50.00 for each check that is returned to Landlord
for lack of sufficient funds.
6.3 SECURITY DEPOSIT.
At the time of the signing of this Lease, Tenant shall pay to Landlord, a
security deposit of $10,000 to be held and disbursed for Tenant damages to the
Premises (if any) as provided by law.
7.0 POSSESSION.
Tenant has been in possession of Premises and shall continue to be
entitled to possession and shall yield possession to Landlord on the last day of
the term of this Lease, unless otherwise agreed by both parties in writing.
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<PAGE>
8.0 REMODELING AND / OR STRUCTURAL IMPROVEMENTS.
Tenant shall have the right to conduct any construction or remodeling (at
Tenant's sole expense) that may be required to use the Premises. Tenant may also
construct fixtures on the Premises (at Tenant's expense). Any and all
construction shall be undertaken (if the estimated cost of remodeling exceeds
$5,000) only with the prior written consent of the Landlord which shall not be
unreasonably withheld. Tenant shall present to Landlord plans, specifications
and drawings, if applicable, at the time approval is sought. All materials
installed and workmanship shall be of a quality totally consistent with the
existing "in place" construction of the Premises. At the end of the lease term,
Tenant shall not be entitled to remove such fixtures.
9.0 MAINTENANCE AND REPAIRS
Tenant shall have the sole responsibility of maintaining the Premises.
9.1 Landlord shall not be required to make any repairs, alterations, additions
or improvements to or upon said Premises, except as set forth in Section 9.4.
Tenant shall repair and maintain in good working order the exterior walls of the
Building, landscaping on the Premises, and interior areas of the Building
including lobbies, stairs, windows, halls, corridors, restrooms, and provide
exterior window washing at reasonable intervals, weather permitting.
9.2 Tenant shall repair and maintain in good working order all interior walls,
floor coverings, window moldings, base moldings, door moldings, doors and
entrances, window fittings, window glass, interior paint and trim, signs,
heating, ventilation and cooling systems, fixtures, lighting fixtures and bulbs
and all other components of the Premises. Tenant shall provide janitorial
services and restroom supplies for the Premises, telephone service, and any
other service required by Tenant specifically for the Premises, at all Tenant's
expense.
9.3 If tenant refuses or neglects to maintain and repair as required by this
Lease and to the reasonable satisfaction of Landlord, then Landlord may, after
written demand (but without obligation to do so), accomplish the maintenance and
repair without liability for loss or damage which may accrue to Tenant's
property, and Tenant shall promptly pay Landlord's costs for the maintenance and
repair, plus 10% of the costs for overhead, plus interest on 110% of the costs
at the rate of 12% per annum from the date of completion until paid, all of
which shall constitute additional rent under this Lease.
9.4 Roof and Foundation. Landlord shall repair and maintain in good working
order the roof and structural foundation.
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<PAGE>
10.0 ACCESS BY LANDLORD.
Subject to Tenant's consent (which shall not be unreasonably withheld),
Landlord shall have the right to enter the Premises to make inspections, provide
necessary services, or show the Premises to prospective buyers, mortgagees,
tenants or workers. As provided by law, in the case of an emergency, Landlord
may enter the Premises without Tenant's consent. Tenant shall supply Landlord
with a complete set of Exterior Door Keys, Security System entry card, etc. upon
request.
11.0 UTILITIES AND SERVICES.
Tenant shall be responsible for all utilities and services.
12.0 PROPERTY INSURANCE.
Landlord and Tenant shall each be responsible to maintain appropriate
insurance for their respective interest in the Premises and personal property
located on or about the Premises. All insurance premiums incurred by the
Landlord (for the building and improvements) shall be promptly reimbursed by the
Tenant to the Landlord.
12.1 LIABILITY INSURANCE.
Tenant shall maintain liability insurance in total aggregate sum of at
least $2,000,000. Tenant shall deliver appropriate evidence to Landlord as proof
that adequate insurance is in force. Landlord shall have the right to require
that the Landlord receive notice of any termination of such insurance policies.
12. 2 TAXES.
Tenant shall be responsible for all ad valorem, real or other property
taxes assessed against the Premises or its contents.
13.0 INDEMNITY.
Tenant agrees to indemnify, hold harmless and defend Landlord from and
against any and all losses, claims, liabilities, and expenses, including
reasonable attorney fees, if any, which Landlord may suffer or incur in
connection with Tenant's use of the Premises.
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<PAGE>
14.0 DANGEROUS MATERIALS.
Tenant shall not keep or have on the Premises any article or thing of a
dangerous, inflammable, or explosive character that might substantially increase
the danger of fire on the Premises, or that might be considered hazardous by a
responsible insurance company, unless the prior written consent of Landlord is
obtained and proof of adequate insurance protection is provided by Tenant to
Landlord. See Exhibit 14.0 attached.
15.0 DESTRUCTION OR CONDEMNATION OF PREMISES.
If the Premises are partially destroyed in a manner that prevents the
conduct of commercial printing in a normal manner, and if the damage is
reasonably repairable within ninety days after the occurrence of the
destruction, and if the cost of restoration and repair is less that $100,000,
Tenant shall restore the Premises and lease payments shall not abate during the
period of the restoration. However, if the damage is not repairable within
ninety days, or if Tenant is prevented from repairing the damage by forces
beyond Tenant's control, or, if the cost of restoration and repair is more than
$100,000 or if the property is condemned, this Lease shall terminate after sixty
days written notice of such event or condition by either party.
15.1 MECHANICS LIENS.
Neither the Tenant nor anyone claiming through the Tenant shall have the
right to file mechanics liens or any other kind of lien on the Premises and the
filing of this Lease constitutes notice that such liens are invalid. Further,
Tenant agrees to give actual advance notice to any contractors, subcontractors
or suppliers of goods, labor, or services that such liens will not be valid.
16.0 DEFAULTS
Tenant shall be in default of this Lease, if Tenant fails to fulfill any
lease obligation or terms by which Tenant is bound. Subject to any governing
provisions of law to the contrary, if Tenant fails to cure any financial
obligation within ten days (or any other obligation within twenty days) after
written notice of such default is provided by Landlord to Tenant, Landlord may
take possession of the Premises without further notice, and without prejudicing
Landlord's rights to damages. In the alternative, Landlord may elect to cure any
default and the cost of such action shall be added to Tenant's financial
obligations under this Lease. Tenant shall pay all costs, damages, and expenses
suffered by Landlord by reason of Tenant's defaults including reasonable
Attorney and arbitration fees and expenses.
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<PAGE>
16.1 Tenant shall be in breach of this Lease if at any time during this Lease
(and regardless of the pendency of any bankruptcy, reorganization, receivership,
insolvency or other proceeding, in law, in equity or before any administrative
tribunal, which might have the effect of preventing Tenant from complying with
the terms of this Lease):
16.1.1 Tenant fails to make when due any payment and such failure is not
cured within 10 days after Landlord has given written notice to Tenant.
16.1.2 Tenant fails to perform or observe any of Tenant's other
obligations under this Lease and such failure is not cured within 20 days after
Landlord has given written notice to Tenant of such failure.
16.1.3 Tenant becomes insolvent, or makes a transfer in fraud of its
creditors, or makes an assignment for the benefit of its creditors; or if an
execution shall be issued against Tenant;
16.1.4 Tenant voluntarily files, or has filed against it, a petition under
any provision of the federal Bankruptcy Code, as amended, or under any similar
law or statute of the United States or any state, and such petition is not
dismissed within 30 days thereafter, or Tenant is adjudged bankrupt or insolvent
in a proceeding filed by or against Tenant; or
16.1.5 A receiver or trustee is appointed for all or substantially all of
Tenant's assets.
16.2 If Tenant breaches this Lease and abandons the Premises before the end of
the term or if Tenant's right to possession is terminated by Landlord because of
Tenant's breach of this Lease, then, this Lease shall automatically terminate
and Landlord may recover from Tenant:
16.2.1 The worth at the time of award of the unpaid rent which had been
earned at the time of termination; and
16.2.2 Any other amount necessary to compensate Landlord for all damage
proximately caused by Tenant's breach of Tenant's obligations under this Lease,
or which in the ordinary course of things would be likely to result therefrom,
including but not limited to Tenant's insurance premiums, utilities, maintenance
or any other obligations other than rent of Tenant, for the balance of the Lease
term to the extent such losses could not be reasonably avoided.
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<PAGE>
16.3 If Tenant breaches this Lease and abandons the Premises, this Lease shall
continue in full force and effect so long as Landlord does not terminate
Tenant's right to possession of the Premises, and Landlord may enforce all its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, or alternately, Landlord may collect all amounts then due and
accelerate all future amounts due under this Lease and collect those amounts
from the Tenant. For purposes of this section, the following acts by Landlord
shall not constitute termination of Tenant's right to possession of the
Premises:
16.3.1 Acts of maintenance or preservation or efforts to relet the
Premises or any part of them; or
16.3.2 The appointment of a receiver upon the initiative of Landlord to
protect Landlord's interest under this Lease or in the Premises.
17.0 ARBITRATION.
Any controversy or claim relating to this Lease, including the
construction or application of this Lease agreement, will be settled by binding
arbitration under the rules of the American Arbitration Association, and any
judgement granted by the arbitrator(s) may be enforced in any court of proper
jurisdiction. Notwithstanding the above, any ambiguities in this Lease shall be
interpreted in favor of the Landlord, where appropriate.
18.0 ASSIGNABILITY / SUBLETTING.
Tenant may not assign or sublease any interest in the Premises without the
prior written consent of Landlord, which may be unreasonably withheld.
19.0 TERMINATION UPON SALE OF PREMISES.
Notwithstanding any other provision of this Lease, Landlord may terminate
this lease upon sixty (60) days written notice to Tenant that the Premises have
been sold.
20.0 NOTICES.
Notices under this Lease shall not be deemed valid unless given or served
in writing and forwarded by mail, postage prepaid, addressed as follows:
LANDLORD:
The Marital Trustees u/w of Edwin M. Stanley
C/O Wayne J. Slovick
121 S.W. Salmon
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<PAGE>
Suite 1430
Portland, Oregon 97204
TENANT:
Fine Arts Engravers Company, Inc.
An Oregon Corporation
Attention: Nick Stanley
10955 S.W. Avery Street
Tualatin, Oregon 97062
Such addresses may be changed from time to time by either party by providing
written notice.
20.1 ENTIRE AGREEMENT/ AMENDMENT.
This Lease Agreement contains the entire agreement of the parties and
there are no other promises or conditions in any other agreement whether oral or
written. This Lease may be modified or amended in writing, if the writing is
signed by both the Landlord and the Tenant.
20.2 SEVERABILITY.
If any portion of this Lease shall be held to be invalid or unenforceable
for any reason, the remaining provisions shall continue to be valid and
enforceable. If a court finds that any provision of this Lease is invalid or
unenforceable, but that by limiting such provision, it would become valid and
enforceable, then such provision shall be deemed to written, construed, and
enforced as so limited.
20.3 WAIVER.
The failure of either party to enforce any provisions of this Lease shall
not be construed as a waiver or limitation of that party's right to subsequently
enforce and compel strict compliance with every other provision of this Lease.
20.4 CUMULATIVE RIGHTS.
The rights of the parties under this Lease are cumulative, and shall not
be construed as exclusive unless otherwise required by law.
20.5 GOVERNING LAW.
This lease shall be construed in accordance with the laws of the state of
Oregon.
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<PAGE>
20.6 SUBORDINATION OF LEASE; ESTOPPEL CERTIFICATE.
This lease is subordinate to any mortgage, loan or deed or trust with
respect to the Premises, whether now or hereinafter existing.
20.6.1 At Landlord's election, this Lease shall be subordinated to any
mortgage, deed of trust or other encumbrance now or hereafter placed upon the
Premises, and to any and all advances, whether obligatory or optional made on
the security of the same, and to all renewals modifications, consolidations,
replacements and extensions of the same. Tenant shall attorn to any purchaser at
any foreclosure sale, or to any grantee or transferee designated in any deed
given in lieu of foreclosure. Tenant agrees to execute any documents required to
accomplish a subordination and, failing to do so within 20 days after Landlord's
written demand to Tenant, does hereby irrevocably appoint Landlord as Tenant's
attorney-in-fact and in Tenant's name to do so.
20.6.2 Tenant shall from time to time, upon not less than 10 days' prior
written notice, submit to Landlord, or to any person designated by Landlord, a
statement in writing certifying that this Lease is unmodified and in full
force and effect, that no unsecured defaults exist, the date to which rental
has been paid and/or that Tenant has no claims against the Landlord.
31.0 RIGHT OF FIRST REFUSAL.
Landlord and Tenant agree that if a bona fide offer to purchase all of the
Premises is tendered to Landlord by a third party and said officer is acceptable
to Landlord, then Tenant shall have five (5) business days to match the offer
and agree to execute a Purchase and Sale Agreement that's substantially
consistent with the terms of said bona fide offer. If Tenant does not match or
exceed the third party's written bona fide offer, then Landlord may then sell
all of the Premises to the third party.
32.0 SURRENDER OF PREMISES.
At the expiration or other termination of this Lease, Tenant shall
surrender the Premises in their condition at the time of initial occupancy,
except for reasonable wear and tear and uninsured casualty not caused by Tenant.
Tenant shall remove all of Tenant's personal property which are not Tenant
Improvements. Tenant shall repair any damage to the Premises caused by the
removal. Tenant's obligations under this Section 32, as well as all unpaid
obligations of Tenant to Landlord, shall survive the expiration or other
termination of this Lease.
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<PAGE>
Executed by the parties or their duly authorized representatives as of the
date first provided above, in two counterparts, each of which shall constitute
an original.
LANDLORD TENANT
Fine Arts Engravers Company, Inc.
BY /s/ Illegible BY /s/ Illegible
--------------------------------- -------------------------------------
Its Agent Its President
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<PAGE>
LEASE AMENDMENT NO. 1
WHEREAS, the Industrial Real Estate Lease dated July 1, 1996 is in full force
and effect,
WHEREAS, there are no disputes between the Landlord and Tenant,
WHEREAS, the Landlord desires to increase the security deposit to a more
commercially reasonable level,
IT IS AGREED THAT:
When and only if the sale closes, Tenant shall increase the security deposit to
a total of $48,600 and in connection with the Assignment and Assumption, ImageX
hereby guarantees the performance of all of Assignee's obligations including
without limitation, the performance of all the terms, conditions, covenants,
obligations, and provisions applicable to Tenant under the Lease arising from
and after the Effective Date.
All other terms of the lease shall remain unchanged.
READ, AGREED, AND ACCEPTED
Tenant: Keystone Acquisition Corp.
/s/ Richard P. Begert April 13, 1999
- ------------------------------------ ---------------------------------------
By: Richard P. Begert Date
Title: President and Chief
Executive Officer
Landlord: Marital Trust
/s/ Wayne J. Slovick April 13, 1999
- ------------------------------------ ---------------------------------------
By: Wayne J. Slovick Date
Title: Agent for the Trustees
Guarantor: ImageX.com, Inc.
/s/ Richard P. Begert April 13, 1999
- ------------------------------------ ---------------------------------------
By: Richard P. Begert Date
Title: President and Chief
Executive Officer
<PAGE>
LEASE ASSIGNMENT AND ASSUMPTION
This ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is made and
entered into as of April, 13, 1999, by and between Fine Arts Engravers Company,
Inc., an Oregon corporation ("Assignor") and Keystone Acquisition Corp.
("Assignee"), a Washington corporation and wholly owned subsidiary
of ImageX.com, Inc., a Washington corporation.
RECITALS
A. Assignor is the lessee under that certain lease (as amended, the
"Lease") in which Lousouns III2P.W., LLC, successor to Ideal Trade Co., a
partnership of New Jersey is the lessor, dated as of the 1st day of December,
1992, as amended by Extensions of Lease Term dated August 19, 1993 and December
29, 1998, and modified by related correspondence dated December 29, 1998, with
respect to that certain real property and improvements thereon situated in City
of Union, state of New Jersey, which property is more particularly described on
Exhibit A attached hereto.
B. Assignor desires to assign its interest in the Lease to Assignee, and
Assignee wishes to assume Assignor's interest and obligations under the Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants set forth below, and for
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Assignment of Lease. Conditional upon the successful closing of the
transactions contemplated by the Purchase Agreement among Assignor, Assignee and
ImageX dated February 23, 1999, Assignor assigns and transfers to Assignee, as
of the Effective Date (defined below) all of Assignor's right, title and
interest under the Lease, to have and to hold for the duration of the Lease.
2. Assumption of Lease. Conditional upon the successful closing of the
transactions contemplated by the Purchase Agreement among Assignor, Assignee and
ImageX dated February 23, 1999, assignee accepts assignment of the Lease and
covenants with the Assignor that Assignee will assume, observe and perform all
of the terms, conditions, covenants, obligations and provisions on the part of
the tenant under the Lease arising from and after the Effective Date.
<PAGE>
3. Effective Date. The Effective Date is April 13, 1999.
4. True and Correct Copy. A true and correct copy of the Lease, together
with all amendments, addenda, assignments and other related documents, is
attached hereto as Exhibit B.
5. Further Assurances: Assignor will, at any time and from time to time
upon written request therefor, execute and deliver to Assignee, Assignee's
successors, nominees or assigns such documents as Assignee or they may
reasonably request in order to fully assign and transfer to and vest in Assignee
or Assignee's successors, nominees and assigns and protect Assignee or
assignee's successors', nominees' and assigns' rights under and interest in the
Lease, or to enable Assignee or Assignee's successors, nominees and assigns to
realize upon or otherwise enjoy such rights and property.
6. Modification: No modification, waiver or termination of this Assignment
will be valid unless the same is in writing and signed by the party against
which the enforcement of the modification, waiver or termination is sought.
7. Miscellaneous. This Assignment shall be construed in accordance with
the laws of the state of Oregon. This Assignment may be executed in
counterparts, which taken together shall comprise an original document. This
Assignment shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
[the remainder of this page is intentionally left blank]
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<PAGE>
Assignor:
FINE ARTS ENGRAVERS COMPANY,
INC., an Oregon corporation
By /s/ Nick Stanely
------------------------------------
Name Nick Stanley
-----------------------------
Title President
----------------------------
Assignee:
KEYSTONE ACQUISITION CORP.,
a Washington corporation
By /s/ Richard Begert
-------------------------------------
Name
---------------------------------
Title
--------------------------------
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<PAGE>
EXHIBIT "A"
LEASE AGREEMENT
This Lease Agreement is made as of the 1st day of December, 1992, by and
between:
IDEAL TRADE CO.
a partnership of New Jersey
c/o Gilbert Levine
596 Market Street
Newark, New Jersey 07105
(hereinafter referred to as "Landlord")
and
FINE ARTS ENGRAVERS CO., INC.
P.O. Box 5516
Portland, Oregon 97228
(hereinafter referred to as "Tenant")
WITNESSETH:
1. THE DEMISE
Landlord does hereby demise and lease to Tenant, and Tenant does
hereby lease and hire from Landlord, a building of approximately 15,000 square
feet commonly known as 1112 Lousons Road, Union, New Jersey 07083 (the
"Building"), as shown on Exhibit A, known as Block 40-3, Lot 17, tax map of
Union, and referred to herein as the "Premises", and which Building and
accessory tract of land are referred to herein as the "Tract".
2. QUIET ENJOYMENT
Upon performing its obligations under this Lease, Tenant shall have
and enjoy quiet and peaceable possession of the Premises during the Term (as
hereinafter defined), subject to the terms of this Lease.
3. USE OF PREMISES
The Premises shall be used for commercial printing operation,
or any use permitted by law or under then current
<PAGE>
[page missing]
C. Basic Rent and Additional Rent are sometimes hereinafter
collectively referred to as "Rent", "rent" or "rental".
D. Contemporaneously with the execution of this Lease, Tenant has
deposited with Landlord the sum of two (2) months Basic Rent or $10,640.00 as
the security deposit (the "Deposit"), receipt of which is hereby acknowledged by
Landlord, as security for the faithful performance by Tenant of all of the
terms, covenants and conditions of this Lease by Tenant to be kept and
performed. If at any time during the Term, any of the rent herein reserved or
provided to be paid shall be overdue and unpaid beyond any applicable grace
period, then Landlord may, at its option, appropriate and apply any portion of
the Deposit to the payment of any such overdue rent; and in the event of the
failure of Tenant to keep and perform any other term, covenant and/or condition
of this Lease to be kept and performed by Tenant, beyond any applicable cure
period, then Landlord, at its option, may appropriate and apply the Deposit, or
so much thereof as may be necessary, to compensate Landlord for the loss or
damage suffered by Landlord due to the breach on the part of Tenant.
6. ASSIGNMENT OR SUBLETTING
A. Tenant may not assign thin Lease in whole or in part, nor sublet
all or any part of the Premises, without the prior written Consent of Landlord,
which consent will not be unreasonably withheld or delayed. In all circumstances
of assignment or subletting, the assignee or subtenant shall assume in writing
the obligations of Tenant hereunder and the existing Tenant and guarantor
hereunder (if any) and each subsequent assignee, subtenant and guarantor shall
remain Jointly and severally liable under this Lease. Consent to any particular
assignment or subletting shall not be deemed consent to any further or
subsequent assignment or subletting.
B. If Tenant shall assign this Lease or sublet the Premises and at
any time the rent to be received by Tenant pursuant to such assignment or
subletting is in excess of the then applicable rent hereunder, Landlord shall be
entitled to the entire amount of such excess, which excess shall be due and
payable from time to time by Tenant promptly upon receipt by Tenant of payment
of rent by the assignee or subtenant. In addition, Landlord shall be entitled to
receive any other consideration paid to Tenant on account of an assignment or
subletting. Any excess rents or additional sums so remitted to Landlord shall
offset and reduce Tenant obligation to pay Rent following such assignment or
subletting.
C. If Tenant wishes to assign this Lease or sublet to any party,
Tenant first shall give written notice to Landlord of such intention ("Tenant's
Notice"), specifying the name of the proposed assignee or sublessee, the name of
and character of its business, the terms of the proposed assignment or sublease,
and shall provide Landlord with such other information as Landlord reasonably
requests including financial statements in form reasonably acceptable to
Landlord.
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<PAGE>
D. Landlord may, within 30 days after its receipt of Tenant's
Notice, by notice to Tenant ("Landlord's Notice"), subject to foregoing
provisions of this Section 6, either consent to or reject the proposal, or
Landlord may terminate this Lease as of a date set forth in Landlord's Notice,
not less than 30 days after delivery of Landlord's Notice, such date of
termination having the same effect as if that date were the original expiration
date of this Lease, with all rents being apportioned and adjusted as of such
date of termination.
7. REAL ESTATE TAXES
A. Tenant shall pay as Additional Rent during the Term, upon demand
from time to time by Landlord, the "Proportionate Share" (an hereinafter
defined) of real estate taxes, which may be made or imposed upon the Premises
("Taxes"), other than income, franchise, gross receipts, corporation, capital
levy, excess profits, revenue, inheritance, devolution, gift, estate, payroll or
stamp tax, or other tax not in lieu of or as substitute for real estate tax;
provided, however, that if any time during the Term the methods of taxation
prevailing at the Commencement Date shall be altered so as to cause the whole or
any part of the Taxes to be imposed, wholly or partly, as a capital levy, on the
rents received from the Premises or otherwise, or if any tax shall be measured
by or based in whole or in part upon the value of the Premises and shall be
imposed upon Landlord, then, to the extent that such other tax is a substitute
for or is enacted in lieu of existing real estate tax, as described above,
Tenant shall be responsible for payment, as Additional Rent, of all such Taxes.
The maximum obligation of Tenant, however, shall be achieved by computing such
substitute tax as if the Premises were the sole property of Landlord. Upon
request of Tenant, Landlord shall execute all documents necessary for, and will
cooperate with Tenant with respect to, the prosecution, in Landlord's name, of
appeals of the tax assessment against the Premises, provided that no such appeal
shall be prosecuted if the prosecution thereof would, in Landlord's reasonable
judgment, jeopardize Landlord's ownership of the Tract or create any lien or
encumbrance thereon not adequately bonded or otherwise secured, and further
provided that Landlord shall incur no expense or obligation in connection with
any such appeals.
B. Following an uncured default by Tenant hereunder, at the option
of Landlord, the share of Taxes shall be paid in monthly installments in such
amounts as are estimated and billed by Landlord, each such installment being due
on the first day of each month. If Landlord elects such option, which it may do
from time to time, then within sixty (60) days after receipt by Landlord of
final Tax bills, Landlord shall provide to Tenant for Tenant's inspection copies
of such Tax bills and/or such accounting, and the monthly payments to be made by
Tenant thereafter shall be adjusted to compensate for any overpayment or
underpayment made by Tenant in the preceding period, or an appropriate refund or
payment made at that time.
C. The phrase "Proportionate Share" shall mean one hundred percent
(100%).
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8. MAINTENANCE AND REPAIRS
Except as otherwise provided in this Lease, including Section 13
hereof, Tenant shall be responsible for undertaking all maintenance and repairs
to the Premises and surrounding land, including the systems servicing the
Premises and exterior maintenance such as but not limited to know removal.
Landlord shall be responsible for capital improvements, restorations and
replacements of the Premises and the Systems thereof and for structural
maintenance of the Building except that Tenant shall be responsible for any
structural repair (including roof repairs) the need for which shall result from
or arise out of the acts or negligence of Tenant or its agents, employees,
contractors, invitees or licenses ("Agents"). Notwithstanding the foregoing,
Tenant shall have no obligation to replace or restore the Premises or any part
or system thereof or to make any capital improvements to the Premises; provided
however that if a system needs replacement or restoration or if capital
improvements are required to be made to the Premises during the Term to keep the
Premises in good order and condition, then Landlord shall make and pay for such
replacement, restoration or capital improvements and subject to the provisions
of Section 13 below, Tenant shall reimburse Landlord monthly for the portion of
the cost of such replacement, restoration or capital improvement as is allocable
to the Term of this Lease when such cost is amortized over the useful life of
such replacement, restoration or capital improvement.
9. INSURANCE AND INDEMNITY; NONLIABILITY
A. Tenant shall during the term, at its sole cost and expense, keep
in full force and effect a policy of public liability insurance with respect to
the premises to which the limits of liability for personal injury and property
damage combined shall not be less than $1,000,000 per occurrence and $2,000,000
annual aggregate. In addition, tenant shall provide an excess limits or umbrella
liability policy with limits of liability not less than $4,000,000 personal
injury and property damage per occurrence and annual aggregate. Landlord shall
be named as an additional insured on each of these policies.
All provisions of said policy, except the limits of liability, shall
operate in the same manner as if there were a separate policy covering each
insured. Certificates of said coverage shall be provided to the Landlord. Said
certificates to offer 30 days prior written notice of any material change or
cancellation. A copy of said policy and the certificate of insurance shall be
delivered to the Landlord on or before the commencement day of this Lease.
B. Tenant shall indemnify and save Landlord harmless against and
from any and all claims, actions, damages, losses, liability and expense,
including court costs and reasonable attorneys' fees, in connection with loss of
life, personal injury and/or damage to property arising form the occupancy or
use by Tenant of the Premises, or any part thereof, or to the extent occasioned
by any act or negligence of Tenant or its Agents. It is understood that Landlord
shall not be liable for any damage or injury which may be sustained by Tenant or
any guest or invitee of Tenant as a consequence of the failure, breakage,
leakage or
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obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof,
drains, leaders, gutters, valleys, downspouts or the like through no fault or
negligence of the Landlord or of the electrical, gas, power, conveyor,
refrigeration, sprinkler, air conditioning or heating systems through no fault
or negligence by Landlord; or by reason of the elements; or resulting form the
carelessness, negligence or improper conduct on the part of any other tenant or
its Agents.
C. If Tenant shall fail, refuse or neglect to obtain any of the
insurance called for by this Lease or maintain the same and to show Landlord
evidence of the same as aforesaid, Landlord shall have the right (but not the
obligation) upon 15 days prior written notice to Tenant to procure any such
insurance and charge the cost thereof to Tenant.
D. Tenant shall maintain fire and "special perils" insurance
coverage on the building on a replacement cost valuation basis and shall name
the Landlord as an additional insured. Insurance shall be in an amount equal to
the replacement cost of the building which shall be determined by appraisal of
the Tenant's insurance company, or, an independent appraisal service and shall
be updated as a minimum of every three years. At the commencement of this Lease,
it is agreed that for purposes of obtaining replacement value insurance
hereunder, the replacement value shall be $800,000.00. Said policy shall
recognize the interest of the Landlord's mortgagees and/or lienholders.
Policies may be in the name of the Tenant and the Landlord; however,
it should be provided within the policy that loss, if any, shall be payable to
the Landlord (see terms and conditions of paragraph 9A). Coverage shall be with
an insurance company licensed to do business in the state of New Jersey and
rated A XII or better by Bests Rating Service (or the equivalent as rated by
Standard and Poors Rating Service). Copies of said policies shall be provided to
the Landlord and their mortgagees as required. Certificates evidencing 30 day
notice of cancellation or material change shall be provided to the Landlord.
Said policies may provide for deductibles of no more than $5,000. Said policies
shall be written on a no co-insurance and/or agreed amount basis, and shall also
provided coverage in an amount no less than $250,000.00 to provide for increased
cost of construction as the result of changes in ordinances or codes, and for
removal of debris (known as ordinance and law provisions).
E. Each party hereby releases the other from liability for property
damage from any cause whatsoever to the extent such releasing party shall
receive insurance proceeds (or have the availability of the receipt thereof) on
account of such damage or injury and such release does not adversely affect
entitlement to such insurance proceeds. Landlord and Tenant agree to use their
reasonable best efforts, at no direct or indirect additional cost, to include in
their respective property insurance policies, the following: (i) a waiver of the
insurer's right of subrogation against the other party, (ii) an express
agreement that such policy shall not be invalidated if the insured waives the
right to recovery against any party responsible for a casualty, or (iii) any
other form of permission for the release of the other party. Notwithstanding the
foregoing, Landlord hereby acknowledges that Tenant's current blanket fire and
special perils insurance policy does not contain, and Tenant's insurer refuses
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to add, a waiver of subrogation or similar clause or endorsement to the existing
insurance policy, and that Tenant shall have no obligation to attempt to obtain
insurance from a different insurer unless the overall cost to Tenant of such
insurance is reduced and the attempt to obtain such insurance otherwise is
commercially reasonable.
10. TENANT'S RIGHT TO MAKE ALTERATIONS OTHER THAN RENOVATION
WORK; SIGNS ON EXTERIOR OF PREMISES
A. Tenant may, from time to time, at its own cost and expense, make
such nonstructural installations, alterations, restorations, changes or
replacements (hereinafter called "Alterations"), in, of or to the Premises as
Tenant deems necessary or desirable, provided that the prior written consent of
Landlord shall have been obtained, which consent shall not be unreasonably
withheld or delayed if the Alterations will not impair the value of the Premises
in Landlord's reasonable judgment.
B. Tenant, in making the Alterations, shall comply with all
applicable laws, orders and regulations of federal, state, county and municipal
authorities, with any direction pursuant to law or given by any public officer,
and with all regulations of any board of fire underwriters having jurisdiction.
C. Tenant shall obtain or cause to be obtained, all building
permits, licenses, temporary and permanent certificates of occupancy and other
governmental approvals which may be required in connection with the making of
the Alterations, and Landlord shall cooperate with Tenant in the obtaining
thereof (at no out-of-pocket expense to Landlord) and shall execute any
documents reasonably required in furtherance of such purpose.
D. Tenant shall pay all costs and expenses in connection with the
making of Alterations and shall discharge or bond any mechanic's lien filed
against the Premises in connection therewith within a period of fifteen (15)
days after Tenant receives notice of filing of such lien, it being understood
that Landlord shall not be deemed hereby to have given consent to any such
filing.
E. Tenant shall indemnify and hold Landlord harmless against and
from any mechanic's or materialmen's claims arising out of such work and shall
perform all work in a good and workmanlike manner.
F. The Alterations shall be and remain the property of Landlord;
provided, however, that Landlord shall have the option, to be exercised, if at
all, simultaneously with the giving of its consent, to give notice to Tenant
that Tenant is to remove all or any part of Alterations made by Tenant, upon the
giving of which notice Tenant shall be obligated to remove the specified
Alterations prior to such expiration or termination and to repair any damage
caused by the removal and restore the Premises to their condition as existed
prior to the making of the applicable Alterations, reasonable wear and tear
excepted.
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G. No signs may be placed or maintained on the exterior of the
Premises by Tenant without the prior written approval of Landlord, not
unreasonably withheld and any such sign as is placed or maintained by Tenant on
the exterior of the Premises must be kept in good condition and repair at all
times and must be installed and maintained in compliance with all applicable
laws, rules and regulations.
11. FIXTURES AND PERSONAL PROPERTY
Any trade fixtures, equipment and other property installed in or
attached to the premises by and at the expense of Tenant (whether or not deemed
fixtures under New Jersey law) shall remain property of Tenant, and Tenant shall
have the right, at any time, and from time to time, to remove any and all of its
trade fixtures, equipment and other property which it may have stored or
installed in the Premises. Tenant shall make all repairs required as a result of
the removal of such items so as to restore the Premises to their original
condition (including but not limited to repair of any holes in the walls of the
Building), reasonable wear and tear exempted.
12. UTILITY CHARGES
Tenant shall, upon demand by Landlord, pay for all utilities of any
nature serving the Building, provided, however, that at such time as the
Building is also occupied by any other tenant(s), the utilities will either be
separately metered or billed on a pro-rata basis as among all users of the
applicable utility. Tenant shall not overload the electrical wiring serving the
Premises nor use any other utility beyond its normal capacity.
13. OBSERVANCE OF LAWS, ORDINANCES, RULES AND REGULATIONS
A. Tenant shall comply with all statutes, ordinances, rules,
orders, regulations and requirements of all federal, state, county and
municipal and other applicable governmental authorities relating to Tenant's
use of the Premises and shall faithfully observe in the use of the Premises
all municipal and county ordinances and regulations and state and federal
statutes and regulations of the Board of Fire Underwriters or similar agency
for the prevention of fires; provided, however, that Tenant shall not (1)
make any capital improvements or repairs required by law, including without
limitation, sprinklers, earthquake reinforcement or modifications required
under the American Disabilities Act, all of which shall be and remain the
responsibility of Landlord; (ii) be responsible for any loss, cost, damage,
expense, liability, cleanup, or response costs (including without limitation
attorneys' fees at trial and on appeal) attributable to environmental hazards
or hazardous substances (as such are defined in any federal, state or local
law, ordinance, statute, regulation or pronouncement) except to the extent
such environmental hazard or substance has been created or generated by
Tenant; and (iii) be responsible for complying with the Environmental Cleanup
Responsibility Act, N.J.S.A. 13:1K-6, except to the extent any cleanup plans
implementation required in connection therewith are attributable to
environmental hazards or hazardous substances created or generated by Tenant
through its use of the Tract. In case Tenant shall
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fail or neglect to comply with the aforesaid statutes, ordinances, rules,
orders, regulations and requirements, or any of them, within the period of
time for compliance as contain therein or such shorter time as may, upon 15
days notice to Tenant, be required in this Lease, then (not in limitation of
other rights which Landlord may have under this Lease or by law in the case
of a default by Tenant) Landlord or its agents may enter the Premises and
make necessary repairs and comply with any and all of the said statutes,
ordinances, rules, orders, regulations or requirements, at the cost and
expense of Tenant. In case of Tenant's failure to pay therefor, the said cost
and expense shall be added to the next month's rent and be due and payable
promptly as Additional Rent, together with interest as in this Lease provided.
B. Tenant may contest any of the above-stated statutes, ordinances,
rules, orders, regulations or requirements, provided that Tenant shall indemnify
Landlord for any loss or liability (including but not limited to reasonable
attorneys' fees incurred by Landlord), and shall not do so in any circumstances
as would, in Landlord's reasonable Judgment, jeopardize Landlord's ownership of
the Tract or cause any lien or encumbrance to be placed upon the Tract not
adequately bonded or otherwise secured. Landlord agrees to cooperate with any
such contest, provided that Landlord shall entail no out-of-pocket cost or
expense attributable to the responsibility of Tenant as and to the extent
described in this Section 13.
14. DAMAGE TO PREMISES
A. If the Premises shall be damaged by fire, the elements, accident
or other casualty, then, subject to the provisions below, Landlord shall cause
the damage to be repaired to the condition that existed immediately prior to
such casualty. In doing so, Landlord shall commence its repairs promptly and
diligently proceed to conclusion with same, but shall not be required, in any
event, to expend more than the net amount of insurance proceeds received on
account of the damage, exclusive of any deductibles in such policies, which
Landlord shall pay.
B. If the Premises shall be so damaged or destroyed as would render
the Premises unfit for Tenant's intended uses for a period in excess of ninety
(90) days, or if then applicable laws or zoning requirements do not permit the
necessary repair or restoration after occurrence of damage or destruction of the
Premises to whatever extent, then either party shall have the right to cancel
this Lease by written notice to the other served within sixty (60) days of the
occurrence, effective as of the occurrence. Upon such termination, all Rent and
Additional Rent shall be apportioned as of the date of the occurrence.
C. Tenant shall immediately notify Landlord in case of fire or other
damage to the Premises.
D. The repair and restoration of any damage to the property of
Tenant or to the decorations and Alterations of Tenant shall not be the
responsibility of Landlord, unless and to the extent Landlord receives insurance
proceeds therefor.
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E. In the event any damage or destruction of the Premises renders
the Premises unfit for Tenant's intended uses, all rent shall be abated during
such period, except if the damage or destruction shall be due to the negligence
of Tenant or its Agents and the Landlord does not then carry rental business
interruption or similar insurance against loss of rent. If any such damage or
destruction renders the Premises partially unfit for Tenant's intended use and
Tenant reasonably determines it can carry on its business without material
adverse effect, all rent shall be equitably apportioned, subject to the
above-stated exception concerning the negligence of Tenant and its Agents. For
purposes of this Paragraph E, the word "rent" shall not include any Additional
Rent as may be due from Tenant by reason of any uncured default by Tenant under
any term, covenant or condition of this Lease.
F. Insurance proceeds applicable to the Premises and/or Building
shall be and remain the exclusive property of Landlord, and all insurance
proceeds attributable to Tenant's trade fixtures, equipment, furniture,
decoration, (alterations) and other property shall be and remain the exclusive
property of Tenant.
15. EMINENT DOMAIN
A. In the event that more than twenty percent (20%) of the floor
area of the Building, or egress or ingress from or to the Building or any
utility necessary to operate the Premises shall be appropriated or taken under
or in lieu of the power of eminent domain by any public or quasi-public
authority (without the provision by Landlord of alternative ingress and egress
or utility service that is comparable or better than the egress, ingress or
utility service taken), either Landlord or Tenant may terminate this Lease,
effective as of the date of taking, by written notice to the other given within
sixty (60) days from the date of such taking, and the parties shall thereupon be
released from any liability to each other accruing thereafter. Upon such
termination, all Rent and Additional Rent shall be pro-rated to the date of
taking.
B. If there shall occur any such appropriation or taking under or in
lieu of eminent domain not giving rise to a right of termination pursuant to
paragraph A above, or if neither party timely exercises its right of
termination, this Lease shall remain in full force and effect as to the portion
of the Premises remaining, except that (i) to the extent such taking is of a
portion of the Building, the Basic Rent shall be reduced in the proportion that
the floor area taken bears to the total floor area of the Building; and (ii) to
the extent other portions of the Premises are taken, an equitable adjustment in
Basic Rent shall be made. If a portion of the Building shall have been
appropriated or taken and if this Lease shall continue, then and in that event,
Landlord agrees to promptly commence restoration of the Building to a complete
unit of like quality and character as existed prior to such appropriation or
taking. In no event shall Landlord be obligated to incur costs in excess of the
net proceeds of condemnation actually received by Landlord.
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C. If this Lease is terminated as described in this Section, rent
from the date of taking shall be pro-rated and Landlord agrees to refund to
Tenant any rent paid in advance.
D. In the event of any appropriation or taking as aforesaid, whether
whole or partial, Tenant shall not be entitled to any part of the award paid for
such condemnation except as otherwise provided in paragraph E of this Section,
and Landlord is to receive the full amount of such award. Tenant hereby
expressly waives any right or claim to any part of such award, except as
hereinafter provided.
E. Tenant shall have the right to claim and recover from the
condemning authority, but not from Landlord, all such compensation then
permitted by law as may be separately awarded or recoverable by Tenant by reason
of the condemnation (provided that such separate award shall not reduce the
compensation payable to Landlord), including but not limited to compensation for
or on account of any cost or loss to which Tenant might be put in repairing,
altering or removing Tenant's merchandise, furniture, fixtures, leasehold
improvements and equipment.
16. DEFAULT AND REMEDIES
A. If Tenant defaults in the payment of Basic Rent or any Additional
Rent within fifteen (15) days after the due date thereof (no notice thereof
being required to be given by Landlord), or if the Premises shall be deserted,
abandoned or vacated, or if Tenant defaults in compliance with any of the other
covenants or conditions of this Lease and fails to cure the same within thirty
(30) days after the receipt of notice specifying the default, then upon such
rental default or at the expiration of such 30 days, as the case may be,
Landlord may (a) cancel and terminate this Lease upon written notice to Tenant
(whereupon the Term shall terminate and expire, and Tenant shall then quit and
surrender the Premises to Landlord, but Tenant shall remain liable as
hereinafter provided) and/or (b) at any time thereafter re-enter and resume
possession of the Premises as if this Lease had not been made. Anything above to
the contrary notwithstanding, the said 30 day period of time for cure of
non-monetary defaults shall extend beyond such 30 days for the period of time
necessary to effect the cure provided that Tenant shall diligently commence the
cure during such 30 day period and shall diligently and continuously prosecute
the cure to completion.
B. If this Lease shall be terminated or if Landlord shall be
entitled to re-enter the Premises and dispossess or remove Tenant under the
provisions of this Section (either or both of which events are hereinafter
referred to as a "Termination"), Landlord or Landlord's Agents may immediately
or at any time thereafter re-enter the Premises and remove therefrom Tenant, its
Agents, and any subtenants and other persons, firms or corporations, and all or
any of its or their property therefrom, either by summary dispossess proceedings
or by any suitable action or proceeding at law or by peaceable reentry without
being liable to indictment, prosecution or damages therefor, and may repossess
and enjoy the Premises, including all additions, alterations and improvements
thereto.
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C. In case of Termination, the Basic Rent and all other charges
required to be paid by Tenant hereunder shall thereupon become due and shall be
paid by Tenant up to the time of the Termination, and Tenant shall also pay to
Landlord all reasonable expenses which Landlord may then or thereafter incur as
a result of or arising out of a Termination, including but not limited to court
costs, attorneys' fees, brokerage commissions, and costs of terminating the
tenancy of Tenant, re-entering, dispossessing or otherwise removing Tenant and
restoring the Premises to the condition as of the date hereof, reasonable wear
and tear excepted, and from time to time altering and otherwise preparing the
same for re-letting (including but not limited to costs of removing all or any
part of the Alterations made by Tenant). Upon a Termination, Landlord may, at
any time and from time to time (but shall not except to the extent required by
law, be obligated to), re-let the Premises, in whole or in part, either in its
own name or as Tenant's agent, for a term or terms which, at Landlord's option,
may be for the remainder of the Term, or for any longer or shorter period.
D. In addition to the payments required hereinabove in this Section,
Tenant shall be obligated to, and shall, pay to Landlord, upon demand and at
Landlord's option:
(i) damages in an amount which, at the time of Termination, is
equal to the excess, if any, of the then present amount of the installments of
Basic Rent and Additional Rent reserved hereunder, for the period which would
otherwise have constituted the unexpired portion of the Term over the then
present rental value of the Premises for such unexpired portion of the Term
discounted at prime + 2% (the word "Term" for purposes of this clause (i) and
the ensuing clause (ii) being deemed to include any Renewal Term then in effect
or for which the option shall have theretofore been exercised); or
(ii) damages payable in monthly installments, in advance, on
the first day of each calendar month following the Termination, and continuing
until the date originally fixed herein for the expiration of the Term, in
amounts equal to the excess, if any, of the sums of the aggregate expenses paid
by Landlord during the month immediately preceding such calendar month for all
such items as, by the terms of this Lease, are required to be paid by Tenant,
plus an amount equal to the installment of Basic Rent which would have been
payable by Tenant hereunder in respect to such calendar month, had this Lease
not been terminated, over the sum of rents, if any, collected by or accruing to
Landlord in respect to such calendar month pursuant to a re-letting or to any
holding over by any subtenants of Tenant.
E. Except as otherwise required by law in connection with Landlord's
obligation to mitigate damages, Landlord shall in no event be liable for failure
to relet the Premises, or in the event that the Premises are re-let, for failure
to collect rent due under such re-letting; and in no event shall Tenant be
entitled to receive any excess of rents over the sums payable by Tenant to
Landlord hereunder but such excess shall be credited to the unpaid rentals due
hereunder, and to the expenses of reletting and preparing for re-letting as
provided herein.
