<PAGE>
As filed with the Securities and Exchange Commission on March 8, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
IMX EXCHANGE, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<C> <S> <C>
Delaware 7389 91-1751356
(State or other jurisdiction (Primary Standard
of Industrial (I.R.S. Employer
incorporation or Classification Code
organization) number) Identification No.)
</TABLE>
2305 Camino Ramon, Suite 200
San Ramon, California 94583
(925) 983-2000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
RICHARD E. WILKES
President and Chief Executive Officer
IMX EXCHANGE, INC.
2305 Camino Ramon, Suite 200
San Ramon, California 94583
(925) 983-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
<TABLE>
<S> <C>
GREGORY M. GALLO, ESQ. JOHN W. CAMPBELL, ESQ.
PAUL A. BLUMENSTEIN, ESQ. KRISTIAN WIGGERT, ESQ.
LISA A. MONDORI, ESQ. JACLYN LIU, ESQ.
Gray Cary Ware & Freidenrich LLP Morrison & Foerster LLP
400 Hamilton Avenue 425 Market Street
Palo Alto, California 94301 San Francisco, California 94105
(650) 833-2000 (415) 268-7000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are being 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, please check the following
box and list the Securities Act registration 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 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 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Securities Proposed Maximum Aggregate Amount of
to be Registered Offering Price (1) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock ($0.001 par value)... $57,500,000 $15,180
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- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(a) under the Securities Act.
---------------
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 or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to
Section 8(a), may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer nor does it seek an offer to buy these +
+securities in any jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated March 8, 2000
[IMX LOGO]
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Shares
Common Stock
- --------------------------------------------------------------------------------
This is the initial public offering of IMX Exchange, Inc., and we are
offering shares of our common stock. We anticipate that the initial
public offering price will be between $ and $ per share. We have
applied to list our common stock on the Nasdaq National Market under the
symbol "IMXX."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page [7].
Neither the Securities and Exchange Commission nor any other Regulatory Body
has Approved or Disapproved of these Securities or Passed upon the Accuracy
or Adequacy of this Prospectus. Any Representation to the Contrary is a
Criminal Offense.
<TABLE>
<CAPTION>
Underwriting Proceeds
Price Discounts to IMX
to and Exchange,
Public Commissions Inc.
------ ------------ ---------
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to
additional shares to cover over-allotments.
Deutsche Banc Alex. Brown
J.P. Morgan & Co.
SG Cowen
E*OFFERING
The date of this prospectus is , 2000.
<PAGE>
[INSIDE FRONT COVER]
[artwork to come]
IMX is a registered trademark and IMX Exchange, IMXBroker, IMXLender,
XpressPost, XpressBid, Xpress Match, MyIMX and IMX Guaranteed Accept are
trademarks of IMX Exchange, Inc. All other trade names and trademarks appearing
in this prospectus are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements,
before making an investment decision.
IMX Exchange
IMX Exchange offers a business-to-business e-commerce solution that enables
mortgage brokers and lenders to communicate and conduct business quickly and
efficiently. Our transaction-based exchange, or the Exchange, provides an
online alternative to traditional phone- and fax-based methods for searching,
comparing, pricing and locking of mortgage loans. As the Exchange attracts
increasing numbers of brokers and lenders, it will provide us with a growing
audience of users to which we can offer additional value-added features and
services. We believe that such features and services will create additional
incentives for mortgage professionals to transact business on the Exchange and
will generate additional sources of revenue for us.
The existing mortgage origination market is fragmented and inefficient. It
is characterized by slow, paper-based processes conducted point-to-point
between participants, without a centralized market for brokers and lenders. Our
solution enables dynamic matching of supply and demand as well as the
liquidity, information flow and product offerings required for efficient
origination of mortgage loans. The Exchange enhances brokers' and lenders'
reach and capabilities by providing access to a broad, low-cost origination
channel, allowing brokers to effortlessly post their loans during the
application process through seamless integration into their existing systems,
and allowing lenders to bid on loans using program trading methods for better
control over loan procurement. Additionally, the Exchange allows us to collect,
consolidate, and categorize real-time and historical market and industry data
from the increasing flow of transactions that pass through the Exchange. We
also offer the MyIMX portal, which provides access to business-critical
information, products and services for mortgage industry professionals. We
believe that our Exchange, our MyIMX portal and our ability to aggregate and
provide market information combine to form an electronic hub, or eHub, where
mortgage industry professionals can conduct their daily business in a
convenient, centralized work environment.
The Gartner Group estimates that nearly $7.3 trillion will be transacted in
business-to-business e-commerce, with $2.7 trillion being captured by exchanges
and other electronic marketplaces by 2004. We believe that e-commerce is well-
suited to financial services industries, especially mortgage origination, which
is characterized by inefficient business processes, fragmentation of buyers and
sellers and frequent price movement and does not require the transportation or
storage of physical goods. According to the Mortgage Bankers Association of
America, the residential mortgage market was $1.3 trillion in 1999, and the
most recent Wholesale Access report states that approximately 70% of mortgage
originations were transacted through brokers in 1998, up from 50% in 1992. We
believe these conditions present a significant market opportunity for an eHub
that combines the financial liquidity of an Internet-based transaction
marketplace with critical value-added services necessary for full functionality
in the complex mortgage industry.
3
<PAGE>
We believe that the IMX Exchange solution is particularly compelling in the
wholesale mortgage origination market because it:
. provides critical mass, geographic breadth and product depth for
liquidity in the mortgage origination process, leading to improved price
discovery;
. replaces time-consuming phone- and fax-based interactions with a
streamlined Internet-based marketplace for originating and locking
mortgage loans;
. functions as a neutral resource that centralizes lender and broker
interactions and serves the full range of industry-specific information,
collaboration and transaction needs of mortgage professionals; and
. collects the valuable industry and market specific data associated with
centralized transaction aggregation in the mortgage industry.
To accumulate the critical mass of transaction volume necessary for market
efficiency on the Exchange, we have undertaken two primary initiatives designed
to attract new members and increase utilization of the Exchange by existing
members. On the brokers' side, we have developed an interface to be integrated
with the loan origination software systems used by approximately 70% of brokers
to collect, organize and store borrowers' loan application data. This interface
enables brokers to automatically post loans on the Exchange and receive bids
from lenders, with no disruption or delay in the loan origination process. On
the lenders' side, we work closely with large, strategic lenders to integrate
our solution with their existing processes, and continually train and educate
their employees to assist them in transitioning to new, electronic methods of
conducting their daily business. We believe that these initiatives will
accelerate changes in behavior and workflow processes on the part of mortgage
professionals and drive rapid adoption of the Exchange.
We believe that a key measure of our success as the emergent business-to-
business mortgage eHub is the expansion of our broker network, because it makes
a higher volume of loans available for lenders bidding on the Exchange. The
number of our broker members has increased from 565 on January 1, 1999, to 723
on June 1, 1999, and 1,403 on February 29, 2000.
We were incorporated in Delaware in November 1996 as IMX, Inc. In November
1999 we changed our name to IMX Exchange, Inc. Our principal executive offices
are located at 2305 Camino Ramon, Suite 200, San Ramon, California 94583, our
telephone number is (925) 983-2000, and our web site is located at
www.imxexchange.com. Information on our web site is not a part of this
prospectus.
----------------
As used in this prospectus "IMX Exchange" refers to our company, and "the
Exchange" or "our Exchange" is the online transaction platform through which
brokers and lenders interact. Unless stated otherwise, the information
presented in this prospectus assumes that the underwriters do not exercise
their option to purchase additional shares in this offering and that all
outstanding shares of preferred stock are converted to common stock upon the
closing of this offering.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by IMX Exchange, Inc........... shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... For general corporate
purposes, principally
working capital and
capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. IMXX
</TABLE>
These share numbers are based on shares outstanding as of December 31, 1999
and include 3,925,961 shares of common stock issued in financing transactions
that occurred in February and March 2000, but exclude:
. 4,754,035 shares of common stock issuable upon exercise of options
outstanding at December 31, 1999 under our 1996 Stock Plan, with a
weighted average exercise price of $0.336 per share, and 1,608,839 shares
issuable upon exercise of options granted subsequent to December 31, 1999
at a weighted-average exercise price of $0.449 per share;
. shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan; and
. 136,806 shares of common stock issuable upon exercise of warrants at a
weighted average exercise price of $1.52 per share.
5
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
November 6, 1996 Year Ended December 31,
(inception) through ---------------------------
December 31, 1996 1997 1998 1999
------------------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue....................... $ -- $ 44 $ 598 $ 319
Total operating expenses...... 578 6,061 8,837 13,924
------ ------- -------- --------
Loss from operations.......... (578) (6,017) (8,239) (13,605)
Net interest income
(expense).................... -- (27) 74 381
------ ------- -------- --------
Loss from continuing
operations................... (578) (6,044) (8,165) (13,224)
Loss from discontinued
operations................... -- -- (5,742) --
------ ------- -------- --------
Net loss...................... $ (578) $(6,044) $(13,907) $(13,224)
====== ======= ======== ========
Basic and diluted loss per
common share from continuing
operations................... $(0.29) $ (2.79) $ (3.12) $ (3.98)
====== ======= ======== ========
Basic and diluted net loss per
common share................. $(0.29) $ (2.79) $ (5.31) $ (3.98)
====== ======= ======== ========
Weighted average common shares
used in basic and diluted
loss per common share from
continuing operations and net
loss per share calculations.. 1,959 2,164 2,617 3,322
====== ======= ======== ========
Pro forma basic and diluted
net loss per common share
(unaudited, see Notes 2 and
11).......................... $ (0.48)
========
Weighted average common shares
used in basic and diluted net
loss per common share
calculations (unaudited, see
Notes 2 and 11).............. 27,566
========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999
-------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(2)
-------- ------------ --------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments............................ $ 6,766 $22,366
Working capital......................... 4,356 19,956
Total assets............................ 10,089 25,689
Long-term obligations, less current
portions............................... 702 702
Redeemable convertible preferred stock.. 39,090 --
Total stockholders' equity (deficit).... (32,808) 21,882
</TABLE>
- --------
(1) The pro forma column gives effect to our receipt of approximately $15.6
million in net proceeds from the issuance of 3,925,961 shares of our Series
E redeemable convertible preferred stock on February 18, 2000 and March 7,
2000 and to the conversion of our redeemable convertible preferred stock
into our common stock upon the completion of this offering. See Note 7 of
Notes to Financial Statements.