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F. Suit or suits for the recovery of damages hereunder, or for any
installments of rent; may be brought by Landlord from time to time at its
election, and nothing herein contained shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
terminated under the provisions of this Lease, or under any provision of law, or
had Landlord not reentered into or upon the Premises.
G. Landlord, at its option, in addition to any and all remedies
available to it, shall have the right to charge a fee for payment of rent
received later than fifteen (15) days after the date due, which fee shall be
five percent (5%) of the delinquent payment.
H. Tenant hereby waives all rights of redemption to which Tenant or
any person claiming under Tenant might be entitled, after an abandonment of the
Premises or after a surrender and acceptance of the Premises and Tenant's
leasehold estate, or after a dispossession of Tenant from the Premises, or after
a termination of this Lease, or after a judgment against Tenant in an action in
ejectment, or after the issuance of a final order or warrant of dispossess in a
summary proceeding, or in any other proceeding or action authorized by any rule
of law or statute now or hereafter in force or effect.
I. No mention in this Lease of any specific right or remedy shall
preclude Landlord from exercising any other right or from having any other
remedy or from maintaining any action to which Landlord may otherwise be
entitled hereunder or at law or in equity.
J. Landlord is hereby granted a lien, in addition to any statutory
lien or right to distrain that may exist, upon all property of Tenant in or upon
the Premises, to secure payment of the rent and performance of the covenants and
conditions of this Lease provided however that such lien shall be junior and
subordinate to the lien of existing bank debt, the liens in favor of the Estate
of Edwin M. Stanley (the "Estate") for funds advanced by the Estate prior to the
date hereof, and for any liens granted in connection with any refinancing,
replacement or assignment of such debt. Such lien is agreed to constitute a
security interest and this Lease a security agreement within the meaning of the
Uniform Commercial Code as applicable to New Jersey. Upon default by Tenant
beyond any grace period to cure same, Landlord shall have the right, as agent of
Tenant, and subject to the rights of other lienholders including the Estate, to
take possession of any furniture, fixtures or other personal property of Tenant
found in or about the Premises, and sell the same at public or private sale and
to apply the proceeds thereof to the payment of any monies becoming due under
this Lease, the Tenant hereby waiving the benefit of all laws exempting property
from execution, levy and sale under distress or judgment. Tenant agrees to pay,
as Additional Rent, all reasonable attorneys' fees and other expenses incurred
by Landlord in enforcing its lien given above. Tenant shall be allowed to pursue
any remedies available to it at law or equity in event of default by Landlord.
K. If Landlord defaults in compliance with any terms or conditions
of this Lease, Tenant shall be entitled to pursue any remedy available at law or
in equity in connection therewith.
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17. NOTICES
Wherever in this Lease it shall be required or permitted that
notice or demand be given or served by either party to this Lease to or on the
other, such notice or demand shall be in writing and shall either be served
personally or sent by registered or certified mail, return receipt requested,
to the parties at the addresses described below--to Landlord, at its address
stated at the head of this Lease, with a copy to Leonard H. Selesner, Esq.,
225 Millburn Avenue, Suite 208, Millburn, New Jersey 07041; to Tenant, at its
address stated at the head of this Lease with copy to Donald W. Douglas, 1100
One Main Place, 101 S. W. Main Street, Portland, Oregon 97204. Such addresses
may be changed from time to time by either party by written notices served
upon the other, as above provided. Notices shall be effective upon delivery or
5 days after mailing, as the case may be, except that a mailed notice changing
an address for notice purposes hereunder shall be effective upon actual
receipt.
18. ATTORNMENT; DEFINITION OF TERM "LANDLORD"
A. Tenant shall attorn to any new owner of the Tract, including a
mortgagee of the Tract that is a mortgagee as of the Commencement Date, and
shall execute such attornment instrument as shall reasonably be requested by
such new owner, and Tenant waives any right it may have to surrender possession
of the Premises or terminate this Lease in the event of change of ownership of
the Premises. The term "Landlord", as used in this Lease, means only the owner
for the time being of the Premises, so that in the event of any sale or
conveyance thereof, Landlord (and any successor selling or conveying landlord)
shall be and hereby is entirely freed and relieved of all Landlord's covenants
and obligations hereunder arising from and after the date of such conveyance on
the condition that the purchaser or transferee has assumed and agreed to carry
out any and all covenants and obligations of Landlord hereunder.
B. Upon any transfer of title by Landlord, Tenant agrees to give to
the grantee, at the request of Landlord an estoppel or offset statement as
provided for in Section 22 below ("Estoppel or Offset Statements") and then
current unaudited financial statements of Tenant, each in form reasonably
requested by Landlord.
19. COST OF PERFORMING OBLIGATIONS
Unless otherwise specified, the respective obligations of the
parties to keep, perform and observe any terms, covenants or conditions of this
Lease shall be at the sole cost and expense of the party so obligated.
20. RE-ENTRY BY LANDLORD
Should Tenant make an assignment for the benefit of creditors or
file a voluntary petition in bankruptcy or be adjudicated a bankrupt or take
the benefit of any insolvency act or if a receiver or trustee of Tenant and/or
of its property shall be appointed in any proceedings other than bankruptcy
proceedings and such
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appointment, if made in proceedings instituted by Tenant, shall not be vacated
within thirty (30) days after it has been made, or if made in proceedings
instituted by other than Tenant, shall not be vacated within sixty (60) days
after it has been made, any of the foregoing shall constitute a default
hereunder and Landlord, in addition to all other rights or remedies hereunder
and by law or equity, shall have the immediate right of re-entry and subject to
the rights of other lienholders therein may remove all persons and property from
the Premises and such property may be removed and stored in a public warehouse
or elsewhere at the cost and expense of Tenant, all without Landlord being
deemed guilty of trespass or becoming liable to Tenant for any loss or damage
which may be occasioned thereby, and all Rent for the balance of the Term
(including any Renewal Term for which the option shall have theretofore been
exercised) shall become immediately due.
21. MORTGAGE SUBORDINATION
This Lease shall be subordinate to the lien of any present or,
conditional upon the receipt by Tenant of a nondisturbance agreement reasonably
satisfactory to Tenant, future mortgage(s) on the Premises. Notwithstanding the
automatic nature of the subordination described in this Section, Tenant shall
execute, acknowledge and deliver to Landlord, or to its designee(s), any and all
documents evidencing such subordination as may be reasonably requested by
Landlord or by any proposed mortgagee. In default of such responsibility, Tenant
hereby appoints Landlord as Tenant's attorney-in-fact to execute, acknowledge
and deliver such instrument for and in the name and stead of Tenant, such power
of attorney given to Landlord to be deemed irrevocable and coupled with an
interest. If any mortgagee elects to have Tenant's interest in this Lease
rendered superior in priority to that mortgagee's lien on the Premises, then by
notice to Tenant, this Lease shall be deemed superior to that mortgagee's lien,
whether this Lease was executed before or after execution or recording of the
instrument creating that mortgagee's lien. Tenant shall provide to Landlord,
Landlord's mortgagee and/or any prospective mortgagee of Landlord, such
unaudited financial statements and information relating to Tenant as may be
reasonably requested from time to time by Landlord, the mortgagee and/or the
prospective mortgagee.
22. ESTOPPEL OR OFFSET STATEMENTS
Tenant shall, upon the reasonable request from time to time of
Landlord, execute and deliver an estoppel or offset statement (a) certifying
that this Lease is in full force and effect and has not been modified or
amended, or stating all amendments and modifications thereto; (b) specifying the
dates to which Basic Rent and Additional Rent have been paid; (c) stating
whether or not Tenant then alleges that Landlord is in any respect in default,
and, if so, specifying the alleged default; (d) stating the Commencement Date;
(e) stating which options to renew have been exercised, if any; and (f) stating
such other information as Landlord may reasonably request.
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<PAGE>
23. HOLDOVER
In the event that Tenant shall for any reason remain in possession
of the Premises after the expiration of the Term, such possession shall at the
option of Landlord be on a month-to-month basis subject to the terms and
conditions of this Lease except as to duration of term and except that the Basic
Rent shall be one hundred and fifty percent (150%) of that in effect at
expiration of the Term. The foregoing is not intended to afford to Tenant the
right to remain in possession of the Premises after expiration of the Term
without Landlord's prior written consent.
24. FORCE MAJEURE
The period of time during which either party is prevented or delayed
in the making of any improvements or repairs or fulfilling any obligation
required under this Lease, with the exception of obligations of the payment of
Basic Rent or Additional Rent, due to unavoidable delays caused by fire,
catastrophe, strikes, labor trouble, civil commotion, Acts of God or public
enemies, government prohibitions or regulations or reasonable inability to
obtain materials or any other similar causes beyond such party's reasonable
control, shall be added to such party's time for performance thereof, and such
party shall have no liability by reason thereof. It is understood, not in
limitation of the generality of the foregoing, that Landlord shall under no
circumstances be liable to Tenant in damages or otherwise for any interruption
in service of water, electricity, heating, air conditioning and/or other
utilities and services of any nature caused by an unavoidable delay, by the
making of any necessary repairs or improvements necessary to Tenant's continued
use and enjoyment of the Premises or by any cause beyond Landlord's reasonable
control.
25. ENTRY BY LANDLORD
For a period commencing one (1) year prior to the termination of
this Lease, Landlord and its Agents shall have reasonable access, during
business hours, to the Premises for the purpose of exhibiting the same to
prospective tenants, and shall during the Term have reasonable access, during
business hours, to the Premises for the purpose of exhibiting the same to
prospective purchasers. Landlord shall exercise its right of access for such
purposes, if exercised at all, upon reasonable advance notice to Tenant and in a
manner not unreasonably to interfere with Tenant's business at the Premises. At
all times during the Term, Tenant will permit Landlord and its Agents to enter
the Premises during business hours in order to inspect the same and/or to
enforce or carry out any provision of this Lease.
26. BROKERS
Each party represents to the other it knows of no broker or other
person who introduced the parties to this transaction other than Douglas
Tradinovich for whose commission Landlord shall be liable by separate agreement.
In the event of a claim by any other broker or person for commissions arising
out of a misrepresentation by one of the parties hereto, that party shall
indemnify and hold the other harmless from that claim, such
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<PAGE>
indemnity and hold harmless agreement to include court costs and reasonable
attorneys' fees incurred in respect to or in defense against such claim.
27. END OF TERM
Upon expiration of the Term or of this Lease, Tenant shall peaceably
and quietly quit and surrender the Premises, broom clean, in the condition
received at the Commencement Date reasonable wear and tear and damage by fire or
other casualty excepted. Tenant shall also, subject to Landlord's rights under
paragraph (J) of Section 16 above ("Default and Remedies"), remove all trade
fixtures and movable partitions, and shall repair any damage caused in so moving
and restore the Premises to such condition as existed prior to installation of
such fixtures and partitions reasonable wear and tear excepted. All Alterations
of Tenant shall be left by Tenant and shall remain part of the Premises except
to the extent Landlord may have otherwise specified in a notice to Tenant given
pursuant to paragraph F of Section 10 ("Tenant's Right to Make Alterations;
Signs on Exterior of Premises").
28. LIABILITY OF LANDLORD
Except as otherwise provided in this Section 28, Tenant agrees that
the liability of Landlord (or of any subsequent landlord) in the event of breach
by Landlord shall be limited to Landlord's interest in the Premises. Tenant
expressly agrees that any judgment or award which Tenant may obtain against
Landlord shall be recoverable and satisfied solely out of the right, title and
interest of Landlord in and to the Premises, and Tenant shall have no personal
rights against any principals or partners of Landlord, and shall have no rights
of lien or levy against any other property of Landlord. Notwithstanding the
foregoing, nothing in this Section 28 shall preclude a recovery by Tenant
against Landlord for Landlord's negligence or intentionally wrongful acts or for
Landlord's liability for any environmental hazards or hazardous substances (as
defined in Section 13 above) on the Property to the extent not created or
generated by Tenant.
29. NET LEASE
It is understood and agreed that, except as may otherwise in this
Lease be expressly provided, Tenant has the responsibility of paying all charges
of any kind or nature attributable to the Premises, whether or not specifically
set forth in this Lease, it being the intention of the parties hereto that,
except as may otherwise herein be provided, the Rent payable to Landlord under
this Lease be absolutely net and that Landlord have no expense whatsoever
attributable to the Premises or to the operation or maintenance of the Premises.
30. PERFORMANCE OF TENANT'S OBLIGATIONS
If Tenant shall be in default hereunder, in any respect, Landlord
may at Landlord's option and without waiving its rights hereunder but following
thirty (30) days prior written notice to Tenant, cure such default on behalf of
Tenant, in which event Tenant shall, promptly upon demand by Landlord, reimburse
Landlord for all expenses incurred by
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<PAGE>
Landlord in effecting such cure, including but not limited to attorneys' fees,
together with interest thereon at 12% per annum (whether or not elsewhere in
this Lease it is provided for Landlord to recover interest upon occurrence of a
specified default by Tenant and cure thereof by Landlord). In order to collect
such reimbursement, Landlord shall have all the remedies available under this
Lease and/or by law or equity for a default in the payment of Rent. Tenant shall
also be responsible for all reasonable attorneys' fees incurred by Landlord in
connection with any default or threatened default by Tenant, the enforcement by
Landlord of any covenant made by Tenant, and/or Landlord's exercise of any right
of approval or consent as may be provided for hereunder.
31. FLOOR LOADS
Tenant shall not place a load upon any floor of the Premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law, which Landlord will inform Tenant of prior to the
Commencement Date. Any equipment or property of any nature placed or installed
by Tenant in the Premises shall be placed and maintained in settings sufficient,
in Landlord's reasonable judgment, to absorb and prevent vibration, noise and
annoyance that damages the Building or that is a nuisance to other property
owners.
32. ECRA COMPLIANCE
Except as otherwise provided in this Section 32 and this Lease,
Tenant shall, at Tenant's own expense, comply with the Environmental Cleanup
Responsibility Act, N.J.S.A. 13:1K-6 et seq., and the regulations promulgated
thereunder ("ECRA"), as well as all other environmental laws, rules or
regulations ("Environmental Laws"). To the extent of its responsibility
hereunder, Tenant shall, at Tenant's own expense, make all submissions to,
provide all information to, and comply with all requirements of, the Bureau of
Industrial Site valuation ("the Bureau") of the New Jersey Department of
Environmental Protection ("NJDEP"). Should the Bureau or any other division of
NJDEP determine that a cleanup plan be prepared and that a cleanup be undertaken
because of any spills or discharges of hazardous substances or wastes at the
Premises which have been generated or created by Tenant and which occur during
the Term, then Tenant shall, at Tenant's own expense, prepare and submit the
required plans and financial assurances, and carry out the approved plans to the
extent attributable to Tenant's generation or creation of hazardous substances
or wastes. At no expense to Landlord, Tenant shall promptly provide all
reasonable information requested by Landlord for preparation of nonapplicability
affidavits with respect to ECRA and shall promptly sign and deliver such
affidavits when requested by Landlord. Tenant shall indemnify, defend and save
harmless Landlord against all fines, suits, procedures, claims and actions of
any kind (including attorneys' fees) arising out of or in any way connected with
any spills or discharges of hazardous substances or wastes at the Premises which
have been generated or created by Tenant and which occur during the Term, and
from all fines, suits, procedures, claims and actions of any kind (including
attorneys' fees) arising out of Tenant's failure to provide all information,
make all submissions and take all actions required by the
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Bureau or any other division of NJDEP, or from any violation under or failure to
comply with ECRA or any other Environmental Law to the extent attributable to
Tenant's generation or creation of hazardous substances or wastes. Tenant's
obligations and liabilities under this Section 32 shall continue so long as
Landlord remains responsible for any spills or discharges of hazardous
substances or wastes at the Premises which have been generated or created by
Tenant and which occur during the Term, notwithstanding expiration of the Term
or other termination of this Lease. Tenant's failure to abide by the terms of
this Section 32 shall be restrainable by injunction. Landlord shall be
responsible and shall pay for all losses, costs, damages, claims, fines,
response costs and expenses (including attorneys' fees at trial and on appeal)
attributable to hazardous substances or wastes at, on, under or proximate to the
Premises which have not been generated or created by Tenant during Term of this
Lease, and shall indemnify and hold Tenant harmless therefrom. Landlord's
obligations hereunder shall survive any termination or expiration of this Lease.
33. INVALIDITY OF PARTICULAR PROVISIONS
Wherever in this Lease any portion or part thereof has been stricken
out, whether or not any relative provision has been added, this Lease shall be
read and construed as if the material so stricken were never included herein and
no implication shall be drawn from the text of the material so stricken which
would be inconsistent in any way with the construction or interpretation which
would be appropriate if such material were never contained herein.
34. GENDER AND PERSON
Words of any gender used in this Lease shall be held to include any
other gender, and words in the singular number shall be held to include the
plural, when the sense of the words require same.
35. MODIFICATION
This Lease may not be modified except by an instrument in writing
signed by the parties hereto.
36. COVENANTS TO BIND RESPECTIVE PARTIES
The covenants and agreements contained in this Lease shall inure to
the benefit of the parties hereto and their heirs, legal representatives,
successors and permitted assigns and, subject to Section 18 ("Attornment,
Definition of Term 'Landlord'"), shall be binding on the parties hereto, their
heirs, legal representatives, successors and assigns.
37. NO WAIVER OF BREACHES
The failure of Landlord or Tenant to insist upon strict performance
of any of the covenants or conditions of this Lease or to exercise any option
herein conferred in any one
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<PAGE>
or more instances shall not be construed as a waiver or relinquishment for the
future of any such covenants, conditions or options, but the same shall be and
remain in full force and effect. Acceptance by Landlord of current rent shall
not be deemed a waiver of past obligations of Tenant, nor shall acceptance by
Landlord at any time of any monies proffered by Tenant constituting less than
the entire amount of rent then due be deemed other than receipt of partial
payment on account of the rent due, and shall not constitute an accord or
satisfaction.
38. CAPTIONS
Captions have been used solely for the sake of reference and shall
in no way govern or affect the interpretation hereof.
39. EXHIBITS
All exhibits referred to herein are attached (unless otherwise
specified) and are deemed to be a part hereof.
40. INTEGRATION
The agreements contained in this Lease constitute the full and final
agreement between the parties hereto as to the subject matter hereof, and all
prior agreements or writings of any nature between the parties hereto are hereby
superseded and are integrated herein. This Lease may not be amended except in
writing signed by both parties hereto.
41. JOINT AND SEVERAL LIABILITY
In the event that two or more individuals, corporations,
partnerships or other business associations (or any combination of two or more
thereof) shall sign this Lease as or hereafter become Tenant, the liability of
each such individual, corporation, partnership or other business association to
pay rent and perform all other obligations hereunder shall be joint and several.
In the event that Tenant is or shall be a partnership or other business
association the members of which are, by virtue of statute or general law,
subject to personal liability, the liability of each such member shall be joint
and several.
42. NO OPTION OR OFFER
The submission of this Lease for examination does not constitute a
reservation of, or option for, the Premises nor an offer of any nature, and this
Lease becomes effective only upon execution hereof by Landlord, Tenant and the
guarantor(s), if any.
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43. CHANGES REQUIRED BY LENDER
Tenant shall consent in writing to any changes in this Lease
reasonably required by any prospective mortgage lender provided that no such
changes shall adversely affect Tenant rights hereunder or increase Tenant's
obligations hereunder.
44. CONSENTS AND APPROVALS
Unless it is provided in this Lease that a party hereto shall not
unreasonably withhold a consent or approval required to be received from that
party, the consent or approval shall be at the sole discretion of the party.
45. WAIVER OF JURY TRIAL
The parties waive the right to a jury trial with respect to any
action, including an action for damage or injury, arising out of this Lease or
Tenant's use or occupancy of the Premises.
46. NO LEASE RECORDING
Tenant agrees that it will not record this Lease or any memorandum
hereof.
47. EXTENSION AND RENEWAL
A. For each month during the initial six month Term of this Lease
the Tenant remains on the premises, this Lease is extended for an additional
month. If the Tenant remains on the premises for the initial term of six (6)
months the Lease is extended for a total Term of twelve (12) months from the
Commencement Date to November 30, 1993.
B. Tenant shall be entitled to renew this Lease for one (1) five
(5)-year period, which shall commence on the day immediately subsequent to the
date of the expiration of the initial six month Term plus any extension as
provided in subsection A above (the "Renewal Term"), upon the same terms and
conditions as are contained in this Lease, except that there shall be no further
right of renewal. The Basic Rent during the Renewal Term shall be the same as
set forth in Paragraph 5.A above (i.e., $5,320.00 per month).
C. Subject to Tenant's rights to cure such defaults as provided
in this Lease, Tenant shall only be entitled to exercise its right to renew
if Tenant is not in default of any of the provisions of this Lease at the
time of exercise thereof, and such right shall only be effective if Tenant
shall continue to be current and not in default with respect to the
provisions of this Lease from the date of Tenant's exercise of renewal to the
date of expiration of the initial six month Term as extended by subsection A
above.
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D. Tenant shall exercise its right of renewal, if at all, by
giving Landlord notice of the exercise thereof at least three (3) months prior
to expiration of the initial six month Term plus any extension thereof as
provided in subsection A above.
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands and
seals the day and year first above written.
LANDLORD:
WITNESS OR ATTEST: IDEAL TRADE CO.
2 February 1993 By: /s/ Gilbert Levine
- ----------------------------------- ---------------------------------
Gilbert Levine, Partner
TENANT:
FINE ARTS ENGRAVERS CO., INC.
27 January 1993 By: /s/ LM Westfall
- ----------------------------------- ---------------------------------
L.M. WESTFALL, President
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<PAGE>
FINE ARTS BUCK WESTFALL
GRAPHICS President
August 19, 1993
VIA REGISTERED MAIL
Mr. Gilbert Levine
IDEAL TRADE CO.
596 Market Street
Newark, NJ 07105
RE: EXTENSION OF LEASE TERM
Dear Gil:
Reference is made to that certain Lease Agreement dated as of December
1, 1992 between us, and in particular, to Paragraph 47 of the Lease pursuant
to which Fine Arts Engravers Co., Inc. is granted an option (the "Option") to
renew the Lease term for a five year period by providing written notice to
landlord of exercise of such option on or prior to August 31, 1993.
Subject only to our satisfaction as to the environmental condition of
the property discussed below, this letter provides you written notice of Fine
Arts' exercise of the Option and of its decision to demise the premises for
an additional five year term commencing December 1, 1993 and ending November
30, 1998. As we agreed in our telephone conversation in August 12, 1993,
exercise of this option expressly is contingent upon our receipt from you of
a new environmental audit of the demised property and/or proximate property
that landlord has ordered in connection with a new financing of its property
that is satisfactory to Fine Arts in form, scope and content and that
indicates there are no environmental or potential environmental problems on,
with or near the Property. We understand this report will be completed
sometime in September, 1993. If the environmental report is unsatisfactory to
us in any respect, then, at our option, exercised by written notice to you on
or prior to forty-five (45) days following receipt by us of this report, we
may rescind our exercise of the Option and/or the Lease. Following such
rescission, we will occupy the premises as a month to month tenant.
[LETTERHEAD]
<PAGE>
Mr. Gilbert Levine
August 19, 1993
Page 2
Please acknowledge our right to and the validity of our exercise of the
Option, and please confirm Landlord's acceptance of the conditions thereto as
described herein by executing the enclosed second copy of this letter and
returning same to me.
I hope you had an enjoyable trip to Alaska.
Sincerely yours,
Fine Arts Engravers Company, Inc.
By /s/ L.M. Westfall
--------------------------------
L.M. Westfall, President
ACKNOWLEDGED, AGREED AND
ACCEPTED this 31 day of
August, 1993
Ideal Trade Co., a New Jersey partnership
By: /s/ [ILLEGIBLE]
-------------------------------
Title: /s/ Managing Partner
-----------------------------
cc: Leonard H. Selesner, Esq. (via registered mail)
225 Millburn Avenue, Suite 208
Millburn, NJ 07041
<PAGE>
EXTENSION OF LEASE AGREEMENT
IDEAL TRADE COMPANY, a partnership of New Jersey (hereinafter the
"Landlord") and FINE ARTS ENGRAVERS CO., INC., (hereinafter the "Tenant")
hereby agree to extend a Lease Agreement made between the parties and dated
December 1, 1992 and renewed and extended by virtue of paragraph 47 of said
Lease Agreement, a copy of which is attached hereto and made apart hereof as
Exhibit "A". The parties agree as follows:
1. The terms and conditions of the Lease dated December 1, 1992 shall be
extended as such that the basic rent shall be in accordance with the terms
set forth in Exhibit "B" attached hereto and the lease shall be extended for
an additional five year period beginning November 1, 1998 and terminating on
October 31, 2003. Additionally the terms and conditions as set forth in the
Letter Agreement dated October 16, 1998 of the Levine Family Partnership and
accepted by supplemental letter of Dion Bonnell, CEO of Tenant, copies of
which are attached hereto as Exhibit "C", shall be binding and in full force
and effect with respect to the terms of this extension.
2. The Landlord agrees to said extension and Tenant accepts same subject
to the aforesaid. In the event that any of the terms and conditions of the
Letter Agreement dated October 16, 1998 differ from the Lease Agreement dated
December 1, 1992, the terms and conditions of the Letter Agreement shall
prevail.
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands
and seals this 29 day of December, 1998.
WITNESS OR ATTEST: LANDLORD:
IDEAL TRADE CO.
/s/ [ILLEGIBLE] /s/ Michael Levine
- ------------------------------- -------------------------------
MICHAEL LEVINE, Partner
TENANT:
FINE ARTS ENGRAVERS CO. INC.
/s/ [ILLEGIBLE] /s/ Nick Stanley
- ------------------------------- -------------------------------
President,
<PAGE>
CONSENT TO ASSIGNMENT, ESTOPPEL AND RELEASE
The undersigned Landlord, as successor by purchase to the interest of
Ideal Trade Co., hereby consents to the assignment of that certain Lease
Agreement dated as of the 1st day of December, 1992, by and between IDEAL
TRADE CO., a partnership of New Jersey, and FINE ARTS ENGRAVERS CO., INC.
("Tenant"), as extended by Extensions to Lease dated August 19, 1993 and
December 29, 1998 and as modified by correspondence dated October 16, 1908 and
December 29, 1998 (the "Lease"), on the terms and conditions set forth in the
form of Assignment and Assumption Agreement between Tenant and KEYSTONE
ACQUISITION CORP., a Washington corporation ("Assignee"), attached hereto as
EXHIBIT A (the "Assignment Agreement"). In connection with Landlord's
consent, Landlord further represents and agrees as follows:
1. The Lease is in full force and effect and has not been changed,
modified or amended in any manner;
2. To the best of Landlord's knowledge, (i) all obligations of Tenant
under or in connection with the Lease have been performed to date; (ii)
Landlord has no right of setoff, defense or counterclaim against enforcement
of Tenant's rights under the Lease and Tenant is not in default under the
Lease; and (iii) there has not occurred and there does not exist any
condition or event which, with the passage of time or the giving of notice or
both, would constitute a default or event by either Landlord or Tenant under
the Lease; and
3. Landlord hereby releases Tenant from all obligations under the Lease
arising from and after the Effective Date of the assignment (as defined in
the Assignment Agreement).
IN WITNESS WHEREOF, the undersigned as caused this document to be
executed as of the date written below.
LANDLORD:
LOUSONS 1112 P.W., LLC
BY: PALIN EQUITIES, LLC, MANAGING MEMBER
BY: PALIN ENTERPRISES, MANAGER
BY: PE REALTY CORP.,
MANAGING PARTNER
BY /s/ Michael Palin
--------------------------
MICHAEL PALIN
PRESIDENT
<PAGE>
[SILICON VALLEY LOGO]
QUICKSTART LOAN AND SECURITY AGREEMENT
Borrower: ImageX, Inc. Address: 10800 N.E. 8th Street
Suite 200
Date: February 26, 1997 Bellevue, WA 98004
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and with a loan production office located at 915 118th
Avenue S.E., Suite 250, Bellevue, Washington 98005 and the borrower named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address").
1. Loans
Silicon will make loans to Borrower (the "Loans") in amounts determined by
Silicon in its reasonable business judgment up to the amount (the "Credit
Limit") shown on the Schedule to this Agreement (the "Schedule"), provided no
Event of Default and no event which, with notice or passage of time or both,
would constitute an Event of Default has occurred. All Loans and other monetary
Obligations will bear interest at the rate shown on the Schedule. Interest will
be payable monthly, on the date shown on the monthly billing from Silicon.
Silicon may, in its discretion, charge interest to Borrower's deposit accounts
maintained with Silicon.
2. Security Interest
As security for all present and future indebtedness, guarantees,
liabilities, and other obligations, of Borrower to Silicon (collectively, the
"Obligations"), Borrower hereby grants Silicon a continuing security interest in
all of Borrower's interest in the following types of property, whether now owned
or hereafter acquired, and wherever located (collectively, the "Collateral"):
All "accounts," "general intangibles," general intangibles specifically exclude
patents, copyrights, trademarks and other intellectual property, "chattel
paper," "documents," "letters of credit," "instruments," "deposit accounts,"
"inventory," "farm products," "fixtures" and "equipment," as such terms are
defined in Division 9 of the Washington Uniform Commercial Code in effect on the
date hereof, and all products, proceeds and insurance proceeds of the foregoing.
<PAGE>
3. Representation and Agreements of Borrower
Borrower represents to Silicon as follows, and Borrower agrees that the
following representations will continue to be true, and that Borrower will
comply with all of the following agreements throughout the term of this
Agreement.
3.1 Corporate Existence and Authority
Borrower, if a corporation, is and will continue to be, duly authorized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. The execution, delivery and performance by Borrower of this
Agreement, and all other documents contemplated hereby have been duly and
validly authorized, and do not violate any law or any provision of, and are not
grounds for acceleration under, any agreement or instrument which is binding
upon Borrower.
3.2 Name; Places of Business
The name of Borrower set forth in this Agreement is its correct name.
Borrower shall give Silicon 15 days' prior written notice before changing its
name. The address set forth in the heading to this Agreement is Borrower's chief
executive office. In addition, Borrower has places of business and Collateral is
located only at the locations set forth on the Schedule. Borrower will give
Silicon at least 15 days prior written notice before changing its chief
executive officer or locating the Collateral at any other location.
3.3 Collateral
Silicon has and will at all times continue to have a first-priority
perfected security interest in all of the Collateral other than specific
equipment. Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
3.4 Financial Condition and Statements
All financial statements now or in the future delivered to Silicon have
been, and will be, prepared in conformity with generally accepted accounting
principles. Since the last date covered by any such statement, there has been no
material adverse change in the financial condition or business of Borrower.
Borrower will provide Silicon: (i) within 30 days after the end of each month, a
monthly financial statement prepared by Borrower, and such other information as
Silicon shall reasonably request; (ii) within 120 days following the end of
Borrower's fiscal year, complete annual financial statements, certified by
independent certified public accountants acceptable to Silicon and accompanied
by the unqualified report thereon by said independent
-2-
<PAGE>
certified public accountants; and (iii) other financial information reasonably
requested by Silicon from time to time.
3.5 Taxes; Compliance with Law
Borrower has filed, and will file, when due, all tax returns and reports
required by applicable law, and Borrower has paid, and will pay, when due, all
taxes, assessments, deposits and contributions now or in the future owed by
Borrower. Borrower has complied, and will comply, in all material respects, with
all applicable laws, rules and regulations.
3.6 Insurance
Borrower shall at all times insure all of the tangible personal property
Collateral and carry such other business insurance as is customary in Borrower's
industry.
3.7 Access to Collateral and Books and Records
At reasonable times, on one business day notice, Silicon, or its agents,
shall have the right to inspect the Collateral, and the right to audit and copy
Borrower's books and records.
3.8 Operating Accounts
Borrower shall maintain its primary operating accounts with Bank.
3.9 Additional Agreements
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) enter into any transaction outside the ordinary course of
business except for the sale of capital stock to venture investors, provided
that Borrower promptly delivers written notification to Silicon of any such
sale; (ii) sell or transfer any Collateral, except in the ordinary course of
business; (iii) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower); or (iv) redeem, retire, purchase
or otherwise acquire, directly or indirectly, any of Borrower's stock other than
the repurchase of up to five percent (5%) of Borrower's then issued stock in any
fiscal year from Borrower's employees or directors pursuant to written agreement
with Borrower; or (v) grant a security interest in patents, copyrights,
trademarks or other intellectual property to any third party.
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<PAGE>
4. Term
This Agreement shall continue in effect until the maturity date set forth
on the Schedule (the "Maturity Date"). This Agreement may be terminated, without
penalty, priority to the Maturity Date as follows: (i) by Borrower, effective
three business days after written notice of termination is given to Silicon; or
(ii) by Silicon at any time after the occurrence of any Event of Default,
without notice, effective immediately. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay all Obligations in full,
whether or not such Obligations are otherwise then due and payable. No
termination shall in any way affect or impair any security interest or other
right or remedy of Silicon, nor shall any such termination relieve Borrower of
any Obligation to Silicon, until all of the Obligations have been paid and
performed in full.
5. Events of Default and Remedies
The occurrence of any of the following events shall constitute an "Event
of Default" under this Agreement: (a) Any representations, statement, report or
certificate given to Silicon by Borrower or any of its officers, employees or
agents, now or in the future, is untrue or misleading in a material respect; or
(b) Borrower fails to pay when due any Loan or any interest thereon or any other
monetary Obligation; or (c) the total Obligations outstanding at any time exceed
the Credit Limit; or (d) Borrower fails to perform any other non-monetary
Obligation, which failure is not cured within 5 business days after the date
due; or (e) Dissolution, termination of existence, insolvency or business
failure of Borrower; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by or against Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (f) a material adverse change in the business, operations,
or financial or other condition of Borrower. If an Event of Default occurs,
Silicon, shall have the right to accelerate and declare all of the Obligations
to be immediately due and payable, increase the interest rate by an additional
four percent per annum, and exercise all rights and remedies accorded it by
applicable law.
6. General
If any provision of this Agreement is held to be unenforceable, the
remainder of this Agreement shall still continue in full force and effect. This
Agreement and any other written agreements, documents and instruments executed
in connection herewith are the complete agreement between Borrower and Silicon
and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which
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<PAGE>
are merged and integrated in this Agreement. There are no oral understandings,
representations or agreements between the parties which are not in this
Agreement or in other written agreements signed by the parties in connection
this Agreement. The failure of Silicon at any time to require Borrower to comply
strictly with any of the provisions of this Agreement shall not waive Silicon's
right later to demand and receive strict compliance. Any waiver of a default
shall not waive any other default. None of the provisions of this Agreement may
be waived except by a specific written waiver signed by an officer of Silicon
and delivered to Borrower. The provisions of this Agreement may not be amended,
except in a writing signed by Borrower and Silicon. Borrower shall reimburse
Silicon for all reasonable attorneys' fees and all other reasonable costs
incurred by Silicon, in connection with this Agreement (whether or not a lawsuit
is filed). If Silicon or Borrower files any lawsuit against the other predicated
on a breach of this Agreement, the prevailing party shall be entitled to recover
its reasonable costs and attorneys' fees from the non-prevailing party. Borrower
may not assign any rights under this Agreement without Silicon's prior written
consent. This Agreement shall be governed by the laws of the State of
Washington.
7. Mutual Waiver of Jury Trial
BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS
AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF SILICON OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR AFFILIATES.
8. Borrower shall maintain a Minimum Tangible Net Worth (shareholders equity
less intangible assets) of $400,000.
IMAGEX, INC.
--------------------------------------
By: /s/ Jack Hooper
---------------------------------
CFO
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<PAGE>
Silicon:
SILICON VALLEY BANK
By: Illegible
--------------------------------
Title Senior Vice President
------------------------------
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<PAGE>
[SILICON VALLEY LOGO]
Schedule to
QuickStart Loan and Security Agreement (Master)
BORROWER: ImageX, Inc.
DATE: February 26, 1997
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
Credit Limit (Aggregate) $400,000.00 (includes, without limitation,
(Section 1): Equipment Advances and the Merchant Services
and Business Visa Reserve, if any).
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from
time to time, plus 2% per annum. Interest shall be
calculated on the basis of a 360-day year for the
actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as
its "prime rate;" it is a base rate upon which
other rates charged by Silicon are based, and it
is not necessarily the best rate available at
Silicon. The interest rate applicable to the
Obligations shall change on each date
there is a change in the Prime Rate.
Maturity Date (Section 4): August 26, 1998
Other Locations and
Addresses (Section 3.2): ____________________________
Other Agreements: Borrower also agrees as follows:
1. Loan Fee. Borrower shall concurrently
pay Silicon a non-refundable Loan Fee in
the amount of $4,000.00.
<PAGE>
2. Banking Relationship. Borrower shall at all
times maintain its primary banking
relationship with Silicon.
Borrower: Silicon:
IMAGEX, INC. SILICON VALLEY BANK
By /s/ Jack Hooper By
------------------------------ --------------------------------
Chief Financial Officer Title Senior Vice President
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<PAGE>
[SILICON VALLEY LOGO]
Schedule to
QuickStart Loan and Security Agreement (Equipment Advances)
BORROWER: ImageX, Inc.
DATE: February 26, 1997
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
Credit Limit (Aggregate) $400,000.00 (such amount to be funded under
(Section 1): the aggregate Credit Limit). Equipment
Advances will be made only on or prior to
August 26, 1997 (the "Last Advance Date") and
only for the purpose of purchasing equipment
reasonably acceptable to Silicon. Borrower
must provide invoices for the equipment to
Silicon on or before the Last Advance Date.
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from
time to time, plus 2% per annum. Interest shall be
calculated on the basis of a 360-day year for the
actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as
its "prime rate;" it is a base rate upon which
other rates charged by Silicon are based, and it
is not necessarily the best rate available at
Silicon. The interest rate applicable to the
Obligations shall change on each date
there is a change in the Prime Rate.
Maturity Date (Section 4): After the Last Advance Date, the unpaid principal
balance of the Equipment Advances shall be repaid
in 24 equal monthly installments of principal,
plus interest, commencing on September 26, 1997
and continuing on the same day of each month
thereafter
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<PAGE>
until the entire unpaid principal balance of
the Equipment Advances and all accrued
unpaid interest have been paid (subject to
Silicon's right to accelerate the
Equipment Advances on an Event of Default).
Borrower: Silicon:
IMAGEX, INC. SILICON VALLEY BANK
By /s/ Jack Hooper By
------------------------------ ----------------------------
Chief Financial Officer Title Senior Vice President
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<PAGE>
[SILICON VALLEY LOGO]
Schedule to QuickStart Loan and Security Agreement (Merchant
Services/Business Visa-Registered Trademark- Sublimit)
BORROWER: ImageX, Inc.
DATE: February 26, 1997
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
Merchant Services/ The aggregate Credit Limit shall be reduced by an
Business Visa(R) amount equal to the sum of (a) $0 (the "Merchant
Sublimit (Section 1) Service Reserve") and (b) $30,000.00 (the
"Business Visa-Registered Trademark- Reserve").
Silicon may, in its sole discretion, charge as
Loans, any amounts that may become due or owing
to Silicon in connection with merchant credit
card processing services and/or business
Visa-Registered Trademark- credit card services
furnished to Borrower by or through Silicon,
collectively, the "Credit Card Services."
Borrower shall execute all standard form
applications and agreements, including without
limitation, the Indemnification and Pledge
Agreement, of Silicon in connection with the
Credit Card Services and, without limiting any
of the terms of such applications and
agreements, Borrower will pay all standard fees
and charges of Silicon in connection with the
Credit Card Services and, without limiting any
of the terms of such applications and
agreements, Borrower will pay all standard fees
and charges of Silicon in connection with the
Credit Card Services.
Maturity Date (Section 4): August 26, 1998
Borrower: Silicon:
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<PAGE>
IMAGEX, INC. SILICON VALLEY BANK
By /s/ Jack Hooper By
----------------------------- --------------------------------
Chief Financial Officer Title Senior Vice President
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<PAGE>
[SILICON VALLEY LOGO]
Amended Schedule to
QuickStart Loan and Security Agreement (Master)
BORROWER: ImageX, Inc.
DATE: February 24, 1997
This Amended and Restated Schedule is an integral part of the QuickStart
Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the
above-named borrower ("Borrower") dated as of February 26, 1997, as may be
further amended from time to time.
Credit Limit (Aggregate) $630,000.00 (includes, without limitation,
(Section 1): Equipment Advances, if any, and the
Merchant Services Business Credit Card
Reserve).
Interest Rate (Section 1) A rate equal to the "Prime Rate" in effect from
time to time, plus 2.00% per annum. Interest
shall be calculated on the basis of a 360-day
year for the actual number of days elapsed.
"Prime Rate" means the rate announced from time
to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by
Silicon are based, and it is not necessarily
the best rate available at Silicon. The
interest rate applicable to the Obligations
shall change on each date there is a change in
the Prime Rate.
Maturity Date (Section 4): August 26, 1998
Other Locations and Addresses
(Section 3.2): ______________________________________
Other Agreements: Borrower also agrees as follows:
1. Banking Relationship. Borrower shall at
all times maintain its primary banking
relationship with Silicon.
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<PAGE>
Borrower: Silicon:
IMAGEX, INC. SILICON VALLEY BANK
By /s/ Jack Hooper By
------------------------------- ----------------------------------
President or Vice President Title
-------------------------------
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<PAGE>
[SILICON VALLEY LOGO]
Amended Schedule to
QuickStart Loan and Security Agreement (Master)
BORROWER: ImageX.com, formerly known as ImageX, Inc.
DATE: March, 1999
This Amended and Restated Schedule is an integral part of the QuickStart
Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the
above-named borrower ("Borrower") dated as of _____________, as may be further
amended from time to time.
Credit Limit (Aggregate) $400,000 (includes, without limitation,
(Section 1): Equipment Advances, if any, and the
Merchant Services Business Credit Card
Reserve).
Interest Rate (Section 1) A rate equal to the "Prime Rate" in effect from
time to time, plus ___% per annum. Interest
shall be calculated on the basis of a 360-day
year for the actual number of days elapsed.
"Prime Rate" means the rate announced from time
to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by
Silicon are based, and it is not necessarily
the best rate available at Silicon. The
interest rate applicable to the Obligations
shall change on each date there is a change in
the Prime Rate.
Maturity Date (Section 4): August 26, 1999
Other Locations and Addresses
(Section 3.2): ______________________________________
Other Agreements: Borrower also agrees as follows:
1. Loan Fee. Borrower shall concurrently
pay Silicon a non-refundable Loan Fee in
the amount of $____________.
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<PAGE>
2. Banking Relationship. Borrower shall at all
times maintain its primary banking
relationship with Silicon.
Borrower: Silicon:
/s/ Richard Begert
- -----------------------
SILICON VALLEY BANK
By President By CD JH
------------------------------ ---------------------------------
President or Vice President Title
------------------------------
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<PAGE>
[SILICON VALLEY LOGO]
Amended Schedule to
QuickStart Loan and Security Agreement (Master)
BORROWER: ImageX.com, formerly known as ImageX, Inc.
DATE: March 31, 1999
This Amended and Restated Schedule is an integral part of the QuickStart
Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the
above-named borrower ("Borrower") dated as of February 26, 1997, as may be
further amended from time to time.
Credit Limit (Aggregate) $230,000.00 (includes, without limitation,
(Section 1): Equipment Advances, if any, and the
Merchant Services Business Credit Card
Reserve).
Interest Rate (Section 1) A rate equal to the "Prime Rate" in effect from
time to time, plus ___% per annum. Interest
shall be calculated on the basis of a 360-day
year for the actual number of days elapsed.
"Prime Rate" means the rate announced from time
to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by
Silicon are based, and it is not necessarily
the best rate available at Silicon. The
interest rate applicable to the Obligations
shall change on each date there is a change in
the Prime Rate.
Maturity Date (Section 4): November 26, 1999
Other Locations and Addresses
(Section 3.2): ______________________________________
Other Agreements: Borrower also agrees as follows:
1. Loan Fee. Borrower shall concurrently
pay Silicon a non-refundable Loan Fee in
the amount of $_____N/A_____.
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<PAGE>
2. Banking Relationship. Borrower shall at all
times maintain its primary banking
relationship with Silicon.
Borrower: Silicon:
/s/ Richard Begert
- -----------------------
SILICON VALLEY BANK
By President By CD JH
------------------------------- ------------------------------
President or Vice President Title Vice President
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<PAGE>
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of 2-26-97, by and between
Imagex, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
In connection with, among other documents, the Loan and Security Agreement
(the "Loan Documents") being concurrently executed herewith between Borrower
and Bank, Borrower agrees as follows:
1. Borrower shall not sell, transfer, assign, mortgage, pledge, lease,
grant a security interest in, or encumber any of Borrower's
intellectual property, including, without limitation, the following:
a. Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship
and derivative work thereof, whether published or unpublished
and whether or not the same also constitutes a trade secret, now
or hereafter existing, created, acquired or held;
b. All mask works or similar rights available for the protection
of semiconductor chips, now owned or hereafter acquired;
c. Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
d. Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
e. All patents, patent applications and like protections
including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the same, including without limitation
the patents and patent applications;
f. Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of
Borrower connected with and symbolized by such trademarks,
including without limitation;
g. Any and all claims for damages by way of past, present and
future infringements of any of the rights included above, with
the right, but not the obligation, to sue for and collect such
damages for said use or infringement of the intellectual
property rights identified above;
h. All licenses or other rights to use any of the Copyrights,
Patents, Trademarks or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such
license or rights; and
i. All amendments, extensions, renewals and extensions of any of
the Copyrights, Trademarks, Patents, or Mask Works; and
<PAGE>
j. All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing;
2. It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this Negative
Pledge Agreement.
3. Capitalized terms used but not otherwise defined herein shall have
the same meaning as in the Loan Documents.
BORROWER:
ImageX, Inc.
By: /s/ Jack Hooper
------------------------------
Name: Jack Hooper
----------------------------
Title: CFO
---------------------------
BANK:
SILICON VALLEY BANK
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
MASTER
LOAN AND SECURITY AGREEMENT
(SHORT FORM)
<PAGE>
CONTENTS
1 ACCOUNTING AND OTHER TERMS ............................................ 1
2 LOAN AND TERMS OF PAYMENT ............................................. 1
2.1 Credit Extensions ................................................ 1
2.1.1 Revolving Advances ......................................... 1
2.1.2 Equipment Advances ......................................... 2
2.2 Overadvances ..................................................... 2
2.3 Interest Rate; Payments .......................................... 2
2.4 Fees ............................................................. 3
3 CONDITIONS OF LOANS ................................................... 3
3.1 Conditions Precedent to Initial Credit Extension ................. 3
3.2 Conditions Precedent to all Credit Extensions .................... 3
4 CREATION OF SECURITY INTEREST ......................................... 3
4.1 Grant of Security Interest ....................................... 3
5 REPRESENTATIONS AND WARRANTIES ........................................ 3
5.1 Due Organization and Authorization ............................... 4
5.2 Collateral ....................................................... 5
5.3 Litigation ....................................................... 5
5.4 No Material Adverse Change in Financial Statements ............... 5
5.5 Solvency ......................................................... 5
5.6 Regulatory Compliance ............................................ 5
5.7 Subsidiaries ..................................................... 5
5.8 Full Disclosure .................................................. 5
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<PAGE>
6 AFFIRMATIVE COVENANTS ................................................. 6
6.1 Government Compliance ............................................ 6
6.2 Financial Statements, Reports, Ceritificates ..................... 6
6.3 Inventory; Returns ............................................... 7
6.4 Taxes ............................................................ 7
6.5 Insurance ........................................................ 7
6.6 Primary Accounts ................................................. 7
6.7 Financial Covenants .............................................. 7
6.9 Further Assurances ............................................... 7
7 NEGATIVE COVENANTS .................................................... 7
7.1 Dispositions ..................................................... 8
7.2 Changes in Business, Ownership, Management or Business Locations.. 8
7.3 Mergers or Acquisitions .......................................... 8
7.4 Indebtedness ..................................................... 8
7.5 Encumbrance ...................................................... 8
7.6 Investments; Distributions ....................................... 8
7.7 Transactions with Affiliates ..................................... 8
7.8 Subordinated Debt ................................................ 8
7.9 Compliance ....................................................... 9
8 EVENTS OF DEFAULT ..................................................... 9
8.1 Payment Default .................................................. 10
8.2 Covenant Default ................................................. 10
8.3 Material Adverse Change .......................................... 10
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<PAGE>
8.4 Attachment ....................................................... 10
8.5 Insolvency ....................................................... 10
8.6 Other Agreements ................................................. 10
8.7 Judgments ........................................................ 10
8.8 Misrepresentations ............................................... 11
9 BANK'S RIGHTS AND REMEDIES ............................................ 11
9.1 Rights and Remedies .............................................. 11
9.2 Power of Attorney ................................................ 12
9.3 Accounts Collection .............................................. 12
9.4 Bank Expenses .................................................... 12
9.5 Bank's Liability for Collateral .................................. 12
9.6 Remedies Cumulative .............................................. 12
9.7 Demand Waiver .................................................... 13
10 NOTICES ............................................................... 13
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER ............................ 13
12 GENERAL PROVISIONS .................................................... 14
12.1 Successors and Assigns ........................................... 14
12.2 Indemnification .................................................. 14
12.3 Time of Essence .................................................. 14
12.4 Severability of Provision ........................................ 14
12.5 Amendments in Writing, Integration ............................... 14
12.6 Counterparts ..................................................... 14
12.7 Survival ......................................................... 14
12.8 Confidentiality .................................................. 15
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<PAGE>
12.9 Attorney's Fees, Costs and Expenses .............................. 15
13 DEFINITIONS ........................................................... 15
13.1 Definitions ...................................................... 15
-iv-
<PAGE>
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated September 24,
1998, between SILICON VALLEY BANK ("Bank") a California-chartered bank ("Bank")
with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054
and with a loan production office located at 915 118th Ave. S.E., Suite 250,
Bellevue, WA 98005 and IMAGEX.COM, INC. ("Borrower") 10800 NE 8th Street, Suite
200, Bellevue, WA 98004, provides the terms on which Bank will lend to Borrower
and Borrower will repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation" in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 13. This Agreement shall be construed to impart
upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower will pay Bank the unpaid principal amount of all
Credit Extensions and interest on the unpaid principal amount of the Credit
Extensions.
2.1.1 Revolving Advances.
(a) Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base minus (ii) the outstanding
principal balance of the Committed Revolving Line. Amounts borrowed under this
Section may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to that reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.
<PAGE>
2.1.2 Equipment Advances.
(a) Through December 31, 1998 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. The Equipment Advances
may only be used to purchase Equipment and may not exceed 100% of the equipment
invoice for the eligible Equipment purchased, excluding taxes, shipping,
warranty charges, freight discounts and installation expense.
(b) Interest accrues from the date of each Equipment Advance at the rate
in Section 2.3(a) and is payable monthly until the Equipment Availability End
Date occurs. Equipment Advances outstanding on the Equipment Availability End
Date are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the last of each month following the Equipment
Availability End Date and ending on January 31, 2002 (the "Equipment Maturity
Date"). Equipment Advances when repaid may not be reborrowed.
(c) To obtain an Equipment Advance, Borrower must notify Bank (the notice
is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1 Business Day
before the day on which the Equipment Advance is to be made. The notice in the
form of Exhibit B (Payment/Advance Form) must be signed by a Responsible Officer
or designee and include a copy of the invoice for the Equipment being financed.
2.2 Overadvances. If Borrower's Obligations under Section 2.1.1 exceed the
lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base,
Borrower must immediately pay in cash to Bank the excess. If Borrower's
Obligations under Section 2.1.2 exceed the lesser of either (i) the Committed
Equipment Line or (ii) 100% of the equipment invoice for the eligible Equipment
purchased, excluding taxes, shipping, warranty charges, freight discounts and
installation expense, Borrower must immediately pay in cash to Bank the excess.
2.3 Interest Rate; Payments.
(a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate 1.0 percentage points above the Prime Rate.
Equipment Advances accrue interest on the outstanding principal balance at a per
annum rate 2.0 percentage points above the Prime Rate. After an Event of
Default, Obligations accrue interest at 5 percent above the rate effective
immediately before the Event of Default. The interest rate increases or
decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
(b) Payments. Interest is payable on the last day of each month. Bank may
debit any of Borrower's deposit accounts including Account Number 3300051842 for
principal and interest payments or any amounts Borrower owes Bank. Bank will
notify Borrower when it debits Borrower's accounts. These debits are not a
set-off. Payments received after 12:00
-2-
<PAGE>
noon Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.
2.4 Fees. Borrower will pay to Bank:
(a) Facility Fee. A fully earned, non-refundable facility fee of $7,500
due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the Closing Date when due.
3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 Conditions Precedent to all Credit Extensions. Bank's obligations to make
each Credit Extension, including the initial Credit Extension, is subject to the
following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
in Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants Bank a continuing security
interest in all presently existing and later acquired Collateral to secure all
Obligations and performance of each of Borrower's duties under the Loan
Documents and any other documents or agreements between Bank and Borrower to
document Obligations arising with respect to existing extensions of credit.
Except for Permitted Liens, any security interest will be a first priority
security interest in the Collateral. Bank may place a "hold" on any deposit
account pledged as Collateral. If the Agreement is terminated, Bank's lien and
security interest in the Collateral will continue until Borrower fully satisfies
its Obligations.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
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5.1 Due Organization and Authorization. Borrower and each Subsidiary is duly
existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formations documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
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5.2 Collateral. Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Eligible Accounts are bona fide, existing obligations, and
the service or property has been performed or delivered to the account debtor or
its agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 Litigation. Except as shown in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary in which an adverse decision could cause a Material
Adverse Change.
5.4 No Material Adverse Change in Financial Statements. All consolidated
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrowers consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.5 Solvency. The fair salable value of Borrower's assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; the Borrower
is not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance. Borrower is not an "investment company" or a company
"controlled" by an "investment company" under the Investment Company Act.
Borrower is not engaged as one of its important activities in extending credit
for margin stock (under Regulations G, T and U of the Federal Reserve Board of
Governors). Borrower has complied with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could cause a Material Adverse Change. None of Borrower's or any Subsidiary's
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower's knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each Subsidiary has timely filed all required tax returns or made adequate
provision to pay, all taxes. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted.
5.7 Subsidiaries. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.
5.8 Full Disclosure. No representation, warranty or other statement of Borrower
in any certificate or written statement given to Bank contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading.
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6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 Government Compliance. Borrower will maintain its 'and all Subsidiaries'
corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a material adverse effect on Borrower's business or operations.
Borrower will comply, and have each Subsidiary comply, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change.
6.2 Financial Statements, Reports, Certificates. (a) Borrower will deliver to
Bank: (i) as soon as available, but no later than 30 days after the last day of
each month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period, in a form
acceptable to Bank and certified by a Responsible Officer; (ii) as soon as
available, but no later than 90 days after the end of Borrower's fiscal year,
audited consolidated financial statements prepared under GAAP, consistently
applied, together with an opinion on the financial statements from an
independent certified public accounting firm acceptable to Bank; (iii) within 5
days of filing, copies of all statements, reports and notices made available to
Borrower's security holders or to any holders of Subordinated Debt and all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission; (iv) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of $100,000 or more; (v) and budgets, sales
projections, operating plans or other financial information Bank requests.
(b) Within 20 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable and accounts payable.
(c) Within 30 days after the last day of each month, Borrower will deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at Borrower's expense,
but the audits will be conducted no more often than once every 6 months unless
an Event of Default has occurred and is continuing.
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6.3 Inventory; Returns. Borrower will keep all Inventory in good and marketable
condition, free from material defects. Returns and allowances between Borrower
and its account debtors will follow Borrower's customary practices as they exist
at the Closing Date. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims that involve more than $50,000.
6.4 Taxes. Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.5 Insurance. Borrower will keep its business and the Collateral insured for
risks and in amounts, as Bank requests. Insurance policies will be in a form,
with companies, and in amounts that are satisfactory to Bank. All property
policies will have a lender's loss payable endorsement showing Bank as an
additional loss payee and all liability policies will show the Bank as an
additional insured and provide that the insurer must give Bank at least 20 days
notice before canceling its policy. At Bank's request, Borrower will deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy will, at Bank's option, be payable to Bank on account
of the Obligations.
6.6 Primary Accounts. Borrower will maintain its primary depository and
operating accounts with Bank.
6.7 Financial Covenants. Borrower will maintain as of the last day of each month
from and after the earlier of (i) January 31, 1999 or (ii) the close of
Borrower's Series E equity round:
(a) Quick Ratio. A ratio of Quick Assets to Current Liabilities of at
least 1.50 to 1.0.
(b) Tangible Net Worth. A Tangible Net Worth of at least $1,000,000.00.
(c) Liquidity Coverage. A ratio of (i) unrestricted cash (and equivalents)
plus (x) the Committed Revolving Line or the Borrowing Base, whichever is less,
minus (y) the outstanding principal balance of the Committed Revolving Line over
(ii) the outstanding principal balance of the Committed Equipment Line of at
least 1.5 to 1.0.
6.9 Further Assurances. Borrower will execute any further instruments and take
further action as Bank requests to perfect or continue Bank's security interest
in the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
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7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively "Transfer"), or permit any of its Subsidiaries to Transfer, all or
any part of its business or property, other than a Transfer: (i) of Inventory in
the ordinary course of business: (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete Equipment.
7.2 Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a change in
(i) its ownership of 50% of more or (ii) senior management (defined for this
purpose as Borrower's chief executive officer, chief operating officer and chief
financial officer); provided, however, that the hiring of a chief executive
officer and a chief financial officer by Borrower for openings existing as of
the Closing Date will not be considered a "change of senior management" for
purposes of this covenant although this provision will apply to subsequent
openings in those positions. Borrower will not, without at least 30 days prior
written notice to Bank, relocate its principal executive office or add any new
offices or business locations.
7.3 Mergers or Acquisitions. (i) Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person; or (ii) merge or consolidate a
Subsidiary into another Subsidiary or into Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or
assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Bank's first priority security interest in the Collateral
to change.
7.6 Investments; Distributions. (i) Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so; or (ii) pay any dividends or make
any distribution or payment or redeem, retire or purchase any capital stock.
7.7 Transactions with Affiliates. Directly or indirectly enter or permit any
material transaction with any Affiliate, except transactions that are in the
ordinary course of Borrower's business, on terms less favorable to Borrower than
would be obtained in an arm's length transaction with a non-affiliated Person.
7.8 Subordinated Debt. Make or permit any payment on any Subordinated Debt,
except under the terms of the Subordinated Debt, or amend any provision in any
document relating to the Subordinated Debt, without Bank's prior written
consent.
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7.9 Compliance. Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Advance for that purpose; fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
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8.1 Payment Default. Borrower fails to pay any of the Obligations;
8.2 Covenant Default. Borrower does not perform any obligation in Section 6 or
violates any covenant in Article 7 or does not perform or observe any other
material term, condition or covenant in this Agreement, any Loan Documents, or
in any agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts in the 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional time, (of not
more than 30 days) to attempt to cure the default; or Borrower does not perform
any obligation under any other documents or agreements between Bank and Borrower
to document Obligations arising with respect to existing extensions of credit in
accordance with the terms of such document or agreement. During the additional
period the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 Material Adverse Change. (i) There occurs a material impairment in the
perfection or priority of Bank's security interest in the Collateral or in the
value of such Collateral which is not covered by adequate insurance; or (ii)
Bank determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period;
8.4 Attachment. (i) Any material portion of Borrower's assets is attached,
seized, levied on, or comes into possession of a trustee or receiver and the
attachment, seizure or levy is not removed in 10 days; (ii) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iii) a judgment or other claim becomes a Lien on a
material portion of Borrower's assets; or (iv) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within 10 days after Borrower receives notice. These are not Events
of Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions will be made during the cure period);
8.5 Insolvency. (i) Borrower becomes insolvent; (ii) Borrower begins an
Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within 30 days (but no Credit Extensions
will be made before any Insolvency Proceeding is dismissed);
8.6 Other Agreements. There is a default in any agreement between Borrower and a
third party that gives the third party the right to accelerate any indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 Judgments. A money judgment(s) in the aggregate of at least $50,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days (but no
Credit Extensions will be made before the judgment is stayed or satisfied);
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8.8 Misrepresentations. If Borrower or any Person acting for Borrower makes any
material misrepresentation or material misstatement now or later in any warranty
or representation in this Agreement or in any communication delivered to Bank or
to induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. When an Event of Default occurs and continues Bank may,
without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requests and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and ad franchise agreements inure to Bank's benefit;
and
(g) Dispose of the Collateral according to the Code.
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9.2 Power of Attorney. When an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 Accounts Collection. When an Event of Default occurs and continues, Bank may
notify any Person owing Borrower money of Bank's security interest in the funds
and verify the amount of the Account. Borrower must collect all payments in
trust for Bank and, if requested by Bank, immediately deliver the payments to
Bank in the form received from the account debtor, with proper endorsements for
deposit.
9.4 Bank Expenses. If Borrower fails to pay any amount or furnish any required
proof of payment to third persons Bank may make all or part of the payment or
obtain insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 Bank's Liability for Collateral. If Bank complies with reasonable banking
practices it is not liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, or other person. Borrower bears all risk of loss, damage or destruction
of the Collateral.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement, the
Loan Documents, and all other agreements are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank's exercise of one
right or remedy is not an election, and Bank's waiver of any Event of Default is
not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.
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9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guaranties held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses below:
Borrower ImageX.com, Inc.
10800 NE 8th Street, Suite 200
Bellevue, WA 98004
Attn: F. Joseph Verschueren, President
FAX: (425) 452-9266
Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Carolyn Grant
FAX: (425) 646-8100
A Party may change its notice address by giving the other Party written
notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Washington law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in King County, Washington.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
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12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or Obligations under it without Bank's prior written
consent which may be granted or withheld in Bank's discretion. Bank has the
right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.
12.2 Indemnification. Borrower will indemnify, defend and hold harmless Bank and
its officers, employees and agents against: (a) all obligations, demands,
claims, and liabilities asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (b) all losses or Bank
Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank Line and Borrower (including reasonable attorneys'
fees and expenses), except for losses caused by Bank's gross negligence or
willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
12.4 Severability of Provision. Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision.
12.5 Amendments in Writing, Integration. All amendments to this Agreement must
be in writing. This Agreement and the Loan Documents represent the entire
agreement about this subject matter, and supersedes prior or contemporaneous
negotiations or agreements. All prior or contemporaneous agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, are an original, and all taken together, are one Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
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12.8 Confidentiality. In handling any confidential information, Bank will
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Bank's
subsidiaries or affiliates in connection with their business with Borrower; (ii)
to prospective transferees or purchasers of any interest in the Loans; (iii) as
required by law, regulation, subpoena, or other order, (iv) as required in
connection with Bank's examination or audit; and (v) as Bank considers
appropriate exercising remedies under this Agreement. Confidential information
does not include information that either: (a) is in the public domain or in
Bank's possession when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank
does not know that the third party is prohibited from disclosing the
information.
12.9 Attorneys' Fees, Costs and Expenses. In any action or proceeding between
Borrower and Bank arising out of the Loan Documents, the prevailing party will
be entitled to recover its reasonable attorneys' fees and other costs and
expenses incurred, in addition to any other relief to which it may be entitled.
13 DEFINITIONS
13.1 Definitions. In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the
Committed Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Borrowing Base" is 75% of Eligible Accounts, as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
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"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the Washington Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
"Committed Revolving Line" is a Credit Extension of up to $300,000.00.
"Committed Equipment Line" is a Credit Extension of up to $450,000.00;
provided, however that notwithstanding anything else contained in this
Agreement, Borrower may borrow not more than $200,000.00 of the Committed
Equipment Line until such time as Bank has received evidence, satisfactory in
Bank's sole discretion, that a term sheet has been agreed upon with one or more
investors to complete an issuance of additional equity securities of Borrower of
at least $2,100,000.00.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Copyrights" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"Credit Extension" is each Advance, Equipment Advance, Letter of Credit,
Term Loan, Exchange Contract or any other extension of credit by Bank for
Borrower's benefit.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change
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eligibility standards by giving Borrower notice. Unless Bank agrees otherwise in
writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed
that percentage, unless Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which goods
are consigned, sales guaranteed, sale or return, sale on approval, bill and
hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" is defined in Section 2.1.2.
"Equipment Availability End Date" is defined in Section 2.1.2.
-17-
<PAGE>
"Equipment Loan Maturity Date" is defined in Section 2.1.2.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with as creditors, or proceedings seeking reorganization, arrangement,
or other relief.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Mask Works" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and
-18-
<PAGE>
including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank.
"Patents" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
-19-
<PAGE>
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licenser or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of less than 12 months determined according to GAAP.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is the earlier of (i) the Closing Date plus 364
days or (ii) September 18, 1999.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, joint venture, or any other business
entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrowers consolidated balance sheet, including all
Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
-20-
<PAGE>
"Trademarks" are trademark and service mark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
BORROWER:
IMAGEX.COM, INC.
By: /s/ F. Joseph Verschueren
-------------------------
Title: President
---------------------
SILICON VALLEY BANK
By: /s/ [Illegible]
-----------------------
Title: Vice President
--------------------
<PAGE>
CREDIT AGREEMENT
Between
KEYSTONE ACQUISITION CORP.
and
SEAFIRST BANK
dated April 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Article 1 : Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 General Provisions. . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Available Amount. . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.8 Conversion Date . . . . . . . . . . . . . . . . . . . . . . . . 1
1.9 Converting Loan Advances. . . . . . . . . . . . . . . . . . . . 1
1.10 Converting Loan Credit Limit. . . . . . . . . . . . . . . . . . 2
1.11 Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Current Liabilities . . . . . . . . . . . . . . . . . . . . . . 2
1.13 EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . 2
1.15 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.16 Floating Rate Margin. . . . . . . . . . . . . . . . . . . . . . 2
1.17 Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.18 Funded Debt/EBITDA Ratio. . . . . . . . . . . . . . . . . . . . 2
1.19 GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.20 LIBOR Rate Margin . . . . . . . . . . . . . . . . . . . . . . . 3
1.21 Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . 3
1.22 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23 Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.24 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26 Revolving Loan Advances . . . . . . . . . . . . . . . . . . . . 3
1.27 Revolving Loan Credit Limit . . . . . . . . . . . . . . . . . . 3
1.28 Swap Contract . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.29 Swap Obligations. . . . . . . . . . . . . . . . . . . . . . . . 4
1.30 Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . . 4
1.31 Termination Date. . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 Trailing Basis. . . . . . . . . . . . . . . . . . . . . . . . . 4
Article 2 : Revolving Loan. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Revolving Loan Facility.. . . . . . . . . . . . . . . . . . . . 4
2.2 Revolving Note. . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Procedure for Revolving Loan Advances.. . . . . . . . . . . . . 4
2.4 Facility Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Article 3 : Converting Loan Facility. . . . . . . . . . . . . . . . . . . . . 4
3.1 Converting Loan.. . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Procedure for Converting Loan Advances. . . . . . . . . . . . . 5
3.4 Repayment of Principal. . . . . . . . . . . . . . . . . . . . . 5
3.5 Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . . . 5
Article 4 : Collateral Security . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Maintenance of Security.. . . . . . . . . . . . . . . . . . . . 5
Article 5 : Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Article 6 : Conditions of Lending . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Authorization.. . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Documentation.. . . . . . . . . . . . . . . . . . . . . . . . . 6
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<PAGE>
6.3 Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.4 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.5 Proof of Insurance. . . . . . . . . . . . . . . . . . . . . . . 6
6.6 Representations and Warranties. . . . . . . . . . . . . . . . . 6
6.7 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Article 7 : Representations and Warranties. . . . . . . . . . . . . . . . . . 6
7.1 Existence.. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.2 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3 No Legal Bar. . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4 Financial Information.. . . . . . . . . . . . . . . . . . . . . 7
7.5 Liens and Encumbrances. . . . . . . . . . . . . . . . . . . . . 7
7.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.7 Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . 7
7.8 Employee Benefit Plan.. . . . . . . . . . . . . . . . . . . . . 7
7.9 Misrepresentations. . . . . . . . . . . . . . . . . . . . . . . 7
7.10 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.11 Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . . . 7
7.12 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . . 8
Article 8 : Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . 8
8.1 Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Interest Coverage Ratio.. . . . . . . . . . . . . . . . . . . . 8
8.3 Debt Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . 8
8.4 Funded Debt/EBITDA Ratio. . . . . . . . . . . . . . . . . . . . 8
8.5 Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . . 8
8.6 Current Ratio.. . . . . . . . . . . . . . . . . . . . . . . . . 9
8.7 Financial Information.. . . . . . . . . . . . . . . . . . . . . 9
8.8 Maintenance of Existence. . . . . . . . . . . . . . . . . . . . 9
8.9 Books and Records.. . . . . . . . . . . . . . . . . . . . . . . 9
8.10 Access to Premises and Records. . . . . . . . . . . . . . . . . 9
8.11 Notice of Events. . . . . . . . . . . . . . . . . . . . . . . .10
8.12 Payment of Debts and Taxes. . . . . . . . . . . . . . . . . . .10
8.13 Deposit Accounts. . . . . . . . . . . . . . . . . . . . . . . .10
8.14 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . .10
Article 9 : Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . .10
9.1 Funded Debt.. . . . . . . . . . . . . . . . . . . . . . . . . .10
9.2 Liens and Encumbrances. . . . . . . . . . . . . . . . . . . . .11
9.3 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . .11
9.4 Disposition of Assets.. . . . . . . . . . . . . . . . . . . . .11
9.5 Mergers.. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
9.6 Capital Structure.. . . . . . . . . . . . . . . . . . . . . . .11
9.7 Wage and Hour Laws. . . . . . . . . . . . . . . . . . . . . . .11
9.8 ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
9.9 Dissolution.. . . . . . . . . . . . . . . . . . . . . . . . . .11
9.10 Business Activities.. . . . . . . . . . . . . . . . . . . . . .11
9.11 Dividends.. . . . . . . . . . . . . . . . . . . . . . . . . . .12
9.12 Loans.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
9.13 Permissible Loans and Investments.. . . . . . . . . . . . . . .12
Article 10 : Events and Consequences of Default . . . . . . . . . . . . . . .12
10.1 Events of Default.. . . . . . . . . . . . . . . . . . . . . . .12
10.2 Remedies Upon Default.. . . . . . . . . . . . . . . . . . . . .13
10.3 Alleged Default by Bank.. . . . . . . . . . . . . . . . . . . .13
Article 11 : Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . .14
11.1 Manner of Payments. . . . . . . . . . . . . . . . . . . . . . .14
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<PAGE>
11.2 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
11.3 Documentation and Administration Expenses.. . . . . . . . . . .14
11.4 Collection Expenses.. . . . . . . . . . . . . . . . . . . . . .15
11.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.6 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.7 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.8 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.9 Mandatory Arbitration.. . . . . . . . . . . . . . . . . . . . .15
11.10 Construction. . . . . . . . . . . . . . . . . . . . . . . . . .16
11.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made between KEYSTONE ACQUISITION
CORP., a Washington corporation, doing business as Fine Arts Graphics
("Borrower"), and Bank of America National Trust and Savings Association,
doing business as SEAFIRST BANK, a national banking association (including
its successors and/or assigns, "Bank"). The parties agree as follows:
ARTICLE 1: DEFINITIONS
1.1 GENERAL PROVISIONS. All terms defined below shall have the
meaning indicated. All references in this Agreement to:
(a) "dollars" or "$" shall mean U.S. dollars;
(b) "Article," "Section," or "Subsection" shall mean articles,
sections, and subsections of this Agreement, unless otherwise indicated;
(c) terms defined in the Washington version of the Uniform
Commercial Code, R.C.W. Section 62A.9-101, ET SEQ. ("UCC"), and not
otherwise defined in this Agreement, shall have the meaning given in the
UCC; and
(d) an accounting term not otherwise defined in this Agreement
shall have the meaning assigned to it under GAAP.
1.2 ACCOUNTS shall mean all of Borrower's receipts, accounts, drafts,
acceptances, contract rights of and for moneys and performances due or to
become due, chattel paper, and other forms of receivables, now owned or later
acquired, which derive from or arise out of the conduct of Borrower's
business, sale of its inventory, or the furnishing of services, together with
all guaranties and security interests for, and the cash and noncash proceeds
of, all the foregoing.
1.3 ADVANCES shall mean Revolving Loan Advances and Converting Loan
Advances.
1.4 AFFILIATE shall mean ImageX.com, Inc., a Washington corporation.
1.5 AVAILABLE AMOUNT shall mean at any time:
(a) With respect to the Revolving Loan, the amount of the
Revolving Loan Credit Limit minus the unpaid balance of the Revolving Note;
and
(b) With respect to the Converting Loan, the amount of the
Converting Loan Credit Limit minus the unpaid balance of the Converting
Note.
1.6 BUSINESS DAY shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks in Seattle, Washington, are authorized or
required by law to close.
1.7 COLLATERAL shall mean all property securing the Obligations.
1.8 CONVERSION DATE shall mean June 29, 2001.
1.9 CONVERTING LOAN ADVANCES shall mean the disbursement of loan
proceeds under the Converting Loan. A Converting Loan Advance shall not
constitute a "payment order" under R.C.W. Section 62A.4A-103.
1.10 CONVERTING LOAN CREDIT LIMIT shall mean $1,500,000.
1.11 CURRENT ASSETS shall mean all consolidated assets of Borrower and
its subsidiaries, on a GAAP basis, which may be properly classified as current
assets in accordance with GAAP.
1.12 CURRENT LIABILITIES shall mean all consolidated indebtedness of
Borrower and its subsidiaries, on a GAAP basis which may be properly classified
as current liabilities in accordance with GAAP.
1.13 EBITDA shall mean earnings before interest expense, taxes,
depreciation, and amortization, on a Trailing Basis.
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<PAGE>
1.14 ELIGIBLE ACCOUNTS shall mean on any given date those Accounts
which are not more than 90 days past date of the sales invoice, in which Bank
holds a first-lien security interest.
1.15 ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.16 FLOATING RATE MARGIN shall mean 1.00% until receipt by Bank of
the compliance certificate for the end of fiscal quarter ending June 30,
1999, and thereafter shall be the "Floating Rate Margin" as determined by the
following chart:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Funded Debt/EBITDA Ratio* Floating Rate Margin
- -------------------------------------------------------------------------------
<S> <C>
Greater than 3.5 to 1 1.00%
- -------------------------------------------------------------------------------
Less than or equal to 3.50 to 1 but
greater than 2.5 to 1 0.50%
- -------------------------------------------------------------------------------
Less than or equal to 2.5 to 1 0.25%
- -------------------------------------------------------------------------------
</TABLE>
* AS DETERMINED BASED ON THE MOST RECENTLY DELIVERED QUARTERLY COMPLIANCE
CERTIFICATE OF BORROWER, IN THE FORM OF EXHIBIT A ATTACHED HERETO.
Upon receipt of a quarterly compliance certificate showing a decrease or
increase in the Funded Debt/EBITDA Ratio which places Borrower in a new
pricing category, all Advances shall begin being calculated at the higher or
lower margin, as the case may be, for the period beginning on the first
Business Day of the month following the month in which such financial
statement was received by Bank.
1.17 FUNDED DEBT shall mean, as of the date of determination, the
aggregate principal amount of all Debt for (a) borrowed money (other than
trade indebtedness incurred in the ordinary course of business for value
received) having a final maturity of one year or more from the date of
determination; (b) installment purchases of real or personal property; (c)
capital leases; and (d) guaranties of Funded Debt of other Persons, without
duplication..
1.18 FUNDED DEBT/EBITDA RATIO shall mean Borrower's ratio of Funded
Debt to EBITDA.
1.19 GAAP shall mean generally accepted accounting principles as in
effect from time to time in the United States and as consistently applied by
Borrower.
1.20 LIBOR RATE MARGIN shall mean 2.25% until receipt by Bank of the
compliance certificate for the end of fiscal quarter ending June 30, 1999,
and thereafter shall be the "LIBOR Rate Margin" as determined by the
following chart:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Funded Debt/EBITDA Ratio* LIBOR Rate Margin
- -------------------------------------------------------------------------------
<S> <C>
Greater than 3.5 to 1 2.25%
- -------------------------------------------------------------------------------
Less than or equal to 3.50 to 1 but
greater than 2.5 to 1 1.75%
- -------------------------------------------------------------------------------
Less than or equal to 2.5 to 1 1.50%
- -------------------------------------------------------------------------------
</TABLE>
* AS DETERMINED BASED ON THE MOST RECENTLY DELIVERED QUARTERLY COMPLIANCE
CERTIFICATE OF BORROWER, IN THE FORM OF EXHIBIT A ATTACHED HERETO.
Upon receipt of a quarterly compliance certificate showing a decrease or
increase in the Funded Debt/EBITDA Ratio which places Borrower in a new
pricing category, all Advances shall begin being calculated at the higher or
lower margin, as the case may be, for the period beginning on the first
Business Day of the month following the month in which such financial
statement was received by Bank.
-2-
<PAGE>
1.21 LOAN DOCUMENTS shall mean collectively this Agreement, the Notes,
all Swap Contracts, and all other mortgages, deeds of trust, security
agreements, guaranties, documents, instruments, and other agreements now or
later executed in connection with this Agreement.
1.22 NOTES shall mean the Revolving and Converting Notes.
1.23 OBLIGATIONS shall mean the Notes, all Swap Obligations, and all
fees, costs, expenses, and indemnifications due to Bank under this Agreement.
1.24 PERSON shall mean any individual, partnership, corporation,
business trust, unincorporated organization, joint venture, or any
governmental entity, department, agency, or political subdivision.
1.25 PLAN shall mean any employee benefit plan or other plan
maintained for Borrower's employees and covered by Title IV of ERISA,
excluding any plan created or operated by or for any labor union.
1.26 REVOLVING LOAN ADVANCES shall mean the disbursement of loan
proceeds under the Revolving Loan. A Revolving Loan Advance shall not
constitute a "payment order" under R.C.W. Section 62A.4A-103.
1.27 REVOLVING LOAN CREDIT LIMIT shall mean $1,000,000.
1.28 SWAP CONTRACT shall mean any interest rate swap transaction,
forward rate transaction, interest rate cap, floor or collar transaction,
swaption, bond or bond price swap, option or forward, treasury lock, any
similar transaction, any option to enter into any of the foregoing and any
combination of the foregoing, which agreements may be oral or in writing
including, without limitation, any master agreement relating to or governing
any or all of the foregoing any related schedule or confirmations.
1.29 SWAP OBLIGATIONS shall mean all indebtedness and obligations of
Borrower to Bank under any Swap Contract, as any or all of them may from time
to time be modified, amended, extended, renewed and restated.
1.30 TANGIBLE NET WORTH shall mean the excess of total assets over
total liabilities, excluding, however, from the determination of total assets
(a) all assets which should be classified as intangible assets (such as
goodwill, patents, trademarks, copyrights, franchises, and deferred charges,
including unamortized debt discount and research and development costs), (b)
cash held in a sinking or other similar fund established for the purpose of
redemption or other retirement of capital stock, (c) to the extent not
already deducted from total assets, reserves for depreciation, depletion,
obsolescence, or amortization of properties and other reserves or
appropriations of retained earnings which have been or should be established
in connection with Borrower's (or Affiliate's, as the case may be) business,
and (d) any revaluation or other write-up in book value of assets subsequent
to the fiscal year of Borrower (or Affiliate, as the case may be) last ended
at the date Tangible Net Worth is being measured.
1.31 TERMINATION DATE shall mean April 28, 2000, or such earlier date
upon which Bank's commitment to lend is terminated pursuant to Subsection
10.2(a).
1.32 TRAILING BASIS shall mean on an annualized basis based on the
preceding two fiscal quarters.
ARTICLE 2: REVOLVING LOAN
2.1 REVOLVING LOAN FACILITY. Subject to the terms and conditions of
this Agreement, Bank shall make Revolving Loan Advances to Borrower from time
to time, until the Termination Date ("Revolving Loan"), with the aggregate
principal amount at any one time outstanding not to exceed the Revolving Loan
Credit Limit. Borrower may use the Revolving Loan by borrowing, prepaying,
and reborrowing the Available Amount, in whole or in part, without a
prepayment fee except in the event of prepayment of LIBOR Rate Loans (as
defined in the Revolving Note) prior to conclusion of an Interest Period.
2.2 REVOLVING NOTE. The obligation of Borrower to repay the
Revolving Loan shall be evidenced by a promissory note (including all
renewals, modifications, and extensions thereof, the
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"Revolving Note") made by Borrower to the order of Bank, and shall bear
interest as provided in the Revolving Note. The Revolving Note shall be
secured as provided in Article 4, and shall be in form satisfactory to Bank.
2.3 PROCEDURE FOR REVOLVING LOAN ADVANCES. Borrower may borrow under
the Revolving Loan on any Business Day. Borrower shall give Bank irrevocable
notice (written or oral) specifying the amount to be borrowed and the
requested borrowing date. Bank must receive such notice on or before 11:30
a.m., Seattle time, on the day borrowing is requested. All Revolving Loan
Advances shall be discretionary to the extent notification by Borrower is
given subsequent to that time.
2.4 FACILITY FEE. On the last Business Day of each June, September,
December, and March, beginning June 30, 1999, Borrower shall pay to Bank in
arrears a commitment fee equal to 0.25% per annum of the difference between
the Revolving Loan Credit Limit and the average daily outstanding principal
balance of the Revolving Note during such calendar quarter.
ARTICLE 3: CONVERTING LOAN FACILITY
3.1 CONVERTING LOAN. Subject to the terms and conditions of this
Agreement, Bank shall make Converting Loan Advances to Borrower from time to
time, until the Conversion Date ("Converting Loan"), with the aggregate
principal amount at any one time outstanding not to exceed the Converting
Loan Credit Limit. Borrower may use the Converting Loan by borrowing,
prepaying, and reborrowing the Available Amount, in whole or in part, until
the Conversion Date, without a prepayment fee except in the event of
prepayment of LIBOR Rate Loans (as defined in the Revolving Note) prior to
conclusion of an Interest Period.
3.2 NOTE. The obligation of Borrower to repay the Converting Loan
Advances shall be evidenced by a promissory note (including all renewals,
modifications, and extensions thereof, the "Converting Note") made by
Borrower to the order of Bank, and shall bear interest as provided in the
Converting Note. The Converting Note shall be secured as provided in Article
4 and shall be in form satisfactory to Bank.
3.3 PROCEDURE FOR CONVERTING LOAN ADVANCES. Borrower may borrow
under the Converting Loan on any Business Day prior to the Conversion Date.
Borrower shall give Bank irrevocable written notice specifying the amount to
be borrowed and the requested borrowing date. Bank must receive such notice
on or before 11:30 a.m., Seattle time, on the day borrowing is requested.
All Converting Loan Advances shall be discretionary to the extent
notification by Borrower is given subsequent to that time.
3.4 REPAYMENT OF PRINCIPAL. On the last Business Day of each month,
beginning July 31, 2001, Borrower shall pay to Bank, as installments of
principal under the Converting Note, 1/36 of the outstanding principal
balance of the Converting Note as determined at the close of business on the
Conversion Date. All principal and accrued interest of the Converting Note
shall be due and payable in full on June 30, 2004.
3.5 COMMITMENT FEE. Upon execution of this Agreement, Borrower shall
pay to Bank a nonrefundable commitment fee of $10,000 for the Converting Loan.
ARTICLE 4: COLLATERAL SECURITY
4.1 COLLATERAL. As security for the prompt payment and performance
of all Obligations, Borrower has granted or will grant to Bank a first lien
security interest in all of Borrower's accounts, inventory, equipment, and
general intangibles, and Affiliate will grant to Bank a security interest in
all capital stock in Borrower held by Affiliate.
4.2 MAINTENANCE OF SECURITY. Borrower shall execute and deliver to
Bank, whenever requested, such security instruments as Bank deems necessary,
in its sole opinion, for the preservation of its security interest or to
ensure the priority of each security interest, and deliver to Bank all
Collateral or proceeds of Collateral, the perfection of which requires
possession by Bank. Borrower shall upon demand by Bank take whatever
additional action is necessary for Bank continuously to maintain a perfected
first-lien security interest in all Collateral. Borrower hereby irrevocably
appoints Bank as its attorney-in-fact, solely for the purpose of executing on
Borrower's behalf any financing statement or other security
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document deemed necessary by Bank to carry out the purposes of this Article
4, which appointment shall continue so long as this Agreement remains in
effect or any Obligations remain outstanding.
ARTICLE 5: GUARANTY
The Obligations shall be absolutely and unconditionally guaranteed by
Affiliate, in form satisfactory to Bank. Borrower authorizes Bank to release
to any present or future guarantor all information Bank possesses concerning
Borrower or any loans, credits, or other financial accommodations made to
Borrower by Bank.
ARTICLE 6: CONDITIONS OF LENDING
Bank's obligation to make the initial Advance is subject to the
conditions precedent listed in Sections 6.1 through 6.5, and to make
subsequent Advances is subject to the conditions precedent listed in Sections
6.6 and 6.7, unless waived by Bank in writing:
6.1 AUTHORIZATION. Borrower shall have delivered to Bank a certified
copy of the resolution of Borrower's board of directors authorizing the
transactions contemplated by this Agreement and the execution, delivery, and
performance of all Loan Documents, together with Borrower's articles of
incorporation, bylaws, a certificate of existence, and appropriate
certificates of incumbency. Affiliate shall have delivered to Bank a
certified copy of a resolution of such guarantor's board of directors,
satisfactory in form to Bank, authorizing its guaranty of the Obligations,
and its hypothecation of assets to secure the Obligations.
6.2 DOCUMENTATION. Borrower shall have executed and delivered to
Bank all documents to reflect the existence of the Obligations and to
perfect, as a first lien, the security interests granted to Bank.
6.3 GUARANTY. Affiliate shall have executed and delivered its
guaranty to Bank, and such guaranty shall remain in full force and effect.
Bank shall have received verification satisfactory to Bank that Affiliate has
received a minimum of $18,500,000 in equity capital since January 1, 1999.
6.4 FEES. Borrower shall have paid to Bank the fee required by
Section 3.5, and all fees, costs, and expenses payable pursuant to Section
11.3.
6.5 PROOF OF INSURANCE. Proof of insurance as required by Section
8.14 shall have been provided to Bank.
6.6 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Borrower in the Loan Documents and in any certificate,
document, or financial statement furnished at any time shall continue to be
true and correct, except to the extent that such representations and
warranties expressly relate to an earlier date.
6.7 COMPLIANCE. No Default or other event which, upon notice or
lapse of time or both would constitute a Default, shall have occurred and be
continuing, or shall exist after giving effect to the advance of credit to be
made.
ARTICLE 7: REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement, Borrower represents,
warrants, and covenants to Bank as follows:
7.1 EXISTENCE. Borrower is in good standing as a corporation under
the laws of the state of Washington, has the power, authority, and legal
right to own and operate its property or lease the property it operates and
to conduct its current business; and is qualified to do business and is in
good standing in all other jurisdictions where the ownership, lease, or
operation of its property or the conduct of its business requires such
qualification, except where the failure to obtain such qualification would
not have a materially adverse effect on Borrower's business or its
properties, taken as a whole.
7.2 ENFORCEABILITY. The Loan Documents, when executed and delivered
by Borrower, shall be enforceable against Borrower in accordance with their
respective terms in all material respects.
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7.3 NO LEGAL BAR. The execution, delivery, and performance by
Borrower of the Loan Documents, and the use of the loan proceeds, shall not
violate any existing law or regulation applicable to Borrower; any ruling
applicable to Borrower of any court, arbitrator, or governmental agency or
body of any kind; Borrower's organizational documents; any security issued by
Borrower; or any mortgage, indenture, lease, contract, undertaking, or other
agreement to which Borrower is a party or by which Borrower or any of its
property may be bound.
7.4 FINANCIAL INFORMATION. By submitting each of the financial
statements required by Section 8.7, Borrower is deemed to represent and
warrant that: (a) such statement is complete and correct and fairly presents
the financial condition of Borrower as of the date of such statement; (b)
such statement discloses all liabilities of Borrower that are required to be
reflected or reserved against under GAAP, whether liquidated or unliquidated,
fixed or contingent; and (c) such statement has been prepared in accordance
with GAAP. As of this date, there has been no adverse change in Borrower's
financial condition since preparation of the last such financial statements
delivered to Bank which would materially impair Borrower's ability to repay
the Obligations.
7.5 LIENS AND ENCUMBRANCES. As of this date, Borrower has good and
marketable title to its property free and clear of all security interests,
liens, encumbrances, or rights of others, except as disclosed in writing to
Bank, and except for taxes which are not yet delinquent and for conditions,
restrictions, easements, and rights of way of record which do not materially
affect the use of any of Borrower's property.
7.6 LITIGATION. Except as disclosed in writing to Bank, there is no
threatened (to Borrower's knowledge) or pending litigation, investigation,
arbitration, or administrative action which may materially adversely affect
Borrower's business, property, operations, or financial condition.
7.7 PAYMENT OF TAXES. Borrower has filed or caused to be filed all
tax returns when required to be filed; and has paid all taxes, assessments,
fees, licenses, excise taxes, franchise taxes, governmental liens, penalties,
and other charges levied or assessed against Borrower or any of its property
imposed on it by any governmental authority, agency, or instrumentality that
are due and payable (other than those returns or payments of which the
amount, enforceability, or validity are contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP are provided on Borrower's books).