(2) The pro forma as adjusted column assumes the sale of shares of our
common stock in this offering at an initial public offering price of $
per share and the application of the resulting net proceeds, after
deducting estimated underwriting discounts, commissions and offering
expenses.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not currently
known to us or that we believe to be immaterial may also harm our business. If
any of the following risks actually occur, our business could be harmed, the
trading price of our common stock could decline and you may lose all or part of
your investment. You should also refer to the other information contained in
this prospectus, including our financial statements and the related notes.
Risks Related to Our Business
Our business is difficult to evaluate because we have a limited operating
history.
We were incorporated in 1996, and trading of mortgages on the Exchange did
not begin until October 1997. Our limited operating history makes our future
prospects very difficult to evaluate. An investor in our common stock must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. These risks include:
. an evolving and unproven business model;
. the lack of a sufficiently large group of lenders and mortgage brokers
who use the Exchange;
. the uncertainty of the rate at which our lenders and mortgage brokers
will adopt the Exchange as a medium for buying and selling loans;
. the potential development of comparable services by competitors; and
. the management of anticipated growth.
To address these risks, we must, among other things:
. continue to increase membership in the Exchange among lenders and
mortgage brokers;
. encourage lenders and mortgage brokers to change long-standing business
methods so that they will increasingly rely on the Exchange;
. enhance and expand our products and services;
. continue to improve the functionality and user experience offered by the
Exchange;
. continue to develop and upgrade our technology and transaction-
processing systems; and
. identify, develop and maintain strategic alliances with companies that
have strong relationships with lenders or mortgage brokers.
We may not be able to successfully address these risks. Moreover, our
ability to take the foregoing steps may be hampered by our limited financial
resources should we fail to rapidly increase revenues or should increased
revenues be more than offset by increased operating expenses.
We have a history of losses, we expect future losses and we may not achieve or
maintain profitability.
Our ability to achieve profitability will depend upon our ability to
generate and sustain increased revenues. We believe that we will incur
substantial operating losses for the foreseeable future. We incurred operating
losses of $13.2 million for the year ended December 31, 1999. As of
7
<PAGE>
December 31, 1999, our accumulated deficit was $33.8 million. We intend to make
significant expenditures related to marketing, hiring of additional personnel
and development of our technology, user interfaces and infrastructure. Our
operating results for future periods are subject to numerous uncertainties, and
we may not achieve sufficient revenues to become profitable. Even if we achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future.
Our future revenues are unpredictable, and our operating results are likely to
fluctuate from quarter to quarter.
Due to our limited operating history, the nature of our business and the
emerging nature of the market in which we compete, our future revenues are
inherently difficult to forecast. We believe that period-to-period comparisons
of our operating results may not be meaningful, and you should not rely upon
them as an indication of our future performance. Our expense levels are based
largely on our investment plans and estimates of future revenues. We may be
unable to adjust our spending to compensate for an unexpected shortfall in
revenues. Accordingly, any significant shortfall in revenues relative to our
planned expenditures would harm our results of operations.
We expect our future quarterly operating results to fluctuate due to a
variety of factors, many of which are outside our control. Factors that could
cause our quarterly operating results to fluctuate include:
. general economic conditions and economic conditions specific to the
residential real estate industry, including interest rate fluctuations;
. seasonal fluctuations in the markets for new home loans and home loan
refinancings;
. increased competition, including the entrance of new competitors or the
introduction of new products or services by existing competitors;
. difficulties in upgrading or developing our systems and infrastructure;
and
. technical difficulties, system downtime or Internet brownouts.
As a result, in some future quarters our operating results may fall below
the expectations of securities analysts or investors, causing our stock price
to decline.
Our revenue generation model is unproven and could fail.
Our revenue generation model and profit potential are unproven, and we may
not be able to become profitable. Our revenue model depends heavily on revenue
generated from participating lenders, which pay us fees based on loans obtained
through the Exchange. To generate revenue, we must rapidly achieve broad market
acceptance of our service by both lenders and mortgage brokers, who have
traditionally used other means to arrange residential mortgage loans. We cannot
accurately predict what, if any, changes we would need to make to our revenue
model in response to the uncertainties in the online mortgage exchange market.
These changes could include reducing fees currently charged to lenders,
changing the basis for calculating fees or changing the point in a loan
transaction at which a fee becomes payable. In the past, we have explored
several different fee structures as we have learned more about what lenders are
willing to pay to use the Exchange. Our present fee structure is to charge a
fixed fee per loan, payable when a loan is either locked or closed. We do not
yet know whether this fee structure will gain broad acceptance among lenders,
who may be reluctant to pay the same fee amount regardless of the amount of the
loan, or who may be willing to pay only a lower fixed fee. In the future,
increased competition could require us to reduce our transaction fees. If we
are not able to anticipate and adapt our revenue model to changes in the
industry, we may be unable to expand our business and the value of your
investment could be significantly reduced.
8
<PAGE>
The Exchange may not attract the critical mass of broker and lender activity
necessary to make it successful.
Although we believe that one of the principal benefits of the Exchange is
the potential for an efficient market for pricing mortgage loans, such market
efficiency cannot be achieved without a critical mass of brokers and lenders
using the Exchange to post and bid on loans. Such critical mass requires many
mortgage brokers and lenders to transact much of their business through the
Exchange, but before critical mass is achieved, brokers and lenders may not
have a compelling reason to use the Exchange. If the Exchange fails to attract
a sufficient level of broker and lender activity to achieve critical mass, our
business may fail.
Our success depends on our ability to convince mortgage brokers to abandon
traditional methods of doing business in favor of utilizing our Exchange.
In order for us to be successful, brokers must be willing to adopt new ways
of conducting business and exchanging information. The traditional way for
mortgage brokers to secure competitive interest rates is to review and compare
rate sheets that are faxed to them each day by lenders with which they have
relationships. Even if the Exchange is able to offer competitive interest
rates, we do not know whether the added efficiency and convenience of online
interaction will be sufficient to persuade most brokers to adopt a new and
unfamiliar way of doing business. Other planned features of our eHub may not
have the hoped-for effect of convincing brokers to use the Exchange on a
regular basis. For instance, while we are improving our interface with the most
popular loan origination software applications in order to increase the volume
of loans posted on the Exchange, we do not know whether most brokers who use
those applications will respond to the bids they receive after their loans have
been posted or whether such brokers will become members of the Exchange.
Moreover, some brokers may opt not to utilize the interface. In addition, some
brokers currently using the Exchange may be doing so because of its novelty
rather than because they believe that it offers a better way to compare and
access loan terms. These brokers may use the Exchange for only a limited time
and then return to more familiar business methods. If we are unable to convince
mortgage brokers to integrate the Exchange into their daily business routines
on a long-term basis, our business will be harmed.
Our success depends on our ability to attract and integrate additional lenders
as members of the Exchange so that they use the Exchange to bid on loans.
In order for us to be successful, lenders must be willing to adopt new ways
of acquiring loans and exchanging information on their loan products and terms.
Integration of a lender into our system requires a commitment of time and
resources on our part and on the part of the lender. Lenders may not be willing
to invest the time and resources necessary to achieve this integration, or we
may not be able to devote the time and resources necessary to successfully
transition a lender to the Exchange. Additionally, because our system may
compete with a lender's own loan officers, some lenders may be reluctant to
convert to our system. Lenders may also be reluctant to rely on our quality
assurance review of participating mortgage brokers instead of their own. Our
efforts to integrate lenders into the Exchange require employees of the lender
to be trained on the use of our interface and to become accustomed to new
business methods. The departure of any such employees is likely to have an
adverse effect on the volume of bids that a lender makes on the Exchange until
new employees are hired by the lender and trained to transact business through
the Exchange. If we are not successful in attracting or retaining the
participation of a significant number of major lenders, there may not be enough
loans locked through the Exchange to achieve our revenue goals.
9
<PAGE>
If lenders do not offer competitive loan terms on the Exchange, our operating
results will suffer.
Our business model depends on the participation of multiple lenders
competing for the business of participating brokers by bidding on loans posted
on the Exchange. Regardless of the volume of loans posted on the Exchange or
the number of bids made on such loans, we do not earn revenue until those bids
are accepted. We may not sign up enough lenders to the Exchange to create a
competitive environment that will attract bids that brokers find attractive. If
interest rates and other terms offered by lenders on the Exchange are not
competitive with those offered by traditional means, mortgage brokers will have
less incentive to accept bids on the Exchange, and our operating results will
suffer.
Our agreements with members of the Exchange do not require them to transact
business exclusively on the Exchange or to transact any minimum volumes of
business over the Exchange.
Although we devote substantial sales and marketing resources to signing
mortgage brokers and lenders as members of the Exchange, our success in doing
so does not translate directly to revenues. Our revenues are dependent entirely
on these members posting and bidding on loans on the Exchange and subsequently
locking or closing those loans. We do not have exclusive relationships with our
member brokers or lenders or require minimum transaction volumes on their part.
Our member brokers are free to deal directly with lenders to place loans, and
our member lenders are free to acquire loans directly from borrowers, through
brokers outside of the Exchange, through other online services or through any
other channel. Accordingly, if new members do not use the Exchange to lock a
significant number of loans, our success in attracting new members may not
generate additional revenues.
The demand for different types of loan products is cyclical and sensitive to
various fluctuations in the economy, and if the specific loan products desired
by borrowers at a given time are not available on the Exchange, our results of
operations will suffer.