7.8 EMPLOYEE BENEFIT PLAN. Borrower is in compliance in all material
respects with the provisions of ERISA and the regulations and published
interpretations thereunder. Borrower has not engaged in any acts or
omissions which would make Borrower liable to the Plan, to any of its
participants, or to the Internal Revenue Service, under ERISA.
7.9 MISREPRESENTATIONS. No information, exhibits, data, or reports
furnished by Borrower or delivered to Bank in connection with Borrower's
application for credit misstates any material fact, or omits any fact
necessary to make such information, exhibits, data, or reports not misleading.
7.10 NO DEFAULT. Borrower is not in default in any Loan Document, or
in any material contract, agreement, or instrument to which it is a party.
7.11 YEAR 2000 COMPLIANCE. On the basis of a comprehensive review and
assessment of Borrower's systems and equipment and inquiry made of Borrower's
material suppliers, vendors, and customers, Borrower reasonably believes that
the "Year 2000 problem" (that is, the inability of computers, as well as
embedded microchips in non-computing devices, to perform properly
date-sensitive functions with respect to certain dates prior to and after
December 31, 1999), including costs of remediation, will not result in a
material adverse change in the operations, business, properties, condition
(financial or otherwise) or prospects of Borrower. Borrower has developed
feasible contingency plans adequately to ensure uninterrupted and unimpaired
business operation in the event of failure of its own or a third party's
systems or equipment due to the Year 2000 problem, including those of
vendors, customers, and suppliers, as well as a general failure of or
interruption in its communications and delivery infrastructure.
7.12 NO BURDENSOME RESTRICTIONS. No contract or other instrument to
which Borrower is a party, or order, award, or decree of any court,
arbitrator, or governmental agency, materially impairs Borrower's ability to
repay the Obligations.
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ARTICLE 8: AFFIRMATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability exists
under the Loan Documents, Borrower shall:
8.1 USE OF PROCEEDS. Use the proceeds of the Revolving Loan and the
Converting Loan for working capital, asset acquisition, and/or other general
corporate purposes, including the repayment to Affiliate at the date hereof of
an intercompany loan in an amount not to exceed $2,000,000.
8.2 INTEREST COVERAGE RATIO. Maintain as of each fiscal quarter end,
on a Trailing Basis, commencing with the fiscal quarter ending December 31,
1999, a ratio of EBITDA to interest expense of at least 1.5 to one.
8.3 DEBT COVERAGE RATIO Maintain as of each fiscal quarter end
specified below, on a Trailing Basis, a ratio of EBITDA to current portion of
long-term Funded Debt:
(a) For the fiscal quarters ending March 31, 2000, through March
31, 2001, of at least 1.5 to 1;
(b) For the fiscal quarters ending June 30, 2001, through March
31, 2002, of at least 2.0 to 1; and
(c) For each fiscal quarter ending thereafter, at least 2.5
to 1.
8.4 FUNDED DEBT/EBITDA RATIO Maintain as of each fiscal quarter end
specified below, on a Trailing Basis, a Funded Debt/EBITDA Ratio:
(a) For the fiscal quarters ending December 31, 1999, through
March 31, 2000, of not more than 3.75 to 1;
(b) For the fiscal quarters ending June 30, 2000, through
March 31, 2001, of not more than 2.5 to 1;
(c) For the fiscal quarters ending June 30, 2001, through
March 31, 2002, of not more than 1.5 to 1; and
(d) For each fiscal quarter ending thereafter, of not more than
1.0 to 1.
8.5 TANGIBLE NET WORTH Maintain a Tangible Net Worth as of each fiscal
quarter end specified below:
(a) For the fiscal quarters ending through March 31, 2000, of at
least $250,000;
(b) For the fiscal quarters ending June 30, 2000, through
March 31, 2001, of at least $750,000;
(c) For the fiscal quarters ending June 30, 2001, through
March 31, 2002, of at least $2,000,000; and
(d) For each fiscal quarter ending thereafter, of at least
$3,000,000.
8.6 CURRENT RATIO. Maintain a ratio of Current Assets to Current
Liabilities as of each quarter end specified below:
(a) For the fiscal quarters ending March 31, 2000, of at least
1.0 to 1;
(b) For the fiscal quarters ending June 30, 2000, through
March 31, 2001, of at least 1.1 to 1;
(c) For the fiscal quarters ending June 30, 2001, through
March 31, 2002, of at least 1.3 to 1; and
(d) For each fiscal quarter ending thereafter, of at least 1.5
to 1.
8.7 FINANCIAL INFORMATION. Maintain a standard system of accounting in
accordance with GAAP and furnish to Bank the following:
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(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and,
in any event, within 30 days after the end of each fiscal quarter of each
fiscal year, a copy of the statement of income and retained earnings of
Borrower for the quarter and for the current fiscal year through such
quarter, and for each such quarter a copy of the balance sheet, statement
of shareholders' equity, and statement of cash flow of Borrower as of the
end of such quarter, setting forth, in each case commencing September 30,
2000, in comparative form, figures for the corresponding period of the
preceding fiscal year, all in reasonable detail and satisfactory in scope
to Bank, prepared under the supervision of the chief financial officer of
Borrower, and in form and substance reasonably satisfactory to Bank;
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and, in
any event, within 120 days after the end of each fiscal year, a copy of the
balance sheet, statement of income and retained earnings, statement of
shareholders' equity, and statement of cash flow of Borrower for such year,
setting forth in each case, in comparative form, corresponding figures from
the preceding annual statements, each audited by independent certified
public accountants of recognized standing selected by Borrower and
reasonably satisfactory to Bank, certifying that such statement is complete
and correct, fairly presents without qualification the financial condition
of Borrower for such period, is prepared in accordance with GAAP, and has
been audited in conformity with generally accepted auditing standards;
(c) COMPLIANCE CERTIFICATES. Together with the delivery of each
quarterly and annual financial statement, a certificate of the chief
financial officer of Borrower, in the form of Exhibit A attached;
(d) AGING REPORT. Monthly, within 30 days of each month end, a
report providing the agings of Accounts, in form and substance satisfactory
to Bank; and
(e) ADDITIONAL FINANCIAL INFORMATION. As soon as available and,
in any event, within ten days after request, such other data, information,
or documentation as Bank may reasonably request.
8.8 MAINTENANCE OF EXISTENCE. Preserve and maintain its existence,
powers, and privileges in the jurisdiction of its formation, and qualify and
remain qualified in each jurisdiction in which its presence is necessary or
desirable in view of its business, operations, or ownership of its property.
Borrower shall also maintain and preserve all of its property which is necessary
or useful in the proper course of its business, in good working order and
condition, ordinary wear and tear excepted.
8.9 BOOKS AND RECORDS. Keep accurate and complete books, accounts, and
records in which complete entries shall be made in accordance with GAAP,
reflecting all financial transactions of Borrower.
8.10 ACCESS TO PREMISES AND RECORDS. At all reasonable times and as
often as Bank may reasonably request, permit any authorized representative
designated by Bank to have access to the premises, property, and financial
records of Borrower, including all records relating to the finances, operations,
and procedures of Borrower, and to make copies of or abstracts from such
records.
8.11 NOTICE OF EVENTS. Furnish Bank prompt written notice of:
(a) PROCEEDINGS. Any proceeding instituted by or against
Borrower in any court or before any commission or regulatory body, or any
proceeding threatened against it in writing by any governmental agency
which if adversely determined would have a material adverse effect on
Borrower's business, property, or financial condition, or where the amount
involved is $100,000 or more and not covered by insurance;
(b) MATERIAL DEVELOPMENT. Any material development in any such
proceeding referred to in Subsection (a);
(c) DEFAULTS. Any accident, event, or condition which is or,
with notice or lapse of time or both, would constitute a Default, or a
default under any other agreement to which Borrower is a party; and
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(d) ADVERSE EFFECT. Any other action, event, or condition of
any nature which could result in a material adverse effect on the business,
property, or financial condition of Borrower.
8.12 PAYMENT OF DEBTS AND TAXES. Pay all Debt and perform all
obligations promptly and in accordance with their terms, and pay and discharge
promptly all taxes, assessments, and governmental charges or levies imposed upon
Borrower, its property, or revenues prior to the date on which penalties attach
thereto, as well as all lawful claims for labor, material, supplies, or
otherwise which, if unpaid, might become a lien or charge upon Borrower's
property. Borrower shall not, however, be required to pay or discharge any such
tax, assessment, charge, levy, or claim so long as its enforceability, amount,
or validity is contested in good faith by appropriate proceedings.
8.13 DEPOSIT ACCOUNTS. Maintain all primary business deposit accounts
with Bank.
8.14 INSURANCE. Maintain commercially adequate levels of coverage with
financially sound and reputable insurers, including, without limitation:
(a) PROPERTY INSURANCE. Insurance on all property of a
character usually insured by organizations engaged in the same or similar
type of business as Borrower against all risks, casualties, and losses
through extended coverage or otherwise and of the kind customarily insured
against by such organizations, with such policy or policies covering
tangible collateral to name Bank as loss payee, as its interests may
appear;
(b) LIABILITY INSURANCE. Public liability insurance against
tort claims which may be asserted against Borrower; and
(c) ADDITIONAL INSURANCE. Such other insurance as may be
required by law.
ARTICLE 9: NEGATIVE COVENANTS
So long as this Agreement shall remain in effect, or any liability shall
exist under the Loan Documents, Borrower shall not, without prior written
consent of Bank, which consent shall not be unreasonably withheld:
9.1 FUNDED DEBT. Create, incur, assume, permit to exist, or otherwise
become committed for any Funded Debt which exceeds the sum of:
(a) 75% of Eligible Accounts; plus
(b) 75% of the net book value of all of Borrower's fixed
assets (excluding leasehold improvements) in which Bank holds a perfected
first-lien security interest.
9.2 LIENS AND ENCUMBRANCES. Create, incur, or assume, or agree to
create, incur, or assume any lien, whether consensual or nonconsensual, on any
of its property, or to enter into any lease with respect to any of its property
except:
(a) EXISTING LIENS. Liens in effect as of this date;
(b) LIENS OF BANK. Liens in favor of Bank;
(c) TAX LIENS. Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings; and
(d) INCIDENTAL LIENS. Other liens incidental to the conduct of
its business or the ownership of its property which are not incurred in
connection with the borrowing of money or the obtaining of credit, and
which do not in the aggregate materially impair the value or use of
property.
9.3 GUARANTIES. Assume, guaranty, endorse, become a surety for,
indemnify, or otherwise in any fashion become responsible for, directly or
indirectly, any obligation of any Person, except:
(a) NEGOTIABLE INSTRUMENTS. Endorsements on negotiable
instruments for deposit or collection in the ordinary course of business;
and
(b) PERFORMANCE BONDS. Performance bonds as required in the
ordinary course of Borrower's business.
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9.4 DISPOSITION OF ASSETS. Sell, transfer, lease, or otherwise assign
or dispose of a substantial portion of its property to any Person, outside the
ordinary course of business.
9.5 MERGERS. Become a party to any merger, consolidation, or like
corporate change, or make any substantial transfer or contribution to, or
material investment in, stock, shares, or licenses of any Person; provided that
Borrower may change its corporate name upon not less than 30 days' prior notice
to Bank.
9.6 CAPITAL STRUCTURE. Purchase, retire, or redeem any of its capital
stock or otherwise effect any change in Borrower's capital structure.
9.7 WAGE AND HOUR LAWS. Engage in any material violation of the
federal Fair Labor Standards Act or any comparable state wage and hour law.
9.8 ERISA. Engage in any act or omission which would make Borrower
materially liable under ERISA to the Plan, to any of its participants, or to the
Internal Revenue Service.
9.9 DISSOLUTION. Adopt any agreement or resolution for dissolving,
terminating, or substantially curtailing Borrower's present business activities.
9.10 BUSINESS ACTIVITIES. Engage or enter into any activity which is
unusual to Borrower's existing business, other than extensions, expansions, and
other such modifications of Borrower's existing business.
9.11 DIVIDENDS. Declare or pay any dividend.
9.12 LOANS. Make any loan or advance to any Person, including but not
limited to Affiliate, otherwise than advances for expenses made in the ordinary
course of business. This section shall not prohibit the repayment to Affiliate
at the date of this Agreement of an intercompany loan in an amount not to exceed
$2,000,000.
9.13 PERMISSIBLE LOANS AND INVESTMENTS. Make any investment outside the
ordinary course of Borrower's business, except:
(a) CERTIFICATES OF DEPOSIT. Investments in certificates of
deposit maturing within one year from the date of acquisition from any one
or more of the top 100 commercial banks in the United States;
(b) COMMERCIAL PAPER. Prime commercial paper with maturities of
less than one year; and
(c) U. S. GOVERNMENT PAPER. Obligations issued or guaranteed by
the United States Government or its agencies.
ARTICLE 10: EVENTS AND CONSEQUENCES OF DEFAULT
10.1 EVENTS OF DEFAULT. Any of the following events shall, at the
option of Bank and at any time without regard to any previous knowledge on the
part of Bank, constitute a default by Borrower under the terms of this
Agreement, the Notes, and all other Loan Documents ("Default"):
(a) NONPAYMENT. Any payment or reimbursement due or demanded
under this Agreement or any Loan Document is not made within three days of
the date when due;
(b) BREACH OF WARRANTY. Any representation or warranty made in
connection with this Agreement or any other Loan Document, or any
certificate, notice, or report furnished pursuant hereto, is determined by
Bank to be false in any material respect when made, and is relied upon by
Bank to its detriment, or any of Borrower's representations regarding the
"year 2000 problem" cease to be true, whether or not true when made, and as
a result Bank reasonably believes that Borrower's financial condition or
its ability to pay its debts as they come due will thereby be materially
impaired;
(c) FAILURE TO PERFORM. Any other term, covenant, or agreement
contained in any Loan Document is not performed or satisfied, and, if
remediable, such failure continues unremedied for 30 days after written
notice thereof has been given to Borrower by Bank;
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(d) LIEN PRIORITY. Bank shall fail to have an enforceable first
lien (except for any prior or later liens to which the Bank has consented
in writing) on or security interest in any material portion of the
Collateral;
(e) DEFAULTS ON OTHER OBLIGATIONS. There exists a default in
the performance of any other agreement or obligation for the payment of
borrowed money, for the deferred purchase price of property or services, or
for the payment of rent under any lease, whether by acceleration or
otherwise, which would permit such obligation to be declared due and
payable prior to its stated maturity; and such default continues for 30
days after Borrower receives written notice thereof from the creditor so
affected;
(f) GUARANTOR. Affiliate shall (i) revoke or attempt to revoke
its guaranty of the Obligations, whether with respect to future
transactions or outstanding Obligations, or otherwise breaches the terms
and conditions of such guaranty, or (ii) shall fail to maintain a total
shareholder equity (as measured on a GAAP basis) of at least $5,000,000; as
of each quarter end, or (iii) shall fail to comply with any of its
covenants set forth in the Consent of Guarantor appended to this Agreement;
(g) LOSS, DESTRUCTION, OR CONDEMNATION OF PROPERTY. A portion
of Borrower's property is affected by any uninsured loss, damage,
destruction, theft, sale, or encumbrance other than created herein or is
condemned, seized, or appropriated, the effect of which materially impairs
Borrower's financial condition or its ability to pay its debts as they come
due;
(h) ATTACHMENT PROCEEDINGS AND INSOLVENCY. Borrower or any
material portion of Borrower's property is affected by any:
(i) Judgment lien, execution, attachment, garnishment, general
assignment for the benefit of creditors, sequestration, or
forfeiture, to the extent Borrower's financial condition or its
ability to pay its debts as they come due is thereby materially
impaired; or
(ii) Proceeding under the laws of any jurisdiction relating to
receivership, insolvency, or bankruptcy, whether brought
voluntarily or involuntarily by or against Borrower, including,
without limitation, any reorganization of assets, deferment or
arrangement of debts, or any similar proceeding, and, if such
proceeding is involuntarily brought against Borrower, it is not
dismissed within 60 days;
(i) JUDGMENTS. Final judgment on claims not covered by
insurance which, together with other outstanding final judgments against
Borrower, exceeds $250,000, is rendered against Borrower and is not
discharged, vacated, or reversed, or its execution stayed pending appeal,
within 60 days after entry, or is not discharged within 60 days after the
expiration of such stay; or
(j) GOVERNMENT APPROVALS. Any governmental approval,
registration, or filing with any governmental authority, now or later
required in connection with the performance by Borrower of its obligations
under the Loan Documents, is revoked, withdrawn, or withheld, or fails to
remain in full force and effect, except Borrower shall have 60 days after
notice of any such event to take whatever action is necessary to obtain all
necessary approvals, registrations, and filings.
10.2 REMEDIES UPON DEFAULT. If any Default occurs under
Subsection 10.1(h), Bank's commitment to make Advances shall immediately and
automatically terminate, and all Obligations, including all accrued interest,
shall immediately and automatically become due and payable, without presentment,
demand, protest, or notice of any kind, all of which are hereby expressly waived
by Borrower, and Bank may immediately exercise any or all of the following
remedies for Default; and if any other Default occurs and is continuing, Bank
may, upon notice to Borrower:
(a) TERMINATE COMMITMENTS. Terminate Bank's commitment to make
Advances;
(b) SUSPEND COMMITMENTS. Refuse to make further Advances until
any Default has been cured;
(c) ACCELERATE. Declare all or any of the Notes, together with
all accrued interest, to be immediately due and payable without
presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived by Borrower;
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<PAGE>
(d) COLLATERAL. Proceed to realize on any or all Collateral by
any available means; and/or
(e) SETOFF. Exercise its right of setoff against deposit
accounts of Borrower with Bank, or place an administrative freeze on any
such accounts; and/or
(f) ALL REMEDIES. Pursue any other available legal and
equitable remedies.
All of Bank's rights and remedies in all Loan Documents shall be cumulative
and can be exercised separately or concurrently.
10.3 ALLEGED DEFAULT BY BANK. In the event that Borrower at any time
concludes that Bank has defaulted in any respect under this Agreement or any
of the Loan Documents, Borrower shall promptly give notice thereof to Bank
and provide Bank with a period of not less than 30 days in which to cure such
alleged default; provided, however, that in no event shall this Section 10.3
or Borrower's giving such notice to Bank extend the time period(s) granted to
Borrower to cure any Default under Section 10.1(c). Failure of Borrower to
provide such notice to Bank shall waive Borrower's right to assert a claim
against Bank for such alleged default.
ARTICLE 11: MISCELLANEOUS
11.1 MANNER OF PAYMENTS.
(a) PAYMENTS ON NONBUSINESS DAYS. Whenever any event is to
occur or any payment is to be made under any Loan Document on any day other
than a Business Day, such event may occur or such payment may be made on
the next succeeding Business Day and such extension of time shall be
included in computation of interest in connection with any such payment.
(b) PAYMENTS. All payments and prepayments to be made by
Borrower shall be made to Bank when due, at Bank's office as may be
designated by Bank, without offsets or counterclaims for any amounts
claimed by Borrower to be due from Bank, in U.S. dollars and in immediately
available funds.
(c) AUTOMATIC DEBIT. Borrower agrees that interest payments,
and principal payments under the Converting Note, will be deducted
automatically on the due date from the Borrower's account number 68921618,
or such other of the Borrower's accounts with Bank as designated in writing
by Borrower. Bank will debit the account on the dates the payments become
due. If a due date does not fall on a Business Day, Bank will debit the
account on the first Business Day following the due date. Borrower will
maintain sufficient funds in the account on the dates Bank enters debits
authorized by this Agreement. If there are insufficient funds in the
account on the date Bank enters any debit authorized by this Agreement, the
debit will be reversed.
(d) APPLICATION OF PAYMENTS. All payments made by Borrower
shall be applied first against fees, expenses, and indemnities due; second,
against interest due; and third, against principal as Borrower may direct;
provided that Bank shall have the right, after a Default which is
continuing, to apply any payments or collections received against any one
or more of the Obligations in any manner which Bank may choose.
(e) RECORDING OF PAYMENTS. Bank is authorized to record on a
schedule or computer-generated statement the date and amount of each
Advance, and all payments of principal and interest. All such schedules or
statements shall constitute PRIMA FACIE evidence of the accuracy of the
information so recorded.
11.2 NOTICES. Bank may make Advances, and changes between interest
rate options, based on telephonic, telex, and oral requests made by any
Person whom Bank in good faith believes to be authorized to act on behalf of
Borrower. All other notices, demands, and other communications to be given
pursuant to any of the Loan Documents shall be in writing and shall be deemed
received the earlier of when actually received, or two days after being
mailed, postage prepaid and addressed as follows, or as later designated in
writing:
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<PAGE>
<TABLE>
<CAPTION>
BANK: BORROWER:
<S> <C>
SEAFIRST BANK KEYSTONE ACQUISITION CORP.
Western Commercial Team 2 10800 N.E. 8th Street, Suite 200
10500 N.E. 8th St., 5th Floor Bellevue, WA 98004
Bellevue, WA 98004 Attention: President
Attention: Daniel C. Olson
</TABLE>
11.3 DOCUMENTATION AND ADMINISTRATION EXPENSES. Borrower shall pay,
reimburse, and indemnify Bank for all of Bank's reasonable costs and
expenses, including, without limitation, all accounting, appraisal, and
report preparation fees or expenses, all attorneys' fees (including the
allocated cost of in-house counsel), legal expenses, and recording or filing
fees, incurred in connection with the negotiation, preparation, execution,
and administration of this Agreement and all other Loan Documents, and all
amendments, supplements, or modifications thereto, and the perfection of all
security interests, liens, or encumbrances that may be granted to Bank.
Borrower acknowledges that any legal counsel retained or employed by Bank
acts solely on the Bank's behalf and not on Borrower's behalf, despite
Borrower's obligation to reimburse Bank for the cost of such legal counsel,
and that Borrower has had sufficient opportunity to seek the advice of its
own legal counsel with regard to this Agreement.
11.4 COLLECTION EXPENSES. The nonprevailing party shall, upon demand
by the prevailing party, reimburse the prevailing party for all of its costs,
expenses, and reasonable attorneys' fees (including the allocated cost of
in-house counsel) incurred in connection with any controversy or claim between
said parties relating to this Agreement or any of the other Loan Documents,
or to an alleged tort arising out of the transactions evidenced by this
Agreement, including those incurred in any action, bankruptcy proceeding,
arbitration or other alternative dispute resolution proceeding, or appeal, or
in the course of exercising any judicial or nonjudicial remedies.
11.5 WAIVER. No failure to exercise and no delay in exercising, on the
part of Bank, any right, power, or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power,
or privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power, or privilege. Further, no waiver or
indulgence by Bank of any Default shall constitute a waiver of Bank's right
to declare a subsequent similar failure or event to be a Default.
11.6 ASSIGNMENT. This Agreement is made expressly for the sole benefit
of Borrower and for the protection of Bank and its successors and assigns.
The rights of Borrower hereunder shall not be assignable by operation of law
or otherwise, without the prior written consent of Bank.
11.7 MERGER. The rights and obligations set forth in this Agreement
shall not merge into or be extinguished by any of the Loan Documents, but
shall continue and remain valid and enforceable. This Agreement and the
other Loan Documents constitute Bank's entire agreement with Borrower with
regard to the Revolving Loan and the Converting Loan, and supersede all prior
writings and oral negotiations. No oral or written representation, covenant,
commitment, waiver, or promise of either Bank or Borrower shall have any
effect, whether made before or after the date of this Agreement, unless
contained in this Agreement or another Loan Document, or in an amendment
complying with Section 11.8. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
11.8 AMENDMENTS. Any amendment or waiver of, or consent to any
departure by Borrower from any provision of, this Agreement shall be in
writing signed by each party to be bound thereby, and shall be effective only
in the specific instance and for the specific purpose for which given.
11.9 MANDATORY ARBITRATION.
(a) At the request of either Bank or Borrower, any controversy
or claim between Bank and Borrower, arising from or relating to this
Agreement or any of the other Loan Documents, or arising from an alleged
tort, shall be settled by arbitration in Seattle, Washington. The United
States Arbitration Act shall apply even though this Agreement is otherwise
governed by Washington law. The proceedings shall be administered by the
American Arbitration Association under its commercial rules of
arbitration. Any controversy over whether an issue is arbitrable shall
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<PAGE>
be determined by the arbitrator(s). Judgment upon the arbitration award
may be entered in any court having jurisdiction over the parties. The
institution and maintenance of an action for judicial relief or pursuit
of an ancillary or provisional remedy shall not constitute a waiver of
the right of either party, including the plaintiff, to submit the
controversy or claim to arbitration if such action for judicial relief
is contested. For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this subsection is
the equivalent of the filing of a lawsuit, and any claim or controversy
which may be arbitrated under this subsection is subject to any
applicable statute of limitations. The arbitrator(s) will have the
authority to decide whether any such claim or controversy is barred by
the statute of limitations and, if so, to dismiss the arbitration on
that basis. The parties consent to the joinder of any guarantor,
hypothecator, or other party having an interest relating to the claim or
controversy being arbitrated in any proceedings under this Section.
(b) Notwithstanding the provisions of subsection (a), no
controversy or claim shall be submitted to arbitration without the consent
of all parties if at the time of the proposed submission, such controversy
or claim arises from or relates to an obligation secured by real property.
(c) No provision of this subsection shall limit the right of
Borrower or Bank to exercise self-help remedies such as set-off,
foreclosure, retention or sale of any collateral, or obtaining any
ancillary, provisional, or interim remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration
proceeding. The exercise of any such remedy does not waive the right of
either party to request arbitration.
11.10 CONSTRUCTION. Each term of this Agreement and each Loan Document
shall be binding to the extent permitted by law and shall be governed by the
laws of the State of Washington, excluding its conflict of laws rules. If
one or more of the provisions of this Agreement should be invalid, illegal,
or unenforceable in any respect, the remaining provisions of this Agreement
shall remain effective and enforceable. If there is a conflict among the
provisions of any Loan Documents, the provisions of this Agreement shall be
controlling. The captions and organization of this Agreement are for
convenience only, and shall not be construed to affect any provision of this
Agreement.
11.11 COUNTERPARTS. This Agreement and each Loan Document may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures to such counterparts were upon the
same instrument.
DATED as of April 30, 1999.
<TABLE>
<CAPTION>
BORROWER: BANK:
<S> <C>
KEYSTONE ACQUISITION CORP. SEAFIRST BANK
</TABLE>
By /s/ Richard P. Bergert By /s/ Daniel C. Olson
--------------------------------- ---------------------------------
Title President and CEO Title Vice President
----------------------------- -----------------------------
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<PAGE>
CONSENT OF GUARANTOR
The undersigned Affiliate, as guarantor of the Obligations, acknowledges
receipt of a copy of the above Agreement and consents to its contents.
Affiliate also agrees to provide to Bank the following:
1. QUARTERLY FINANCIAL STATEMENTS. As soon as available and, in any
event, within 30 days after the end of each fiscal quarter of each fiscal
year, a copy of the consolidated statement of income and retained earnings of
Affiliate and its subsidiaries (including Borrower) for the quarter and for
the current fiscal year through such quarter, and for each such quarter a
copy of the consolidated balance sheet, statement of shareholders' equity,
and statement of cash flows of Affiliate and its subsidiaries (including
Borrower) as of the end of such quarter, setting forth, in each case, in
comparative form, figures for the corresponding period of the preceding
fiscal year, all in reasonable detail and satisfactory in scope to Bank,
prepared under the supervision of the chief financial officer of Affiliate,
and in form and substance reasonably satisfactory to Bank;
2. ANNUAL FINANCIAL STATEMENTS. As soon as available and, in any
event, within 120 days after the end of each fiscal year, a copy of the
balance sheet, statement of income and retained earnings, statement of
shareholders' equity, and statement of cash flow of Affiliate for such year,
setting forth in each case, in comparative form, corresponding figures from
the preceding annual statements, each audited by independent certified public
accountants of recognized standing selected by Affiliate and satisfactory to
Bank, certifying that such statement is complete and correct, fairly presents
without qualification the financial condition of Affiliate for such period,
is prepared in accordance with GAAP, and has been audited in conformity with
generally accepted auditing standards; and
3. AGING REPORT. Monthly, within 30 days of each month end, a report
providing the agings of Affiliate's accounts, in form and substance
satisfactory to Bank.
DATED as April 30, 1999.
IMAGEX.COM, INC.
By: /s/ Richard Bergert
----------------------------------
Title: President and CEO
-------------------------------
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<PAGE>
EXHIBIT A TO CREDIT AGREEMENT
[Form of Certificate to be sent with financial reports]
[Date]
Seafirst Bank
Western Commercial Team 2
10500 N.E. 8th St., 5th Floor
Bellevue, WA 98004
Attention: Daniel C. Olson
Re: Certificate of Chief Financial Officer
Ladies and Gentlemen:
With respect to that certain Credit Agreement between Keystone Acquisition
Corp. and Bank of America National Trust and Savings Association, doing
business as Seafirst Bank ("Bank"), dated as of April 30, 1999 (the
"Agreement"), we hereby represent to you the following (capitalized terms
used in this certificate shall have the same meaning as in the Agreement):
1. Enclosed are financial statements required by Section 8.7 of the
Agreement.
2. As of the date of such financial statements, Borrower's interest
coverage ratio as specified in Section 8.2 of the Agreement is ________ to 1.
3. As of the date of such financial statements, Borrower's debt
coverage ratio as specified in Section 8.3 of the Agreement is ________ to 1.
4. As of the date of such financial statements, Borrower's Funded
Debt/EBITDA Ratio is _________ to 1.
5. As of the date of such financial statements, Borrower's Tangible Net
Worth is $___________________.
6. As of the date of such financial statements, Borrower's ratio of
Current Assets to Current Liabilities is ________ to 1.
7. Such financial statements are complete and correct, fairly present,
without qualification, the financial condition of Borrower for such period,
and if the statement is a year-end statement, such statement is prepared in
accordance with GAAP;
8. No Default exists, nor any event which, with lapse of time or upon
the giving of notice would constitute a Default under the Agreement.
Sincerely,
KEYSTONE ACQUISITION CORP.
By __________________________________
Chief Financial Officer
<PAGE>
GUARANTY AGREEMENT
In this agreement "Guarantor" refers to each person, partnership,
corporation, limited liability company, association or legal entity which signs
this agreement. "Bank" refers to Bank of America National Trust and Savings
Association, doing business as Seafirst Bank, its successor and assigns.
1. GUARANTOR'S PROMISE TO REIMBURSE BANK FOR BORROWER'S OBLIGATION TO
BANK.
To induce Bank to lend money, or extend other credit to KEYSTONE
ACQUISITION CORP., a Washington corporation ("Borrower"), or for other
consideration, Guarantor guarantees payment to Bank of all the Obligations.
"Obligations" means all principal, interest, late charges, loan fees, collection
costs and expenses, attorneys' fees and legal expenses (including the allocated
cost of in-house counsel, and including all legal fees incurred in any action,
bankruptcy proceeding, arbitration or other alternative dispute resolution
proceeding, or appeal, or in the course of exercising any judicial or
nonjudicial remedies) which Borrower may now owe to Bank or for which Borrower
may become obligated to pay or reimburse Bank for in the future, under
promissory notes or other instruments executed by Borrower, and any other
obligation which may arise from Borrower to Bank of any kind or type and, shall
also mean all "Obligations" as such term is defined in the Credit Agreement
dated as of April 30, 1999, between Borrower and Bank.
2. BENEFIT FROM GUARANTOR'S PROMISE.
Guarantor is either financially interested in Borrower or will receive
other benefits, directly or indirectly, as a result of Guarantor's promise.
3. BANK'S RIGHT NOT TO PROCEED AGAINST BORROWER OR OTHERS.
Guarantor's promise is joint and several as to each of the individuals or
entities signing below. Bank may enforce each Guarantor's promise without
attempting to collect Borrower's Obligations from Borrower, any co-maker, any
other guarantor, or anyone else who is liable for Borrower's Obligations.
4. BANK'S RIGHT NOT TO PROCEED AGAINST COLLATERAL.
Bank may enforce Guarantor's promise without attempting to enforce Bank's
rights in any collateral Bank now has or may later acquire as security for
Borrower's Obligations.
5. OTHER RIGHTS OF BANK AND GUARANTOR'S WAIVER OF NOTICE.
Bank may do any of the following things as many times as Bank wishes,
without Guarantor's permission and without notifying Guarantor, and this will
not affect Guarantor's promise:
(a) Bank may extend the time for repayment of any of Borrower's
Obligations.
(b) Bank may renew any of Borrower's Obligations.
(c) Bank may stop lending money or extending other credit to Borrower.
(d) Bank may make any other changes in its agreement with Borrower.
(e) Bank may exchange or release any collateral Bank now holds or may
later acquire as security for Borrower's Obligations.
(f) Bank may apply any money or collateral received from or on behalf of
Borrower to the repayment of any of Borrower's Obligations in any
order Bank wishes.
6. GUARANTOR'S ADDITIONAL WAIVERS OF NOTICE.
Bank does not have to notify Guarantor of any of the following events and
this will not affect Guarantor's promise:
(a) Bank does not have to notify Guarantor of Bank's acceptance of
Guarantor's promise.
(b) Bank does not have to notify Guarantor when Bank lends money, leases
equipment or extends other credit to Borrower or acquires Obligations
of Borrower.
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<PAGE>
(c) Bank does not have to notify Guarantor of Borrower's failure to pay
Borrower's Obligations when due, or of Borrower's failure to perform
any other duty owed to Bank when required.
Bank will use its reasonable efforts to notify Guarantor of any failure by
Borrower to pay the Obligations when due; provided, however, any reasonable
failure or delay by Bank in doing so shall not affect Guarantor's promise.
7. GUARANTOR'S DUTY TO KEEP INFORMED OF BORROWER'S FINANCIAL CONDITION.
Guarantor is now adequately informed of Borrower's financial condition, and
Guarantor agrees to keep so informed. Bank does not have to provide Guarantor
with any present or future information concerning the financial condition of
Borrower, and this does not affect Guarantor's promise. Guarantor has not
relied on financial information furnished by Bank.
8. GUARANTOR'S AGREEMENT TO POSTPONE RIGHTS AGAINST BORROWER.
By paying Bank under this agreement, Guarantor may acquire rights against
Borrower such as subrogation rights. Guarantor agrees not to exercise any of
those rights until Borrower has fully paid its Obligations to Bank.
9. GUARANTOR'S ASSIGNMENT OF RIGHTS AGAINST BORROWER.
Guarantor assigns to Bank all rights Guarantor may have against Borrower or
Borrower's property in any proceeding under the federal Bankruptcy Code, or any
receivership or insolvency proceeding. This assignment includes all rights of
Guarantor to be paid by Borrower even though they have nothing to do with this
agreement. However, when Bank has been fully paid everything owed under
Guarantor's promise, Guarantor may then enforce any of these rights which still
remain. This assignment does not prevent Bank from enforcing Guarantor's
promise in any way.
10. ATTORNEY'S FEES AND COLLECTION EXPENSES.
Guarantor agrees to pay a reasonable attorneys' fee and all other costs and
expenses which Bank may incur in enforcing or defending this agreement, whether
or not a lawsuit is started.
11. LAW THAT APPLIES AND WHERE GUARANTOR MAY BE SUED.
This agreement is governed by Washington law. Guarantor consents to the
personal jurisdiction of the courts of the State of Washington and the federal
courts located in Washington so that Bank may sue Guarantor in Washington to
enforce this agreement. Guarantor agrees not to claim that Washington is an
inconvenient place for trial. At Bank's option, the venue (location) of any
suit to enforce this agreement may be in Seattle, Washington.
12. MANDATORY ARBITRATION.
(a) At the request of either Bank or Guarantor, any controversy or claim
between Bank and Guarantor, arising from or relating to this
agreement, or arising from an alleged tort, shall be settled by
arbitration in Seattle, Washington. The United States Arbitration Act
shall apply even though this agreement is otherwise governed by
Washington law. The proceedings shall be administered by the American
Arbitration Association under its commercial rules of arbitration.
Any controversy over whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award
may be entered in any court having jurisdiction over the parties. The
institution and maintenance of an action for judicial relief or
pursuit of an ancillary or provisional remedy shall not constitute a
waiver of the right of either party, including the plaintiff, to
submit the controversy or claim to arbitration if such action for
judicial relief is contested. For purposes of the application of the
statute of limitations, the filing of an arbitration pursuant to this
subsection is the equivalent of the filing of a lawsuit, and any claim
or controversy which may be arbitrated under this subsection is
subject to any applicable statute of limitations. The arbitrator(s)
will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis. The parties consent to the
joinder of any guarantor, hypothecator, or other party having an
interest relating to the claim or controversy being arbitrated in any
proceedings under this Section.
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<PAGE>
(b) Notwithstanding the provisions of subsection (a), no controversy or
claim shall be submitted to arbitration without the consent of all
parties if at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation secured by real
property.
(c) No provision of this subsection shall limit the right of Guarantor or
Bank to exercise self-help remedies such as set-off, foreclosure,
retention or sale of any collateral, or obtaining any ancillary,
provisional, or interim remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration
proceeding. The exercise of any such remedy does not waive the right
of either party to request arbitration.
13. COUNTERPARTS.
This agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures to such
counterparts were upon the same instrument. This agreement shall become
effective as to each Guarantor when a counterpart signed by such Guarantor is
received, regardless of whether all other counterparts are received.
14. WHOLE AGREEMENT.
This agreement, including all counterparts, constitutes the entire
understanding between Bank and Guarantor concerning the guaranty reflected by
this agreement, and it may be changed only in writing signed by Bank and
Guarantor.
GUARANTOR HAS READ THIS AGREEMENT AND RECEIVED A COPY. BY SIGNING THIS
AGREEMENT, GUARANTOR AGREES TO ITS TERMS. GUARANTOR UNDERSTANDS THAT, AS A
RESULT, GUARANTOR IS LIABLE FOR THE OBLIGATIONS OF BORROWER IF BORROWER FAILS TO
PAY BANK WHEN THEY ARE DUE. IF THIS HAPPENS, BANK MAY, IF IT WANTS, REQUIRE
GUARANTOR TO PAY BORROWER'S OBLIGATIONS.
Dated as of April 30, 1999.
Guarantor:
IMAGEX.COM, INC.
By: /s/ Richard Begert
--------------------------------
Title: President and CEO
-----------------------------
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<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of April 30, 1999, by IMAGEX.COM, INC.
("Pledgor") for the benefit of Bank of America National Trust and Savings
Association, doing business as SEAFIRST BANK (the "Bank").
RECITALS
A. KEYSTONE ACQUISITION CORP. ("Borrower") and Bank have entered into a
Credit Agreement dated as April 30, 1999 (the "Credit Agreement") pursuant to
which Bank has agreed to extend certain credit accommodations to Borrower (the
"Credit"). Pledgor is a guarantor of Borrower's obligations under the Credit
Agreement.
B. The execution and delivery of this Agreement is a material condition
precedent to Bank's obligation to make available to Borrower the Credit as
provided in the Credit Agreement.
C. Pledgor is financially interested in Borrower, which will benefit
materially from the Credit.
Based on these recitals, it is mutually agreed as follows:
1. DEFINED TERMS. Capitalized terms not otherwise defined herein shall
have the meanings given in Credit Agreement. "Pledged Stock" means all shares
of Borrower's capital stock.
2. SECURITY INTEREST. Pledgor hereby pledges, assigns and grants to
Bank a security interest in all of its right, title and interest in and to the
following personal property, whether now owned or hereafter acquired (the
"Collateral"):
(a) Initial Shares of Stock. All Pledged Stock which is
registered in the name of Pledgor.
(b) Additional Shares of Company Stock. Such additional shares of
common stock of Company as are delivered to Bank from time to time to be
held in pledge under this Agreement as required hereunder;
(c) Related Rights. All securities and stock powers delivered by
Pledgor in substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such securities,
and all stock and other non-cash dividends, including liquidating
dividends, stock rights, warrants and other rights to subscribe at any time
and from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all thereof; and in the event Pledgor
receives any such property, Pledgor will immediately deliver it to Bank to
be held hereunder; and
(d) Proceeds and Products. All cash and non-cash proceeds and
products of all of the foregoing property;
3. TRANSFER OF INSTRUMENTS, ETC. Pledgor agrees to deliver to Bank all
instruments and stock certificates pertaining to the Collateral now owned and to
deliver to Bank promptly upon receipt thereof all instruments and stock
certificates pertaining to the Collateral hereafter acquired. Without limiting
the foregoing, if Pledgor shall become entitled to receive or shall receive, in
connection with any of the Collateral, any: (i) stock certificate, including
without limitation any certificate representing a stock dividend or in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off,
split-off or split-up, or liquidation; (ii) option, warrant, or right, whether
as an addition to or in substitution or in exchange for any of its securities,
or otherwise; or (iii) dividend (provided that Pledgor shall be entitled to
retain any cash dividend declared and paid at a time when no Default has
occurred and is continuing) or distribution payable in property, including
securities issued by other than the issuer of any of its securities; then
Pledgor shall accept the same as Bank's agent, in trust for Bank, and shall
deliver them forthwith to Bank in the exact form received, with, as applicable,
Pledgor's endorsement when necessary, or appropriate stock powers duly executed
in blank, to be held by Bank, subject to the terms hereof, as part of the
Collateral.
4. WARRANTY. Pledgor represents and warrants that (i) Pledgor is not
entering into this Agreement in order to circumvent the reporting requirements
of Section 13(d) or 13(g) of the Securities
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<PAGE>
and Exchange Act of 1934; (ii) to the extent required, Pledgor will continue
to report the securities as beneficially owned by Pledgor on Pledgor's
Schedule 13D or 13G filings with the SEC; and (iii) Pledgor will timely
inform Bank and keep Bank current as to all information needed to permit
timely preparation and filing by Bank of any statement on Schedule 13D or 13G
that may be required after Default.
5. OBLIGATIONS SECURED. This Pledge Agreement is given to secure the
full and timely performance by Borrower of all "Obligations," as such term is
defined in the Credit Agreement.
6. CERTAIN AGREEMENTS REGARDING THE COLLATERAL. Pledgor represents and
warrants to Bank that:
(a) Pledgor is the legal and beneficial owner of all of the
Collateral and is not prohibited by contract or otherwise from subjecting
the same to the pledge and security interest created hereby;
(b) The Collateral is free and clear of all liens;
(c) No governmental approval or filing or registration with any
governmental authority is required for the making and performance by
Pledgor of this Agreement;
(d) All shares of Company stock which have been or will be pledged
hereunder have been duly and validly issued, are fully paid and
nonassessable and are endorsed and in good order for transfer;
(e) Pledgor will neither create nor suffer to exist any lien on
the Collateral other than the lien granted hereunder, nor sell, transfer,
lease or otherwise dispose of any item of Collateral except to Bank in
accordance herewith; and
(f) Pledgor will fully and punctually perform any duty required of
him in connection with the Collateral and will not take any action which
will impair, damage or destroy Bank's rights with respect to the Collateral
or hereunder or the value thereof.
7. PLEDGOR'S VOTING RIGHTS. So long as no Default has occurred and is
continuing, Pledgor shall be entitled to exercise, or permit others to exercise,
any voting rights incident to the Collateral. Upon the occurrence and
continuation of a Default, at the option of Bank and upon notice to Pledgor,
Pledgor's right to exercise, or permit others to exercise, such voting rights
shall immediately cease and terminate and all voting rights with respect to the
Collateral shall thereupon rest solely and exclusively in Bank. The foregoing
sentence shall constitute and grant to Bank an irrevocable proxy coupled with an
interest to vote the Collateral upon the occurrence and continuation of such a
Default, and any officer of any corporation whose voting stock constitutes
collateral, including without limitation any inspectors of elections or tellers,
may rely hereon and on any written notice from Bank as to the existence of a
Default and Bank's right to vote such Collateral.
8. APPOINTMENT OF AGENT. So long as any Obligation remains unpaid or
Bank has any commitment to make the Credit available to Borrower, Pledgor does
hereby designate and appoint Bank Pledgor's true and lawful attorney with power
irrevocable, for Pledgor and in Pledgor's name, place and stead, whether or not
a Default shall have occurred, to ask, demand, receive, receipt and give
acquittance for any and all amounts which may be or become due or payable to
Pledgor with respect to the Collateral, and in Bank's sole discretion to file
any claim or take any action or proceeding, or either, in its own name or in the
name of Pledgor, or otherwise, which Bank deems necessary or desirable in order
to collect or enforce payment of any and all amounts which may become due or
owing with respect to the Collateral. The acceptance of this appointment and
the appointment set forth in Section 6 above by Bank shall not obligate it to
perform any duty, covenant or obligation required to be performed by Pledgor
under or by virtue of the Collateral. Bank may also execute, on behalf of
Pledgor, any financing statements or other instruments which in its opinion or
the opinion of Bank may be necessary or desirable to perfect or protect Bank's
position with respect to the Collateral. Without limiting the generality of the
foregoing, Bank is authorized at any time to exercise any right of Pledgor, or
enforce any obligation owed to Pledgor pertaining to the Collateral and any
expenses incurred by Bank in connection therewith shall bear interest from the
date incurred until repaid by Pledgor at a per annum rate (the "Default Interest
Rate") equal to the Reference Rate (as defined in the Credit Agreement) plus
3.0%. Any such amounts shall be secured hereby and shall be repaid by Pledgor
on demand.
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<PAGE>
9. TAXES. Pledgor will pay before delinquency any taxes which are or
may become through assessment or distraint or otherwise a lien on the Collateral
and will pay any tax which may be levied on any Obligation secured hereby.
10. RELEASE OF COLLATERAL, ETC. The obligations of Pledgor hereunder
shall not be affected by the release or substitution of any Collateral or by the
release of or any renewal or extensions of time to any party to any instrument,
obligation or liability secured hereby. Bank shall not be bound to resort to or
exhaust its recourse or to take any action against other parties or other
collateral. Beyond the exercise of reasonable care to assure the safe custody
of the Collateral while held hereunder, Bank shall have no duty or liability to
preserve rights pertaining thereto and shall be relieved of all responsibility
for the Collateral upon surrendering it or tendering surrender of it to Pledgor.
11. FURTHER ASSURANCES. Pledgor, at Pledgor's sole cost and expense,
will at any time and from time to time hereafter (a) execute such financing
statements and other instruments and perform such other acts as Bank may
reasonably request to establish and maintain the security interests herein
granted by Pledgor to Bank and the priority and continued perfection thereof;
(b) obtain and promptly furnish to Bank evidence of all such government
approvals as may be required to enable Pledgor to comply with Pledgor's
obligations hereunder; and (c) execute and deliver all such other instruments
and perform all such other acts as Bank may reasonably request to carry out the
transactions contemplated hereunder and under the Note.
12. EXPENSES INCURRED BY SECURED PARTY. Bank is not required to, but
may, at its option, pay any tax, filing or recording fees, or other charges
payable by Pledgor hereunder or under the Note and any such amount shall bear
interest from the date of payment until repaid at the Default Interest Rate.
Such amounts shall be repayable by Pledgor on demand and Pledgor's obligation to
make such repayment shall constitute an additional Obligation secured hereby.
13. REMEDIES UPON DEFAULT. If a "Default" (as defined in the Credit
Agreement) shall occur, Bank shall have all of the remedies provided by law or
equity and, without limiting the generality of the foregoing, or the remedies
provided in any other section hereof, shall have the right to:
(a) Exercise the remedies of a secured party under the Uniform
Commercial Code;
(b) Exercise all voting rights incident to the Collateral as
provided in Section 6 above;
(c) Receive all dividends and all other distributions of any kind
on all or any of the Collateral;
(d) Exercise any and all rights of collection, conversion or
exchange, and any and all other rights, privileges, options or powers of
Pledgor pertaining or relating to the Collateral (Pledgor hereby
irrevocably constituting and appointing Bank its proxy and attorney-in-fact
with full power of substitution so to do), although Bank shall not have any
duty to exercise any such rights, privileges, options or powers or to sell
or to otherwise realize upon any of the Collateral, as hereinafter
authorized, or to preserve the same, and Bank shall not be responsible for
any failure to do so or delay in so doing; and/or
(e) Sell, assign and deliver the whole or, from time to time, any
part of the Collateral at any broker's board or at any private sale or at
public auction, with or without demand or advertisement of the time or
place of sale or adjournment thereof or otherwise, for cash, for credit or
for other property, for immediate or future delivery, and for such price or
prices and on such terms as Bank in its discretion may determine, and Bank
may bid for and purchase the whole or any part of the Collateral so sold
free from any such right or equity of redemption. Bank may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
the sale, and such sale may be made at any time or place to which the same
may be so adjourned. For the purposes hereof, (i) a private sale shall, in
the case of the Collateral, mean a sale after solicitation of a number of
persons reasonably approximating the maximum number which, in the sole
opinion of Bank, shall not require registration of the Collateral so being
offered for sale pursuant to the Securities Act of 1933, as amended (the
"1933 Act"), or compliance with any applicable state securities law
commonly known as a "Blue Sky Law", and (ii) an agreement to sell all or
any part of the Collateral shall be treated as a sale thereof, and Bank
shall be free to carry out such sale
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<PAGE>
pursuant to such agreement and Pledgor shall not be entitled to the
return of any Collateral subject thereto, notwithstanding the fact that
after Bank shall have entered into such an agreement all Defaults may
have been remedied or the obligations may have been paid in full.
In view of the possible position of Pledgor as an "affiliate" or "control
person" of the issuer of all or a portion of securities constituting the
Collateral under the 1933 Act, Pledgor understands that compliance with the 1933
Act may very strictly limit the course of conduct of Bank if Bank were to
attempt to dispose of all or any part of the Collateral and may also limit the
extent to which or the manner in which any subsequent transferee of the
Collateral may dispose of the same. Pledgor also understands that there may be
other legal restrictions or limitations affecting Bank in any attempts to
dispose of all or any part of the Collateral under applicable Blue Sky or other
state securities laws. Pledgor agrees that any private sale conducted in a
manner which complies with the 1933 Act and Blue Sky or state securities laws
shall be commercially reasonable (within the meaning of Section 9-504(3) of the
Uniform Commercial Code), and Pledgor hereby waives any claims against Bank
arising by reason of the fact that the price at which the Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if Bank accepts the first offer received and does not offer
the Collateral to more than one possible purchaser. Without limiting the
generality of the foregoing, the foregoing provisions would apply if, for
example, Bank were to place all or any part of the Collateral for private
placement by an investment banking firm, or if such investment banking firm
purchased all or any part of the Collateral for its own account, or if Bank
placed all or any part of the Collateral privately with a purchaser or
purchasers.
14. NOTICE. Pledgor agrees that a period of 10 days from the date
notice is sent shall be a reasonable period of notification, if required, of
sale or other disposition of Collateral by Bank as secured party.
15. HOLD HARMLESS. Pledgor will indemnify and hold Bank harmless from
all liability, loss, damage or expense, including attorneys' fees and costs,
that Bank may incur in compliance with or the enforcement of the terms of this
Agreement. The covenants set forth in this Section 15 shall survive the
termination of this Agreement.
16. NO WAIVER; REMEDIES CUMULATIVE. No failure by Bank to exercise, and
no delay in exercising, any right, power or remedy under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or remedy under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or remedy. The
exercise of any right, power, or remedy shall in no event constitute a cure or
waiver of any Default nor prejudice the right of Bank in the exercise of any
right hereunder or thereunder, unless in the exercise of such right, all
obligations are paid in full. The rights and remedies provided herein are
cumulative and not exclusive of any right or remedy provided by law.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, except insofar as the laws
of a jurisdiction where Collateral is located require the laws of that
jurisdiction to govern the creation, perfection, or enforcement of a lien on any
such Collateral.
18. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. Pledgor hereby
irrevocably submits to the jurisdiction of any state or federal court sitting in
Seattle, Washington, in any action or proceeding brought to enforce or otherwise
arising out of or relating to this Agreement and hereby waives any objection to
venue in any such court, and waives any claim that such forum is an inconvenient
forum. Pledgor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgement or in any other manner provided by law. Nothing herein shall impair
the right of Bank to bring any action or proceeding against Pledgor, or any of
Pledgor's property, in the courts of any other jurisdiction.
19. NOTICES. All notices and other communications provided for in this
Agreement shall be in writing (unless otherwise specified) and may be personally
served, telecopied or sent by United States mail and shall be deemed to have
been given when delivered in person, receipt of telecopy or three business days
after deposit in the United States mail, with first class postage prepaid and
properly addressed. For the purposes hereof, Pledgor's address (until notice of
a change thereof is delivered as provided in this Section 19) shall be as set
forth on the signature page of this Agreement.
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<PAGE>
20. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, except that Pledgor may
not make an assignment or transfer of all or any part of Pledgor's rights or
obligations hereunder without the prior written consent of Bank, and any such
assignment or transfer purported to be made without such consent shall be
ineffective.
21. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall as to such jurisdiction be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permitted by applicable law, Pledgor waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
22. ENTIRE AGREEMENT; AMENDMENT. This Agreement comprises the entire
agreement between Pledgor and Bank and may not be amended or modified except in
writing. No provision of this Agreement may be waived except in writing and
then only in the specific instance and for the specific purpose for which given.
23. HEADINGS. The headings of the various provisions of this Agreement
are for convenience or reference only, do not constitute a part hereof, and
shall not affect the meaning or construction of any provision hereof.
24. CONSTRUCTION. Except as otherwise provided, time is of the essence
of the performance of each and every obligation of Pledgor set forth herein.
25. ATTORNEYS' FEES AND EXPENSES. If attorneys are employed for
collection, adjustment, enforcement, or settlement, whether suit be instituted
or not, Bank shall be entitled to recover, upon demand, all losses, reasonable
costs and expenses, including attorneys' fees (including the reasonable value of
the services of in-house counsel) that may be incurred in connection with such
collection, adjustment, settlement or suit. Bank shall also have the right to
commence an action or appear in any proceeding or action purporting to affect
the rights or duties of Pledgor hereunder, or the payment of said funds herein
or therein required to be paid, and in connection therewith, Bank shall have the
right to incur the necessary expenses, employ counsel and to pay reasonable
legal fees. All such amounts owed to Bank are secured hereby.
DATED as of the day and year first above written.
IMAGEX.COM, INC.
By /s/ Richard Begert
-------------------------------------
Title President and CEO
----------------------------------
Address:
10800 N.E. 8th Street, Suite 200
Bellevue, WA 98004
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<PAGE>
IMAGEX.COM, INC.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") dated as of _______ __,
1999 is made between IMAGEX.COM, INC., a Washington corporation (the "Company"),
and ___________ ("Indemnitee").
RECITALS
A. Indemnitee is a director or officer of the Company and in such capacity
is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance and the significant cost of such
insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation, subjecting directors and officers to expensive litigation risks
at the same time that such liability insurance has been severely limited.
D. The Company has adopted bylaws (the "Bylaws") providing for
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Washington Business Corporation Act (the
"Statute").
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and thereby contemplate that contracts may be entered into between
the Company and its directors and officers with respect to indemnification of
such directors and officers.
F. To induce Indemnitee to serve or continue to serve as a director or
officer of the Company, the Company desires to confirm the contract
indemnification rights provided in the Bylaws and agrees to provide the
Indemnitee with the benefits contemplated by this Agreement.
AGREEMENT
In consideration of the recitals above, the mutual covenants and
agreements herein contained, and Indemnitee's continued service as a director or
officer, as the case may be, of the Company after the date hereof, the parties
to this Agreement agree as follows:
1. Indemnification of Indemnitee
1.1. Scope
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent provided under the provisions of the Company's Restated Articles of
Incorporation and the
<PAGE>
Bylaws, and to the full extent permitted by law, notwithstanding that the basis
for such indemnification is not specifically enumerated in this Agreement, the
Company's Restated Articles of Incorporation, the Bylaws, any statute or
otherwise. In the event of any change, after the date of this Agreement, in any
applicable law, statute or rule regarding the right of a Washington corporation
to indemnify a member of its board of directors or an officer, such change, to
the extent that it would expand Indemnitee's rights hereunder, shall be included
within Indemnitee's rights and the Company's obligations hereunder, and, to the
extent that it would narrow Indemnitee's rights or the Company's obligations
hereunder, shall not affect or limit the scope of this Agreement; provided,
however, that in no event shall any part of this Agreement be construed so as to
require indemnification when such indemnification is not permitted by then
applicable law.
1.2. Nonexclusivity
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Restated Articles of Incorporation, the Bylaws, any agreement, any vote of
shareholders or disinterested directors, the Statute, or otherwise, whether as
to action in Indemnitee's official capacity or otherwise.
1.3. Included Coverage
If Indemnitee was or is made a party, or is threatened to be made a party,
to or is otherwise involved (including, without limitation, as a witness) in any
Proceeding (as defined below), the Company shall hold harmless and indemnify
Indemnitee from and against any and all losses, claims, damages (compensatory,
exemplary, punitive or otherwise), liabilities or expenses, including, without
limitation, attorneys' fees, costs, judgments, fines, ERISA excise taxes or
penalties, witness fees, amounts paid in settlement and other expenses incurred
in connection with the investigation, defense, settlement or approval of such
Proceeding (collectively, "Damages").
1.4. Definition of Proceeding
For purposes of this Agreement, "Proceeding" shall mean any completed,
actual, pending or threatened action, suit, claim, hearing or proceeding,
whether civil, criminal, arbitrative, administrative, investigative or pursuant
to any alternative dispute resolution mechanism (including an action by or in
the right of the Company) and whether formal or informal, in which Indemnitee
is, was or becomes involved by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company or that, being or having
been such a director, officer, employee or agent, Indemnitee is or was serving
at the request of the Company as a director, officer, employee, trustee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise (collectively, a "Related Company"), including service with respect
to an employee benefit plan, whether the basis of such proceeding is alleged
action (or inaction) by Indemnitee in an official capacity as a director,
officer, employee, trustee or agent or in any other capacity while serving as a
director, officer, employee, trustee or agent; provided, however, that, except
with respect to
<PAGE>
an Enforcement Action (defined in Section 3.1 below, an action challenging the
Company's determination that Indemnitee is not entitled to indemnification
pursuant to Section 1.5, and any other action to enforce the provisions of this
Agreement, "Proceeding" shall not include any action, suit, claim or proceeding
instituted by or at the direction of Indemnitee unless such action, suit, claim
or proceeding is or was authorized by the Company's Board of Directors.
1.5. Determination of Entitlement
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or a
successor statute or pursuant to other applicable law, the appropriate
decision-maker shall make such determination; provided, however, that Indemnitee
shall initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) calendar days after the Company's receipt of
Indemnitee's initial written request for indemnification, such determination
shall conclusively be deemed to have been made in favor of the Company's
provision of indemnification, and that the Company hereby agrees not to assert
otherwise.
1.6. Contribution
If the indemnification provided under Section 1.1 is unavailable by reason
of a court decision, based on grounds other than any of those set forth in
paragraphs (b) through (d) of Section 4.1, then, in respect of any Proceeding in
which the Company is jointly liable with Indemnitee (or would be if joined in
such Proceeding), the Company shall contribute to the amount of Damages
(including attorneys' fees) actually and reasonably incurred and paid or payable
by Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and Indemnitee on the other
from the transaction from which such Proceeding arose and (ii) the relative
fault of the Company on the one hand and of Indemnitee on the other in
connection with the events that resulted in such Damages as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such Damages.
The Company agrees that it would not be just and equitable if contribution
pursuant to this Section 1.6 were determined by pro rata allocation or any other
method of allocation that does not take account of the foregoing equitable
considerations.
1.7. Survival
The indemnification and contribution provided under this Agreement shall
apply to any and all Proceedings, notwithstanding that Indemnitee has ceased to
serve the Company or a Related Company and shall continue so long as Indemnitee
shall be subject to any possible
<PAGE>
Proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director or officer of the Company or serving in any other
capacity referred to in Section 1.4 of this Agreement.
2. Expense Advances
2.1. Generally
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right, an "Expense Advance").
2.2. Conditions to Expense Advance
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1. Undertaking
If the Proceeding arose in connection with Indemnitee's service as a
director or an officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or Indemnitee's representative shall have executed and delivered to
the Company an undertaking, which need not be secured and shall be accepted
without reference to Indemnitee's financial ability to make repayment, by or on
behalf of Indemnitee to repay all Expense Advances if it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties that Indemnitee is not entitled to be indemnified
under this Agreement or otherwise.
2.2.2. Cooperation
Indemnitee shall give the Company such information and cooperation
as it may reasonably request and as shall be within Indemnitee's legal power to
so provide.
2.2.3. Affirmation
Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
3. Procedures for Enforcement
3.1. Enforcement
In the event that any claim for indemnification, whether an Expense
Advance or otherwise, is made hereunder and is not paid in full within thirty
(30) calendar days after
<PAGE>
written notice of such claim is delivered to the Company, Indemnitee may, but
need not, at any time thereafter bring suit against the Company to recover the
unpaid amount of the claim (an "Enforcement Action").
3.2. Presumptions in Enforcement Action
In any Enforcement Action, the following presumptions (and limitation on
presumptions) shall apply:
(a) The Company expressly affirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on it hereunder to induce
Indemnitee to continue as a director or officer, as the case may be, of the
Company;
(b) Neither (i) the failure of the Company (including the Company's Board
of Directors, independent or special legal counsel or the Company's
shareholders) to have made a determination prior to the commencement of the
Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and
(c) If Indemnitee is or was serving as a director or officer of a
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Company or as a partner, trustee or otherwise in
an executive or management capacity in a partnership, joint venture, trust or
other enterprise of which the Company or a wholly owned subsidiary of the
Company is a general partner or has a majority ownership, then such corporation,
partnership, joint venture, trust or other enterprise shall conclusively be
deemed a Related Company and Indemnitee shall conclusively be deemed to be
serving such Related Company at the Company's request.
3.3. Attorneys' Fees and Expenses for Enforcement Action
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall pay all of Indemnitee's fees and expenses in bringing and pursuing
the Enforcement Action (including attorneys' fees at any stage, including on
appeal); provided, however, that the Company shall not be required to provide
such payment for such attorneys' fees or expenses if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such Enforcement Action was not made in good faith.
4. Limitations on Indemnity; Mutual Acknowledgment
4.1. Limitation on Indemnity
No indemnity pursuant to this Agreement shall be provided by the Company:
<PAGE>
(a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended;
(b) For Damages that have been paid directly to Indemnitee by an insurance
carrier under a policy of insurance maintained by the Company;
(c) With respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(d) On account of Indemnitee's conduct which is finally adjudged by a
court having jurisdiction in the matter to have been intentional misconduct, a
knowing violation of law or the RCW 23B.08.310 or any successor provision of the
Statute, or a transaction from which Indemnitee derived an improper personal
benefit; or
(e) If a final decision by a court having jurisdiction in the matter with
no further right of appeal shall determine that such indemnification is not
lawful.
4.2. Partial Indemnification
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Damages in
connection with a Proceeding, but not, however, for the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion of such
Damages to which Indemnitee is entitled.
4.3. Mutual Acknowledgment
The Company and Indemnitee acknowledge that, in certain instances, federal
law or public policy may override applicable state law and prohibit the Company
from indemnifying Indemnitee under this Agreement or otherwise. For example, the
Company and Indemnitee acknowledge that the Securities and Exchange Commission
(the "SEC") has taken the position that indemnification is not permissible for
liabilities arising under certain federal securities laws, and federal
legislation prohibits indemnification for certain ERISA violations. Furthermore,
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
5. Notification and Defense of Claim
5.1. Notification
Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so
<PAGE>
to notify the Company will not, however, relieve the Company from any liability
which it may have to Indemnitee under this Agreement unless and only to the
extent that such omission can be shown to have prejudiced the Company's ability
to defend the Proceeding.
If, at the time of the receipt of a notice of a claim pursuant to Section
5.1, the Company has director and officer liability insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the
insurers in accordance with the procedures set forth in the respective policies.
The Company shall take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policies.
5.2. Defense of Claim
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) The Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct of the
defense of such action, (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the Company's expense, or (iv) the Company
is not financially or legally able to perform its indemnification obligations.
The Company shall not be entitled to assume the defense of any proceeding
brought by or on behalf of the Company or as to which Indemnitee shall have
reasonably made the conclusion provided for in (ii) or (iv) above;
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its written consent;
(d) The Company shall not settle any action or claim in any manner that
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; and
(e) Neither the Company nor Indemnitee will unreasonably withhold its, his
or her consent to any proposed settlement.
<PAGE>
6. Severability
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or to fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
7. Governing Law; Binding Effect; Amendment and Termination
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Washington.
(b) This Agreement shall be binding on Indemnitee and on the Company and
its successors and assigns (including any transferee of all or substantially all
its assets and any successor by merger or otherwise by operation of law), and
shall inure to the benefit of Indemnitee and Indemnitee's heirs, personal
representatives and assigns and to the benefit of the Company and its successors
and assigns. The Company shall not effect any merger, consolidation, sale of all
or substantially all of its assets or other reorganization in which it is not
the surviving entity, unless the surviving entity agrees in writing to assure
all of the Company's obligations under this Agreement.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
8. Entire Agreement
This Agreement is the entire agreement of the parties regarding its
subject matter and supersedes all prior written or oral communications or
agreements.
9. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
instrument.
10. Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
<PAGE>
11. Notices
All notices, claims and other communications hereunder shall be in writing
and made by hand delivery, registered or certified mail (postage prepaid, return
receipt requested), facsimile or overnight air courier guaranteeing next-day
delivery:
(a) If to the Company, to: with a copy to:
ImageX.com. Inc. Perkins Coie LLP
310 - 120th Avenue N.E. 1201 Third Avenue, 40th Floor
Bellevue, WA 98005 Seattle, WA 98101
Attn: Chris Reightley, Controller Attn: David C. Clarke
(b) If to Indemnitee, to the address specified on the last page of this
Agreement or to such other address as either party may from time to time furnish
to the other party by a notice given in accordance with the provisions of this
Section 11. All such notices, claims and communications shall be deemed to have
been duly given if (i) personally delivered, at the time delivered, (ii) mailed,
five days after dispatched, (iii) sent by facsimile transmission, upon
confirmation of receipt, and (iv) sent by any other means, upon receipt.
12. Directors' and Officers' Insurance
(a) The Company hereby covenants and agrees that, subject to the
provisions of Section 12(c) hereof, the Company shall, from a date no later than
the closing date of the Company's first registered public offering of the
Company's Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, maintain directors' and officers' insurance
in full force and effect so long as Indemnitee continues to serve as a director
or officer of the Company and thereafter so long as Indemnitee shall be subject
to any possible Proceeding.
(b) In all policies of directors' and officers' insurance, Indemnitee
shall be named as an insured in such a manner as to provide Indemnitee the same
rights and benefits, subject to the same limitations, as are accorded to the
Company's directors or officers most favorably insured by such policy.
(c) Notwithstanding the foregoing provisions of this Section 12, the
Company shall have no obligation to maintain directors' and officers' insurance
if the Company determines in good faith that such insurance is not reasonably
available, the premium costs for such insurance are disproportionate to the
amount of coverage provided, or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
13. Specific Performance
The Company and Indemnitee agree herein that a monetary remedy for breach
of this Agreement, at some later date, will be inadequate, impracticable and
difficult of proof, and further agree that such breach would cause Indemnitee
irreparable harm. Accordingly, the
<PAGE>
Company and Indemnitee agree that Indemnitee shall be entitled to temporary and
permanent injunctive relief to enforce this Agreement without the necessity of
proving actual damages or irreparable harm. The Company and Indemnitee further
agree that Indemnitee shall be entitled to such injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent injunctions,
without the necessity of posting bond or other undertaking in connection
therewith. Any such requirement of bond or undertaking is hereby waived by the
Company, and the Company acknowledges that in the absence of such a waiver, a
bond or undertaking may be required by the court.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
COMPANY:
IMAGEX.COM, INC.
By _______________________________
Its _____________________________
INDEMNITEE:
__________________________________
Print name: ______________________
Address: ______________________
______________________
______________________
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
IMAGEX.COM, INC.,
KEYSTONE ACQUISITION CORP.
FINE ARTS ENGRAVERS COMPANY, INC.,
AND
THE SOLE SHAREHOLDER OF FINE ARTS ENGRAVERS COMPANY, INC.
DATED FEBRUARY 23, 1999
<PAGE>
CONTENTS
1. Definitions.................................................... 1
2. Purchase and Sale of Assets.................................... 7
2.1 Purchase and Sale..................................... 7
2.1.1 Equipment.................................... 7
2.1.2 Equipment and Other Personal Property
Leases....................................... 7
2.1.3 Inventory.................................... 7
2.1.4 Accounts Receivable and Other Working
Capital Assets............................... 8
2.1.5 Intellectual Property........................ 8
2.1.6 Permits...................................... 8
2.1.7 Contract Rights and Other Intangible
Assets....................................... 8
2.1.8 Leased Real Property......................... 9
2.1.9 Books and Records............................ 9
2.1.10 Other Records, Manuals and Documents......... 9
2.1.11 Insurance Proceeds........................... 9
2.2 Excluded Assets....................................... 9
2.2.1 Tax Refunds.................................. 10
2.2.2 Cash and Cash Equivalents.................... 10
2.2.3 Marketable Securities........................ 10
2.2.4 Other Excluded Assets........................ 10
2.2.5 Excluded Contracts........................... 10
2.3 Assumption of Liabilities............................. 10
2.4 Excluded Liabilities.................................. 11
2.4.1 Debt......................................... 11
2.4.2 Taxes........................................ 11
2.4.3 Litigation................................... 11
2.4.4 Conduct of Business Prior to Closing......... 11
2.4.5 Environmental Liability...................... 12
2.4.6 Severance Costs.............................. 12
2.4.7 Employee Expenses and Benefit Plans.......... 12
2.4.8 Claims and Adjustments....................... 13
2.4.9 Excluded Assets.............................. 13
2.4.10 Assumed Contracts............................ 13
2.5 Instruments of Sale and Assignment.................... 13
2.6 Further Assurances.................................... 14
3. Purchase Price................................................. 14
3.1 Purchase Price........................................ 14
3.1.1 Cash Component............................... 14
3.1.2 Stock Component.............................. 14
3.2 Cash Purchase Price Adjustment........................ 14
3.3 Allocation of Purchase Price.......................... 15
4. Closing........................................................ 16
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4.1 Closing Date.......................................... 16
4.2 Closing Payments...................................... 16
4.2.1 Cash Purchase Price.......................... 16
4.2.2 Stock Component.............................. 17
5. Representations and Warranties of Seller....................... 17
5.1 Organization and Good Standing........................ 17
5.2 Authority; Authorization; Enforceability.............. 17
5.3 No Conflict........................................... 18
5.4 Consents and Approvals................................ 18
5.5 Financial Statements.................................. 18
5.6 Absence of Certain Changes or Events.................. 19
5.7 Taxes................................................. 21
5.8 Property.............................................. 21
5.9 Equipment............................................. 22
5.10 Environmental and Safety Matters...................... 23
5.11 Contracts............................................. 25
5.12 Claims and Legal Proceedings.......................... 26
5.13 Labor Matters......................................... 26
5.14 Intellectual Property................................. 27
5.15 Accounts and Other Receivables........................ 28
5.16 Inventory............................................. 29
5.17 Product Warranties.................................... 29
5.18 Compliance With Laws.................................. 29
5.19 Permits and Qualifications............................ 30
5.20 Insurance............................................. 30
5.21 Employee Plans........................................ 30
5.22 Brokerage............................................. 31
5.23 Absence of Questionable Payments...................... 31
5.24 Customers and Suppliers............................... 32
5.25 Capital Stock......................................... 32
5.26 Full Disclosure....................................... 32
5.27 Year 2000 Compliance.................................. 32
6. Representations and Warranties of Buyer and ImageX............. 33
6.1 Organization and Good Standing........................ 33
6.2 Authority; Authorization; Enforceability.............. 33
6.3 Capitalization........................................ 33
6.4 Valid Issuance of Stock............................... 34
6.5 No Conflict........................................... 34
6.6 Brokerage............................................. 35
6.7 Full Disclosure....................................... 35
7. Certain Covenants.............................................. 35
7.1 Access................................................ 35
7.2 Notification of Claims................................ 36
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7.3 Employees............................................. 37
7.4 Conduct of Business Prior to Closing.................. 37
7.5 Insurance; Loss of or Damage to Assets................ 38
7.6 Post-Closing Severance Obligations.................... 38
7.7 Covenants to Satisfy Conditions....................... 38
7.8 Exclusivity........................................... 39
7.9 Environmental Reports................................. 39
7.10 Notices............................................... 39
7.11 Deposit............................................... 39
7.12 Rights Relating to ImageX Stock....................... 40
7.12.1 Investor Rights Agreement.................... 40
7.12.2 Co-Sale Agreement............................ 40
7.12.3 Redemption Rights............................ 40
7.13 Escrow................................................ 40
7.14 Updated Disclosure Schedules.......................... 41
7.15 Legal Opinions........................................ 41
8. Conditions Precedent to Obligations of Buyer and ImageX........ 41
8.1 No Injunction or Litigation........................... 41
8.2 Representations, Warranties and Covenants............. 41
8.3 No Material Adverse Change............................ 42
8.4 Consents and Approvals................................ 42
8.5 Compliance with Laws.................................. 42
8.6 Delivery of Documents................................. 42
8.7 Legal Opinion......................................... 44
8.8 Financing............................................. 44
8.9 Securities Law Exemption.............................. 44
9. Conditions Precedent to Obligations of Seller and the
Shareholder.................................................... 44
9.1 No Injunction or Litigation........................... 44
9.2 Representations, Warranties and Covenants............. 44
9.3 Delivery of Documents................................. 45
9.4 Legal Opinion......................................... 45
9.5 Compliance with Laws.................................. 45
9.6 No Material Adverse Change............................ 45
9.7 Stock Rights.......................................... 46
9.8 Catastrophic Loss..................................... 46
10. Certain Post-Closing Covenants................................. 46
10.1 Books and Records..................................... 46
10.2 Product Orders........................................ 47
10.3 Post-Closing Cooperation.............................. 47
10.4 Withholding........................................... 47
10.5 Covenants Not to Compete.............................. 47
10.5.1 Covenants.................................... 47
10.5.2 Definition of Buyer.......................... 49
10.6 Employee Benefits Plan................................ 49
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11. Taxes and Costs; Apportionments................................ 50
11.1 Transfer Taxes........................................ 50
11.2 Transaction Costs..................................... 50
11.3 Apportionments........................................ 50
12. Survival and Indemnification................................... 50
12.1 Survival.............................................. 50
12.2 Indemnification by Seller and the Shareholder......... 51
12.3 Indemnification by Buyer and ImageX................... 52
12.4 Limitations........................................... 53
12.5 Procedure............................................. 54
12.6 Access to Escrow Amount and Working Capital
Holdback.............................................. 56
12.7 Exclusive Remedies.................................... 56
12.8 Specific Performance.................................. 56
13. Termination.................................................... 57
13.1 Termination........................................... 57
13.2 Effect of Termination................................. 58
13.3 Break-Up Fee.......................................... 58
14. Miscellaneous.................................................. 58
14.1 Confidentiality Obligations of Seller Following
the Closing........................................... 58
14.2 Public Announcements.................................. 58
14.3 Severability.......................................... 59
14.4 Modification and Waiver............................... 59
14.5 Notices............................................... 59
14.6 Assignment............................................ 60
14.7 Captions.............................................. 60
14.8 Entire Agreement...................................... 61
14.9 No Third-Party Rights................................. 61
14.10 Counterparts.......................................... 61
14.11 Governing Law......................................... 61
14.12 Knowledge............................................. 61
Exhibit 2.5(a) Form of Bill of Sale and Assignment
Exhibit 2.5(b) Form of Assignment and Assumption Agreement
Exhibit 2.5(c) Form of Lease Assignment and Assumption
Exhibit 4.2 Form of Escrow Agreement
Exhibit 8.6(d) Form of Employment Agreement
Exhibit 8.6(j) Form of Investment Letter
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<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made as of the 23rd
day of February 1999 by and among ImageX.com, Inc., a Washington corporation
("ImageX"), Keystone Acquisition Corp., a Washington corporation and wholly
owned subsidiary of ImageX ("Buyer"), Fine Arts Engravers Company, Inc., an
Oregon corporation ("Seller"), and Nicholas J. Stanley, the sole shareholder of
Seller (the "Shareholder").
RECITALS
A. Seller desires and intends to sell substantially all of its assets and
other rights at the price and on the terms and conditions herein set forth.
B. Buyer desires and intends to purchase substantially all of the assets
and other rights and to assume certain specified liabilities of Seller at the
price and on the terms and conditions herein set forth.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements set forth herein, the parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have the
meanings set forth below:
1.1 "Acquired Employees": As defined in Section 10.4.
1.2 "Affiliate": Of any person (the "Subject") means any other person
which, directly or indirectly, controls or is controlled by or is under common
control with the Subject and, without limiting the generality of the foregoing,
includes, in any event, (a) any person which beneficially owns or holds 25% or
more of any class of voting securities of the Subject or 25% or more of the
legal or beneficial interest in the Subject and (b) any person of which the
Subject beneficially owns or holds 25% or more of any class of voting securities
or 25% or more of the legal or beneficial interest. "Control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person, whether through the ownership of voting securities, by
contract or otherwise.
1.3 "Agreement": This Agreement and all Schedules and Exhibits hereto.
1.4 "Assets": As defined in Section 2.1.
1.5 "Assignment and Assumption Agreement": As defined in Section 2.5.
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1.6 "Assumed Contracts": As defined in Section 2.1.7.
1.7 "Assumed Liabilities": As defined in Section 2.3.
1.8 "Balance Sheet Date": As defined in Section 5.5.
1.9 "Bill of Sale": As defined in Section 2.5.
1.10 "Business": The business, operations and activities of Seller,
including, but not limited to, the research, development, manufacture, use,
marketing, promotion, sale and distribution thereof. Without limiting the
foregoing, "Business" shall include the operation of the Assets and the
Facilities.
1.11 "Cash Purchase Price": As defined in Section 3.1.1.
1.12 "Claim": Any claim, demand, cause of action, suit, proceeding,
arbitration, hearing or investigation.
1.13 "Claims Threshold": As defined in Section 12.4(a).
1.14 "Closing": The consummation of the purchase and sale of the Assets
under this Agreement.
1.15 "Closing Balance Sheet": As defined in Section 3.2(a).
1.16 "Closing Date": The date upon which the Closing becomes
effective.
1.17 "Code": The Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder, as in effect from time to time.
1.18 "Common Stock": As defined in Section 6.3.
1.19 "Competitor": As defined in Section 10.5.1(a).
1.20 "Consents and Approvals": As defined in Section 5.8.
1.21 "Contract": Any contract, agreement, lease, license, grant of
immunity from suit in regard to intellectual property rights, commitment,
arrangement, purchase or sale order, or undertaking, whether written or oral.
1.22 "Convertible Notes": As defined in Section 6.3.
1.23 "Co-Sale Agreement": As defined in Section 7.12.2.
1.24 "Debt": With respect to any Person, all obligations of such Person
(i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) under or relating to letters of credit (including without
limitation any obligation to reimburse the letter of credit issuer with respect
to amounts drawn under such instruments), (iv) for the deferred
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purchase price of goods or services (other than trade payables or accruals
incurred and paid in the ordinary course of business), (v) under capital leases,
(vi) with respect to check overdrafts, cash/book overdrafts or otherwise
reflected as negative cash in financial statements of such Person, (vii) for
deferred compensation (other than the accrued bonus set forth in Schedule
2.3(d)), (viii) to pay any accrued dividends, (ix) constituting a stated amount
or liquidation preference amount of any equity security entitled to any
preference over the Company Common Stock, and (x) in the nature of Guarantees of
the obligations described in clauses (i) through (ix) above of any other Person.
1.25 "Deposit": As defined in Section 7.11.
1.26 "Disclosing Party": As defined in Section 7.1(b).
1.27 "Distribution": As defined in Section 5.6(j).
1.28 "Employee Benefit Plans": Each retirement, pension, profit sharing,
deferred compensation, savings, bonus, incentive, cafeteria, flexible benefits,
medical, dental, vision, hospitalization, life insurance, dependent care
assistance, tuition reimbursement, disability, sick pay, holiday, vacation,
severance, stock purchase, stock option, stock appreciation rights, fringe
benefit and other employee benefit plan, fund, policy, program, contract,
arrangement or payroll practice (including, but not limited to, each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and each employment or consulting
contract or agreement, whether formal or informal, whether written or unwritten
and whether legally binding or not, (i) sponsored, maintained or contributed to
by the Seller, (ii) covering or benefiting any current or former officer,
employee, agent, director or independent contractor of the Seller (or any
dependent or beneficiary of any such individual) or (iii) with respect to which
the Seller has (or could have) any actual or potential obligation or liability.
1.29 "ERISA": The Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in effect from time to
time.
1.30 "Encumbrance": Any security interest, mortgage, lien, charge, option,
easement, lease, consignment, conditional sale agreement, license, adverse claim
or restriction of any kind, including, but not limited to, any restriction on
the use, transfer, voting, receipt of income or other exercise of any attributes
of ownership.
1.31 "Environment": The air, ground (surface and subsurface) or water
(surface and groundwater), or the workplace.
1.32 "Environmental and Safety Law": Any federal, state, local or other
law, statute, rule, ordinance or regulation or any common law in effect as of
the date hereof pertaining to public or worker health, welfare or safety or the
Environment, including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq.,
as amended by the Superfund Amendments and Reauthorization Act of 1986; the
Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. ss. 6901
et seq.; the Federal Clean Air Act, 42 U.S.C. ss. 7401-7626; the Federal Water
Pollution Control Act and
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Federal Clean Water Act of 1977, as amended, 33 U.S.C. ss. 1251 et seq.; the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 135 et seq.;
the Federal Environmental Pesticide Control Act, the Federal Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq.; the Federal Safe Drinking Water Act, 42
U.S.C. ss. 300(f) et seq.; the Emergency Planning and Community Right-To-Know
Act of 1986, 42 U.S.C. ss. 11001 et seq.; and the Occupational Safety and Health
Act of 1970, 29 U.S.C. ss. 651 et seq., or any Permit issued pursuant to any of
the foregoing.
1.33 "Escrow Agreement": As defined in Section 4.2.1(a).
1.34 "Escrow Amount": As defined in Section 4.2.1(a).
1.35 "Excluded Assets": As defined in Section 2.2.
1.36 "Excluded Contracts": As defined in Section 2.2.4.
1.37 "Excluded Liabilities": As defined in Section 2.4.
1.38 "Facilities": The real property situated in Tualatin, Oregon and
Union, New Jersey where Seller conducts the Business, and all plants, buildings,
structures and improvements located thereon.
1.39 "401(k) Plan": As defined in Section 10.6.
1.40 "Financial Statements": As defined in Section 5.5.
1.41 "GAAP": Generally accepted accounting principles in the United States
consistently applied throughout the periods indicated.
1.42 "Governmental Body": Any federal, state or other court or
governmental body, any subdivision, agency, commission or authority thereof, or
any quasi-governmental or private body exercising any regulatory or taxing
authority thereunder, domestic or foreign.
1.43 "Guarantee": (A) Any guarantee of the payment or performance of, or
any contingent obligation in respect of, any Debt or other obligation of any
other Person, (B) any other arrangement whereby credit is extended to one
obligor on the basis of any promise or undertaking of another Person (i) to pay
the Debt of such obligor, (ii) to purchase any obligation owed by such obligor,
(iii) to purchase or lease assets (other than inventory in the ordinary course
of business) under circumstances that would enable such obligor to discharge one
or more of its obligations, or (iv) to maintain the capital, working capital,
solvency or general financial condition of such obligor, and (C) any liability
as a general partner of a partnership or as a venturer in a joint venture in
respect of Debt or other obligations of such partnership or venture.
1.44 "Hazardous Materials": Any hazardous or toxic substances, materials
and wastes, including, but not limited to, those substances included in the
definitions of "Hazardous Substances," "Hazardous Materials," "Toxic
Substances," "Hazardous Waste," "Solid Waste," "Pollutant," or "Contaminant" in
any Environmental and Safety Law and the Hazardous Material Transportation Act,
49 U.S.C. ss. 1801 et seq., and in the regulations promulgated pursuant to
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those laws; those substances listed in the United States Department of
Transportation Table (49 C.F.R. ss. 172.101 and any amendments thereto); such
other substances, materials and wastes which are regulated or are classified as
hazardous or toxic by any Governmental Body; and asbestos, polychlorinated
biphenyls and oil and petroleum products or by-products.
1.45 "ImageX Stock": As defined in Section 3.1.2.
1.46 "indemnified party": As defined in Section 12.5.
1.47 "indemnifying party": As defined in Section 12.5.
1.48 "Intellectual Property": All trade names, trademarks (including
common-law trademarks), service marks, art work, packaging, plates, emblems,
logos, insignia and copyrights, and their registrations and applications, and
all goodwill associated therewith, all domestic and foreign patents and patent
applications, all technology, know-how, show-how, trade secrets, manufacturing
processes, formulae, drawings, designs, systems, forms, technical manuals, data,
computer programs, product information and development work-in-progress, and all
documentary evidence of any of the foregoing.
1.49 "Inventory": The inventories of Seller described in Section 2.1.3.
1.50 "Investor Rights Agreement": As defined in Section 7.12.1.
1.50 "IRS": As defined in Section 5.7(b)(ii).
1.52 "Judgment": Any judgment, order, award, writ, injunction or decree of
any Governmental Body or arbitrator.
1.53 "Lease Assignment and Assumption": As defined in Section 2.5.
1.54 "Leased Personal Property": As defined in Section 2.1.2.
1.55 "Leased Real Property": As defined in Section 2.1.8.
1.56 "Loss": Any loss, damage, Judgment, Debt, liability, obligation,
fine, penalty, cost or expense (including, but not limited to, any reasonable
legal and accounting fee or expense).
1.57 "1998 Balance Sheet": As defined in Section 5.5.
1.58 "Option Plan": As defined in Section 6.3.
1.59 "Other Properties": As defined in Section 5.10(b)(i).
1.60 "Permit": Any permit, license, approval, authorization, consent,
order, registration, certification, endorsement or qualification of any
Governmental Body .
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1.61 "Person": Any corporation, limited liability company, limited
liability partnership, limited partnership, general partnership, sole
proprietorship, association or other organization, or any individual, or any
Governmental Body.
1.62 "Personal Property": As defined in Section 5.8.
1.63 "Preferred Stock": As defined in Section 6.3.
1.64 "Private Placement Price": As defined in Section 3.1.2.
1.65 "Products": Any and all of the products or services offered, sold,
marketed, distributed or otherwise commercially exploited by Seller.
1.66 "Purchase Price": As defined in Section 3.1.
1.67 "Receiving Party": As defined in Section 7.1(b).
1.68 "Remedial Action": Any investigation, site assessment, monitoring or
other evaluation of conditions relating to the Environment at a site, or any
cleanup, treatment, containment, removal, restoration, corrective action or
remedial work involving any Hazardous Materials.
1.69 "September Working Capital Balance": As defined in Section
3.2(a).
1.70 "Series A Preferred": As defined in Section 6.3.
1.71 "Series B Preferred": As defined in Section 6.3.
1.72 "Series C Preferred": As defined in Section 6.3.
1.73 "Series D Preferred": As defined in Section 6.3.
1.74 "Stock Component": As defined in Section 3.1.2.
1.75 "Tax"or "Taxes": All taxes, charges, fees, levies or other
assessments, including, without limitation, income, excise, gross receipts,
personal property, real property, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, severance, stamp,
occupation, windfall profits, social security and unemployment or other taxes
imposed by the United States or any agency or instrumentality thereof, any
state, county, local or foreign government, or any agency or instrumentality
thereof, and any interest or fines, and any and all penalties or additions
relating to such taxes, charges, fees, levies or other assessments.
1.76 "Tax Return": Any return, declaration, report, claim or refund,
information return, statement, or other similar document relating to Taxes,
including any schedule or attachment thereto and any amendment thereof.
1.77 "Third Party": As defined in Section 2.4.5.
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1.78 "Third-Party Claim": As defined in Section 12.5.
1.79 "Transaction Documents": Any and all of the agreements and
documents referenced in Sections 8 and 9.
1.80 "transfer": As defined in Section 2.1.
1.81 "Working Capital": As defined in Section 3.2(a).
1.82 "Working Capital Holdback": As defined in Section 4.2.1(b).
1.83 "Year 2000 Compliant": As defined in Section 5.27(b).
1.84 "Year 2000 Problem": As defined in Section 5.27(a).
2. Purchase and Sale of Assets
2.1 Purchase and Sale
Subject to the terms and conditions of this Agreement, at the Closing,
Seller shall sell, transfer, convey, assign and deliver (collectively,
"transfer"), or cause to be transferred, to Buyer, free and clear of all
Encumbrances, and Buyer shall purchase and acquire, all of Seller's right, title
and interest in and to all of the assets and rights (collectively, the "Assets")
of every type and description, used in or relating to the Business, whether
tangible or intangible, real, personal or mixed, wherever located and whether or
not reflected on the books and records of Seller, including, but not limited to,
the following assets and rights (but excluding the Excluded Assets):
2.1.1 Equipment
All patterns, tooling, machinery, equipment, parts, dies, office equipment
and furniture, computer hardware, fixtures, motor vehicles, telecommunications
devices, file servers and networks, computers and peripherals, leasehold
improvements and other tangible personal property owned by Seller and employed
in Seller's operation of the Business as of the close of business on the Closing
Date, including, without limitation, the personal property described in Schedule
2.1.1 and all rights to the warranties received from the manufacturers and
distributors of all such personal property and fixtures and any related claims,
credits, rights of recovery and setoffs with respect to such personal property
and fixtures.