The demand for different types of loan products is cyclical and sensitive to
changes in interest rates and other economic factors. If the specific loan
products desired by borrowers in a variety of economic environments are not
available on the Exchange, our business will continue to be vulnerable to
significant downturns caused by fluctuations in interest rates or other factors
that affect the demand for different loan products. For example, in the third
quarter of 1999, rising interest rates increased the demand for adjustable-rate
mortgages, commonly referred to as ARMs. Because, at that time, most of our
lender members were offering primarily fixed-rate mortgages, and because our
technology had not yet been adapted to effectively serve lenders' needs with
respect to ARM bidding, brokers were unable to obtain enough bids on the
Exchange for the ARMs desired by their borrowers. This caused the number of
loans locked through the Exchange to drop significantly, and our revenues
declined by 48% in the third quarter compared to the second quarter. The
limited period of time during which we have conducted our operations has been
characterized by a strong economy and historically low interest rates. Due to
our limited operating history, we cannot forecast how different economic
environments could affect our operations in the future.
We may have difficulty attracting a comprehensive group of lenders that
complement and expand our current residential mortgage loan product coverage.
The success of the Exchange depends on our ability to attract and retain a
comprehensive group of lenders to service brokers' and their borrowers' needs
across a wide array of product lines, credit profiles, and geographic
locations. Lenders may limit the types of credit they offer due to licensing
requirements and regulations or for other reasons. For example, some of our
lender
10
<PAGE>
members do not extend credit in some states, do not offer particular types of
loans, or do not lend to borrowers with particular credit profiles. If we are
unable to broaden the offering of loan products on our system for a wide array
of credit profiles and locations, our ability to attract additional brokers may
be limited, and our existing brokers may continue to use traditional methods
outside the Exchange to place the majority of their loans.
If our participating lenders do not provide competitive levels of service to
brokers, our reputation will be harmed and our ability to attract brokers to
the Exchange will be limited.
Our ability to attract mortgage brokers to the Exchange depends in part on
brokers receiving competitive levels of convenience, customer service and
responsiveness from participating lenders. If our participating lenders do not
provide brokers with satisfactory levels of service, brokers may elect to place
loans with other lenders who are not participants on the Exchange.
Unanticipated problems with our plans to offer new and complementary products
and services could harm our business.
We intend to expand our operations by offering new and complementary
products and services, increasing the number of and expanding the geographic
participation of our brokers and lenders, expanding our existing products and
services and expanding our market presence through relationships with third
parties such as providers of loan origination software. We may not be able to
accomplish this expansion in a cost-effective or timely manner, or these
efforts may not increase the overall market acceptance of our products and
services. Furthermore, any new product or service we launch that is not
favorably received by brokers, lenders or third parties could damage our
reputation or subsequent growth. Expansion of our operations in this manner
could also require significant additional expenditures and strain our
management, financial and operational resources. The lack of market acceptance
of these efforts or our inability to generate enough revenue from these
expanded services or products to offset their cost could harm our business.
Most loans acquired through the Exchange have been acquired by a small number
of lenders, and the loss of one of these lenders could limit our ability to
offer the full range of loan products desired by mortgage brokers.
During 1999, our three largest lender members accounted for approximately
45%, 24% and 11% of our revenues. If one of these lenders stops using the
Exchange, we may be unable to offer brokers access to other lenders offering an
equivalent range of loan products. If this happens and brokers are unable to
obtain the loan products they desire through the Exchange, they may revert to
traditional methods of transacting business with lenders, and our revenues may
suffer.
System failures or capacity constraints could reduce or limit traffic on the
Exchange and harm our business.
Although we have experienced no Exchange downtime and only minor component
failures or outages from time to time, we may experience more significant
system failures or outages in the future that could disrupt the operation of
our Exchange and could harm our business. The satisfactory performance,
reliability and availability of our Exchange and network infrastructure are
critical to our reputation and our ability to attract a high volume of broker
traffic as well as to attract and retain significant numbers of lenders as
participants.
We are continually enhancing and expanding our technology, network
infrastructure and other technologies to accommodate a substantial increase in
broker and lender participation on the
11
<PAGE>
Exchange. We may be unsuccessful in these efforts, or we may be unable to
accurately project the rate or timing of increases in the volume of traffic on
our Exchange. In addition, we cannot predict whether additional network
capacity will be available from third party suppliers on reasonable terms as we
need it. Also, our network or our suppliers' networks may be unable to achieve
or maintain a sufficiently high capacity of data transmission to timely process
orders or effectively download data, especially if traffic on our Exchange
increases. Our failure to achieve or maintain high-capacity data transmission
could significantly reduce demand for our services.
Our communications hardware and certain of our other computer hardware
operations are located at the facilities of Exodus Communications, Inc. in
Sunnyvale, California. Fires, floods, earthquakes, power losses,
telecommunications failures, break-ins and similar events could damage these
systems. Computer viruses, electronic break-ins or other similar disruptive
problems could also adversely affect our operations. Our business may be
adversely affected if our systems are affected by any of these occurrences. We
do not yet have in place a formal disaster recovery plan or redundant
facilities to provide back-up services in the event of any of these
occurrences. Our insurance policies may not adequately compensate us for any
losses that may occur due to any failures or interruptions in our systems.
Our business will be harmed if we are unable to adapt to the rapid
technological change that characterizes the Internet and electronic commerce.
The Internet and electronic commerce are characterized by:
. rapid technological change;
. changes in user and customer requirements and preferences;
. frequent new product and service introductions embodying new
technologies; and
. the emergence of new industry standards and practices that could render
our proprietary technology and systems obsolete.
Our success will depend, in part, on our ability to:
. develop and license leading technologies useful in our business;
. add new hardware, update software and add new engineering personnel to
accommodate the increased use of our Exchange;
. develop new services and technologies that address the increasingly
sophisticated and varied needs of our prospective members; and
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
Development of the Exchange and other proprietary technology entails
significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our technology, systems, products and
services to the requirements of our broker and lender members or of emerging
industry standards. If we are unable, for technical, legal, financial or other
reasons, to adapt in a timely manner to changing market conditions or customer
requirements, our business will be harmed.
If the third-party technologies and services we use fail or become unavailable,
our business could be harmed.
We have incorporated technology developed by third parties, including
security and encryption technology, into the Exchange, and we will continue to
incorporate third-party technology in our
12
<PAGE>
future products and services. We have limited control over whether or when
these third-party technologies will be available or enhanced. If a third-party
fails to make available, license or support necessary technology, our business
could be harmed.
In particular, we have agreements with several major providers of loan
origination software obligating them to upgrade their software so that loans
entered by mortgage brokers using that software are seamlessly posted to the
Exchange. If any of these agreements terminates and this feature is removed
from the loan origination software, the number of loans posted to the Exchange
may decrease significantly, which could result in reduced revenues.
Our business has experienced significant growth in recent periods, and if we
are unable to manage such growth in the future, our business will be harmed.
We are currently experiencing growth and expansion which has placed, and
will continue to place, a strain on our administrative, operational and
financial resources and increased demands on our systems, controls and
management personnel. If our management is unable to manage this growth
effectively and on a timely basis, our business will be harmed. We anticipate
that continued growth will require us to recruit, hire, train and retain a
substantial number of new managerial, technical, sales and marketing personnel.
The majority of our current employees have been with us less than nine months,
and we expect that our rate of hiring will continue at a high pace. Our ability
to manage our growth successfully will also require us to continue to expand
and improve our operational, management and financial systems and controls on a
timely basis.
Our executive officers and key personnel are critical to our business, and the
loss of any of these officers or key personnel would likely harm our business.
Our future success is substantially dependent on the continued services and
contributions of our senior management and other key personnel, particularly
Richard Wilkes, our Chief Executive Officer. The loss of the services of any of
our executive officers or other key employees could harm our business. We do
not maintain key person life insurance on any of our executive officers or key
employees.
We may not be able to recruit and retain necessary personnel, particularly
technology development and implementation personnel, and our failure to do so
could hamper our growth.
Our future success depends on our continuing to attract, retain and motivate
highly skilled employees, particularly with respect to technology development
and implementation. If we are not able to attract and retain new personnel,
particularly to expand our technology development and implementation team, our
business will be harmed. Competition for personnel in technology industries is
intense, particularly in the San Francisco Bay Area, where we are based. We may
be unable to retain our key employees or attract, assimilate or retain other
highly qualified employees in the future. We have from time to time
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining employees with appropriate qualifications.
Our business will be harmed if we are unable to protect our intellectual
property rights from third party challenges or if we are subject to litigation.
Our success is dependent in part on the protection of our proprietary
technology and information. We rely on a combination of patent, copyright,
trademark and trade secret laws to establish and protect our proprietary
rights. We have obtained a U.S. patent for our method and system for trading
loans on the Exchange in real time. Despite our receipt of this patent and our
other efforts to protect our proprietary rights, existing patent, copyright,
trademark and trade secret
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<PAGE>
laws afford only limited protection, and there can be no assurance that our
intellectual property rights, if challenged, will be upheld as valid, will be
adequate to protect our proprietary technology and information, or will prevent
other parties from designing competing products or services that do not
infringe our intellectual property rights. In addition, the laws of some
foreign countries may not protect our proprietary rights to the same extent as
do the laws of the United States. Other parties may attempt to copy or reverse-
engineer aspects of our technology or to obtain and use information that we
regard as proprietary. We may be required to resort to litigation in the future
to enforce our intellectual property rights or to determine the validity and
scope of the proprietary rights of others. This litigation could result in
substantial costs and diversion of resources and could significantly harm our
business.
Although we have not been notified that our technology infringes the
proprietary rights of other parties, in the future other parties may assert
patent, copyright, trademark and other intellectual property rights with
respect to technologies that are important to our business. Any claims
asserting that our products or services infringe or may infringe proprietary
rights of third parties, if determined adversely to us, could significantly
harm our business. Any such claims, with or without merit, could result in
costly litigation, divert the efforts of our technical and management personnel
or require us to enter into royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us, if at all. In the event a claim
against us were successful and we could not obtain a license to the relevant
technology on acceptable terms or license a substitute technology to avoid
infringement, our business would be significantly harmed.
Any future international expansion would expose us to risks associated with
international operations.