2.1.2 Equipment and Other Personal Property Leases
All of Seller's right, title and interest in, to and under the leases and
rental agreements in respect of equipment or other tangible personal property
employed in Seller's operation of the Business as of the close of business on
the Closing Date, including, without limitation, those leases and agreements
described in Schedule 2.1.2 (the "Leased Personal Property").
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2.1.3 Inventory
All inventory, wherever located, including raw materials, work-in-process,
packaging, finished goods, consigned items, spare parts and shop and production
supplies, produced by or employed in Seller's operation of the Business as of
the close of business on the Closing Date ("Inventory"), including, without
limitation, the Inventory described in Schedule 2.1.3 (which Schedule sets forth
raw materials, finished goods, packaging and other Inventory as of the Balance
Sheet Date by net book value and location) and all rights of Seller to the
warranties received from suppliers and distributors and any related claims,
credits, rights of recovery and setoffs with respect to such Inventory.
2.1.4 Accounts Receivable and Other Working Capital Assets
All of Seller's accounts receivable and other current assets (in addition
to Inventory referred to in Section 2.1.3, but excluding any current assets
which are Excluded Assets) existing as of the close of business on the Closing
Date.
2.1.5 Intellectual Property
All information (whether or not protectible by patent, copyright or trade
secret rights) and Intellectual Property rights possessed or owned by Seller and
employed in Seller's operation of the Business as of the close of business on
the Closing Date, and, to the extent assignable or transferable, all right,
title and interest of Seller in, to and under licenses, sublicenses or like
agreements providing Seller any right or concession to use any information or
Intellectual Property, and, in each case, employed in Seller's operation of the
Business as of the close of business on the Closing Date, including the trade
name "Fine Arts Graphics" and derivations thereof used by the Seller, all trade
names, trademarks (including common-law trademarks), service marks, art work,
packaging, plates, emblems, logos, insignia and copyrights, and their
registrations and applications, and all goodwill associated therewith, all
domestic and foreign patents and patent applications, all technology, know-how,
show-how, trade secrets, manufacturing processes, formulae, drawings, designs,
systems, forms, technical manuals, data, computer programs, product information
and development work-in-progress, and all documentary evidence of any of the
foregoing, including, without limitation, the trademarks, patents, patent
applications and related agreements described in Schedule 2.1.5.
2.1.6 Permits
All Permits relating to Seller's operation of the Business as of the close
of business on the Closing Date, to the extent actually assignable or
transferable, including, without limitation, those described in Schedule 2.1.6.
2.1.7 Contract Rights and Other Intangible Assets
All of Seller's right, title and interest in, to and under all Contracts
to which Seller is a party or under which Seller has any rights, including
without limitation all agreements, purchase orders, sales orders, sale and
distribution agreements, supply agreements and other contracts relating to
Seller's operation of the Business as of the close of business on the Closing
Date, other
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than the Excluded Contracts, and all goodwill associated with the Business,
including, without limitation, Seller's right, title and interest in, to and
under the Contracts described in Schedule 2.1.7 (collectively, but excluding the
Excluded Contracts, the "Assumed Contracts").
2.1.8 Leased Real Property
All real property, and rights thereto, leased, or subleased by Seller as
of the close of business on the Closing Date as described in Schedule 2.1.8 (the
"Leased Real Property").
2.1.9 Books and Records
All of Seller's books and records (including all discs, tapes and other
media-storage data and information) relating to Seller's historical or current
operation of the Business or ownership or use of the Assets as of the close of
business on the Closing Date or located on the Leased Real Property, excluding
the books and records referred to in Section 2.2.4; provided, however, that
Seller may keep one copy of the books and records of Seller other than customer
lists and related customer information, supplier lists and related supplier
information, Intellectual Property records and documents, and records or
documents that could be competitively damaging to or create liability for the
Business if they were to be released or lost.
2.1.10 Other Records, Manuals and Documents
All of Seller's mailing lists, customer lists, supplier lists, vendor
data, marketing information and procedures, sales and customer files, yellow
page listings, trade directory listings, telephone numbers, advertising and
promotional materials, current product material, equipment maintenance records,
warranty information, records of plant operations and the source and disposition
of materials used and produced in such plants, standard forms of documents,
manuals of operations or business procedures and other similar procedures, and
all other information of Seller relating primarily or exclusively to Seller's
operation of the Business as of the close of business on the Closing Date and,
with respect to the Leased Real Property, all of Seller's soil test reports,
environmental assessments, building inspection reports, building plans,
blueprints, renderings and surveys.
2.1.11 Insurance Proceeds
Except as provided in Section 9.8 below, all insurance proceeds paid or
payable to Seller in respect of any damage to, or destruction or loss of, any
assets or rights of Seller reflected on the Schedules referred to in this
Section 2.1, including any assets of Seller that, as far as could reasonably be
foreseen, would have been included in the Assets but for such damage,
destruction or loss.
2.2 Excluded Assets
Seller and Buyer expressly understand and agree that Seller is not
transferring to Buyer pursuant to this Agreement, and Buyer is not purchasing,
any of the following assets or rights of Seller (the "Excluded Assets"), which
shall remain assets or rights, as the case may be, of Seller after the Closing.
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2.2.1 Tax Refunds
Seller's rights to refunds of Taxes paid with respect to the Business for
the periods on or prior to the Closing Date.
2.2.2 Cash and Cash Equivalents
Seller's cash, bank deposits or similar cash and cash equivalent items
existing as of the close of business on the Closing Date.
2.2.3 Marketable Securities
Seller's marketable securities existing as of the close of business on the
Closing Date.
2.2.4 Other Excluded Assets
All other assets of Seller described in Schedule 2.2.4, including the
corporate minute books and stock records of Seller and any life insurance
policies of which Seller is the beneficiary.
2.2.5 Excluded Contracts
All of Seller's right, title and interest in, to and under all Contracts
listed in Schedule 2.2.5 (the "Excluded Contracts").
2.3 Assumption of Liabilities
Upon the terms and subject to the conditions of this Agreement, Buyer
agrees, effective at the time of Closing, to assume all obligations, contracts,
and liabilities of Seller (the "Assumed Liabilities") of any kind, character or
description, arising out of the conduct of the Business from and after the
Closing Date, except for the Excluded Liabilities, which Assumed Liabilities
shall include, without limitation, the following:
(a) All Claims, liabilities and obligations of Seller arising under
the Assumed Contracts from and after the Closing Date;
(b) All Claims, liabilities and obligations relating to or arising
out of any products sold, or services rendered, by the Business from and after
the Closing Date;
(c) All Claims, liabilities and obligations under any Environmental
and Safety Law arising out of or relating to Buyer's ownership of the Assets or
operation of the Business from and after the Closing Date (but excluding any
liabilities under any Environmental and Safety Law arising after the Closing
Date to the extent such liabilities relate to any acts or omissions of any
Persons on or prior to the Closing Date, as contemplated by Section 2.4.5).
(d) All trade accounts payable and other current liabilities (as
defined by GAAP) of the Business as of the Closing Date incurred in the ordinary
course of business,
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consistent with past practice, including the current liabilities set forth in
Schedule 2.3(d), but excluding any current liabilities covered below under
Excluded Liabilities.
(e) Any Claims, liabilities or obligations, including for severance,
arising from (i) Buyer's failure to hire all of Seller's employees immediately
following the Closing on terms and conditions no less favorable than those
provided by Seller prior to the Closing Date, or (ii) Buyer's actions or
omissions from and after the Closing Date affecting employees' status, pay, or
benefits, including termination of employment for any reason.
In no event shall the Assumed Liabilities include any liability included
within the Excluded Liabilities.
2.4 Excluded Liabilities
Buyer shall not assume any liabilities or obligations of Seller other than
the Assumed Liabilities above. All other liabilities and obligations of Seller,
whether known or unknown, fixed, contingent or otherwise (all obligations or
liabilities not assumed by Buyer herein are called the "Excluded Liabilities"),
shall remain liabilities or obligations of Seller and shall not be succeeded to
by Buyer or ImageX as a result of this transaction or otherwise. Without
limiting the generality of the foregoing, neither Buyer nor ImageX shall assume
any of the following obligations or liabilities specified below in this Section
2.4, all of which are Excluded Liabilities:
2.4.1 Debt
Any and all Debt of Seller or any of its Affiliates existing on the date
hereof or on the Closing Date.
2.4.2 Taxes
Any and all Claims, liabilities or obligations of Seller for Taxes either
accruing or relating to periods on or prior to the Closing Date, or based on the
sale and purchase of the Assets provided herein (other than current liabilities
specifically assumed by Buyer under Section 2.3(d) above).
2.4.3 Litigation
Any and all Claims, Judgments, penalties, settlement agreements or other
liabilities or obligations of Seller to pay in respect of any Claim that is
pending or threatened or was resolved on or prior to the Closing Date,
including, but not limited to, those listed in Schedule 5.12.
2.4.4 Conduct of Business Prior to Closing
Any and all Claims, liabilities or obligations of Seller that relate to
the ownership or operation of the Business on or prior to the Closing Date or to
any other actions, omissions, conditions or events that occurred or existed on
or prior to the Closing Date, whether based on any act or omission of Seller or
any employee or agent of Seller in connection with the operation of the
Business, or otherwise (other than current liabilities covered under Section
2.3(d) above).
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2.4.5 Environmental Liability
Any and all Claims, liabilities or obligations of Seller arising out of or
relating to (a) the manufacture, generation, processing, distribution, use,
treatment, handling, storage, transport, disposal, release or abandoning of any
Hazardous Materials by Seller or by any other Person who at such time was acting
on behalf of, at the direction of, under contract with or in connection with
Seller (a "Third Party") (references to Third Party in this Agreement shall mean
and refer only to the period of time and to the extent such Person was so
acting); (b) the manufacture, generation, processing, distribution, use,
treatment, handling, storage, transport, disposal, release or abandoning of any
Hazardous Materials by any Person (including without limitation any previous
owner or operator of the Leased Real Property) on, at, under or from the Assets,
the Facilities, the Leased Real Property, or any other properties currently or
previously owned, leased, subleased or used by Seller, at any time on or prior
to the Closing Date; (c) the presence at or at any time prior to the Closing
Date of Hazardous Materials (from whatever source) on, at or under the Assets,
the Facilities or the Leased Real Property as a result of a release or disposal
thereof by any Person at any time prior to the Closing Date; or (d) the
violation of any Environmental and Safety Law by Seller or by any Third Party.
This Section 2.4.5 shall not have the direct or indirect effect of creating any
liability, risk, obligation or expense of Seller to any Person for or with
respect to any of the foregoing that Seller would not otherwise have without
regard to this Section under any Environmental and Safety Law or otherwise, and
as between the parties, shall not in any way directly or indirectly effect the
allocation of risks, liabilities, responsibilities and obligations as provided
in Section 12 hereof.
2.4.6 Severance Costs
Except as provided in Section 2.3(e), any and all severance Claims,
liabilities or obligations of Seller and other costs of terminating employees
wherever located resulting from any termination or cessation of employment
occurring on or prior to the Closing Date, from whatever source such obligations
and costs arise, including, without limitation, contractual obligations,
Employee Benefit Plan obligations, notices to employees, employment manuals,
course of dealings, past practices, obligations relating to Section 280G or 4999
of the Code, or otherwise.
2.4.7 Employee Expenses and Benefit Plans
Subject to Section 7.3, and except as otherwise provided in Section 2.3(d)
and 2.3(e), all Claims, liabilities and obligations of Seller with respect to
either the continuation or the termination by Seller of any Employee Benefit
Plan for the benefit of Seller's employees, except as otherwise provided by law,
and all liabilities and obligations with respect to accrued payroll, bonuses,
hourly and salary vacation pay, workers compensation liability, year-end profit
sharing, state disability tax, hourly and salary profit sharing, fringe benefits
and other employee benefits with respect to or that relate to periods of
employment on or prior to the Closing Date.
2.4.8 Claims and Adjustments
Any and all Claims, liabilities and obligations of Seller relating to or
in respect of (a) return of merchandise sold on or prior to the Closing Date or
(b) offset payments with respect
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to sales after the Closing Date against claims on merchandise sold on or prior
to the Closing Date, in each case by reason of alleged overshipments, defective
merchandise, missed delivery dates, incorrect quantities or otherwise, or with
respect to merchandise in the hands of customers under an understanding that
such merchandise would be returnable.
2.4.9 Excluded Assets
Any and all Claims, liabilities and obligations of Seller in respect of
the Excluded Assets (including without limitation the Excluded Contracts).
2.4.10 Assumed Contracts
Any and all Claims, liabilities or obligations of Seller arising out of
any breach by Seller of any Assumed Contract or any failure by Seller to
discharge or perform any liability or obligation arising on or prior to the
Closing Date under any Assumed Contract; provided, however, that this Section
2.4.10 shall not cover any liabilities or obligations that are specifically
assumed by Buyer under Section 2.3(d) above).
2.5 Instruments of Sale and Assignment
(a) On or prior to the Closing Date, Seller shall deliver to Buyer,
and Buyer shall deliver to Seller, as the case may be, such instruments of sale
and assignment as shall, in the reasonable judgment of Buyer and Seller, be
effective to vest in Buyer on the Closing Date all of Seller's right, title and
interest in and to the Assets and to evidence the assumption of the Assumed
Liabilities by Buyer, including, without limitation, a Bill of Sale and
Assignment substantially in the form of Exhibit 2.5(a) (the "Bill of Sale") and
an Assignment and Assumption Agreement substantially in the form of Exhibit
2.5(b) (the "Assignment and Assumption Agreement") The Leased Real Property
shall be transferred by a Lease Assignment and Assumption substantially in the
form of Exhibit 2.5(c) (the "Lease Assignment and Assumption"). Seller shall use
its reasonable best efforts (without payment of money) to put Buyer in
possession and operating control of the Assets at the Closing, and Buyer shall
use its reasonable best efforts for it to assume the Assumed Liabilities at the
Closing; provided, however, that failure of Seller to obtain any consent
necessary to put Buyer in possession and operating control of the Assets at the
Closing, notwithstanding such reasonable best efforts of Seller, shall not
constitute a breach by Seller hereunder.
(b) If any Assumed Contract included in the Assets is not assignable
by Seller to Buyer without the consent of a third party, or will not continue in
effect after the Closing and such assignment without the consent of a third
party, then Seller shall use its reasonable best efforts to provide Buyer with
such third-party consent prior to the Closing Date in a form reasonably
satisfactory to Buyer (but if Seller's assignment or attempted assignment of any
such Contract prior to obtaining the third-party consent would constitute a
breach of such Assumed Contract, then such assignment or attempted assignment
shall not be made or be deemed effective unless and until the third-party
consent is obtained). Buyer shall render such cooperation as is reasonably
required to assist Seller in obtaining such third-party consent. Subject to the
condition set forth in Section 8.4 hereof and the termination rights of ImageX
and
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Buyer in Section 13.1(c) hereof, if no such consent can be obtained with
respect to an Assumed Contract, and the Closing nevertheless occurs, Seller and
Buyer shall cooperate after Closing (without any out-of-pocket cost or expense,
or liability, to Seller) and, at the discretion of Buyer, enter into such
pass-through agreements or arrangements as may be necessary to ensure that Buyer
is provided with the benefits of such Assumed Contract as if Buyer were the
contract party thereto.
2.6 Further Assurances
From time to time following the Closing, Buyer and Seller shall execute
and deliver, or cause to be executed and delivered, to the other such additional
instruments of conveyance and transfer and evidences of assumption as such party
may reasonably request or as may be otherwise necessary or desirable to carry
out the purposes of this Agreement.
3. Purchase Price
3.1 Purchase Price
The aggregate purchase price (the "Purchase Price") for the Assets shall
be Five Million dollars ($5,000,000), subject to adjustment as provided below,
consisting of the following:
3.1.1 Cash Component
The cash component of the Purchase Price (the "Cash Purchase Price") shall
be Four Million Six Hundred Twenty-Five Thousand dollars ($4,625,000), as
adjusted in accordance with Sections 3.2 and 7.11 below.
3.1.2 Stock Component
The stock component of the Purchase Price (the "Stock Component") shall be
a number of shares of ImageX capital stock (the "ImageX Stock"), equal to Three
Hundred Seventy-Five Thousand dollars ($375,000) divided by the lesser of (a)
two dollars ($2.00) (appropriately adjusted for any stock splits, stock
dividends, recapitalizations or similar events between the date hereof and
Closing) and (b) the price per share received by ImageX in connection with the
equity private placement contemplated to be completed prior to the Closing (the
"Private Placement Price"). In the event the private placement referred to above
involves the issuance of convertible preferred stock or convertible debt, the
Private Placement Price shall be deemed to be the conversion price provided in
the convertible instrument.
3.2 Cash Purchase Price Adjustment
The Cash Purchase Price is subject to adjustment as provided in this
Section 3.2:
(a) Within seven months after the Closing Date, Buyer's independent
accountants and Seller's independent accountants, working together, shall
prepare and deliver to Buyer, ImageX, Seller and the Shareholder a balance sheet
as of the Closing Date (the "Closing Balance Sheet"), reflecting Seller's actual
financial position, including without limitation the
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amount of its "Working Capital" (defined as current assets excluding cash, cash
equivalents and marketable securities less current liabilities excluding any
short-term Debt and other current liabilities not assumed by Buyer, all
determined in accordance with GAAP), as of the Closing Date. If the Working
Capital balance presented in the Closing Balance Sheet is less than $1,512,000,
calculated as set forth in Schedule 3.2(a) (the "September Working Capital
Balance"), Buyer shall deduct the amount of the shortfall from the Working
Capital Holdback and promptly release the remainder, subject to Section 3.2(b)
below, of the Working Capital Holdback, if any, to Seller. If the amount of such
shortfall exceeds the Working Capital Holdback, the entire Working Capital
Holdback shall be credited to the account of Buyer, and any such excess shall be
promptly paid by Seller or the Shareholder to Buyer in cash. If the Working
Capital balance presented in the Closing Balance Sheet is equal to or greater
than the September Working Capital Balance, the amount of any such excess shall
be promptly paid by Buyer to Seller in cash, and Buyer shall promptly release
the entire Working Capital Holdback (subject to deduction pursuant to Section
3.2(b) below) to Seller.
(b) In addition to amounts, if any, deducted from the Working
Capital Holdback in order to effectuate an adjustment to the Cash Purchase Price
pursuant to Section 3.2(a) above, Buyer or ImageX may, in its discretion, after
consultation with the Shareholder, offset against the Working Capital Holdback
in accordance with Section 12.6 of this Agreement the amount of any Claims based
on Sections 5.15 (Accounts and Other Receivables) and/or 5.16 (Inventory) of
this Agreement or any Claim based on any excluded liability under Section 2.4.8
(Claims and Adjustments) of this Agreement (provided that Buyer shall use
reasonable good faith efforts not to permit a return of merchandise that is
inconsistent with Seller's current policies with respect to returns of Products
in the course of Seller's conduct of the Business); in each case, to the extent
such claims are known to and quantifiable by Buyer prior to disbursement of the
Working Capital Holdback. No failure to offset any such Claims shall constitute
a waiver thereof. In the event that the Shareholder in good faith disputes all
or any portion of the amount of any such offset, the amount in question shall be
set aside in a separate interest-bearing account of ImageX until such dispute is
resolved either by mutual agreement of the Shareholder and ImageX or otherwise
pursuant to this Agreement (any interest earned on the disputed amount shall be
paid to the party determined to be entitled to such disputed amount). In the
event there is an offset against the Working Capital Holdback with respect to
any accounts receivable that are not collected within the time period set forth
in Section 5.15, Buyer shall assign such accounts receivable to Seller, who
thereafter may pursue such efforts of collection as Seller shall deem
appropriate, provided that Seller shall in good faith seek to minimize any
disruption to the Business to the extent reasonably practicable without
prejudicing such collection efforts.
3.3 Allocation of Purchase Price
The parties agree to treat the purchase of the Assets hereunder as an
exchange taxable under Section 1001 of the Code for income tax purposes and to
utilize the fair market values of the Assets, as determined by an appraisal to
be conducted prior to Closing by an independent appraisal or accounting firm
selected jointly by the parties, for the purpose of allocating the Purchase
Price paid hereunder to the Assets for federal, state, local and other Tax
purposes, which allocation is in accordance with Section 1060 of the Code. Buyer
shall cause the
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independent accounting firm so selected to deliver a draft of such appraisal to
Seller and Seller shall be given a reasonable opportunity to comment thereon
prior to such appraisal being finalized. Seller shall pay any sales and use
Taxes arising out of the transfer of the Assets and other transactions
contemplated by this Agreement and the Transaction Documents. Each party agrees
to report the federal, state, local and other Tax consequences of the
transactions contemplated by this Agreement and the Transaction Documents in a
manner consistent with such allocation and shall not take any position
inconsistent therewith upon examination of any Tax return, in any refund claim,
or in any litigation, investigation or otherwise, unless otherwise required by a
determination within the meaning of Section 1313 of the Code. Each party shall
cooperate with the other party in the filing of Form 8594 with the U.S. Internal
Revenue Service.
4. Closing
4.1 Closing Date
Subject to the terms and conditions of this Agreement, the Closing shall
take place at the offices of Perkins Coie LLP, 1201 Third Avenue, 48th Floor,
Seattle, Washington 98101 on the earliest practicable business day after the
satisfaction or waiver of the conditions set forth in Sections 8 and 9 of this
Agreement (unless this Agreement shall be earlier terminated in accordance with
its terms), or at such other location or time as the parties may agree, and
shall be effective as of midnight on the Closing Date
4.2 Closing Payments
4.2.1 Cash Purchase Price
At the Closing, the Cash Purchase Price shall be disbursed by or on behalf
of the Buyer as follows:
(a) Escrow. Buyer shall pay the sum of $750,000 (the "Escrow
Amount") into an interest bearing third-party escrow account as provided in the
Escrow Agreement attached hereto as Exhibit 4.2 (the "Escrow Agreement") as a
partial source of payment of indemnification claims under Section 12 of this
Agreement. The Escrow Amount shall be held and disbursed in accordance with the
Escrow Agreement.
(b) Working Capital Holdback. Buyer shall withhold in a separate
interest-bearing account of Buyer or ImageX the sum of $300,000 (the "Working
Capital Holdback") as a partial source of payment to Buyer of any adjustments to
the Cash Purchase Price pursuant to Section 3.2(a) or 3.2(b) of this Agreement.
The Working Capital Holdback shall be held and disbursed in accordance with
Sections 3.2 and 12.6 of this Agreement.
(c) Balance of Cash Purchase Price. The balance of the Cash Purchase
Price (net of any Deposit previously paid as contemplated by Section 7.11 below)
shall be paid by wire transfer of immediately available funds to such bank
account of Seller as it may designate in writing prior to the Closing.
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4.2.2 Stock Component
At the Closing, except as otherwise contemplated in Section 8.9 below, 80%
of the Stock Component shall be issued to the Shareholder and 20% of the Stock
Component shall be issued to Veber Partners, LLC, which has performed investment
banking services for Seller in connection with the sale of the Business
contemplated by this Agreement. The parties acknowledge that the ImageX Stock
constituting the Stock Component shall either be common stock or a junior
preferred stock in the discretion of ImageX. Any such junior preferred stock
will have such rights as may be determined by ImageX in its discretion which
shall be at least as favorable to the holders thereof as common stock.
5. Representations and Warranties of Seller
To induce Buyer and ImageX to enter into and perform this Agreement,
Seller represents and warrants to Buyer and to ImageX (which representations and
warranties shall survive the Closing as provided in Section 12), except as set
forth in the Schedules to this Section 5 (which shall be deemed to be
representations and warranties under this Section 5), all as follows in this
Section 5:
5.1 Organization and Good Standing
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the state of Oregon. Seller is duly qualified to do
business, and is in good standing, in all jurisdictions where such qualification
is required, except where the failure to be so qualified and in good standing
could not reasonably be expected to have a material adverse effect on the Assets
or the conduct, business, operations, properties, condition (financial or
otherwise) or prospects of the Business.
5.2 Authority; Authorization; Enforceability
(a) Seller has all requisite corporate power and authority to own,
operate and lease the Assets and to carry on the Business as now being
conducted. Seller has full corporate power and authority to execute and deliver
this Agreement and the Transaction Documents to which it is a party and to
perform its obligations hereunder and thereunder. The execution and delivery by
Seller of this Agreement and the Transaction Documents to which it is a party,
the performance by Seller of its obligations hereunder and thereunder and the
consummation by Seller of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action. This Agreement has been
duly executed and delivered by Seller and constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
and the Transaction Documents to which Seller is a party, when executed and
delivered by Seller, will constitute valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms.
(b) The Shareholder has full legal right, power and authority to
execute and deliver this Agreement and the Transaction Documents to which the
Shareholder is a party and perform his obligations hereunder and thereunder.
This Agreement has been duly executed and delivered by the Shareholder
and constitutes the valid and binding obligation of the Shareholder,
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enforceable against the Shareholder in accordance with its terms, and the
Transaction Documents to which the Shareholder is a party, when executed and
delivered by the Shareholder, will constitute valid and binding obligations of
the Shareholder, enforceable against the Shareholder in accordance with their
respective terms.
5.3 No Conflict
(a) Except as set forth in Schedule 5.3, the execution, delivery and
performance of this Agreement and the Transaction Documents by Seller and the
consummation of the transactions contemplated hereby and thereby will not (a)
violate, conflict with, or result in any breach of any provision of Seller's
articles of incorporation or bylaws (or equivalent documents); or (b) violate,
conflict with, result in any breach of, or constitute a default (or an event
that, with notice or lapse of time or both, would constitute a default) under
any Contract or Judgment to which Seller is a party or by which it is bound; or
(c) result in the creation of any Encumbrance on any of the Assets; or (d)
violate any applicable law, statute, rule, ordinance or regulation of, or
require any notification to, filing with, approval or authorization of or other
procedure with, any Governmental Body; or (e) violate or result in the
suspension, revocation, modification, invalidity or limitation of any Permits
relating to the Products, the Assets or the Business; or (f) give any party with
rights under any Contract, Judgment or other restriction to which Seller is a
party or by which it is bound, the right to terminate, modify or accelerate any
rights, obligations or performance under such Contract, Judgment or restriction.
(b) Except as set forth in Schedule 5.3, the execution, delivery and
performance of this Agreement and the Transaction Documents by the Shareholder
and the consummation by the Shareholder of the transactions contemplated hereby
and thereby to be consummated by him will not violate, conflict with, result in
any breach of, or constitute a default (or an event that, with notice or lapse
of time or both, would constitute a default) under any Contract or Judgment to
which the Shareholder is a party or by which he is bound.
5.4 Consents and Approvals
Except as set forth in Schedule 5.4, (a) no consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Body is required for the execution, delivery and performance by Seller and the
Shareholder of this Agreement and the Transaction Documents to which either
Seller or the Shareholder is a party and for the consummation by Seller and the
Shareholder of the transactions contemplated hereby and thereby, and (b) no
consent, approval or authorization of any third party is required, under any
Contract or otherwise, in connection with the execution, delivery and
performance by Seller and the Shareholder of this Agreement and the Transaction
Documents to which either Seller or the Shareholder is a party and the
consummation by Seller and the Shareholder of the transactions contemplated
hereby and thereby.
5.5 Financial Statements
Seller has delivered to Buyer the following financial statements, accurate
and complete copies of which are attached to Schedule 5.5 (collectively, the
"Financial Statements"):
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reviewed balance sheets as of December 31, 1997 and December 31, 1996, the
related reviewed statements of income, cash flow and shareholders' equity for
each of the years then ended, a reviewed balance sheet (the "1998 Balance
Sheet") as of December 31, 1998 (the "Balance Sheet Date"), and the related
reviewed statements of income, cash flow and shareholders' equity for the period
then ended, and an unaudited balance sheet as of September 30, 1998, and the
related unaudited statements of income and cash flow for the nine months then
ended. The Financial Statements were prepared from the books and records of
Seller and fairly present the financial position of the Business as of their
respective dates and the results of operations of the Business for the
respective years or periods covered thereby, in accordance with generally
accepted accounting principles consistently applied. Each accrual, reserve or
allowance reflected in the Financial Statements and relating to any portion of
the Assets or Assumed Liabilities is adequate to meet the liability or
contingency underlying such accrual, reserve or allowance. The foregoing balance
sheets reflect all properties and assets, real, personal or mixed, that are used
by Seller in the Business and that are required to be reflected on such balance
sheets pursuant to GAAP. There are no liabilities or obligations of Seller
assumed by Buyer hereunder that are not reflected in the 1998 Balance Sheet but
in accordance with GAAP should have been so reflected, other than liabilities or
obligations incurred in the ordinary course of business since the date of the
1998 Balance Sheet which are not material individually or in the aggregate.
5.6 Absence of Certain Changes or Events
Except as set forth in Schedule 5.6, since the Balance Sheet Date, Seller
has conducted the Business in the ordinary course consistent with Seller's past
practice, and has not, directly or indirectly:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment (other than this Agreement) other than in
the ordinary course of business, consistent with past practice;
(b) failed to administer its capital expenditures or deferred
charges program in the ordinary course of business;
(c) sold, leased to others or otherwise disposed of any material
amount of assets (except for sales of inventory in the ordinary course of
business);
(d) entered into any contract, agreement or other binding
obligation, other than this Agreement, relating to (i) the purchase, sale or
issuance of any equity securities or options, warrants or other rights to
acquire equity securities of any party, (ii) the purchase or sale of assets
either material in amount or constituting a business, or (iii) any merger,
consolidation or other business combination;
(e) canceled or compromised any Debt owing to Seller or any material
claim in excess of $20,000 individually or $100,000 in the aggregate, waived or
released any right of material value in excess of $20,000 individually or
$100,000 in the aggregate, or instituted, settled or agreed to settle any
material litigation (provided that such dollar limitations set forth in
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this Section 5.6(e) shall not apply with respect to claims or rights against an
Affiliate or employee of Seller);
(f) (i) experienced any actual or threatened employee strikes, work
stoppages, slow-downs or lock-outs or (ii) changed the compensation or terms of
employment provided to Seller's officers or employees earning more than $50,000
per annum or (iii) paid or agreed or orally promised to pay, conditionally or
otherwise, any extra compensation to any such person (including, without
limitation, any such payments to be made to employees of Seller in connection
with and/or from the proceeds of the transactions contemplated hereby);
(g) disposed of, or permitted to lapse, any rights to the use of any
material trademark, service mark, trade name, patent, copyright or other
Intellectual Property;
(h) (i) made any change in any method of accounting or accounting
practice or in its pricing, billing, payment, collection or credit policies or
practices other than in the ordinary course of business or (ii) granted any
extensions of credit other than in the ordinary course of business or (iii)
failed to pay any creditor any amount owed to such creditor when due other than
in the ordinary course of business in connection with bona fide claims or
disputes;
(i) made any gifts or sold, leased, transferred or exchanged any
material property for less than the fair value thereof;
(j) (i) made, declared or paid any non-cash dividend or other
non-cash distribution on or in respect of any equity security of Seller; (ii)
purchased, redeemed or otherwise retired any equity security of Seller, directly
or indirectly; or (iii) made any payment or other distribution on or in respect
of the principal of, interest on, or otherwise relating to, directly or
indirectly, any Debt owing to any Affiliate (any of the foregoing being a
"Distribution");
(k) experienced any material adverse change in its relationships
with its employees, agents, customers, distributors, manufacturers or suppliers,
except as has not had and could not reasonably be expected to have, individually
or in the aggregate, a material adverse effect on the Assets or the conduct,
business, operations, properties, condition (financial or otherwise) or
prospects of the Business (excluding general economic trends and events
applicable to all businesses generally);
(l) acquired any corporation, partnership, other business
organization or division thereof;
(m) entered into any transactions otherwise than on an arm's-length
basis, or any transaction with any Affiliate of Seller or the Shareholder;
(n) entered into any contract, agreement or other binding obligation
to do any of the things referred to in clauses (a) through (m) above; or
(o) experienced any event or series of events (excluding general
economic trends and events applicable to all businesses generally) which has had
or could reasonably be expected to have, or become aware of any pending or
potential developments that could
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reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the Assets or the conduct, business, operations, properties,
condition (financial or otherwise) or prospects of the Business.
5.7 Taxes
(a) All Tax Returns required to be filed by or on behalf of Seller
have been or will be filed on a timely basis with the appropriate Governmental
Bodies in all jurisdictions in which such Tax Returns are required to be filed,
and all Tax obligations of Seller (whether or not reflected on such Tax Returns)
have been timely paid or are being contested in good faith, and, except as
reflected in the balance sheets included in the Financial Statements and in any
balance sheet hereafter delivered to Buyer, Seller has no liability for any Tax
obligations and no interest or penalties have accrued or are accruing with
respect thereto, whether state, county, local or otherwise with respect to any
periods prior to the Closing Date except, in each case, any Tax obligations
that, if not timely paid by Seller, could not result in (i) an Encumbrance on
any of the Assets or (ii) the commencement of any Claim against Buyer.
(b) With respect to the Business and the Assets:
(i) No waivers of statutes of limitation have been given or
requested with respect to Seller in connection with any Tax Returns with respect
to any Taxes payable by it;
(ii) All deficiencies asserted or assessments made as a result
of any examinations by any Governmental Body (including the Internal Revenue
Service (the "IRS")) of the Tax Returns of Seller have been fully paid, there
are no other unpaid deficiencies asserted or assessments made by any
Governmental Body against Seller, and there are no audits or investigations by
any Governmental Body in progress or, to the knowledge of Seller, pending; and
(iii) No claim has been made by a Governmental Body in a
jurisdiction where Seller does not file Tax Returns that Seller is or may be
subject to taxation by that jurisdiction.
(c) Seller is not a party to any Tax allocation or sharing
agreement.
5.8 Property
(a) Seller owns no real property. Schedule 2.1.1 constitutes a
complete and accurate list of all personal property (the "Personal Property")
owned by Seller and Schedule 2.1.2 constitutes a list of all personal property
leased or rented by Seller, as of the date hereof, for use in the operation of
the Business. Seller has delivered to Buyer true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
of any portion of the Leased Real Property and the Personal Property.
(b) Seller has good and marketable title to all Assets (other than
the Leased Real Property, the Leased Personal Property and Seller's Intellectual
Property), free and clear of
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all Encumbrances, except as specifically described in Schedule 5.8(b) and except
for (i) assessments for Taxes not yet due and payable and (ii) mechanics',
materialmen's, carriers' and other similar liens securing indebtedness that is
in the aggregate less than $10,000, is not yet due and payable, and was incurred
in the ordinary course of business.
(c) There are no zoning, building or land use codes or rules,
ordinances, regulations or other restrictions relating to zoning or land use
that currently or, to the knowledge of Seller, may prospectively prevent, or
cause the imposition of material fines or penalties as the result of, the use of
all or any portion of the Leased Real Property (with the existing Facilities)
for the conduct thereon of the Business as presently conducted. Seller has
received all necessary Permits with regard to occupancy and maintenance of the
Leased Real Property for the conduct of the Business as presently conducted.
(d) There are no existing leases, subleases, service contracts,
tenancies or licenses of any portion of the Leased Real Property except for
those identified in Schedule 5.8(d), true and complete copies of which have been
delivered to Buyer by Seller.
(e) Each lease of any portion of the Leased Real Property, and each
lease, license, rental agreement, contract of sale or other agreement to which
any Personal Property is subject, is valid and in good standing, Seller has
performed in all material respects the obligations imposed on it thereunder, and
neither Seller nor, to the knowledge of Seller, any other party thereto is in
default thereunder in any material respect, nor is there any event that with
notice or lapse of time, or both, would constitute a default thereunder by
Seller or, to the knowledge of Seller, any other party thereto. Seller has not
received notice, and Seller is not otherwise aware, that any party to any such
lease, license, rental agreement, contract of sale or other agreement intends to
cancel or terminate the same.
(f) Except as specifically set forth in Schedule 5.8(f), Seller has
no knowledge of any material structural defect in the Leased Real Property.
Seller is not in default in any material respect under any covenant, condition,
restriction, easement or right-of-way relating to the Leased Real Property.
(g) The Assets to be transferred to Buyer pursuant to this Agreement
and the Transaction Documents include all the assets and rights used by Seller
in the operation of the Business, and are sufficient to permit Buyer to operate
the Business in the same manner as heretofore and currently conducted by Seller.
The execution and delivery of the Transaction Documents by the parties and the
payment by Buyer to Seller of the Purchase Price of the Assets set forth in
Section 3.1 will result, subject to obtaining the consents and approvals set
forth in Schedule 5.4 ("Consents and Approvals"), in Buyer's immediate
acquisition of good, valid and marketable title to the Assets, free and clear of
any Encumbrance, or right to use leased Assets in accordance with the leases
therefor.
5.9 Equipment
Except as set forth in Schedule 5.9, the machinery, equipment, furniture
and other physical assets included in the Assets do not have any structural
defects, are in good operating
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condition and repair (ordinary wear and tear excepted) and are adequate for the
conduct of the Business, and they conform to, and are free of any building, fire
or other violations under, all applicable zoning, pollution, health and safety
and other laws, statutes, rules, ordinances and regulations (excluding
Environmental and Safety Laws). During the past three years there has not been
any significant interruption in the conduct of the Business, including, but not
limited to, the operation of the Facilities, due to the malfunctioning of any
such Assets. No machinery, equipment, furniture or physical assets other than
those listed in Schedule 2.1.1 and 2.1.2 are used or required by Seller in the
conduct of the Business, including, but not limited to, the operation of the
Facilities.
5.10 Environmental and Safety Matters
(a) Seller has given Buyer access to all of the following:
(i) all written communications in Seller's possession or
control with the U.S. Environmental Protection Agency, the U.S. Department of
Labor, all applicable state and local authorities and all other Governmental
Bodies having jurisdiction over or the authorization to enforce any
Environmental and Safety Law, relating to the conduct of the Business or to the
ownership, operation or use of the Assets, the Facilities, the Leased Real
Property or any other real property currently owned, leased, subleased or used
by Seller;
(ii) all written materials in Seller's possession or control
relating to waste handling, treatment, storage, manufacturing, generation,
processing, disposal and transport practices, groundwater monitoring, effluent
discharges or releases and air emissions on, at, adjacent to, under, or from the
Assets, the Facilities, the Leased Real Property or any other real property
currently owned, leased, subleased or used by Seller; and
(iii) all manifests of all shipments of waste in Seller's
possession or control relating to the conduct of the Business or the ownership,
operation or use of the Assets, the Facilities, the Leased Real Property or any
other real property currently owned, leased, subleased or used by Seller.
(b) Seller has given Buyer access to all of the following:
(i) copies of all written documentation in Seller's possession
or control indicating the presence of any Hazardous Materials or the release or
discharge, or the threat of a release or discharge, of any Hazardous Materials
into the Environment (A) on, at, adjacent to, under or from the Assets, the
Facilities, the Leased Real Property, or any other real property currently
owned, leased, subleased or used by Seller or by any Third Party; (B) on, at,
adjacent to, under or from any other locations where Hazardous Materials from
the Assets, the Facilities, the Leased Real Property or such other real
properties were treated, handled, stored, disposed of, released, transported or
abandoned; or (C) on, at, adjacent to, under or from any other locations to
which Hazardous Materials from the Assets, the Facilities, the Leased Real
Property or such other real properties were emitted, discharged, spilled,
migrated, released, disposed of or placed (the locations referred to in clauses
(B) and (C) above are hereinafter collectively referred to as the "Other
Properties");
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(ii) copies of all Permits, whether expired, suspended,
revoked or presently in force, in Seller's possession or control, issued by the
U.S. Environmental Protection Agency or any state or local authorities, that
authorize or relate to the manufacture, generation, processing, treatment,
distribution, use, handling, storage, disposal, emission, transportation,
discharge or release of Hazardous Materials on, at, around, under or from the
Assets, the Facilities, the Leased Real Property or any other real property
currently owned, leased, subleased or used by Seller, and copies of all
applications for such Permits in Seller's possession or control;
(iii) copies of any notices of violation or alleged violation
of any Environmental and Safety Law by Seller or by any Third Party in Seller's
possession or control;
(iv) copies of any notices of violation or alleged violation
of any Environmental and Safety Law, in Seller's possession or control, arising
out of or relating to any activities conducted at the Assets, the Facilities,
the Leased Real Property or any other real property currently owned, leased,
subleased or used by Seller, during the period such Assets, Facilities, Leased
Real Property or other real property was owned, leased, subleased or used by
Seller; and
(v) copies of any environmental, health or safety assessments
or audits in Seller's possession or control relating to the Assets, the
Facilities, the Leased Real Property or any other real property currently owned,
leased, subleased or used by Seller or by any Third Party.
(c) Schedule 5.10(c) describes any and all Judgments, Permit
conditions and pending or, to the knowledge of Seller, threatened Claims (i)
that require, provide for or seek damages, injunctive relief or any other
remedy, or (ii) that require, provide for or seek any Remedial Action affecting
the Assets, Facilities or Leased real Property or, to Seller's knowledge, any
Other Properties, or (iii) that require, provide for or seek any change in the
present condition of or any work, repairs, construction or capital expenditures,
in each case with respect to the Assets, the Facilities, the Leased Real
Property, any other real property currently owned, leased, subleased or used by
Seller or, to Seller's knowledge, any Other Properties.
(d) Except as set forth in Schedule 5.10(d), Seller is in compliance
in all material respects with all Environmental and Safety Laws.
(e) Except as set forth in Schedule 5.10(e), or in the environmental
reports referred to in Section 7.9 below or as disclosed in the materials
referred to in paragraphs (a)-(c) above, there are no facts or circumstances
within the actual current knowledge of, without any investigation whatsoever by,
the persons listed in Section 14.12 hereof relating to (i) the manufacture,
generation, processing, distribution, use, treatment, handling, storage,
transport, disposal, release or abandoning of any Hazardous Materials by Seller
or by any Third Party; (ii) the manufacture, generation, processing,
distribution, use, treatment, handling, storage, transport, disposal, release or
abandoning of any Hazardous Materials by any Person (including without
limitation any previous owner or operator of the Leased Real Property) on, at,
under or from the Assets, the Facilities, the Leased Real Property, or any other
properties currently or previously owned, leased, subleased or used by Seller,
at any time on or prior to the Closing
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Date; (iii) the presence at or at any time prior to the Closing Date of
Hazardous Materials (from whatever source) on, at or under the Assets, the
Facilities or the Leased Real Property as a result of a release or disposal
thereof by any Person at any time prior to the Closing Date; or (iv) the
violation of any Environmental and Safety Law by Seller or by any Third Party
that would be material to an evaluation by a reasonable buyer of the Business or
such Assets, Facilities, Leased Real Property with respect to compliance with
Environmental and Safety Laws, or that may require Remedial Action to achieve
such compliance.
5.11 Contracts
Schedule 5.11 is an accurate and complete list of all the Contracts
relating to the Products, the Assets or the Business to which Seller is a party
or by which it is in any way affected or bound (except, in the case of any oral
Contracts that are not covered under paragraphs (a) through (g) below and that
exceed $25,000 in amount, Schedule 5.11 contains accurate and complete summaries
thereof), including, but not limited to:
(a) all Contracts for the purchase or sale of Products, raw
materials, intermediates, supplies, machinery, equipment, services or other
tangible or intangible property, in each case involving the payment or receipt
by Seller of $25,000 or more in the case of any single Contract, or providing
for performance, regardless of dollar amount, over a period of one year or more;
(b) all sales agency or distributorship Contracts or franchises;
(c) all Contracts providing for the manufacture, processing,
packaging, storage or distribution of Products or the performance of
manufacturing, processing, packaging, storage or distribution services by or for
Seller and that involve payments to or from Seller in excess of $25,000 per
Contract;
(d) all Contracts providing for the services of consultants or
independent contractors, including, but not limited to, Contracts relating to
research, development, advertising or promotion;
(e) all Contracts relating to patents, trade names, trademarks,
service marks, copyrights, or applications for any of the foregoing, or
inventions, formulas, processes, technology, know-how, trade secrets, technical
information or other intellectual property rights, including, but not limited
to, the Intellectual Property included in the Assets;
(f) all Contracts relating to (i) real property or any interest
therein or (ii) to the extent involving payments to or from Seller in excess of
$25,000, to personal property located at the Facilities; and
(g) all other Contracts relating to the Products, the Assets or the
Business that involve the payment or receipt by Seller of $25,000 or more in the
case of any single Contract, or providing for performance, regardless of dollar
amount, over a period of one year or more.
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All such Contracts which are Assumed Contracts are valid and in full force
and effect and are enforceable in accordance with their respective terms. Seller
has performed in all material respects the obligations required to be performed
by it under all Assumed Contracts, and no material breach or default by Seller
of any provision thereof, nor any condition or event that, with notice or lapse
of time or both, would constitute such a breach or default, has occurred. To the
knowledge of Seller, no material breach or default by any other party to any
Assumed Contract of any provision thereof, nor any condition or event that, with
notice or lapse of time or both, would constitute such a breach or default, has
occurred. Seller has not received any notice of any modification, termination or
cancellation of any Assumed Contract and knows of no intent to effect the same
or any reasonable basis therefor. Except for Consents and Approvals set forth in
Schedule 5.4, no consent, approval or authorization of any third party is
required for the assignment of any Assumed Contract to Buyer, and all Assumed
Contracts will continue to be binding on the other parties thereto in accordance
with their terms following the Closing and their assignment to Buyer. To the
knowledge of Seller, there is no dispute with any party under any Assumed
Contract that could reasonably be expected to have a material adverse effect on
the Assets or the conduct, business, operations, properties, condition
(financial or otherwise) or prospects of the Business.
5.12 Claims and Legal Proceedings
Except as specifically set forth in Schedule 5.12, there are no Claims
pending or, to the knowledge of Seller, threatened against Seller with respect
to the operation of the Business, before or by any Governmental Body or
nongovernmental department, commission, board, bureau, agency or instrumentality
or any other Person. To the knowledge of Seller, there is no valid basis for any
Claim, other than as specifically set forth in Schedule 5.12, adverse to the
Business by or before any Governmental Body or nongovernmental department,
commission, board, bureau, agency or instrumentality, or any other Person. There
are no outstanding or unsatisfied Judgments to which Seller is a party, that
involve the transactions contemplated herein or that would alone or in the
aggregate have a material adverse effect on the Assets or the conduct, business,
operations, properties, condition (financial or otherwise) or prospects of the
Business.
5.13 Labor Matters
There are no disputes, material employee grievances or material
disciplinary actions pending or, to the knowledge of Seller, threatened between
Seller and any employees of Seller. Seller has complied in all material respects
with all provisions of all laws relating to the employment of labor and has no
liability for any arrears of wages or Taxes (including income tax and other
payroll withholding taxes) or penalties for failure to comply with any such
laws. Seller has no knowledge of any organizational efforts presently being made
or threatened by or on behalf of any labor union with respect to any of its
employees or contractors.
Except as specifically set forth in Schedule 5.13(A), Seller is not a
party to or otherwise bound by any:
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(a) management, employment or other contract providing for the
employment or rendition of executive or management services;
(b) employment contract that is not terminable without penalty by
Seller on 30 days' notice;
(c) Employee Benefit Plans;
(d) collective bargaining agreement or other agreement with any
labor union or other employee organization (and no such agreement is currently
being requested by, or is under discussion by management with, any group of
employees or others); or
(e) other employment contract or other compensation agreement or
arrangement, oral and written, affecting or relating to current or former
employees of the Business.
All such contracts, Employee Benefit Plans and other agreements and
arrangements set forth in Schedule 5.13 are valid, in full force and effect,
Seller has performed all material obligations imposed on it thereunder, and
there are, under any of such contracts, Employee Benefit Plans, agreements or
arrangements, no defaults or events of default by Seller or, to the knowledge of
Seller, any other party thereto that would have a material adverse effect on the
Assets or the conduct, business, operations, properties, condition (financial or
otherwise) or prospects of the Business or that could have a material adverse
affect on the relationship of Seller or Buyer with the Business employees.
From January 1, 1996 to and including the Closing Date, Seller has not
made any loans to any officer or employee of Seller.
Schedule 5.13(B) contains a complete and correct list of all of Seller's
employees and base rates of pay.
5.14 Intellectual Property
(a) Except as set forth in Schedule 5.14, Seller is the sole and
exclusive owner of the entire right, title and interest in and to, and has the
sole and exclusive right to use, free and clear of any payment obligation or
other Encumbrance, (i) to Seller's knowledge, all the patents, trade names,
trademarks, and service marks (and applications for registration of and goodwill
associated with the foregoing), and (ii) all the copyrights and other
Intellectual Property (and applications for registration of and goodwill
associated with the foregoing), in each case whether registered or not, that are
used in the Business, the manufacture, use or sale of the Products by or for
Seller, or the use or application of the Products by customers in accordance
with promotions or recommendations of Seller, or that are owned by Seller and
relate to the Products. Schedule 2.1.5 is an accurate and complete list of all
of Seller's patents, trade names, trademarks, service marks, copyrights, and
applications for any of the foregoing, reflecting dates of filing or dates of
issuance, if applicable. No patents, trade names, trademarks, service marks,
copyrights or applications for any of the foregoing, other than those set forth
in Schedule 2.1.5, are or have been used in or are known by Seller to be
necessary in connection with the Business or such
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manufacture, use, sale or application of the Products, or are owned by Seller
and relate to the Products. All registrations listed in Schedule 2.1.5 are in
good standing, valid, subsisting and in full force and effect in accordance with
their terms. The technical information and data and other Intellectual Property
rights to be transferred to Buyer hereunder include all of Seller's technical
information and data and other Intellectual Property rights (including, but not
limited to, those of the types referenced in Section 2.1.5) relating to the
Business, the manufacture, use or sale of the Products by or for Seller, the use
or application of the Products by customers in accordance with the promotions or
recommendations of Seller, or otherwise relating to the Products, and there is
no other Intellectual Property used in or, to Seller's knowledge, necessary for
the operation of the Business as currently conducted, except such as is included
in the Assets hereunder.
(b) To the knowledge of Seller, none of the Intellectual Property,
and rights thereto, included in the Assets are being infringed or otherwise
violated by any Person.
(c) The use by Seller of the Intellectual Property included in the
Assets, the manufacture, use and sale by or for Seller of the Products, and the
use or application of the Products by customers in accordance with promotions or
recommendations of Seller, do not infringe upon or otherwise violate (i) to
Seller's knowledge, any patents, trademarks, trade names or service marks of any
Person or (ii) any other Intellectual Property rights of any Person, and there
is no pending or, to the knowledge of Seller, threatened Claim alleging any such
infringement or violation. In addition, there is no pending or, to the knowledge
of Seller, threatened Claim alleging any defect in or invalidity, misuse or
unenforceability of, or challenging the ownership or use of or Seller's rights
with respect to, any of the Intellectual Property included in the Assets, and,
to the knowledge of Seller, there is no valid basis for any such Claim. To
Seller's knowledge, there is no other Claim made by any Person pertaining to the
Intellectual Property included in the Assets. None of such Intellectual Property
is subject to any Judgment.
(d) The consummation of the transactions contemplated by this
Agreement and the Transaction Documents will not alter or impair any of the
Intellectual Property included in the Assets, and no Consents and Approvals are
required for such Intellectual Property to be transferred to Buyer hereunder.
(e) To the knowledge of Seller, the Business does not involve the
employment of any Person in a manner that violates any noncompetition,
nonsolicitation or nondisclosure agreement that such Person entered into in
connection with his or her employment or activities at any time prior to
employment by Seller.
(f) Seller is conducting and has conducted the Business in
compliance in all material respects with all export control laws, statutes,
rules, ordinances and regulations promulgated by any Governmental Body. Seller
has not received any notice alleging that its conduct of the Business violates
any such laws, statutes, rules, ordinances or regulations, nor is Seller aware
of any basis for any Claim alleging the same.
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5.15 Accounts and Other Receivables
The accounts receivable of the Business reflected in the 1998 Balance
Sheet have been collected or are collectible within 180 days after the date
invoiced, and the accounts receivable of the Business existing at the Closing
Date will have been collected or will be collectible within 180 days after the
date invoiced, in each case in the aggregate amount at which such receivables
are carried on the 1998 Balance Sheet or Closing Balance Sheet (as the case may
be), in each case less in the aggregate the reserves specifically provided for
in the 1998 Balance Sheet or Closing Balance Sheet, as the case may be, for
doubtful accounts. Seller issues invoices on a regular basis within 30 days
after the date any transaction covered thereby occurs.
5.16 Inventory
The inventory reflected in the 1998 Balance Sheet or as currently owned
(or to be owned as of Closing) by Seller for use in the operation of the
Business (a) has been valued in accordance with generally accepted accounting
principles, and (b) is of a quality and quantity usable and salable in the
ordinary course of business at the amounts reflected on the 1998 Balance Sheet
(or on Seller's books, if acquired after the Balance Sheet Date), net of any
inventory reserve.
(a) (i) all inventories of finished Products to be transferred to
Buyer hereunder meet Seller's current specifications and consist of items of a
quality and quantity that are salable within a period of 180 days in the
ordinary course of the Business as heretofore and currently conducted by Seller,
and (ii) all inventories of raw materials, intermediates, work in process,
supplies, parts and packaging and labeling materials to be transferred to Buyer
hereunder consist of items of a quality and quantity that are usable within a
period of 180 days in the ordinary course of the Business as heretofore and
currently conducted by Seller and appropriate for their intended use, including,
where applicable, processing into inventories of finished Products.
(b) Seller is not aware of any material adverse condition affecting
the quality or supply of raw materials, intermediates, supplies, parts and other
materials available to Seller that are necessary to manufacture, package or
label the Products or are otherwise used in the Business.
5.17 Product Warranties
Schedule 5.17 sets forth Seller's warranties currently made with respect
to the Products, and current policies with respect to returns of Products in the
course of Seller's conduct of the Business. Except as set forth in Schedule
5.17, Seller has not made any express product warranties in connection with the
sale of the Products.
5.18 Compliance With Laws
Seller is and has at all times been in compliance with its articles or
incorporation and bylaws (or equivalent documents) and, in all material
respects, with all laws, statutes, rules, ordinances and regulations promulgated
by any Governmental Body and all Judgments applicable to the ownership or
operation of the Assets or the Facilities, the conduct of the Business or the
sale of the Products. Seller has not received any notice of any alleged
violation
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(whether past or present and whether remedied or not), nor is Seller
aware of any basis for any claim of any such violation, of any such law,
statute, rule, ordinance, regulation or Judgment. There is no law, statute,
rule, ordinance or regulation promulgated by any Governmental Body or any
Judgment that materially and adversely affects or is reasonably expected to
materially and adversely affect the ability of Seller to own or operate the
Assets or the Facilities or to conduct the Business (including, but not limited
to, the manufacture, use, marketing, promotion, sale or distribution of the
Products) in the same manner as heretofore and currently owned, operated or
conducted. No representation or warranty is made under this Section 5.18 with
respect to any Environmental and Safety Law, which representations and
warranties are set forth in other Sections of this Agreement.
5.19 Permits and Qualifications
All Permits that are required for the ownership or operation of the Assets
or the Facilities or the conduct of the Business (including, but not limited to,
the manufacture, use, marketing, promotion, sale or distribution of the
Products) have been obtained by Seller, are in full force and effect and are
listed in Schedule 2.1.6, with their expiration dates, if any. Seller is and has
at all times been in full compliance with all such Permits, and Seller has not
received any notice of any alleged violation (whether past or present and
whether remedied or not) of, nor any threat of the suspension, revocation,
modification, invalidity or limitation of, any such Permit, nor is Seller aware
of any basis for any material claim of any such violation or any such threat. To
the extent transferable, all such Permits will be effectively assigned to Buyer
without additional liability to Buyer upon the Closing.
5.20 Insurance
Schedule 5.20 contains a complete and accurate list of all insurance
policies held by Seller and the amounts and deductibles thereof. A copy of each
such policy has been provided to Buyer prior to the date hereof. Seller has
maintained insurance protection which it believes is adequate for the operation
of the Business and is consistent with industry practice.
5.21 Employee Plans
(a) Schedule 5.21 contains a complete and correct list of all
Employee Benefit Plans. Seller has no agreement, arrangement or commitment,
whether formal or informal, whether written or unwritten, to create any
additional employee benefit plan, fund, policy, program, contract, arrangement
or payroll practice or to modify or amend any existing Employee Benefit Plan.
The terms of each Employee Benefit Plan permit Seller to amend or terminate such
Employee Benefit Plan at any time and for any reason without penalty or cost.
(b) With respect to each Employee Benefit Plan, such Employee
Benefit Plan is, and at all times since inception has been, maintained,
administered, operated and funded in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including, without limitation, ERISA and the Code, and all
requirements prescribed thereby. Each Employee Benefit Plan that is intended to
be qualified under Section 401(a) of the Code is, and at all times since
inception has been, so qualified and its
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related trust is, and at all times since inception has been, exempt from
taxation under Section 501(a) of the Code, and each such Employee Benefit Plan
is the subject of an unrevoked favorable determination letter from the IRS to
that effect. Nothing has occurred, and no circumstances exist, or are reasonably
expected by the Seller to occur, that could cause such Employee Benefit Plan to
lose its tax-qualified status or that could cause the IRS to revoke the most
recent determination letter issued with respect to such Employee Benefit Plan or
Seller or such Employee Benefit Plan to otherwise lose their ability to rely on
such determination letter.
(c) Each Employee Benefit Plan that constitutes a "group health
plan," as defined in Section 607(1) or 733(a)(1) of ERISA or Section 4980B(g)(2)
of the Code, has been maintained, administered and operated at all times since
its inception in compliance with the requirements of Parts 6 and 7 of Subtitle B
of Title I of ERISA, Section 4980B(f) of the Code, any regulations under such
ERISA and Code sections and any other applicable laws regarding the provision or
continuation of health insurance coverage or other welfare benefits (within the
meaning of Section 3(1) of ERISA).
(d) Seller is not, and never has been, a member of (i) a controlled
group of corporations, within the meaning of Section 414(b) of the Code, (ii) a
group of trades or businesses under common control, within the meaning of
Section 414(c) of the Code, (iii) an affiliated service group, within the
meaning of Section 414(m) of the Code, or (iv) any other group of persons,
organizations or entities that is treated as a single employer under Section
414(o) of the Code.
(e) Seller does not maintain or contribute to, and never has
maintained or contributed to (or been obligated to contribute to), any
multiemployer plan within the meaning of Section 3(37) or 4001(a)(3) of ERISA or
Section 414(f) of the Code, any multiple employer plan within the meaning of
Section 4063 or 4064 of ERISA or Section 413(c) of the Code, or any employee
benefit plan, fund, program, contract or arrangement that is subject to Title IV
of ERISA.
(f) Except as provided on Schedule 5.21, neither Seller nor any
Employee Benefit Plan provides or has any obligation to provide (or contribute
toward the cost of) any health, life insurance or other welfare benefits (within
the meaning of Section 3(1) of ERISA) with respect to any current or former
officer, employee, agent, director or independent contractor of Seller or any
other entity beyond such individual's retirement or other termination of service
(other than continuation coverage mandated by Sections 601 through 608 of ERISA
or Section 4980B(f) of the Code).
5.22 Brokerage
No investment banker, broker or finder will be entitled to any fee or
other compensation in connection with the transactions contemplated by this
Agreement, except for Veber Partners, LLC whose fee shall be paid by Seller.
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5.23 Absence of Questionable Payments
None of Seller or any director, officer, agent, employee or other Person
acting on behalf of Seller has used, directly or indirectly, any of Seller's
funds for improper or unlawful contributions, payments, gifts or entertainment,
or made any improper or unlawful expenditures relating to political activity to
any government official or other person. The Business has adequate financial
controls to prevent such improper or unlawful contributions, payments, gifts,
entertainment or expenditures. None of Seller or any director, officer, agent,
employee or other person acting on behalf of Seller has accepted or received, to
the knowledge of Seller, any improper or unlawful contributions, payments, gifts
or expenditures in connection with the operation of the Business.
5.24 Customers and Suppliers
To the knowledge of Seller, no customer or supplier of Seller intends to
terminate or modify its relationship with Seller or the Business under the
ownership of Buyer after Closing. Schedule 5.24 is a complete and correct list
of the 30 largest customers of Seller, by revenue, indicating the sales revenue
from each such customer by month during fiscal 1998.
5.25 Capital Stock
The Shareholder owns beneficially and of record all of the issued and
outstanding capital stock of Seller, and there are no options, warrants or other
rights to acquire any shares of Seller's capital stock.
5.26 Full Disclosure
Seller has provided ImageX and Buyer with all the documents which ImageX
or Buyer have requested in writing for deciding whether to acquire the Assets.
This Agreement, the Schedules to this Agreement and all certificates delivered
by Seller or the Shareholder pursuant to this Agreement, taken together, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made or information delivered, in the
light of the circumstances under which they were made, not misleading. However,
as to any projections furnished to ImageX or Buyer, such projections were
prepared in good faith by Seller, but Seller makes no representation or warranty
that any such projections will be achieved.
5.27 Year 2000 Compliance
(a) Seller is currently undertaking a detailed review and assessment
of all areas within its business and operations that could be adversely affected
by the Year 2000 Problem (as defined below) and, except as set forth in Schedule
5.27, to Seller's knowledge, the internal systems of the Business will not be
adversely affected in a material way by such problem; provided, however, that
Seller does not represent that any external or third-party systems interfacing
or communicating with its internal systems will be Year 2000 Compliant (as
defined below). The "Year 2000 Problem" means the risk that computer hardware
and software may not accurately process date data (including, but not limited
to, calculating, comparing and sequencing) from, into and between the twentieth
and twenty-first centuries, including, without
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limitation, leap year calculations, without a decrease in the functionality of
such computer hardware and software.
(b) Except as set forth in Schedule 5.27, to Seller's knowledge, the
computer hardware and software applications used by Seller in the operation of
the Business are "Year 2000 Compliant" (that is, capable of accurately
processing date data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first centuries,
including, without limitation, leap year calculations, without a decrease in the
functionality of such computer hardware and software applications).
6. Representations and Warranties of Buyer and ImageX
To induce Seller and the Shareholder to enter into this Agreement, Buyer
and ImageX, jointly and severally, represent and warrant to Seller and the
Shareholder (which representations and warranties shall survive the Closing as
provided in Section 12) all as follows in this Section 6:
6.1 Organization and Good Standing
Each of ImageX and Buyer is a corporation duly organized and validly
existing under the laws of the state of Washington. Each of ImageX and Buyer is
duly qualified to do business, and is in good standing, in all jurisdictions
where such qualification is required, except where the failure to be so
qualified and in good standing would not have a material adverse effect on the
assets or the conduct, business, operations, properties, condition (financial or
otherwise) or prospects of ImageX or Buyer.
6.2 Authority; Authorization; Enforceability
Each of ImageX and Buyer has all requisite corporate power and
authority to own, operate and lease its assets and to carry on its business as
now being conducted. Each of ImageX and Buyer has full corporate power and
authority to execute and deliver this Agreement and the Transaction Documents to
which it is a party and perform its obligations hereunder and thereunder. The
execution and delivery by each of ImageX and Buyer of this Agreement and the
Transaction Documents to which it is a party, the performance by each of ImageX
and Buyer of its obligations hereunder and thereunder and the consummation by
each of ImageX and Buyer of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action of ImageX and Buyer,
other than approval by the ImageX shareholders of any amendments to ImageX's
articles of incorporation necessary to create and authorize the issuance of the
ImageX Stock. This Agreement has been duly executed and delivered by each of
ImageX and Buyer and constitutes a valid and binding obligation of each of
ImageX and Buyer, enforceable against each of ImageX and Buyer in accordance
with its terms, and the Transaction Documents to which ImageX or Buyer is a
party, when executed and delivered by ImageX or Buyer (as the case may be), will
constitute valid and binding obligations of such party, enforceable against such
party in accordance with their respective terms.
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6.3 Capitalization
The authorized capital stock of ImageX consists of Forty-Five Million
(45,000,000) shares of common stock, par value $.01 per share ("Common Stock"),
of which Three Million One Hundred Thirty-Four Thousand Six Hundred Forty
(3,134,640) shares are issued and outstanding as of the Closing, and Ten Million
Nine Hundred Sixty-Five Thousand (10,965,000) shares of preferred stock, par
value $.01 per share ("Preferred Stock"), of which (a) One Million Five Hundred
Thousand (1,500,000) shares are designated as Series A Preferred Stock ("Series
A Preferred"), all of which are issued and outstanding, (b) Three Million Five
Hundred Thousand (3,500,000) shares are designated as Series B Preferred Stock
("Series B Preferred"), all of which are issued and outstanding, (c) Four
Million Forty Thousand (4,040,000) shares are designated as Series C Preferred
Stock ("Series C Preferred"), Four Million (4,000,000) of which are issued and
outstanding, and (d) One Million Nine Hundred Twenty-Five Thousand (1,925,000)
shares are designated as Series D Preferred Stock ("Series D Preferred"), One
Million Seven Hundred Eighty-Six Thousand Seven Hundred Fifty (1,786,750) of
which are issued and outstanding. All such issued and outstanding shares have
been duly authorized and validly issued and are fully paid and nonassessable.
ImageX has reserved One Million Five Hundred Thousand (1,500,000) shares of
Common Stock for issuance upon conversion of the Series A Preferred, Three
Million Five Hundred Thousand (3,500,000) shares of Common Stock for issuance
upon conversion of the Series B Preferred, Four Million Forty Thousand
(4,040,000) shares of Common Stock for issuance upon conversion of the Series C
Preferred and One Million Nine Hundred Twenty-Five Thousand (1,925,000) shares
of Common Stock for issuance upon conversion of the Series D Preferred. ImageX
has reserved Three Million One Hundred Thousand (3,100,000) shares of Common
Stock for issuance to officers, directors, employees, consultants, agents,
advisors and independent contractors of ImageX pursuant to ImageX's 1996 Amended
and Restated Stock Incentive Compensation Plan (the "Option Plan"), 1,357,150 of
which shares have been issued and are outstanding and 1,339,657 of which shares
are subject to issuance upon exercise of options that have been granted and are
outstanding. ImageX has reserved 2,360,000 shares of Common Stock for issuance
upon exercise of warrants, all of which shares are subject to issuance upon
exercise of warrants that have been issued and are outstanding as of the
Closing. ImageX has reserved 40,000 shares of Series C Preferred for issuance
upon exercise of warrants, all of which shares are subject to issuance upon
exercise of warrants that have been issued and are outstanding. ImageX has
reserved 138,250 shares of Series D Preferred for issuance upon exercise of
warrants that have been issued and are outstanding. Other than (a) the shares
reserved for issuance described in this paragraph above, (b) the conversion
privileges under those certain Convertible Subordinated Promissory Notes, dated
January 8, 1999, issued by ImageX to each of Eli Wilner and Barbara A. Brennan
in the amounts of $598,742 and $598,744, respectively (the "Convertible Notes"),
(c) the warrants to be issued to each of Eli Wilner and Barbara A. Brennan
pursuant to Section 14 of the Convertible Notes, and (d) the rights of certain
shareholders of ImageX under that certain Second Amended and Restated Investor
Rights Agreement, dated October 1, 1998, among ImageX and the holders of the
Series B Preferred, Series C Preferred and Series D Preferred, there are no
outstanding rights, options, warrants, preemptive rights, rights of first
refusal, conversion privileges or similar rights for the purchase or acquisition
from ImageX of any securities of ImageX. As provided in ImageX's Articles of
Incorporation, the settlement of a certain litigation matter has caused an
immaterial adjustment to the conversion rate of the Series D Preferred such that
each share of
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Series D Preferred will now convert into 1.006 shares of Common Stock (subject
to further adjustment from time to time as provided in the Company's Articles of
Incorporation).
6.4 Valid Issuance of Stock
The shares of ImageX Stock to be issued pursuant to Section 4.2.2 at
Closing will, when issued, be validly issued, fully paid and nonassessable.
6.5 No Conflict
The execution, delivery and performance of this Agreement and the
Transaction Documents by Buyer and ImageX and the consummation of the
transactions contemplated hereby and thereby will not (a) violate, conflict
with, or result in any breach of, any provision of Buyer's or ImageX's articles
of incorporation or bylaws; or (b) violate, conflict with, result in any breach
of, or constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under any material Contract or Judgment to
which ImageX or Buyer is a party or by which it is bound, except that ImageX
will need to obtain the consent of its lender, Silicon Valley Bank, prior to
Closing; or (c) violate any applicable law, statute, rule, ordinance or
regulation of any Governmental Body.
6.6 Brokerage
No investment banker, broker or finder will be entitled to any fee or
other compensation in connection with the transactions contemplated by this
Agreement.
6.7 Full Disclosure
ImageX and Buyer have provided Seller and the Shareholder with all the
documents which Seller or the Shareholder have requested in writing for deciding
whether to acquire the ImageX Stock. Such documents, taken together with this
Agreement and all certificates delivered by ImageX or Buyer pursuant to this
Agreement do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made or
information delivered, in the light of the circumstances under which they were
made, not misleading. However, as to any projections furnished to the Seller or
the Shareholders, such projections were prepared in good faith by ImageX and/or
Buyer, but ImageX and Buyer make no representation or warranty that any such
projections will be achieved.
7. Certain Covenants
7.1 Access
(a) Prior to the Closing Date, Seller shall (i) give ImageX and
Buyer and their accounting, legal, business, environmental, engineering,
intellectual property and other authorized representatives and advisors full
access, during normal business hours, to all Facilities of Seller relating to
the Products, the Assets and the Business, (ii) furnish Buyer and ImageX and
their authorized representatives and advisors with all documents and information
relating to the Products, the Assets and the Business as may be reasonably
requested by Buyer or ImageX or their authorized representatives or advisors,
(iii) permit Buyer and ImageX and their authorized representatives and advisors
to review all books, records and Contracts relating to the Products, the Assets
and the Business as may be reasonably requested by Buyer or ImageX or
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their authorized representatives and advisors, and make copies thereof, (iv)
make available Seller's employees and advisors, including those responsible for
the management of the Business, and cause Seller's employees and advisors to
furnish Buyer and ImageX and their authorized representatives and advisors with
data and other information with respect to the Products, the Assets and the
Business as may be reasonably requested, and discuss with Buyer and ImageX and
their authorized representatives and advisors the affairs of the Business, (v)
facilitate, and accompany Buyer and ImageX and their authorized representatives
and advisors on, visits to the customers of the Business for the purpose of
assisting Buyer and ImageX in determining whether they will be able, or given
the opportunity, to conduct the Business after the Closing with respect to such
customers in the manner heretofore conducted by Seller or otherwise to qualify
itself or its products or Facilities for the purpose of so conducting the
Business, and (vi) fully cooperate with Buyer and ImageX and their authorized
representatives and advisors in their investigation and examination of the
Products, the Assets and the affairs of the Business. No investigation or
receipt of information by or on behalf of any party hereto shall have any effect
on, or undermine such party's right to rely on, the representations, warranties
and agreements of any other party contained in this Agreement (including without
limitation the definitions of Assumed Liabilities and Excluded Liabilities).
(b) In the event that the Closing under this Agreement shall not
occur, Buyer and ImageX on the one hand, and Seller and the Shareholder on the
other hand, shall keep confidential and not use or disclose to any other Person
any confidential information acquired by any such party (the "Receiving Party")
from any other such party (the "Disclosing Party") pursuant to this Section 7.1
or otherwise disclosed in connection with the negotiation of this Agreement,
unless the Disclosing Party shall give its written consent to the contrary;
provided, however, that the foregoing obligations of confidentiality and of
nonuse and nondisclosure shall not apply to any information which (i) at the
time of disclosure or use is, or thereafter becomes, available in the public
domain through no breach of this Agreement by the Receiving Party; or (ii) was
known to, or otherwise in the possession of, the Receiving Party or its
Affiliates prior to the receipt of such information from the Disclosing Party
and the Receiving Party can bear the burden of proving that it was so known or
otherwise possessed; or (iii) is obtained by the Receiving Party from a source
other than the Disclosing Party and other than one who would be breaching a
commitment of confidentiality to the Disclosing Party by disclosing the
information to the Receiving Party and the Receiving Party can bear the burden
of proving that it was so obtained; or (iv) is developed by the Receiving Party
or their Affiliates independently of the Disclosing Party's confidential
information; or (v) is required to be disclosed by the Receiving Party in
connection with a pending Claim; and provided further that in the event the
Receiving Party becomes required in connection with a pending Claim to disclose
any of the information acquired from the Disclosing Party in connection with
this Agreement, then the Receiving Party shall provide the Disclosing Party with
reasonable notice so that the Receiving Party may seek a court order protecting
against or limiting such disclosure or any other appropriate remedy; and in the
event such protective order or other remedy is not sought, or is sought but not
obtained, the Receiving Party shall furnish only that portion of the information
which is required and shall endeavor, at the Disclosing Party's expense, to
obtain a protective order or other assurance that
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the portion of the information furnished by the Receiving Party will be accorded
confidential treatment. The obligations of Buyer, ImageX, Seller and the
Shareholder set forth in this Section 7.1(b) shall be in effect for a period of
five years from the date of this Agreement.
7.2 Notification of Claims
From the date of this Agreement to and including the Closing Date, Seller
will promptly advise ImageX and Buyer in writing if Seller has notice or knows
of the commencement or threat of any claim, litigation or proceeding against or
affecting the Business or any ruling, decree or other material development in
any claim, action or suit described in Schedule 5.12 or arising after the date
hereof.
7.3 Employees
Buyer shall offer employment to all employees of Seller as of the Closing
Date on terms and conditions no less favorable than the terms and conditions
under which such employees were employed by Seller immediately prior to the
Closing Date. Schedule 5.13B contains a complete and correct payroll roster of
Seller listing all employees of Seller and their rates of pay as of the date
hereof.
7.4 Conduct of Business Prior to Closing
Except for actions taken with the prior written consent of Buyer, from the
date of this Agreement until the Closing Date, Seller shall conduct the Business
in the ordinary course consistent with Seller's past practice, Seller shall not,
directly or indirectly, take or permit to exist any action or condition
specified in Section 5.6 above, and Seller shall:
(a) use its best efforts to maintain the Business intact, to market,
promote, sell and distribute the Products consistently with Seller's past
practice, and to preserve the goodwill of the Business and present relationships
with the customers and suppliers of the Business and others with whom the
Business has business relations;
(b) maintain the Leased Real Property, Facilities and other
improvements and machinery and equipment constituting any of the Assets in good
operating condition and repair, ordinary wear and tear excepted;
(c) meet the contractual obligations of the Business and perform and
pay its obligations as they mature in the ordinary course of business;
(d) make payments and filings required to continue the Intellectual
Property and continue to prosecute and maintain all pending applications
therefor in all jurisdictions in which such applications are pending;
(e) comply with all Judgments; all laws, statutes, rules, ordinances
and regulations promulgated by any Governmental Body; and all Permits applicable
to the conduct of the Business or the ownership or operation of the Assets or
the Facilities, and maintain, and
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prosecute applications for, such Permits and pay all Taxes, assessments and
other charges applicable thereto;
(f) promptly advise Buyer in writing of any material adverse change
in the Assets or the conduct, business, operations, properties, condition
(financial or otherwise) or prospects of the Business;
(g) not take any action, or omit to take any action, directly or
indirectly, with the intent that Seller's representations and warranties made
herein would become inaccurate at the time of such action or omission as if made
at and as of such time;
(h) continue compensation and term of employment presently provided
to Seller's officers and principal employees at rates indicated on Schedule
5.13(B), except with knowledge and consent of Buyer; provided, however, that
Buyer acknowledges and consents to Seller's extension of its existing Incentive
Compensation Plan to all employees of Seller in 1999.
(i) give notice to Buyer promptly upon becoming aware of any
inaccuracy of any of Seller's representations or warranties made herein or in
the Schedules to this Agreement or of any event or state of facts the effect of
which is that any such representation or warranty is made inaccurate at the time
of such event or state of facts as if made at and as of such time (any such
notice to describe such inaccuracy, event or state of facts in reasonable
detail); and
(j) give notice to Buyer promptly upon becoming aware of any failure
of Seller or the Shareholder to perform any covenant or other obligation
required of it or him under this Agreement, or any facts or circumstances that
would cause any of the conditions specified in Section 8 to be incapable of, or
substantially unlikely to be, fulfilled; and
(k) not, directly or indirectly, enter into any agreement or
commitment with respect to any of the foregoing.
7.5 Insurance; Loss of or Damage to Assets
(a) Seller shall maintain, from the period commencing on the date of
this Agreement and ending on the Closing Date, the same insurance coverages it
maintained prior to the date hereof in respect of the Business and the Assets.
(b) Seller shall give ImageX and Buyer prompt written notice of (i)
any loss, damage or destruction to any of the Assets material to the operations
of the Business occurring on or after the date hereof and on or prior to the
Closing Date, (ii) the estimated value of the portion of the tangible Assets so
lost, damaged or destroyed, and (iii) the estimated cost of repair, replacement
or reconstruction thereof. Without regard to the limitations set forth in
Section 12.4, any insurance proceeds paid to Seller in respect of any such loss,
damage or destruction shall be paid to Buyer in accordance with Section 2.1.11.
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7.6 Post-Closing Severance Obligations
Subject to Buyer's compliance with the covenants contained in Section 7.3,
Seller shall have sole responsibility for complying with, and shall assume all
liabilities and obligations resulting from any noncompliance with, the
requirements of the Worker Adjustment and Retraining Notification Act, and any
other state, federal or local requirements with respect to any termination of
employment caused by a reduction in work force, shutdown, plant closure or other
employment termination at or prior to Closing.
7.7 Covenants to Satisfy Conditions
Each party shall proceed with all reasonable diligence and use
commercially reasonable efforts to satisfy or cause to be satisfied all of the
conditions precedent to the other party's obligation to purchase or sell the
Assets as set forth in Section 8 or 9, as the case may be, insofar as such
matters are within the control of such party; provided, however, that this
provision shall not impose upon any party any obligation to incur unreasonable
expenses under the circumstances in order to fulfill any condition contained in
such sections. With respect to the condition specified in the second sentence of
Section 8.5, Buyer and ImageX shall cooperate in good faith with Seller in
connection with any administrative or other similar matters relating to any such
Remedial Action (such as, for example only, by providing such reasonable
information about Buyer or ImageX as may be reasonably required by any
Governmental Body), but shall not be obligated to participate therein, incur any
cost with respect thereto, or make any commitments, undertakings or agreements
with, or incur any liabilities or obligations to, any Governmental Body. ImageX
and Buyer covenant to use their respective reasonable best efforts to obtain the
consent of Silicon Valley Bank to the transaction contemplated in this
Agreement.
7.8 Exclusivity
The Shareholder and Seller shall not, directly or indirectly, through any
officer, director, agent or otherwise, solicit, initiate or encourage the
submission of any proposal or offer relating to any acquisition or purchase of
all or (other than in the ordinary course of business) any portion of the assets
of, or any significant equity interest in, Seller or any business combination
with Seller or participate in any negotiations regarding, or furnish to any
third party any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any party to do or seek any of the foregoing. Seller immediately
shall cease and cause to be terminated all existing discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
7.9 Environmental Reports
Buyer and ImageX shall make available to Seller, subject to Section 7.1(b)
and 14.1, copies of all written environmental reports relating to the Business
or the Facilities that are prepared by or at the direction of Buyer or ImageX
prior to the Closing Date.
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7.10 Notices
From the date of this Agreement until the Closing Date, ImageX or Buyer
shall give notice to Seller promptly upon becoming aware of (a) any inaccuracy
of any of Buyer's or ImageX's representations or warranties made herein or of
any event or state of facts the effect of which is that any such representation
or warranty is made inaccurate at the time of such event or state of facts as if
made at and as of such time (any such notice to describe such inaccuracy, event
or state of facts in reasonable detail), or (b) any failure of ImageX or Buyer
to perform any covenant or other obligation required of ImageX or Buyer under
this Agreement, or any facts or circumstances that would cause any of the
conditions specified in Section 9 to be incapable of, or substantially unlikely
to be, fulfilled.
7.11 Deposit
If the closing condition set forth in Section 8.8 hereof (Closing of
Equity Financing) has not been completed by ImageX on or before March 10, 1999,
ImageX shall promptly pay Seller Fifty Thousand Dollars ($50,000) in cash (the
"Deposit"). The Deposit shall be credited against the Cash Purchase Price if the
Closing occurs. If this Agreement is terminated, the Deposit shall be treated as
set forth in Section 13.
7.12 Rights Relating to ImageX Stock
7.12.1 Investor Rights Agreement
With respect to the ImageX Stock, ImageX shall use reasonable good faith
efforts to provide the Shareholder with the rights set forth in that certain
Second Amended and Restated Investor Rights Agreement, dated October 1, 1998,
among ImageX and the investors listed on Exhibit A thereto, as such agreement
may be amended or restated from time to time after the date of this Agreement
(the "Investor Rights Agreement"). The Shareholder shall agree to be bound by
all the terms and conditions set forth in the Investor Rights Agreement that are
applicable to an "Investor" in such agreement (as defined therein).
7.12.2 Co-Sale Agreement
With respect to the ImageX Stock, ImageX shall use reasonable good faith
efforts to provide the Shareholder with all the rights set forth in that certain
Third Amended and Restated Co-Sale Agreement, dated November 16, 1998, among
ImageX, the individuals listed on Exhibit B thereto and the investors listed on
Exhibit A thereto, as such agreement may be amended from time to time after the
date of this Agreement (the "Co-Sale Agreement"). The Shareholder shall agree to
be bound by all the terms and conditions set forth in the Co-Sale Agreement that
are applicable to an "Investor" in such agreement (as defined therein).
7.12.3 Redemption Rights
ImageX shall use reasonable good faith efforts to provide redemption
rights with respect to the ImageX Stock on terms substantially similar to the
redemption rights set forth in ImageX's Amended and Restated Articles of
Incorporation as of the date of this Agreement, except that
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such rights shall be junior to the redemption rights of any other series of
ImageX's preferred stock, whether currently existing or hereinafter created
(meaning that if the holders of ImageX Stock elect to receive their redemption
amount due as of the then applicable redemption date, holders of such other
series of ImageX's preferred stock shall be provided notice of such election,
and be given the opportunity to elect to receive their respective redemption
amounts due as of such redemption date, prior to payment to such holders of
ImageX Stock of their redemption amount).
7.13 Escrow
After the date hereof and prior to Closing, Seller may attempt to arrange
with an escrow agent, who shall be (or shall be affiliated with) a major
national bank or trust company or an investment banking firm of national
standing and reputation, appropriate changes to the Escrow Agreement that would
(a) permit the investment of no more than one third of the escrow funds in a
broad-based, large capitalization equity fund such as a Vanguard S&P 500 index
or blue chip fund or other comparable fund, and (b) obligate the Shareholder to
make additional deposits into the escrow account to top up the escrow for any
losses incurred (calculated based on market value and without regard to whether
such losses are realized or not) with respect to the portion of the escrow funds
so invested. Such additional deposits shall be required if, as and when such
losses exceed $10,000 (in which case such top up deposit shall be made promptly
after determination of the amount of such loss in market value). Any such
changes must be acceptable to ImageX in its good faith reasonable discretion,
consistent with the above goals. In the event that such changes are agreed to by
the parties, the Escrow Agreement to be entered into at Closing and attached as
an Exhibit hereto will be appropriately revised. In the event that the parties
are unable to arrange or agree on such changes prior to Closing, the Escrow
Agreement shall not be revised and shall be entered into by the parties at
Closing without regard to the provisions of this Section 7.13.
7.14 Updated Disclosure Schedules
Notwithstanding any other provision of this Agreement:
The parties acknowledge that the Schedules to this Agreement referred to
herein are not attached hereto as of the date of execution hereof. Within 15
days after the date of this Agreement, Seller shall deliver to Buyer and ImageX
proposed Schedules to this Agreement. ImageX and Buyer shall have 15 days to
review such proposed Schedules after receipt thereof. In the event that, during
such 15-day period, ImageX requests changes in such proposed Schedules, the
parties shall cooperate diligently and in good faith to agree on any such
changes prior to the expiration of such review period. Notwithstanding the
foregoing, ImageX shall have the right to terminate this Agreement, at any time
after delivery of any proposed Schedules and prior to the expiration of 24 hours
after the end of such 15-day period, if such proposed Schedules are not
satisfactory to ImageX in its sole discretion.
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7.15 Legal Opinions
The parties shall cooperate in good faith and use their reasonable best
efforts to agree on the forms of legal opinions to be delivered at Closing by
the respective counsel for the parties within 15 days after the date of this
Agreement.
8. Conditions Precedent to Obligations of Buyer and ImageX
The obligations of Buyer and ImageX with respect to the purchase of the
Assets at the Closing shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any one or more of which may be
waived by Buyer and ImageX in writing:
8.1 No Injunction or Litigation
As of the Closing Date, there shall not be any Claim or Judgment of any
nature or type threatened, pending or made by or before any Governmental Body
that questions or challenges the lawfulness of the transactions contemplated by
this Agreement or the Transaction Documents under any law or regulation or seeks
to delay, restrain or prevent such transactions.
8.2 Representations, Warranties and Covenants
The representations and warranties of Seller made in this Agreement, the
Transaction Documents and any certificate furnished pursuant hereto or thereto
shall be true, complete and correct in all material respects on and as of the
Closing Date, except that representations and warranties that by their terms are
qualified by materiality shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date (the intent of this sentence
being to avoid duplicative materiality qualifications). Seller and the
Shareholder shall have performed and complied in all material respects with the
covenants and agreements required by this Agreement to be performed and complied
with by them on or prior to the Closing Date.
8.3 No Material Adverse Change
From the date of this Agreement to the Closing Date, there shall not have
occurred any event or series of events (excluding general economic trends and
events applicable to all businesses generally) which has had or could reasonably
be expected to have, individually or in the aggregate, a material adverse effect
on the Assets or the conduct, business, operations, properties, condition
(financial or otherwise) or prospects of the Business.
8.4 Consents and Approvals
All consents, approvals or authorizations of, or declarations, filings or
registrations with, all Governmental Bodies required for the consummation of the
transactions contemplated by this Agreement and the Transaction Documents shall
have been obtained or made on terms reasonably satisfactory to Buyer and ImageX
and shall be in full force and effect. All consents, approvals or authorizations
of any other Persons required for the consummation of the transactions
contemplated by this Agreement and the Transaction Documents, including, without
limitation, all consents of any Persons required for the assignment to Buyer of
the Assumed
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Contracts and the continuation in effect of such Assumed Contracts following the
Closing and such assignment shall have been obtained in form and substance
reasonably satisfactory to Buyer and ImageX and shall be in full force and
effect. All Permits (including but not limited to all certifications,
endorsements and qualifications) required in connection with the conduct by
Buyer of the Business following the Closing in the manner heretofore conducted
by Seller shall have been obtained to the reasonable satisfaction of Buyer and
ImageX and shall be in full force and effect (subject to Section 7.7).
8.5 Compliance with Laws
The consummation of the transactions contemplated by this Agreement shall
not be prohibited by any statute, rule, regulation or other legal authority. Any
actions or other compliance required of Seller or with respect to the Assets,
the Facilities or the Leased Real Property under any such statute, rule,
regulation or other legal authority prior to or as a condition to the
consummation of the transactions contemplated hereby (including without
limitation Remedial Action) shall have been completed by or on behalf of Seller
as and when required by any such statute, rule, regulation or authority.
8.6 Delivery of Documents
Seller and/or the Shareholder, as the case may be, shall have delivered
the following documents, agreements and supporting papers to Buyer and ImageX at
the Closing, and the delivery of each shall be a condition to Buyer's and
ImageX's performance of its obligations to be performed at the Closing:
(a) an executed Bill of Sale;
(b) a counterpart of the Assignment and Assumption Agreement
executed by Seller;
(c) Lease Assignment and Assumption duly executed by all parties
thereto (other than Buyer);
(d) executed Employment Agreement between Buyer and the Shareholder
in substantially the form attached hereto as Exhibit 8.6(d);
(e) executed counterparts of one or more Assignments of Trademarks
in customary form covering each of the trademarks described in Schedule 2.1.5;
(f) executed counterparts of one or more Assignments of Copyrights
in customary form covering each of the copyrights described in Schedule 2.1.5;
(g) any and all certificates of title relating to Personal Property
included within the Assets;
(h) Originals of all the consents, approvals, authorizations and
Permits assignable by Seller referenced in Section 8.4;
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(i) executed counterpart of the Escrow Agreement signed by Seller
and the Shareholder;
(j) an investment letter in substantially the form attached hereto
as Exhibit 8.6(j), executed by each Person to whom any portion of the ImageX
Stock will be issued pursuant to Section 4.2.2 of this Agreement;
(k) a certificate of the President of Seller in form and substance
reasonably satisfactory to Buyer and ImageX, dated the Closing Date, certifying
that all the conditions set forth in Sections 8.1, 8.2, 8.3, and 8.4 have been
fulfilled;
(l) a certificate of the Secretary of Seller in form and substance
reasonably satisfactory to Buyer and ImageX, dated the Closing Date, as to the
authenticity and effectiveness of the actions of the Board of Directors and
shareholders of Seller authorizing the transactions contemplated by this
Agreement, and as to Seller's charter documents and such other documents as are
reasonably specified by ImageX's counsel;
(m) such documentation and signature pages from the Shareholder as
may be reasonably required by ImageX in order to evidence the agreement of the
Shareholder to be bound by the terms of the agreements granting the rights
referred to in Section 7.12 above; and
(n) all releases and other documents as may be necessary to
effectuate the satisfaction and release of the Encumbrances referred to in
Schedule 5.8(b), all to the reasonable satisfaction of ImageX.