Although our current strategy is focused on the U.S. residential mortgage
market, we may in the future expand our operations into one or more foreign
countries. However, any investments in establishing these operations may not
produce enough revenue to justify our investments. We have limited experience
with the lending industry outside the United States, and we may not be able to
attract lenders or other participants in other countries or successfully adapt
our business model to the business, economic, legal and regulatory climates of
other countries. In addition, competitors that have greater local market
knowledge or regulatory understanding may exist or arise and impede our ability
to successfully expand into these markets. Any international expansion would
also require significant management attention and financial resources.
Any acquisitions that we undertake could be difficult to integrate, disrupt our
business, dilute stockholder value and harm our operating results.
Under certain circumstances, we may acquire or make investments in
complementary businesses, technologies, services or products if appropriate
opportunities arise. The process of integrating any acquired business,
technology, service or product into our business and operations may result in
unforeseen operating difficulties and expenditures. Integration of an acquired
company also may consume significant management resources that would otherwise
be available for ongoing development of our business. Moreover, the anticipated
benefits of any acquisition may not be realized. We may be unable to
successfully identify, negotiate or finance future acquisitions or integrate
any acquisitions with our current business. Future acquisitions could result in
potentially dilutive issuances of equity securities or the incurrence of debt,
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could harm our business.
14
<PAGE>
We may be liable for monetary losses or suffer damage to our reputation
resulting from fraudulent acts committed by member brokers on the Exchange.
We represent to our member lenders that we perform a quality assurance
review of each broker member of the Exchange. Lender members generally rely on
this review in place of the lender's own internal review process in deciding to
transact business on the Exchange with a particular broker. If a broker member
commits fraudulent acts relating to the trading of mortgages through the
Exchange, a defrauded lender may assert that our quality assurance review of
that broker was defective and that we should be liable for the damage suffered
by the lender. While we seek to limit our liability for such claims in our
contracts with lender members, such limitations may not be enforced by courts
in certain circumstances. Even if our contractual limitations of liability are
eventually upheld, an act of fraud by one of our member brokers may involve us
in costly and disruptive litigation or harm our reputation.
Unanticipated year 2000 problems relating to our operations could reduce our
future revenues and increase our expenses.
To date we have not experienced problems relating to the year 2000, and we
believe that our computer hardware and software and that of our significant
third-party providers of hardware, software and communications technology are
year 2000 compliant. Although we are well into the year 2000, our systems or
those of our third-party service providers could contain latent defects related
to the year 2000. If we or our third-party technology providers fail to remedy
any year 2000 issues, the result could be lost revenues, increased operating
expenses, the loss of members and other business interruptions, any of which
could harm our business. The failure to adequately address year 2000 compliance
issues in the delivery of products and services to our members could result in
claims of misrepresentation or breach of contract, any of which could be costly
and time-consuming to defend.
Risks Related to Our Industry
Our success depends on continued growth of the Internet and electronic
commerce, which may not achieve rapid acceptance by mortgage brokers and
lenders.
Our future revenues and profits are substantially dependent upon the
widespread acceptance and use of the Internet by mortgage brokers and lenders
as an effective medium for commerce. Rapid growth in the use of the Internet is
a recent phenomenon. As a result, acceptance and use of the Internet may not
continue to develop at historical rates. Demand for and market acceptance of
recently introduced Internet-based products and services are subject to a high
level of uncertainty, and there are few proven products and services. If the
use of the Internet and electronic commerce does not grow as anticipated, we
may not be able to achieve our anticipated revenue growth.
If alternate loan origination channels reduce borrowers' reliance on mortgage
brokers that use the Exchange, our operating results will suffer.
Our business is dependent upon the broker and lender choosing to conduct
mortgage loan transactions through an online exchange. If traditional or other
emerging loan origination channels preclude the broad acceptance of the online
exchange concept, our business may fail. These alternative models include:
. retail lenders that market directly to borrowers using traditional
methods designed to drive borrowers to their retail branches, including
some retail lenders that have begun to offer loans online directly to
borrowers;
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<PAGE>
. wholesale lenders that market to mortgage brokers using traditional
sales and marketing techniques, including some wholesale lenders that
have adopted technology enabling them to communicate or transact
business with brokers online; and
. Internet-based mortgage lenders that acquire borrowers or brokers
through their own web sites.
Even if we are successful in becoming the standard method of acquiring
mortgage loans originated through mortgage brokers, our member brokers may not
successfully compete for market share with other origination channels. Should
brokers lose significant market share, the number of transactions between
brokers and wholesale lenders available to be originated through the Exchange
would be reduced, and we may be unable to achieve our anticipated revenue
growth.
The online mortgage exchange industry is rapidly evolving, and we expect it to
become highly competitive.
The online mortgage exchange industry is rapidly evolving, and we expect it
to become highly competitive. Our business model is focused on improving the
efficiency of mortgage loan origination in the wholesale channel, where loans
are originated through mortgage brokers. We believe that the principal bases
for competition in the market for online origination of mortgage loan
transactions include access to a large number of competing lenders and brokers,
ease of use and the availability of ancillary products and services. Our
primary competition comes from other online marketplaces designed to facilitate
communication and transactions between brokers and lenders. In addition, other
companies with large customer bases among mortgage brokers or lenders, such as
loan origination software providers, could develop online services that compete
with the Exchange.
Increased competition could result in reductions in our fees, increases in
the fees we pay to enter into strategic relationships, reduced margins or loss
of market share, any of which could harm our business. We believe we will face
increasing competition as the online financial services industry develops and
evolves. Some of our current or potential competitors may have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources and may be able to:
. undertake more extensive marketing campaigns for their brands and
services;
. provide more extensive services to mortgage brokers or lenders;
. enter into more productive strategic relationships with higher-profile
companies;
. devote more resources to their web sites or online marketplaces; or
. adopt more aggressive pricing policies.
If the regulations that apply to the mortgage banking business are deemed to
apply to the services we offer, our business could be harmed.
The residential mortgage banking business is heavily regulated by federal
and state laws and regulations. Among other requirements, these laws and
regulations impose licensing obligations on mortgage brokers and mortgage
lenders, require that certain disclosures be given to consumers, limit the
fees, charges and interest rates that may be imposed on consumers, prohibit
unlawful discrimination and otherwise restrict the way in which residential
mortgage loans may be marketed, made, purchased, sold and administered. Failure
to comply with these requirements may result in, revocation of required
licenses and approvals, class action and individual lawsuits, administrative
enforcement actions and fines, civil and criminal liability and indemnification
liability to third parties, among other consequences. Moreover, lenders could
be reluctant to transact business through the Exchange as a result of
uncertainty as to whether we are subject to such laws and regulations and
related concerns about liability for doing business through the Exchange.
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<PAGE>
While many of the laws and regulations relating to residential mortgage
loans apply to our broker and lender members and to loans that pass through the
Exchange, we believe that these laws and regulations do not directly apply to
us because we do not act as a lender and we believe that we do not act as a
broker. For this reason, we have not obtained mortgage broker licenses in any
states that require mortgage brokers to be licensed. However, because of the
uncertainties as to the applicability to us of these laws and regulations now
and as our business may evolve in the future, we may not always have been, and
may not in the future always be, in compliance with such laws and regulations.
This risk is increased by the relative lack of clarity regarding the
applicability of laws and regulations to electronic commerce generally and the
conduct of an Internet-based, business-to-business mortgage exchange
specifically.
For example, the federal Real Estate Settlement Procedures Act, or RESPA,
generally prohibits the payment or receipt of a fee for the referral of
business incident to a real estate settlement service, including the making or
brokering of residential mortgage loans. This law also generally prohibits fee
splitting in connection with the provision of residential real estate
settlement services. In either case, however, such fees may be paid or split as
payment for the reasonable value of services actually performed or goods and
facilities actually furnished. Exchange fees paid by participating lenders or
other settlement service providers may be subject to this law and the
regulations promulgated by the U.S. Department of Housing and Urban
Development. Although we do not believe that RESPA applies to our core
business, we have sought to structure our relationships with participating
lenders and brokers to comply with the requirements of RESPA.
While we believe that we have complied in all material respects with all
applicable laws and regulations, as we continue, and expand, our business
activities, it is likely that we will be required to evaluate the applicability
of current and future laws and regulations relating to residential mortgage
lending and electronic commerce over the Internet.
Our intended expansion of our business could subject us to additional
regulations.
We intend to expand our operations to include new products and services and
to offer existing and new products in new jurisdictions within and outside the
United States. For example, we may in the future offer to perform additional
steps in the process of completing a loan transaction, such as arranging for
appraisals and preparation of loan documentation. This expansion may require us
to comply with additional laws and regulations, including state mortgage broker
licensing laws. Compliance with these laws and regulations may require us to
obtain appropriate business licenses, make necessary filings and obtain
necessary bonds, appoint agents and make periodic business reports. If we fail
to adequately comply with these laws and regulations, our ability to offer some
of our products or services in a particular jurisdiction could be delayed or
prevented and our business could be harmed.
If we are unable to safeguard the security and privacy of confidential
information, we could be subject to liability and our reputation could be
harmed.
A significant barrier to electronic commerce and communications is the
secure transmission of personally identifiable information of Internet users as
well as other confidential information over public networks. Any penetration of
our network security or other misappropriation of confidential information,
such as borrowers' names, addresses, social security numbers, user names or
passwords, could subject us to liability and harm our reputation. We rely on
encryption and authentication technology licensed from third parties to effect
secure transmission of confidential information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments could result in a compromise or breach of the algorithms we use to
protect borrowers', brokers' and lenders' confidential information. A party who
is able to circumvent our
17
<PAGE>
security measures could misappropriate proprietary information or cause
interruptions in our operations. We may be required to make significant
expenditures to protect against security breaches or to alleviate problems
caused by any breaches.
Regulation of the Internet is unsettled, and future regulations could harm our
business.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. Furthermore, the growth and
development of the market for electronic commerce may prompt the enactment of
more stringent consumer protection laws that may impose additional burdens on
companies conducting business online. The adoption of additional laws or
regulations may inhibit the growth of the Internet as a medium for commerce and
lending activity, which could, in turn, decrease demand for our services,
increase our cost of doing business or otherwise harm our business. In
addition, applicability to the Internet of existing laws governing issues
including property ownership, copyrights and other intellectual property
issues, taxation, libel and personal privacy is uncertain. The vast majority of
these laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies.