8.7 Legal Opinion
Seller shall have delivered to Buyer and ImageX the opinion of Seller's
counsel; Miller, Nash Wiener, Hager & Carlsen LLP; dated the Closing Date, in
form and substance acceptable to Buyer and ImageX in their reasonable
discretion.
8.8 Financing
ImageX shall have closed an equity financing transaction, with proceeds of
at least Fifteen Million Dollars ($15,000,000), on terms satisfactory to ImageX
in its sole discretion.
8.9 Securities Law Exemption
ImageX shall be satisfied in its reasonable discretion that the issuance
of the Stock Component as contemplated in Section 4.2.2 above is exempt from the
registration and qualification requirements of federal and applicable state
securities laws; provided, however, that if ImageX is unable in good faith to
satisfy itself that the issuance of 80% of the Stock Component to the
Shareholder and the remaining 20% thereof to Veber Partners, LLC, both such
issuances being at the direction of Seller hereunder, are exempt from such
requirements, then Section 4.2.2 above shall be deemed to be revised to provide
that the Stock Component shall be issued instead to Seller (subject to Seller
providing an investment letter in the form referred to in Section 8.6(j) above
and to the accuracy of the representations and warranties of Seller therein set
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forth), and the condition in this paragraph shall be deemed to be modified to
provide that ImageX must be satisfied in its reasonable discretion that Seller
is an "accredited investor" under the federal securities laws and that such
status is sufficient to qualify for an exemption from the registration or
qualification requirements of the Oregon securities laws. Should this condition
become incapable of being satisfied prior to Closing, Seller may elect to
receive in cash the amount specified in Section 3.1.2, whereupon this condition
shall be deemed satisfied.
9. Conditions Precedent to Obligations of Seller and the Shareholder
The obligations of Seller and the Shareholder with respect to the sale of
the Assets to Buyer at the Closing shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any one or more of
which may be waived by Seller and the Shareholder:
9.1 No Injunction or Litigation
As of the Closing Date, there shall not be any Claim or Judgment of any
nature or type threatened, pending or made by or before any Governmental Body
that questions or challenges the lawfulness of the transactions contemplated by
this Agreement or the Transaction Documents under any law or regulation or seeks
to delay, restrain or prevent such transactions.
9.2 Representations, Warranties and Covenants
The representations and warranties of Buyer and ImageX made in this
Agreement or in the Transaction Documents or any certificate furnished pursuant
hereto or thereto shall be true, complete and correct in all material respects
on and as of the Closing Date, except that representations and warranties that
by their terms are qualified by materiality shall be true and correct in all
respects as of the date of this Agreement and as of the Closing Date (the intent
of this sentence being to avoid duplicative materiality qualifications);
provided, however that the representations and warranties made in Section 6.3 of
this Agreement need only be true as of the date hereof. Buyer and ImageX shall
have performed and complied in all material respects with the covenants and
agreements required by this Agreement to be performed and complied with by them
on or prior to the Closing Date.
9.3 Delivery of Documents
ImageX and/or Buyer, as the case may be, shall have delivered the
following documents, agreements and supporting papers to Seller and the
Shareholder at the Closing, and the delivery of each shall be a condition to
Seller's and the Shareholder's performance of their obligations to be performed
at the Closing:
(a) a counterpart of the Assignment and Assumption Agreement
executed by Buyer;
(b) Lease Assignment and Assumption duly executed by all parties
thereto (other than Seller);
(c) executed Employment Agreement between Buyer and the Shareholder;
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(d) executed counterparts of the Escrow Agreement signed by Buyer
and ImageX;
(e) a stock certificate or certificates representing the Stock
Component;
(f) a certificate of an officer of ImageX and an officer of Buyer in
form and substance reasonably satisfactory to Seller and the Shareholder, dated
the Closing Date, certifying that all the conditions set forth in Sections 9.1,
9.2 and 9.6 have been fulfilled and, in the case of ImageX, setting forth the
capitalization of ImageX as of the Closing Date.
9.4 Legal Opinion
Buyer shall have delivered to Seller and the Shareholder the opinion of
ImageX's counsel, Perkins Coie LLP, dated the Closing Date, in form and
substance acceptable to Seller and the Shareholder in their reasonable
discretion.
9.5 Compliance with Laws
The consummation of the transactions contemplated by this Agreement shall
not be prohibited by any statute, rule, regulation or other legal authority.
9.6 No Material Adverse Change
From the date of this Agreement to the Closing Date, there shall not have
occurred any event or series of events (excluding general economic trends and
events applicable to all businesses generally) which has had or could reasonably
be expected to have, individually or in the aggregate, a material adverse effect
on the conduct, business, operations, properties, condition (financial or
otherwise) or prospects of ImageX.
9.7 Stock Rights
ImageX shall have caused its Amended and Restated Investor Rights
Agreement and Amended and Restated Co-Sale Agreement to be further amended to
the extent necessary to add the Person or Persons to whom the ImageX Stock is
being issued pursuant to this Agreement to such agreements as parties thereto
with all the rights of "Investors" thereunder, subject only to such Person or
Persons having executed counterpart signature pages to such agreements agreeing
to be bound by the terms thereof, and the ImageX Stock to be issued hereunder
shall validly carry the redemption rights set forth in Section 7.12 hereof,
subject only to issuance thereof at Closing.
9.8 Catastrophic Loss
There shall not have occurred after the date hereof and prior to Closing
any loss, damage or destruction of more than fifty percent (50%) of the value of
the Assets determined in accordance with Section 3.3, in which event Seller
shall provide written notice to ImageX and Buyer immediately following the
occurrence of such loss, damage or destruction of Seller's determination not to
close hereunder by virtue of this Section 9.8 ("Seller's Casualty Notice").
Notwithstanding delivery of Seller's Casualty Notice hereunder, Seller shall
proceed to Closing
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upon receipt from Buyer (provided within ten (10) days following delivery of
Seller's Casualty Notice) of (i) notice from Buyer ("Buyer's Closing Notice") of
its election to proceed to Closing; and (ii) an assignment from Buyer to Seller,
in form reasonably satisfactory to Seller, of the right to receive all Excess
Insurance Proceeds, as hereinafter defined, payable in connection with such
loss, damage or destruction. As used herein, "Excess Insurance Proceeds" shall
mean and refer to any insurance proceeds (net of costs of collection) paid or
payable by the insurer(s) of Seller that are in excess of the portion of the
Purchase Price allocable to lost, damaged or destroyed Assets. By way of
illustration, if sixty percent (60%) of the Assets, measured by value as
provided in Section 3.3, were lost, damaged or destroyed prior to Closing and
the insurers agreed to pay net proceeds in excess of three million dollars
($3,000,000) arising therefrom, following timely issuance of Seller's Casualty
Notice and Buyer's Closing Notice as herein provided, Closing would occur upon
assignment to Seller of all insurance proceeds paid or payable in excess of
three million dollars ($3,000,000).
10. Certain Post-Closing Covenants
10.1 Books and Records
Not later than 15 days after the Closing Date, Seller shall deliver to
Buyer (a) all of the technical information and data and other intellectual
property rights to be transferred hereunder (including all of the Assets
referenced in Section 2.1.5) which have been reduced to writing, (b) all of the
original Assumed Contracts referenced in Section 2.1.7, (c) all of the books and
records referenced in Section 2.1.9, and (d) all of Seller's information and
materials referenced in Section 2.1.10.
10.2 Product Orders
Seller shall promptly forward to Buyer all orders for Products, and other
inquiries from customers or prospective customers in regard to the supply of
Products, that are received by Seller within two years after the Closing Date.
10.3 Post-Closing Cooperation
After the Closing Date, each party shall provide the other party with such
reasonable assistance (without charge) as may be requested by the other party in
connection with any Claim or audit of any kind or nature whatsoever or the
preparation of any response, demand, inquiry, filing, disclosure or the like
(including, but not limited to, any Tax Return) relating to the Products, the
Assets or the Business. Such assistance shall include, but not be limited to,
permitting the party requesting assistance to have reasonable access to the
employees, books and records of the other party.
10.4 Withholding
Seller acknowledges and agrees that the Assets will include all of
Seller's records (including, but not limited to, Forms W-4 and Employee
Withholding Allowance Certificates) relating to withholding and payment of
income and employment taxes (federal, state, and local) and FICA taxes with
respect to wages paid by Seller during 1998 and 1999 to employees of the
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Business who are hired by Buyer ("Acquired Employees") at or after the Closing.
Buyer agrees to provide Acquired Employees with Forms W-2, Wage and Tax
Statements for 1999 setting forth the wages and taxes withheld with respect to
such employees for 1999 by Seller and Buyer, as predecessor and successor
employers, respectively. Seller and Buyer also agree to comply with the
reporting requirements set forth in Section 5 (Alternate Procedure) of Revenue
Procedure 96-60 to implement this Section, including without limitation the
requirement that Seller remains responsible for Form W-2 reporting for its
employees other than the Acquired Employees. The parties shall also shall use
similar procedures and make similar elections under state or local tax laws.
10.5 Covenants Not to Compete
10.5.1 Covenants
In consideration of Buyer and ImageX entering into this Agreement at the
request of the Shareholder, and for the purpose of protecting Buyer and ImageX
in respect of the goodwill of the Business, the Shareholder covenants and agrees
as follows:
(a) During the eighteen (18) month period commencing on the Closing
Date (the "Noncompetition Period"), the Shareholder will not, directly or
indirectly, be employed by, consult with or otherwise perform services for, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or otherwise be connected with or related to, in any
manner, directly or indirectly, any Competitor (as defined below), unless
released from such obligation in writing by Buyer's Board of Directors. A
"Competitor" consists of any entity that produces, markets, distributes or
otherwise derives benefit from the production, marketing or distribution of
products or services that compete with products or services then produced,
marketed or distributed by Buyer (excluding any such products or services that
are wholly unrelated to the Shareholder's responsibilities with Buyer and as to
which he possesses no material confidential or proprietary information of
Buyer), or any entity that is preparing to market or is developing products that
will be in competition with the products or services then produced, marketed or
distributed or being developed by Buyer (excluding any such products or services
that are wholly unrelated to the Shareholder's responsibilities with Buyer and
as to which he possesses no material confidential or proprietary information of
Buyer), anywhere in North America. Without limiting the generality of the
foregoing, the Shareholder shall be deemed to be related to or connected with a
Competitor if, among other things, such Competitor is (a) a partnership in which
he is a general or limited partner or employee, (b) a corporation or association
of which he is a shareholder, officer, employee or director, (c) a limited
liability company in which he is a member or employee, or (d) a partnership,
corporation, limited liability company or association of which he is a member,
consultant or agent; provided, however, that nothing herein will prevent the
purchase or ownership by the Shareholder of shares of a Competitor that
constitute less than 1% of the outstanding equity securities of a publicly or
privately held corporation, if the Shareholder has no other relationship with
such corporation.
(b) During the the Noncompetition Period and in the geographical
area described in Section 10.5.1(a) above, the Shareholder will not (a) directly
or indirectly solicit, influence or entice, or attempt to solicit, influence or
entice, any employee, consultant or third-
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party contractor of Buyer to cease his or her relationship with Buyer or (b)
solicit, influence, entice or in any way divert any customer, distributor,
partner, joint venturer or supplier of Buyer from continuing to do business with
Buyer at historic or previously planned or intended levels.
(c) The Shareholder shall not disclose any concept, design, process,
technology, trade secret, customer list, plan, embodiment or invention, any
other Intellectual Property or any other confidential information, whether
patentable or not, of Buyer of which the Shareholder becomes informed or aware
during the eighteen-month period commencing on the Closing Date, whether or not
developed by the Shareholder; provided, however, that the foregoing obligations
of confidentiality and nondisclosure shall not apply to any information which
(i) at the time of disclosure or use is, or thereafter becomes, available in the
public domain through no breach of this Agreement by the Shareholder; or (ii) is
obtained by the Shareholder from a source other than Buyer and other than one
who would be breaching a commitment of confidentiality to Buyer by disclosing
the information to the Shareholder and the Shareholder can bear the burden of
proving that it was so obtained; or (iii) is developed by the Shareholder
independently of Buyer's confidential information; or (v) is required by law to
be disclosed by the Shareholder, provided that written notice is delivered to
Buyer prior to any such disclosure to afford Buyer a reasonable opportunity to
object to such disclosure.
(d) Notwithstanding any other provision of paragraphs (a) and (b)
above, any waiver of the comparable provisions of the Employment Agreement which
would shorten the time period referred to above shall be deemed to be effective
to modify this Section 10.5 to the extent that, without such modification, the
effect of this Section would be to impose a time period longer than that imposed
or purported to be imposed as a result of such waiver.
(e) The parties acknowledge that they intend the Buyer and ImageX to
have the benefit of the noncompetition, nonsolicitation and nondisclosure
provisions set forth in the Employment Agreement, and that this Section 10.5 is
not intended to impose additional restrictions above and beyond those
contemplated in the Employment Agreement, unless Buyer is unable to fully
enforce such provisions in the Employment Agreement, in which case the
provisions of this Section 10.5 shall provide an alternative means of enforcing
comparable rights against the Shareholder for the period specified herein,
provided that upon termination of the Shareholder's employment prior to
expiration of the Noncompetition Period for any reason other than death or total
disability of the Shareholder (as those terms are defined in the Employment
Agreement), the Shareholder shall be paid an amount equal to the product of (i)
$4,166.67 and (ii) the number of months then remaining in the Noncompetition
Period (pro-rated for any partial months), unless the provisions of this Section
10.5.1 are waived in writing by Buyer prior to the effective date of termination
of the Shareholder's employment, in which case no payments shall be owing
hereunder. The parties agree that it is fair and reasonable for the Buyer and
ImageX to have the protections contemplated by this Section and by the
Employment Agreement, and they agree to cooperate and to take such steps
(without additional cost or liability) as may be reasonably necessary in order
to ensure that Buyer and ImageX are able to enjoy the benefits of such
provisions, whether pursuant to the Employment Agreement or this Agreement.
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10.5.2 Definition of Buyer
For purposes of this Section 10.5, "Buyer" shall include (in addition to
Keystone Acquisition Corp.) Seller and all other current and future entities
controlling, controlled by or under common control with Keystone Acquisition
Corp.
10.6 Employee Benefits Plan
To the extent it has not already done so, Seller will amend the Fine Arts
Graphics Employees' 401(k)/Profit Sharing Plan and Trust (the "401(k) Plan")
within the applicable remedial amendment period necessary to comply with the
Uruguay Round Agreement Act and the General Agreement on Tariffs and Trade, the
Uniformed Services Employment and Reemployment Rights Act of 1994, the Small
Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997 and any
other changes in the laws applicable to the 401(k) Plan that become effective
with respect to the 401(k) Plan on or before the Closing Date or the end of the
second calendar year following the Closing Date. Seller will apply for a
favorable determination letter with respect to such amendments within such
remedial amendment period, will take all steps and adopt all other amendments as
the IRS may require as a condition to issuing a favorable determination letter
on the 401(k) Plan with respect to such amendments and will notify Buyer upon
receipt of such favorable determination letter.
11. Taxes and Costs; Apportionments
11.1 Transfer Taxes
Seller shall be responsible for the payment of all transfer, sales and use
and documentary taxes, filing and recordation fees and similar charges relating
to the sale or transfer of the Assets hereunder. Buyer shall furnish Seller with
any necessary certificates of Tax exemption.
11.2 Transaction Costs
Each party shall be responsible for its own costs and expenses incurred in
connection with the preparation, negotiation and delivery of this Agreement and
the Transaction Documents, including but not limited to attorneys', accountants'
and investment bankers' fees and expenses.
11.3 Apportionments
Any and all real property taxes, personal property Taxes, assessments,
lease rentals, fuel, and other charges applicable to the Assets will be
pro-rated to the Closing Date, and such Taxes and other charges shall be
allocated between the parties by adjustment at the Closing, or as soon
thereafter as the parties may agree. All such Taxes shall be allocated on the
basis of the fiscal year of the tax jurisdiction in question.
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12. Survival and Indemnification
12.1 Survival
All representations and warranties of Seller, Buyer and ImageX contained
in this Agreement or in the Transaction Documents or in any certificate
delivered pursuant hereto or thereto shall survive the Closing to the following
extent, and shall not be deemed waived or otherwise affected by any
investigation made or any knowledge acquired with respect thereto:
(a) The representations and warranties of Seller in Section 5.2
(Authority; Authorization; Enforceability) and the representations and
warranties of Buyer and ImageX in Section 6.2 (Authority; Authorization;
Enforceability) shall survive for a period of five years.
(b) The representations and warranties of Seller in Section 5.7
(Taxes), 5.10 (Environmental and Safety Matters) and 5.21 (Employee Benefit
Plans) shall survive for the longer of (i) five years and (ii) until 30 days
after the expiration of the applicable statute of limitations periods for the
matters addressed in each such representation and warranty.
(c) All other representations and warranties of Seller, Buyer and
ImageX, as the case may be, shall survive until 30 days after the receipt by
ImageX of the final report of its independent auditors with respect to their
audit of the financial statements and operations of ImageX and Buyer for the
year ended December 31, 1999, but in no event later than June 30, 2000.
The covenants and agreements of Seller, the Shareholder, Buyer and ImageX
contained in this Agreement and in the Transaction Documents shall survive the
Closing and shall continue until all obligations with respect thereto shall have
been performed or satisfied or shall have been terminated in accordance with
their terms.
12.2 Indemnification by Seller and the Shareholder
From and after the Closing Date, subject to the limitations set forth in
Section 12.4, Seller and the Shareholder, jointly and severally, shall indemnify
and hold Buyer and ImageX and their respective Affiliates harmless from and
against, and shall reimburse Buyer and ImageX and their respective Affiliates
for, any and all Losses arising out of or in connection with:
(a) any inaccuracy in any representation or warranty made by Seller
or the Shareholder in this Agreement or in the Transaction Documents or in any
certificate delivered pursuant hereto or thereto;
(b) any failure by Seller or the Shareholder to perform or comply
with any covenant or agreement required of it or him in this Agreement;
(c) any Claim by any Person or entity for brokerage or finders' fees
or commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person or entity directly or indirectly with
the Shareholder or Seller or any of
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their officers, directors or employees in connection with any of the
transactions contemplated by this Agreement;
(d) except as and to the extent expressly provided in Sections
2.3(d) and 2.3(e) hereof, and exclusive of matters arising under any
Environmental and Safety Law, the conduct of the Business, the ownership or
operation of the Assets or the Facilities or the sale of the Products on or
prior to the Closing Date;
(e) (i) the manufacture, generation, processing, distribution, use,
treatment, handling, storage, transport, disposal, release or abandoning of any
Hazardous Materials by Seller or by any Third Party; (ii) the manufacture,
generation, processing, distribution, use, treatment, handling, storage,
transport, disposal, release or abandoning of any Hazardous Materials by any
Person (including without limitation any previous owner or operator of the
Leased Real Property) on, at, under or from the Assets, the Facilities, the
Leased Real Property, or any other properties currently or previously owned,
leased, subleased or used by Seller, at any time on or prior to the Closing
Date; (iii) the presence at or at any time prior to the Closing Date of
Hazardous Materials (from whatever source) on, at or under the Assets, the
Facilities or the Leased Real Property as a result of a release or disposal
thereof by any Person at any time prior to the Closing Date; or (iv) the
violation of any Environmental and Safety Law by Seller or by any Third Party on
or prior to the Closing Date; any Losses referenced in this Section 12.2(e) may
include any Losses (including, but not limited to, any costs, liabilities or
obligations relating to contractors or consultants' fees, or negotiations,
administration, oversight, operation, maintenance or capital expenditures)
directly attributable to any Remedial Action which is required to be performed
in connection with any Claim brought by any Governmental Body or any other third
Person (including, but not limited to, any enforcement action or any action
under any Environmental and Safety Law); provided, however that this paragraph
shall be subject in its entirety to the provisions of Section 12.4(e); or
(f) any Excluded Liabilities or any Claim relating to any of the
Excluded Liabilities or Excluded Assets.
12.3 Indemnification by Buyer and ImageX
From and after the Closing Date, subject to the limitations set forth in
Section 12.4, Buyer and ImageX, jointly and severally, shall indemnify and hold
harmless the Shareholder and Seller and their respective Affiliates from and
against, and shall reimburse the Shareholder and Seller and their respective
Affiliates for, any and all Losses arising out of or in connection with:
(a) any inaccuracy in any representation or warranty made by Buyer
or ImageX in this Agreement or in the Transaction Documents or in any
certificate delivered pursuant hereto or thereto;
(b) any failure by Buyer or ImageX to perform or comply with any
covenant or agreement required of it in this Agreement;
(c) any Claim by any Person or entity for brokerage or finders' fees
or commissions or similar payments based upon any agreement or understanding
alleged to have
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been made by such Person or entity directly or indirectly with ImageX or Buyer
or any of its officers, directors or employees in connection with any of the
transactions contemplated by the Agreement;
(d) the conduct of the Business, the ownership or operation of the
Assets or the Facilities or the sale of the Products (i) from and after the
Closing Date, exclusive of matters arising under any Environmental and Safety
Law, and (ii) on and prior to the Closing Date to the extent, and only to the
extent, provided in Sections 2.3(d) and 2.3(e) above;
(e) (i) the manufacture, generation, processing, distribution, use,
treatment, handling, storage, transport, disposal, release or abandoning of any
Hazardous Materials by any Person on, at, under or from the Assets, the
Facilities, or the Leased Real Property after the Closing Date; (ii) the
presence at any time after the Closing Date of Hazardous Materials (from
whatever source) on, at or under the Assets, the Facilities or the Leased Real
Property as a result of a release or disposal thereof by any Person at any time
before or after the Closing Date (except Hazardous Materials covered by clause
(iii) of Section 12.2(e) above, as supplemented by Section 12.4(e) below); or
(iii) any violation by Buyer or ImageX of any Environmental and Safety Law from
and after the Closing Date; provided, however that this paragraph shall be
subject in its entirety to the provisions of Section 12.4(e).
(f) any Assumed Liabilities or any Claim relating to any of the
Assumed Liabilities.
12.4 Limitations
(a) Notwithstanding any other provision of this Agreement, except as
provided in paragraph (d) below, no Person shall be entitled to receive any
indemnification hereunder with respect to Claims for indemnification made under
Section 12.2 or 12.3, as the case may be, unless and until the aggregate amount
of Losses in respect of Claims for which such Person and its Affiliates would
otherwise be entitled to receive indemnification exceeds one hundred thousand
dollars ($100,000) (the "Claims Threshold"); provided, however, that once such
aggregate Losses exceed the Claims Threshold, such Person and its Affiliates
shall be entitled to receive indemnification for the aggregate amount of all
such Losses, less Fifty Thousand Dollars ($50,000), without regard to the Claims
Threshold.
(b) Notwithstanding any other provision of this Agreement, in no
event will Seller and the Shareholder, on the one hand, or Buyer and ImageX, on
the other hand, be required to make indemnification payments in respect of
Claims under Section 12.2 or 12.3 above in excess of One Million Seven Hundred
Fifty Thousand Dollars ($1,750,000).
(c) None of the parties or their Affiliates shall be entitled to
assert any right of indemnification with respect to any Claim of which such
party or its Affiliates shall not have given written notice to the other parties
on or prior to the end of the applicable survival period (if any) set forth in
Section 12.1 above, except that if such party or its Affiliates shall have given
written notice of any Claim to the other parties on or prior to the end of such
survival period, then they shall continue to have the right to be indemnified
with respect to such pending Claim, notwithstanding the expiration of such
survival period.
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(d) Notwithstanding any other provision of this Agreement, in no
event shall the Claims Threshold apply to any Claim based on a violation of
Section 5.15 (Accounts and Other Receivables) or 5.16 (Inventory) of this
Agreement.
(e) The parties agree that, for purposes of defining the respective
parties' rights to indemnification under Sections 12.2(e) and 12.3(e) above with
respect to Hazardous Materials that have been released by a Person (other than
Seller, the Shareholder, any Third Person, Buyer or ImageX) at a site other than
the Assets, Facilities or Leased Real Property and that migrate or have migrated
on, to or under the Assets, Facilities or Leased Real Property from such other
location, Section 12.2(e) shall cover any such contamination to the extent that
any amount of such released Hazardous Materials from the same event of
contamination shall have arrived on, at or under the Assets, Facilities or
Leased Real Property on or prior to the Closing Date, and Section 12.3(e) shall
cover any such contamination to the extent that all of such released Hazardous
Materials from such event of contamination arrive on, at or under the Assets,
Facilities or Leased Real Property after the Closing Date (meaning no such
released Hazardous Materials from such event of contamination arrived on, at or
under the Assets, Facilities or Leased Real Property on or prior to the Closing
Date).
12.5 Procedure
(a) Any party hereto or any of its Affiliates seeking
indemnification hereunder (in this context, the "indemnified party") shall
notify the other party (in this context, the "indemnifying party") in writing
reasonably promptly after the assertion against the indemnified party of any
Claim by a third party (a "Third-Party Claim") in respect of which the
indemnified party intends to base a Claim for indemnification hereunder, but the
failure or delay so to notify the indemnifying party shall not relieve it of any
obligation or liability that it may have to the indemnified party except to the
extent (and only to the extent) that the indemnifying party demonstrates that
its ability to defend or resolve such Third Party-Claim is materially and
adversely affected thereby.
(b) (i) The indemnifying party shall have the right, upon written
notice given to the indemnified party within 60 days after receipt of the notice
from the indemnified party of any Third-Party Claim, to assume the defense or
handling of such Third-Party Claim, at the indemnifying party's sole expense, in
which case the provisions of Section 12.5(b)(ii) below shall govern.
(ii) Upon assuming the defense or handling of a Third Party
Claim, the indemnifying party shall select counsel reasonably acceptable to the
indemnified party, and the indemnifying party shall defend or handle such Third
Party Claim in consultation with the indemnified party, and shall keep the
indemnified party timely apprised of the status of such Third-Party Claim, and
shall not, without the prior written consent of the indemnified party, directly
or indirectly assume any position or take any action that would impose any
obligation of any kind on, or restrict the actions of, the indemnified party.
The indemnifying party shall not, without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld, agree to a
settlement of any Third-Party Claim unless such settlement includes a full and
complete release of the indemnified party in form and substance satisfactory
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to the indemnified party in its reasonable discretion. The indemnified party
shall cooperate with the indemnifying party and shall be entitled to participate
in the defense or handling of such Third-Party Claim with its own counsel and at
its own expense (but control of the litigation will remain with the indemnifying
party). Notwithstanding the foregoing, in the event the indemnifying party fails
to conduct the defense or handling of any Third-Party Claim in good faith after
having assumed such defense or handling, then the provisions of Section
12.5(c)(ii) below shall govern.
(c) (i) If the indemnifying party does not give written notice to
the indemnified party, within 60 days after receipt of the notice from the
indemnified party of any Third-Party Claim, of the indemnifying party's election
to assume the defense or handling of such Third-Party Claim, the provisions of
Section 12(c)(ii) below shall govern.
(ii) The indemnified party may, at the indemnifying party's
expense, select counsel in connection with conducting the defense or handling of
such Third-Party Claim and defend or handle such Third-Party Claim in such
manner as it may deem appropriate; provided, however, that the indemnified party
shall keep the indemnifying party timely apprised of the status of such
Third-Party Claim and shall not settle such Third-Party Claim without the prior
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. If the indemnified party defends or handles such
Third-Party Claim, the indemnifying party shall cooperate with the indemnified
party and at any time, upon 10 business days' prior written notice to the
indemnified party, shall be entitled to take over and assume control of the
defense or handling of such Third Party Claim.
(d) If the indemnified party intends to seek indemnification
hereunder, other than for a Third-Party Claim, then (subject to the provisions
of Section 12.1 above) it shall notify the indemnifying party in writing within
six months after its discovery of facts upon which it intends to base its Claim
for indemnification hereunder, but the failure or delay so to notify the
indemnifying party shall not relieve the indemnifying party of any obligation or
liability that the indemnifying party may have to the indemnified party except
to the extent that the indemnifying party demonstrates that the indemnifying
party's ability to defend or resolve such Claim is materially and adversely
affected thereby.
(e) To the extent the Third Party Claim arises under either Section
12.2(e) or Section 12.3(e) (an "Environmental Third Party Claim"), the
provisions of this subsection (e) shall supplement the foregoing provisions of
this Section 12.5:
(i) The party assuming the defense or handling of an
Environmental Third Party Claim in accordance with the provisions of Section
12.5 (including the provisions of Section 12.5(c)(ii) above) (A) shall control
and select the entity to conduct any Remedial Action and the manner in which
such Remedial Action will be conducted; (B) shall be authorized to take any and
all action at the Facilities or Leased Real Property necessary or appropriate to
the Remedial Action; and (C) shall be the sole authority and contact, as between
the parties, with all federal, state and local governmental agencies or
instrumentalities and all private entities for purposes of decision-making,
information gathering, contracting and any necessary negotiations related to the
Remedial Action; provided, however, that the party assuming such defense or
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handling shall keep the other party informed of the status of such Remedial
Action and, if in connection with any such Remedial Action the indemnified party
could reasonably be expected to have any exposure for which indemnification
would not be available from the indemnifying party under this Agreement, then
the decision-making, information gathering, contracting and negotiating (to the
extent of such excess exposure) shall be done jointly by Seller and ImageX.
(ii) No Remedial Action will be required to be undertaken by a
party hereto unless and until such Remedial Action is required by (A) a
Governmental Body, or (B) pursuant to mandatory court order issued at the
request or upon application of a Person not a party or Affiliate of a party to
this Agreement;
(iii) Any remediation undertaken as contemplated by this
Agreement will be deemed to be satisfactorily completed upon issuance by the
appropriate Governmental Body of a "No Further Action" letter or a similar
administrative pronouncement that no further Remedial Action is required by the
party undertaking such Remedial Action; provided, however, that this paragraph
shall not affect any rights of any party hereto in the event that additional
remediation is subsequently required by a Governmental Body;
(iv) Each party shall have such access to the Facilities and
the Leased Real Property as reasonably shall be necessary to investigate and/or
undertake any Remedial Action and/or as necessary to secure and protect the
rights of such party hereunder; and
(v) Nothing in this Section 12.5(e) is intended to or is to be
construed to waive the rights of any party to seek contribution from Persons
other than the parties or their Affiliates. To the extent that any rights or
Claims now held by Seller or Shareholder against any Persons other than Buyer or
ImageX or their Affiliates might be construed to pass with title or possession
to Buyer at Closing, Buyer shall use commercially reasonable efforts to
cooperate with Seller (at no cost, expense, liability or obligation of any kind
to Buyer or ImageX or their Affiliates) to enable Seller to enforce such rights
against such other Persons.
12.6 Access to Escrow Amount and Working Capital Holdback
Any liability of Seller and the Shareholder for indemnification under this
Section 12 shall (subject to the limitations in Section 12.4) be satisfied,
first, from the Escrow Amount and, second, to the extent the Escrow Amount is
insufficient to satisfy any such liability, from the other assets of Seller and
the Shareholder; provided, however, that Claim based on Section 5.15 (Accounts
and Other Receivables) or 5.16 (Inventory) hereof or any Claim based on Section
2.4.8 (Claims and Adjustments) hereof, may in Buyer's discretion, be satisfied
by offsetting some or all of such claims against the Working Capital Holdback
(to the extent thereof) in accordance with Section 3.2(b) and seeking
indemnification under this Section 12 for any unsatisfied portion of such Claim;
provided, however, that nothing contained in this sentence shall affect Seller's
right to dispute any such Claim as provided in this Agreement.
12.7 Exclusive Remedies
Except for specific performance or other equitable relief with respect to
Section 10.5 of this Agreement, and with respect to claims based on fraud in the
inducement, after the Closing,
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the indemnification remedy set forth under this Section 12 (and the offset
provision in Section 3.2(b)) shall be the sole and exclusive remedies of the
parties with respect to the enforcement of the provisions of this Agreement.
Prior to the Closing, each party hereto shall have available to it all remedies
provided by law or in equity in the event of any breach of or noncompliance with
this Agreement by any other party hereto, including without limitation the
remedies described in Section 12.8 below.
12.8 Specific Performance
Each of the parties acknowledges and agrees that the other parties hereto
would be damaged irreparably in the event that, prior to the Closing (and after
the Closing with respect to claims under Section 10.5 above), any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties hereto agrees
that the other parties hereto shall be entitled, prior to the Closing (or after
Closing, with respect to Section 10.5), to an injunction to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any court of competent jurisdiction, in
addition to any other remedy to which they may be entitled at law or in equity.
In any such action specifically to enforce any provision of this Agreement, each
party hereby waives any claim or defense therein that an adequate remedy at law
or in damages exists.
13. Termination
13.1 Termination
This Agreement may be terminated before the Closing:
(a) by Seller, by giving written notice to ImageX at any time, if
Buyer or ImageX has materially breached any representation, warranty, covenant
or other provision contained in this Agreement which breach cannot be cured
prior to Closing;
(b) by ImageX, by giving written notice to Seller at any time, if
Seller or the Shareholder has materially breached any representation, warranty,
covenant or agreement contained in this Agreement which breach cannot be cured
prior to Closing;
(c) by any party, by giving written notice to the other parties at
any time, if any condition to the obligations of the terminating party becomes
incapable of being satisfied at or prior to Closing;
(d) by mutual written agreement of Seller and ImageX;
(e) by Seller or ImageX, by giving written notice to the other, if
the Closing has not occurred on or before April 30, 1999;
(f) by Seller, by giving written notice to ImageX within 45 days
after the date hereof, if in Seller's reasonable opinion Seller will be required
to incur or be responsible for costs
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in excess of $250,000 for Remedial Action with respect to the Leased Real
Property located in Union, NJ;
(g) by ImageX, by giving written notice to Seller within 16 days
after delivery to Buyer or ImageX of the Schedules to this Agreement as
contemplated by Section 7.14 above;
(h) by ImageX, by giving written notice to Seller within 30 days
after the date hereof if ImageX is not satisfied, in its sole discretion, with
the results of its due diligence review of matters relating to Seller's
employees, customers, suppliers and other third parties;
(i) by ImageX, by giving written notice to Seller within 45 days
after the date hereof if ImageX is not satisfied, in its sole discretion, with
the results of its environmental review of the Facilities, the Leased Real
Property and Seller's current and historical operations.
Unless the parties otherwise mutually agree, for purposes of subsections
13.1(a), (b) and (c), Closing shall be deemed to be April 30, 1999.
13.2 Effect of Termination
In the event of the termination of this Agreement pursuant to Section 13.1
above, (a) each party shall return or destroy all documents containing
confidential information of the other party (and, upon request, certify as to
the destruction thereof), and (b) no party hereto shall have any liability or
further obligation to the other party hereunder, except for obligations of
confidentiality and nonuse and nondisclosure with respect to the other parties'
confidential information, which shall survive the termination of this Agreement.
In addition, no termination of this Agreement shall relieve any party from any
liability under this Agreement for breach of any provision hereof.
13.3 Break-Up Fee
In the event that (a) the condition set forth in Section 8.8 above
(Closing of Equity Financing) has not been completed by ImageX on or prior to
April 30, 1999, and Seller elects to terminate the Agreement pursuant to Section
13.1(a) or 13.1(e) above, (b) ImageX does not obtain the consent of Silicon
Valley Bank to the transaction contemplated hereby prior to April 30, 1999 and
either Seller or ImageX terminates this Agreement under Section 13.1(a), 13.1(c)
or 13.1(e) above, or (c) Seller terminates this Agreement pursuant to Section
13.1(c) above due to a failure of the condition set forth in Section 9.7 above
(Stock Rights) to be satisfied by ImageX or waived by Seller, Seller shall be
entitled to retain the Deposit as a break-up fee.
14. Miscellaneous
14.1 Confidentiality Obligations of Seller Following the
Closing
From and after the Closing, Seller shall keep confidential and not use or
disclose to any party any confidential information relating to the assets,
business or affairs of Buyer or ImageX, or the Assets or the Business. The
confidentiality and nonuse obligations set forth in this Section 14.1 shall not
apply to any information which is available to the public through no breach
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of this Agreement by Seller, or is disclosed to Seller by third parties who are
not under any duty of confidentiality with respect thereto, or is required to be
disclosed by Seller in connection with pending litigation or investigation;
provided, however, that in the event Seller becomes required in connection with
pending litigation or investigation to disclose any of the confidential
information relating to the assets, business or affairs of Buyer or ImageX, or
the Assets or the Business, then Seller shall provide Buyer and ImageX with
reasonable notice so that Buyer or ImageX may seek a court order protecting
against or limiting such disclosure or any other appropriate remedy; and in the
event such protective order or other remedy is not sought, or is sought but not
obtained, Seller shall furnish only that portion of the information that is
required and shall endeavor, at Buyer's and ImageX's expense, to obtain a
protective order or other assurance that the portion of the information
furnished by Seller will be accorded confidential treatment.
14.2 Public Announcements
Seller and the Shareholder on the one hand, and Buyer and ImageX on the
other hand, agree not to make any public announcement in regard to the
transactions contemplated by this Agreement and the Transaction Documents
without the other parties' prior consent, except as may be required by law, in
which case the parties shall use reasonable efforts to coordinate with each
other with respect to the timing, form and content of such required disclosures.
14.3 Severability
If any court determines that any part or provision of this Agreement is
invalid or unenforceable, the remainder of this Agreement shall not be affected
thereby and shall be given full force and effect and remain binding upon the
parties. Furthermore, the court shall have the power to replace the invalid or
unenforceable part or provision with a provision that accomplishes, to the
extent possible, the original business purpose of such part or provision in a
valid and enforceable manner. Such replacement shall apply only with respect to
the particular jurisdiction in which the adjudication is made.
14.4 Modification and Waiver
This Agreement may not be amended or modified in any manner, except by an
instrument in writing signed by each of the parties hereto. No waiver of any
provision of this Agreement shall be effective unless in writing and signed by
the waiving party. The failure of any party to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision, or in any way affect the right of such party thereafter to
enforce each and every such provision. No waiver of any breach of this Agreement
shall be deemed to be a waiver of any other or subsequent breach.
14.5 Notices
All notices and other communications required or permitted to be given
under this Agreement shall be in writing and shall be sent by facsimile
transmission, or mailed postage prepaid by first-class certified or registered
mail, or sent for next business morning delivery via a nationally recognized
express courier service, or hand-delivered, addressed as follows:
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if to ImageX or Buyer: ImageX.com, Inc.
10800 N.E. 8th St., Suite 200
Bellevue, Washington 98004
Fax: 425-452-9266
Attention: Richard Begert and John Higgins
with a copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, Washington 98101
Fax: 206-583-8500
Attention: David C. Clarke
if to Seller: Fine Arts Engravers Company, Inc.
c/o Stanley Investment and Management
121 S.W. Salmon, Suite 1430
Portland, OR 97204
Fax: 503-221-0550
Attention: Wayne Slovick
with a copy to: Miller, Nash, Wiener, Hager & Carlsen LLP
3500 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, OR 97204-3699
Fax: 503-224-0155
Attention: Donald W. Douglas
if to the Shareholder: Nicholas J. Stanley
c/o Stanley Investment and Management
121 SW Salmon, Suite 1430
Portland, OR 97204
Fax: 503-221-0550
Attention: Wayne Slovick
with a copy to: Miller, Nash, Wiener, Hager & Carlsen LLP
3500 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, OR 97204-3699
Fax: 503-224-0155
Attention: Donald W. Douglas
Either party may change the persons, fax numbers or addresses to which any
notices or other communications to it should be addressed by notifying the other
party as provided above. Any notice or other communication, if addressed and
sent, mailed or delivered as provided above, shall be deemed given or received
five days after the date sent as indicated on the certified or registered mail
receipt, or on the next business day if mailed by express courier service, or on
the date of delivery or transmission if hand-delivered or sent by facsimile
transmission.
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14.6 Assignment
Neither Seller or the Shareholder on the one hand, nor Buyer or ImageX on
the other hand, may assign any of their rights or obligations hereunder without
the prior written consent of the other parties. Notwithstanding the foregoing,
each of Buyer and ImageX may assign its rights and obligations under this
Agreement to any Affiliate of Buyer or ImageX, and each of Buyer and ImageX may
assign its rights and obligations hereunder to any successor of such party;
provided, however, that any such assignment shall not relieve the assigning
party from its obligations hereunder. This Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors and
assigns.
14.7 Captions
The captions and headings used in this Agreement have been inserted for
convenience of reference only and shall not be considered part of this Agreement
or be used in the interpretation thereof.
14.8 Entire Agreement
This Agreement constitutes the entire agreement and understanding between
the parties with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations, representations and statements,
whether oral, written, implied or expressed, relating to such subject matter.
14.9 No Third-Party Rights
Nothing in this Agreement is intended, nor shall be construed, to confer
upon any person or entity other than Buyer, ImageX, the Shareholder and Seller
(and only to the extent expressly provided herein, their respective Affiliates)
any right or remedy under or by reason of this Agreement.
14.10 Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one
agreement.
14.11 Governing Law
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Oregon as though made and to be fully performed in that
State.
14.12 Knowledge
Whenever reference is made herein, directly or indirectly, to the
knowledge or awareness (or similar terminology) of Seller, Buyer or ImageX, as
the case may be, with respect to any matter, it is understood to refer to the
current, actual knowledge of the following persons
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(assuming such persons have performed and will perform their respective duties
with Seller with reasonable care and diligence):
(a) In the case of Seller: the Shareholder, Wayne Slovick,
Dion Bonnell, Greg Lazoff, John Hudack, Joy Beldin, Kathy Brown, John House
and Chris Laspina; and
(b) In the case of ImageX and Buyer: Richard Begert, Eric Bean, Cory
Klatt and Dana Manciagli, being the officers of ImageX as of the date hereof,
and John Higgins and Mila Kim.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective representatives hereunto authorized as of the day
and year first above written.
IMAGEX.COM, INC.
By /s/ Richard P. Begert
---------------------------------------
Title President and Chief Executive Officer
-----------------------------------
KEYSTONE ACQUISITION CORP.
By /s/ Richard P. Begert
---------------------------------------
Title President, Chief Executive Officer,
-----------------------------------
Secretary and Treasurer
-----------------------------------
FINE ARTS ENGRAVERS COMPANY, INC.
By /s/ Nicholas Stanley
---------------------------------------
Title Its President
-----------------------------------
SHAREHOLDER:
/s/ Nicholas J. Stanely
---------------------------------------
Nicholas J. Stanley
-63-
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Keystone Acquisition Corporation, a Washington corporation
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 5, 1999, except for paragraph 3 of Note 12, as to which
the date is April 13, 1999, paragraphs 17 and 18 of Note 1 and paragraph 8 of
Note 12, as to which the date is April 15, 1999, paragraph 2 of Note 7,
paragraph 2 of Note 8, paragraphs 1 and 6 of Note 9 and paragraph 9 of Note 12,
as to which the date is April 21, 1999, paragraph 7 of Note 12, as to which the
date is April 30, 1999 and paragraph 10 of Note 12, as to which the date is May
7, 1999, relating to the financial statements of ImageX.com, Inc. and of our
report dated April 16, 1999, relating to the financial statements of Fine Arts
Engravers Company, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the headings "Experts," "Selected Financial
Data for ImageX.com" and "Selected Financial Data for Fine Arts Graphics" in
such Registration Statement.
PricewaterhouseCoopers LLP
Seattle, Washington
May 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 883 124
<SECURITIES> 0 0
<RECEIVABLES> 249 371,026
<ALLOWANCES> (15) (19)
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,117 476
<PP&E> 1,676 2,101
<DEPRECIATION> (545) (702)
<TOTAL-ASSETS> 2,319 2,045
<CURRENT-LIABILITIES> 1,535 2,381
<BONDS> 313 267
11,350 12,217
15 15
<COMMON> 32 32
<OTHER-SE> (10,926) (12,867)
<TOTAL-LIABILITY-AND-EQUITY> 2,319 2,045
<SALES> 968 485
<TOTAL-REVENUES> 968 485
<CGS> 998 375
<TOTAL-COSTS> 9,508 2,805
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 15 4
<INTEREST-EXPENSE> 46 16
<INCOME-PRETAX> (8,601) (2,340)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (8,601) (2,340)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,601) (2,340)
<EPS-PRIMARY> (3.63) (0.76)
<EPS-DILUTED> (0.69) (0.17)
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