Risks Related to this Offering
Our executive officers and directors and entities affiliated with them will
retain substantial control over our business after the offering.
Our executive officers and directors and entities affiliated with them will
beneficially own approximately % of our outstanding common stock following
the completion of this offering. These persons and entities, acting together,
will be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
and other business combinations, and may make decisions that are not in the
best interest of all stockholders.
Our management will have broad discretion over the use of proceeds from this
offering.
The net proceeds to us from this offering are estimated to be approximately
$ million after deducting the estimated underwriting discount and offering
expenses. We currently have no specific plans for a significant portion of our
net proceeds from this offering. Consequently, our management will have the
discretion to allocate the net proceeds to uses that some stockholders may not
deem desirable. Management's allocation of the proceeds of this offering may
not benefit our business, and we may not be able to obtain a significant return
on any use of the proceeds of this offering.
There has not been a public market for our common stock, so its liquidity is
uncertain.
Before this offering, there has not been a public market for our common
stock. We cannot predict the extent to which investor interest will lead to the
development of an active, liquid trading market in our common stock. Active
trading markets generally result in lower price volatility and more efficient
execution of buy and sell orders for investors. The initial public offering
price will be determined through negotiations between us and the
representatives of the underwriters and may not be indicative of the prices
that will prevail in the trading market after this offering.
Market prices of Internet and other technology stocks have been extremely
volatile, and the market price of our stock is likely to be volatile as well.
Recent initial public offerings by technology companies, including Internet
companies, have been accompanied by extreme stock price and trading volume
fluctuations in the first days and
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<PAGE>
weeks of public trading. These fluctuations often have been unrelated or
disproportionate to the operating performance of the companies that issued the
stock. The trading price of our common stock is likely to be highly volatile
and may be significantly affected by factors including actual or anticipated
fluctuations in our operating results, new products or new contracts announced
by us or our competitors, conditions and trends in the electronic commerce,
lending and real estate industries, changes in financial estimates by
securities analysts, general market conditions and other factors. In the past,
following periods of volatility in the market price of a public company's
securities, securities class action litigation has often been instituted
against that company. Such litigation could result in substantial costs and a
diversion of management's attention and resources.
Future sales of our common stock may cause our stock price to decline.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in
the market after this offering or the perception that such sales could occur.
These sales also might make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate. See "Shares
Eligible for Future Sale."
We may need to raise additional capital, which could have a negative impact on
your investment.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated working
capital and capital expenditure needs for the next 18 months. We may need to
raise additional funds in the future to fund expansion, develop new or enhanced
products and services, pursue the integration of additional broker and lender
members, respond to competitive pressures or acquire complementary businesses,
technologies or services.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our current stockholders will be
reduced, stockholders may experience additional dilution and such securities
may have rights, preferences and privileges that are senior to those of our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us, if at all. If adequate funds are not available or not
available on acceptable terms, we may be unable to fund our expansion, take
advantage of acquisition opportunities, develop or enhance services or respond
to competitive pressures.
Our charter documents and other agreements may hinder a potential takeover.
Provisions of Delaware law and our certificate of incorporation and bylaws
could prevent or discourage the acquisition of IMX by means of a tender offer,
a proxy contest or otherwise, and the removal of incumbent officers and
directors, even if doing so might be beneficial to our stockholders. See
"Description of Capital Stock."
Investors will experience immediate dilution.
We expect the initial public offering price to be substantially higher than
the book value per share of the outstanding common stock immediately after this
offering. Accordingly, if you purchase common stock in this offering, you will
experience immediate dilution of approximately $ . in the book value per
share of the common stock. See "Dilution."
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words like "anticipates," "believes," "plans," "expects," "future," "intends"
and similar expressions to identify these forward-looking statements. This
prospectus also contains forward-looking statements attributed to third parties
regarding their estimates of the growth of electronic commerce and the
residential mortgage market. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including those described in the
risk factors above and elsewhere in this prospectus. You should carefully read
the entire prospectus before purchasing our common stock.
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock in this
offering are estimated to be approximately $ million, assuming an initial
public offering price of $ per share, after deducting the estimated
underwriting discount and offering expenses and assuming that the underwriters
do not exercise their overallotment option. We intend to use these net proceeds
for general corporate purposes, principally working capital and capital
expenditures. We may also use a portion of the net proceeds to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies, although we have no current commitments or
agreements with respect to any of these types of acquisitions or investments.
Pending these uses, we will invest the net proceeds of this offering in short-
term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid dividends on our capital stock. We currently expect to
retain earnings, if any, to finance the growth and development of our business
and do not anticipate paying any cash dividends on our stock in the foreseeable
future.
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CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of December 31, 1999;
. our pro forma capitalization after giving effect to our sale of an
aggregate of 3,925,961 shares of Series E redeemable convertible
preferred stock on February 18 and March 7, 2000, with net proceeds of
approximately $15.6 million, and the conversion of all outstanding shares
of redeemable convertible preferred stock into shares of common stock;
and
. our pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at an assumed initial public offering price of
$ per share in this offering and the application of our proceeds from
this offering, after deducting the estimated underwriting discounts and
commissions and offering expenses.
<TABLE>
<CAPTION>
December 31, 1999
----------------------------
Pro
Pro Forma As
Actual forma Adjusted
-------- -------- --------
<S> <C> <C> <C>
Cash, cash equivalents and short-term
investments...................................... $ 6,766 $ 22,366 $
======== ======== =====
Obligations under capital leases, including
current portion.................................. $ 666 $ 666
Subordinated debt, including current portion...... 982 982
Redeemable convertible preferred stock, $0.001 par
value per share, 27,139,328 shares authorized,
24,772,932 shares issued and outstanding, actual;
none authorized, issued or outstanding, pro
forma; shares authorized, none issued or
outstanding, pro forma as adjusted............... 39,090 --
Stockholders' equity (deficit)
Common stock, $0.001 par value per share,
39,000,000 shares authorized, 3,598,734 shares
issued and outstanding, actual; 50,000,000
shares authorized, 32,297,627 issued and
outstanding, pro forma; shares authorized,
shares issued and outstanding, pro forma as
adjusted (1).................................... 4 32
Additional paid-in capital....................... 2,671 57,332
Deferred stock compensation...................... (1,730) (1,730)
Accumulated deficit.............................. (33,753) (33,752)
-------- --------
Total stockholders' equity (deficit)............ (32,808) 21,882
-------- --------
Total capitalization........................... $(7,930) $ 23,530
======== ========
</TABLE>
- --------
(1) The number of shares of common stock outstanding set forth in the table
above excludes the following:
. 4,754,035 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999 having a weighted average exercise
price of $0.336;
. 198,131 additional shares authorized for issuance under our stock plan;
and
. 136,806 shares of common stock issuable upon exercise of outstanding
warrants having a weighted average exercise price of $1.52.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on December 31,
1999, after giving effect to our sale of an aggregate of 3,925,961 shares of
redeemable convertible preferred stock on February 18 and March 7, 2000 for net
proceeds of approximately $15.6 million, was approximately $21.9 million, or
$0.68 per share. Net tangible book value per share represents the amount of
total assets less total liabilities, divided by the number of shares
outstanding. After giving effect to the issuance and sale of shares of
common stock offered by us at an initial public offering price of $ , and
deducting discounts and commissions and estimated offering expenses payable by
us, our adjusted net tangible book value as of December 31, 1999 would have
been $ or $ per share. This represents an immediate increase in
the net tangible book value of $ per share to the existing stockholders
and an immediate dilution of $ per share to the new public investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of December 31,
1999......................................................... $0.68
Increase per share attributable to new public investors.......
----- ------
Pro forma net tangible book value per share after the
offering.....................................................
------
Dilution per share to new investors............................. $
======
</TABLE>
The following table sets forth on a pro forma basis, as of December 31,
1999, after giving effect to the conversion of all outstanding shares of
redeemable convertible preferred stock into common stock upon completion of
this offering, the differences between the existing stockholders and the
purchasers of the shares of common stock in this offering (before deducting
underwriting discounts and commissions and estimated offering expenses) with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 32,297,627 % $54,995,580 % $1.70
New stockholders.................
---------- --- ----------- ---
Total............................ 100% $ 100%
========== === =========== ===
</TABLE>
The foregoing discussion and tables assume no exercise of options to
purchase 4,574,035 shares of common stock and warrants to purchase 136,806
shares of common stock outstanding as of December 31, 1999, with weighted
average exercise prices of $0.336 and $1.52, respectively. To the extent that
any of these options or warrants are exercised, there will be further dilution
to new public investors. See "Capitalization" and Note 2 of Notes to Financial
Statements.
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<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the period from November 6,
1996 (inception) through December 31, 1996 and for the years ended December 31,
1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999
are derived from our financial statements, which have been audited and are
included elsewhere in this prospectus. The selected statement of operations
data presented below for the period from November 6, 1996 (inception) through
December 31, 1996 and the balance sheet data as of December 31, 1997 are
derived from audited financial statements not included in this prospectus. The
historical results presented below are not necessarily indicative of the
results to be expected for any future period. The selected financial data set
forth is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
November 6, 1996
(inception) through Year Ended December 31,
December 31, ---------------------------
1996 1997 1998 1999
------------------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue....................... $ -- $ 44 $ 598 $ 319
Operating expenses:
Operations................... -- 1,225 1,806 2,610
Sales and marketing.......... -- 1,699 2,970 5,564
Product development.......... 578 969 1,081 1,743
General and administrative... -- 2,169 2,979 3,403
Amortization of deferred
stock compensation.......... -- -- -- 605
------ ------- -------- --------
Total operating expenses... 578 6,061 8,837 13,924
------ ------- -------- --------
Loss from operations.......... (578) (6,017) (8,239) (13,605)
Net interest income
(expense).................... -- (27) 74 381
------ ------- -------- --------
Loss from continuing
operations................... (578) (6,044) (8,165) (13,224)
Loss from discontinued
operations................... -- -- (5,742) --
------ ------- -------- --------
Net loss...................... $ (578) $(6,044) $(13,907) $(13,224)
====== ======= ======== ========
Basic and diluted loss per
common share from continuing
operations................... $(0.29) $ (2.79) $ (3.12) $ (3.98)
====== ======= ======== ========
Basic and diluted net loss per
common share................. $(0.29) $ (2.79) $ (5.31) $ (3.98)
====== ======= ======== ========
Weighted average shares used
in basic and diluted loss per
common share from continuing
operations and basic and
diluted net loss per share
calculations................. 1,959 2,164 2,617 3,322
====== ======= ======== ========
Pro forma basic and diluted
net loss per common share
(unaudited).................. $ (0.48)
========
Weighted average common shares
used in basic and diluted pro
forma net loss per common
share (unaudited)............ 27,566
========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------
1997 1998 1999
------ ------- -------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments.... $1,309 $ 923 $ 6,766
Working capital (deficit)............................ 559 (1,963) 4,356
Total assets......................................... 2,738 2,390 10,089
Long-term obligations, less current portions......... 593 1,252 702
Redeemable convertible preferred stock............... 7,891 18,386 39,090
Total stockholders' deficit.......................... (6,495) (20,278) (32,808)
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto which appear elsewhere in this prospectus. The
following discussion contains forward-looking statements which reflect our
plans, estimates and beliefs. These forward-looking statements are subject to
various risks and uncertainties, including, but not limited to, the factors
described in "Risk Factors" and elsewhere in this prospectus. Our actual
results could differ materially from historical results or those projected in
the forward-looking statements.
Overview
We operate a business-to-business e-commerce solution that enables mortgage
brokers to communicate and transact business more efficiently with mortgage
lenders online. We have approximately 1,400 broker members and 40 active lender
members throughout the United States as of February 29, 2000.
We were incorporated on November 6, 1996. During the period from our
inception through December 31, 1997, our operating activities consisted
principally of the design of our Exchange and the development of our technology
platform. Version 1.0 of the Exchange was first demonstrated in July 1997. We
released Version 1.5 and began receiving revenues from operating the Exchange
in October 1997. In the remainder of 1997 we focused our efforts on building
our broker network in California and establishing relationships with leading
lenders who were interested in the development of an online strategy.
In 1998 we continued to build our broker and lender membership and upgrade
our technology. Version 1.7 of the Exchange, which incorporated several minor
improvements as well as the beta version of XpressBid, was released in May. In
September 1998, we released Version 2.0, which included several new features
and offered improved performance. The production version of XpressBid was
rolled out to our first customer in October 1998.
Our initial efforts were focused primarily on recruiting traditional
mortgage lenders to participate as buyers on the Exchange. In addition, in an
effort to accelerate the pace of adoption of the Exchange, we formed a wholly-
owned subsidiary, Investor Direct Funding Corp. (IDF), to enable other mortgage
loan buyers, who normally purchase closed loans from traditional mortgage
lenders, to utilize the Exchange to gain direct access to the broker market.
IDF began operations in August 1998 to process, fund and deliver the loans
acquired through the Exchange by these buyers. During this period, and
continuing into 1999, IDF absorbed significant human and financial resources
and, as a result, revenues from traditional mortgage lenders suffered. In May
1999 we decided to discontinue the IDF operation and return our focus to the
core business of serving traditional mortgage lenders. We accrued estimated
closure expenses of $3.6 million in the year ended 1998 and reflected IDF as
discontinued operations in our 1998 financial statements.
During the first half of 1999, significant product development effort was
directed toward our web interface for brokers, which was initially released in
March and upgraded in September, adding the capability to import loan files
from the brokers' loan origination software. In addition, in June we released
Version 3.0 of our software with a completely new user interface, and a number
of additional features including XpressMatch, which provides instant
notification of posts, matches and bids to lenders and brokers. Also during the
second half of 1999, we began our national broker rollout with a goal of
increasing our broker base and broadening our geographic coverage.
April 1999 marked the beginning of a period of increasing interest rates,
and demand for mortgages shifted from fixed-rate to adjustable-rate mortgage
(ARM) loans. Our revenues decreased in the third and fourth quarters because
our lender members did not offer competitive ARM
24
<PAGE>
products through the Exchange and our XpressBid feature was unable to
effectively handle the complex pricing process required by ARM loans. During
the third quarter, we enhanced XpressBid and began recruiting additional
lenders who could better service the ARM market. In addition, in October 1999,
we released Version 3.1 of the Exchange, which provided access to automated
underwriting and credit reports. We believe that these enhancements enable the
Exchange to effectively handle substantially all residential mortgage loan
products. Version 4.0, which provides both lenders and brokers with full web-
based functionality, including our XpressPost feature, is scheduled for release
in March 2000.
While we continue to add new lenders to our Exchange, revenues from First
Nationwide Mortgage, Provident Funding and Wausau Mortgage accounted for
approximately 45%, 24% and 11%, respectively, of our revenues for the year
ended December 31, 1999. Revenues from Provident Funding, First Nationwide
Mortgage, and Wausau Mortgage accounted for approximately 52%, 13% and 10%,
respectively, of our revenues for the year ended December 31, 1998. Revenues
from Provident Funding accounted for approximately 88% of our revenues for the
year ended December 31, 1997.
We intend to continue to increase our operating expenditures and,
consequently, we expect to continue to incur operating losses for the
foreseeable future.
Results of Operations
Years ended December 31, 1998 and 1999
Revenue
Our principal source of revenue is transaction fees. Participating lenders
pay transaction fees to us for mortgage loans acquired through the Exchange,
while brokers can post loans and receive bids free of charge. Our current
pricing structure is generally to charge our fees when a loan locks on the
Exchange. Lenders who are acquiring subprime loans are not charged until the
loan is funded. Transaction fees decreased $279,000 from $598,000 in 1998 to
$319,000 in 1999, primarily due to the shift in demand from fixed-rate to ARM
loans during the third and fourth quarters of 1999. Our revenues suffered
during these quarters because our lender members were not prepared to provide
ARM loans to our brokers and because our upgraded XpressBid feature, which
addresses the complex pricing process for ARM loans, was not fully implemented
until the fourth quarter of 1999. During the third and fourth quarters of 1999,
we significantly expanded our lender sales team and accelerated our recruiting
of lenders who could offer the full spectrum of mortgage products.
Operating Expenses
Operations. Operations expenses consist primarily of payroll and related
expenses for customer service, technical services, broker services and
information technology. Operations expenses also include costs to maintain and
upgrade the internal infrastructure of the Exchange and the resident business
technology. Operations expenses increased $804,000 from $1.8 million in 1998 to
$2.6 million in 1999 due to the continued hiring of personnel to support our
growing network of participating lenders and brokers, particularly customer
service representatives and technical support representatives. We also hired
additional personnel to support our internal infrastructure and our business
technology.
Sales and Marketing. Sales and marketing expenses consist primarily of
direct marketing, advertising, tradeshow and seminar participation, promotional
expenditures and public relations, payroll and related expenses for our sales
and marketing personnel supporting these efforts, as well as marketing
expenditures for fees paid to online companies with which we have
relationships. Sales and marketing expenditures increased $2.6 million from
$3.0 million in 1998 to $5.6 million in
25
<PAGE>
1999. These increases were due to increased efforts focused on generating
broker and lender awareness, as well as an increase in personnel and related
costs to support our national broker expansion campaign.
Product Development. Product development expenses consist primarily of
payroll and related expenses for engineering personnel and technical
development with strategic partners. Product development expenses increased
$662,000 from $1.1 million in 1998 to $1.7 million in 1999. This increase was
driven primarily by the continued hiring of personnel to support the upgrade of
the Exchange to be fully web-enabled and improvements to XpressBid.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for our executive management, human
resources, finance and administrative personnel, and expenses relating to
facilities, professional fees and other general corporate expenses. General and
administrative expenses increased $423,000 from $3.0 million in 1998 to $3.4
million in 1999. These increases were primarily due to increased personnel and
related costs, increased occupancy costs resulting from increased office space
requirements and the relocation of our corporate offices, and increased
depreciation related to capital expenditures for property and equipment.
Amortization of Deferred Stock Compensation. Deferred compensation
associated with stock options granted in 1999 totaled $2.3 million. This amount
represents the difference between the exercise price of the stock option grants
and our current estimate of the fair value of our common stock at the time of
such grants. Deferred stock compensation is amortized over the vesting period
of the options, generally four years, and approximately $605,000 was charged to
operations for the year ended December 31, 1999.
Interest Income
Interest income increased $416,000 from $260,000 in 1998 to $676,000 in
1999. The increase was attributable to higher average cash, cash equivalents
and short-term investments resulting from the sale of our Series D redeemable
convertible preferred stock in January 1999.
Interest Expense
Interest expense increased $108,000 from $187,000 in 1998 to $294,000 in
1999. This increase was primarily attributable to new equipment leases entered
into in 1999 and the subordinated debt financing obtained in November 1998.
Years ended December 31, 1997 and 1998
Revenue
Revenue increased $554,000 from $44,000 in 1997 to $598,000 in 1998 due to
the operation of the Exchange for a full year in 1998. Our first revenues from
the operation of the Exchange occurred in October 1997.
Operating Expenses
Operations. Operations expenses increased $582,000 from $1.2 million in 1997
to $1.8 million in 1998. The increase was caused by the hiring of personnel to
support our growing network of participating lenders and brokers, particularly
customer service representatives and technical support representatives.
Sales and Marketing. Sales and marketing expenses increased $1.3 million
from $1.7 million in 1997 to $3.0 million in 1998. The increase was due to
efforts focused on generating broker and lender awareness through direct
marketing, advertising and tradeshow appearances, as well as an increase in
sales and marketing personnel and related costs.
Product Development. Product development expenses increased $112,000 from
$1.0 million in 1997 to $1.1 million in 1998 due primarily to the continued
hiring of personnel to support
26
<PAGE>
the upgrades and improvements to the Exchange required by our growing network
of lenders and broker members.
General and Administrative. General and administrative expenses increased
$811,000 from $2.2 million in 1997 to $3.0 million in 1998. This increase was
primarily due to increased personnel and related costs, increased occupancy
costs and increased depreciation related to capital expenditures for property
and equipment.
Interest Income
Interest income increased $192,000 from $68,000 in 1997 to $260,000 in 1998.
This increase resulted from higher average cash and cash equivalent balances in
1998 resulting from the issuance of our Series C redeemable convertible
preferred stock in March 1998.
Interest Expense
Interest expense increased $91,000 from $96,000 in 1997 to $187,000 in 1998.
The increase was due to interest paid on new equipment leases and the
subordinated debt financing obtained in November 1998.
Quarterly Results of Operations
The following table sets forth certain unaudited consolidated statement of
operations data for the four quarters ended December 31, 1999. This information
has been derived from our unaudited consolidated financial statements. In our
opinion, this unaudited information has been prepared on the same basis as our
annual consolidated financial statements and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented. This information
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this prospectus. Historical results for any
quarter are not necessarily indicative of the results to be expected for any
future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenue............................. $ 74 $ 125 $ 65 $ 55
Operating expenses:
Operations........................ 396 495 751 968
Sales and marketing............... 779 1,279 1,671 1,835
Product development............... 333 334 367 709
General and administrative........ 549 601 959 1,294
Amortization of deferred stock
compensation..................... -- 89 188 327
------- ------- ------- -------
Total operating expenses......... 2,057 2,798 3,936 5,133
------- ------- ------- -------
Loss from operations................ (1,983) (2,673) (3,871) (5,078)
Net interest income................. 94 130 98 59
------- ------- ------- -------
Net loss............................ $(1,889) $(2,543) $(3,773) $(5,019)
======= ======= ======= =======
</TABLE>
We have a limited operating history and are operating in a new and rapidly
changing environment. Therefore, our operating results have fluctuated in the
past, and we expect them to fluctuate in future quarters as a result of a
variety of factors, many of which are outside of our control. See "Risk
Factors. "
Our revenues have fluctuated significantly over the last four quarters. This
fluctuation is primarily a result of the shift in demand from fixed to ARM
loans during the third and fourth quarters of 1999. Our revenues suffered
during these quarters because our lender members were not prepared to provide
ARM loans to our broker members and because our upgraded XpressBid feature,
which
27
<PAGE>
addresses the complex pricing process for ARM loans, was not fully implemented
until the fourth quarter of 1999. During the third and fourth quarters of 1999,
we significantly expanded our lender sales team and accelerated our recruiting
of lenders who could offer the full spectrum of mortgage products.
The quarterly increases in operations expense reflects the continued
expansion of our operations throughout the four-quarter period to support our
growing network of participating lenders and brokers.
The increase in sales and marketing expenses for the quarter ended June 30,
1999 through the quarter ended December 31, 1999 reflect the cost of developing
and launching our new corporate identity including the redesign of marketing
materials and our web site; increases in direct marketing, advertising and
personnel to support the rollout of a national broker expansion campaign; and
costs relating to increased tradeshow and seminar participation and public
relations.
Product development costs increased in the quarter ended December 31, 1999
due to hiring of personnel to design and develop Version 4.0, our fully web-
based Exchange, scheduled for release in March 2000.
The increase in administrative expense for the quarter ended September 30,
1999 was due to the establishment of a corporate incentive program and the
relocation costs of a key executive. The increase in administrative expense for
the quarter ended December 31, 1999 was due primarily to corporate relocation
expenses.
Net interest income fluctuated quarter-to-quarter during 1999 based on the
average balance of cash, cash equivalents and short-term investments.
Our future revenues will consist primarily of transaction fees paid by
lenders based on the number of loans locked on the Exchange. As a result, we
will depend substantially on the number of loans posted and locked on the
Exchange and the retention and activity levels of brokers and lenders.
Therefore, our quarterly revenues and operating results are likely to be
particularly affected by these variables. Our operating results in one or more
future quarters may fall below the expectations of securities analysts and
investors, which would almost certainly cause the trading price of our common
stock to decline.
Liquidity and Capital Resources
We have financed our operations primarily through private placements of
redeemable convertible preferred stock, which resulted in net proceeds of $39.1
million through December 31, 1999. In February 2000, we received additional net
proceeds of $15.6 million through the sale of redeemable convertible preferred
stock. To a lesser extent, we have financed our operations through subordinated
debt and equipment leases.
Net cash used in operating activities was $5.8 million, $11.8 million and
$12.7 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Net cash used in operating activities in each year was primarily
attributable to our net loss, offset in part by increases in accounts payable,
accrued expenses and amortization of deferred compensation.
Net cash used in investing activities was $393,000, $172,000 and $5.7
million in 1997, 1998 and 1999, respectively. Net cash used in investing
activities in 1999 primarily consisted of the purchase of short-term
investments and the purchase of property and equipment. Net cash used in
investing activities for 1997 and 1998 primarily consisted of purchases of
property and equipment.
At December 31, 1999, we had cash, cash equivalents and short-term
investments of $6.8 million, an increase of $5.8 million over December 31,
1998. Our working capital at
28
<PAGE>
December 31, 1999 was $4.4 million, compared to a working capital deficit of
$2.0 million at December 31, 1998. The increase in working capital is
attributable to the cash proceeds from the sale of redeemable convertible
preferred stock.
We expect that our existing capital resources, including the net proceeds
raised in this offering, will be sufficient to satisfy our working capital
requirements for at least the next 18 months. However, future working capital
requirements depend on many factors including our ability to execute our
business plan. If our current funding, including the net proceeds generated by
this offering, becomes insufficient to support future operating requirements,
we will need to obtain additional funding by issuing additional debt or equity
securities in the public or private capital markets. Such funding alternatives,
if available at all, may not be on favorable terms. Failure by us to raise
additional capital or additional funding when needed could have a material
adverse effect on our business, results of operations and financial condition.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders would be reduced.
Furthermore, such equity securities might have rights, preferences or
privileges senior to those of our common stock.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that derivatives be recognized in the balance sheet at
fair value and specifies the accounting for changes in fair value. In June
1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,"
to defer the effective date of SFAS 133 until fiscal years beginning after June
15, 2000. We currently have no derivative financial instruments and do not
currently engage in hedging activities. Therefore, SFAS 133 is expected to have
no impact on our financial condition or results of operations.
Year 2000 Readiness
To date, we have not experienced any disruption in our services as a result
of, nor has any third-party vendor on which we depend been affected by, the
commencement of the year 2000. Although we do not anticipate that our operation
will be affected by the year 2000, if we or third-party providers of hardware,
software and communications services fail to remedy any year 2000 issues, the
result could be lost revenues, increased operating expenses, the loss of
members and other business interruptions, any of which could harm our business.
The failure to adequately address year 2000 compliance issues in the delivery
of products and services to our members could result in claims of
misrepresentation or breach of contract and related litigation, any of which
could be costly and time consuming to defend.
In light of our experience to date, we have not developed any specific
contingency plans for year 2000 issues. Our worst case scenario for year 2000
issues would be our inability to execute loan transactions through the Exchange
and a resultant loss of revenue.
Market Risk
We currently have no floating-rate indebtedness, hold no derivative
instruments and do not earn income from foreign sources. Accordingly, we do not
expect that changes in interest rates or currency exchange rates will have a
material effect on our financial condition except to the extent they affect the
demand for mortgage loans bought and sold on the Exchange.
29
<PAGE>
BUSINESS
IMX Exchange operates a business-to-business e-commerce solution enabling
mortgage brokers to communicate and transact business with mortgage lenders
online. The IMX Exchange solution increases the efficiency and effectiveness of
the process of searching for, pricing and locking loan commitments on behalf of
borrowers. Our Exchange enables mortgage brokers to save time, close more
loans, leverage their marketing resources and provide more competitive pricing
for borrowers. Lenders gain immediate access to an expanded broker network,
additional production volume, valuable market information and cost savings from
reduced sales, marketing and administrative expenses.
Industry Background
The Extended Internet Business-to-Business Platform: the eHub
The Internet has emerged as the pervasive communication, collaboration and
transaction platform for many industries by enabling companies to streamline
complex business processes and more efficiently conduct business-to-business
commerce. The Gartner Group estimates that all business-to-business electronic
commerce will grow to $7.3 trillion worldwide in 2004, with exchanges and other
online marketplaces capturing $2.7 trillion.
In response to this fundamental shift, e-commerce solutions have been
developed across a variety of industries. These solutions primarily provide
large numbers of disparate buyers and sellers with an efficient, automated,
neutral environment for transaction execution. This allows companies to exploit
several key characteristics of an Internet-based business-to-business
transaction platform, including greater reach through aggregation of customers
and suppliers, greater selection of products and services, and economies of
scale associated with large transaction volume. Electronic hubs, or eHubs,
expand upon the core transaction component that drives these nascent
marketplace models by layering on added services and features. The extended
value offered by an eHub includes:
. Improved Price Discovery and Market Liquidity. The ability to aggregate
many buyers and sellers within a single nexus of transparent, interactive
price and product information.
. Business and Market Intelligence. Access to real-time market data and
historical trends through the capture, consolidation and dissemination of
transaction details, price movements and market information.
. Collaboration Capability. The capability for all participants--buyers,
sellers and ancillary service providers--to communicate and collaborate
through the Internet to complete a transaction more efficiently.
. Corporate Systems Integration. The ability to integrate into and
interface with users' existing information technology systems so that
they can more easily exploit the value of the connectivity provided by
the eHub.
. Complementary Services. The ability to serve as an electronic conduit for
complementary third-party services that provide buyers and sellers with a
complete set of the business-critical applications required to run their
operations.
. Portal for Industry Participants. An industry-specific web-based
environment that provides a single, neutral location serving the full
range of information, collaboration and transaction needs of buyers,
sellers and ancillary service providers.
eHubs provide significant benefits to industries characterized by complex or
inefficient business processes, a wide variety of product customizations,
dynamic pricing, fragmentation of buyers and sellers and significant dependence
on exchange of information. In particular, industries such as financial
services, which do not involve the movement, storage and logistics associated
with physical
30
<PAGE>
goods are especially well-suited to being conducted entirely by electronic
means and can therefore transition more rapidly to an eHub.
The nature of eHubs is such that, once one has established liquidity and
scale in an industry segment, it is difficult for other entrants to compete.
While customer aggregation can be time-consuming and resource-intensive,
returns on aggregation are high. As the number of participants in an eHub
increases, the value delivered to all participants increases exponentially as
the range of possible transaction partner combinations multiplies. In addition,
as the processes and business rules of the eHub and its participants are
developed and integrated with one another over time, the costs of switching to
a competing solution rise. The result is that the first fully functional eHub
in an industry can become the solution of choice for that industry. The
residential mortgage market is an example of a large market whose
characteristics are well-suited for transition to an eHub.
The Residential Mortgage Market
According to the Mortgage Bankers Association of America, approximately $1.3
trillion of residential mortgages, representing approximately nine million
individual loan transactions, were originated in the U.S. in 1999. The U.S.
residential mortgage market is dominated by the wholesale channel, in which
lenders transact business through mortgage brokers. According to Wholesale
Access, an independent industry research firm, the brokers' share of mortgage
loans originated has increased from 20% in 1987 and 50% in 1992 to 70% in 1998.
The origination of loans in the wholesale channel is executed by the
interaction of two key groups of participants, the brokers and the lenders:
Brokers. Mortgage brokers work with borrowers to identify lenders whose loan
products meet the borrowers' needs. Wholesale Access estimates that there are
currently more than 25,000 mortgage brokers in the U.S. Mortgage brokers
attempt to locate appropriate loan products for borrowers by collecting and
reviewing information from multiple lenders, advising borrowers of available
loan product choices and assisting them with the loan application and closing
process. A broker's effectiveness depends, in large part, on having access to a
variety of lenders and loan products to offer a borrower, having the necessary
tools and information to originate and close the loan quickly and efficiently,
and having sufficient time to spend with the borrower to facilitate the loan
origination process.
Lenders. Wholesale mortgage lenders range in size from large national banks
to small community banks or other financial institutions. The mortgage lending
industry is extremely price competitive and characterized by thin operating
margins. According to Faulkner & Gray, a leading publisher of mortgage industry
magazines, directories and statistics, there are approximately 3,000 mortgage
lenders in the U.S., of which 200 lenders account for over 80% of total dollar
volume. These major lenders' operations include a mix of retail and wholesale
loan procurement. In their wholesale operations, mortgage lenders acquire
mortgage loans from approved mortgage brokers. To establish and maintain
relationships with brokers, mortgage lenders employ commissioned in-house or
field sales forces. The sales forces' responsibilities include establishing and
maintaining contact with mortgage loan brokers, promoting the various loan
products that the wholesale lender offers and facilitating the processing and
closing of loans.
Traditional Wholesale Mortgage Origination
The wholesale mortgage market is fragmented and inefficient. An efficient
market is one in which a critical mass of trading partners comes together to
share comprehensive price and other market information and transact business on
the basis of that common pool of information. In the
31
<PAGE>
traditional mortgage business, each individual participant has access to only a
small fraction of potential trading partners and, therefore, only a small
fraction of available price and other market information. This lack of
visibility and access limits effective price discovery and true market
liquidity, despite the large volume of transactions conducted. At the same
time, inherent operating inefficiencies, including a lengthy initial broker
approval process, the need to manage many point-to-point relationships between
brokers and lenders, and cumbersome daily interaction processes, result in
increased costs for all groups of participants.
[Diagram illustrating interaction between brokers and lenders when not using
IMX Exchange's eHub.]
In a traditional mortgage brokerage business, a broker must apply to and be
individually approved by each lender with which it wishes to have a
relationship. Once a relationship is established, daily communication occurs
primarily through fax and by telephone, with periodic in-person sales calls
from the lender's account representatives. Each morning, the broker receives
faxed or e-mailed copies of rate sheets from each lender with which it has a
relationship. These rate sheets include the underwriting parameters,
documentation needs and daily pricing options. Before advising borrowers, the
broker must review these rate sheets to determine what loan products and terms
are available that day. Because a typical rate sheet is several pages long with
no standard format, the broker must review, compare, and sort the information
manually. Because of the time and effort involved in establishing lender
relationships and processing daily rate sheet information, each mortgage broker
has active relationships with only a limited number of lenders. According to
Wholesale Access, an average broker has a formal relationship with 27 lenders
but actually places loans with approximately twelve of them and places over 80%
of its loans through only three.
Once the broker has identified the loan program that best meets the needs of
a borrower, it will lock the loan terms with the lender. Locking loans is
another manual process, utilizing fax transmissions or telephone calls that are
later confirmed by fax or telephone. Subsequent to the lock, the broker submits
the loan application and related paperwork to the lender, and the lender begins
to underwrite the loan.
From a lender's perspective, the process is equally inefficient. Before
approving a broker, a wholesale lender performs a detailed quality assurance
review, which is updated annually to determine that the broker remains in
financial and operational good standing. The wholesale lender
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<PAGE>
must then encourage its approved brokers to deliver loans. The lender's field
or in-house sales force is responsible for developing relationships with the
brokers, ensuring a regular flow of information and promoting the lender's
products. In addition to on-site sales calls by its account representatives,
each day a lender must fax multiple rate sheets and promotional materials to
its broker base, an expensive and time-consuming process.
To perform all of these tasks, lenders maintain corporate infrastructure,
including employees, buildings, equipment and computer technology. When
interest rates are low and loan demand high, lenders build up this
infrastructure to meet the demand and, as a result, become committed to higher
levels of fixed costs. When rising interest rates reduce the demand for loans,
lenders often cannot quickly respond by eliminating infrastructure to reduce
their costs. They are, therefore, pressured to reduce their already thin profit
margins in order to maintain the high loan volumes that prevailed when interest
rates were lower.
Throughout the process of pricing and acquiring loans, lenders must operate
on the basis of incomplete market information, consisting mainly of stale data
on the historical behavior of other lenders, supplemented by information
received from their own sale forces, which is more current but also anecdotal,
limited in scope and sometimes inaccurate.
This traditional process involves a number of inefficiencies for both
brokers and lenders:
. individually qualifying with each lender is costly to brokers and limits
the number of lenders with which a broker can work, which in turn limits
the range of products a broker can offer to borrowers;
. the entire loan origination process is time-consuming for brokers,
limiting the number of borrowers that a broker can assist at a given
time;
. a broker may fail to identify the most appropriate loan product for a
particular borrower because of the inefficient nature of manual review of
daily rate sheets;
. because lenders may change their interest rates and other terms during a
single day, a broker may not be able to lock a loan on the best terms
found on the rate sheets because these terms have been superceded;
. conducting a quality assurance review of each broker is costly and time-
consuming for the lender and limits the number of brokers who can
distribute the lender's loan products;
. lenders incur significant direct and indirect costs in faxing daily rate
sheets and maintaining relationships with their brokers;
. lenders are unable to respond to shifts in demand by quickly and
efficiently resizing their corporate infrastructure; and
. lenders must operate in an information vacuum without the current,
comprehensive market data they need to set their prices at levels that
will enable them consistently to meet their lending objectives.
Thus, both brokers and lenders are faced with limited reach, operating
inefficiencies, lack of complete market information and imperfect price
discovery.
Opportunity for the Development of a Mortgage eHub
We believe there is a compelling need for an eHub for the mortgage industry.
This eHub will not only need to address the core problem of providing the
financial liquidity of an Internet-based business-to-business transaction
marketplace, but will also need to supply the value-added services
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necessary for full functionality in the complex mortgage industry. A successful
eHub must provide the following crucial benefits:
. critical mass, geographic breadth and product depth for liquidity in the
mortgage origination process;
. streamlining of work flows and interactions based on deep industry and
process-specific expertise;
. a centralized, efficient process for lenders to approve brokers;
. data-mining capabilities to allow greater decision support for both
lenders and brokers;
. integration into the existing systems of brokers for origination of loans
and of lenders for the fulfillment process;
. a neutral connectivity resource accessible to all qualified industry
participants; and
. secure, accurate, scalable systems to deliver mission-critical
availability and service levels.
IMX Exchange Solution
IMX Exchange is a business-to-business eHub that enables mortgage brokers
and lenders to transact business more efficiently. Using our patented process,
brokers and lenders can trade loans in real time over the Internet. Our product
offerings consist of software applications and content databases that
facilitate the trading of loans online by automating the process of searching,
comparing, pricing and locking loan commitments. Our solution saves brokers
time and money, while also creating a more cost- and time-efficient way for
lenders to source loans. We believe that we are uniquely positioned to deliver
these benefits through our position as the first electronic exchange for the
wholesale mortgage industry, our advanced e-commerce software applications and
our domain experience in delivering industry-specific functionality and
integration into the business systems of mortgage industry participants.
[Diagram illustrating interaction between brokers and lenders when using IMX
Exchange's eHub.]
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We believe that our solution:
Creates an Efficient Mortgage Exchange. IMX Exchange provides the
dynamic matching of supply and demand as well as the substantial
liquidity, information flow and product offerings required to deliver the
most efficient solution for originating and closing mortgage loans. By
aggregating brokers and lenders, the Exchange reduces the cost and time
required to originate a mortgage loan and maximizes the opportunity to
obtain the best price and service.
Enhances Brokers' Reach and Capabilities. By utilizing the Exchange,
brokers can more quickly source loan opportunities and identify optimal
loan solutions for their borrowers, leaving more time to assist clients in
completing the loan application package and closing the mortgage loan.
With 40 active lender members as of February 29, 2000, the Exchange
instantly increases a broker's lender relationship base, adding important
sources of liquidity and providing increased product breadth. In addition,
brokers can improve customer satisfaction by reducing the time to complete
a loan transaction and ensuring the best possible price and service.
Through our alliances with loan origination software providers, brokers
will be able to effortlessly have all their loans posted to the Exchange
and receive bids. In addition, IMX Exchange provides an array of business-
critical resources, including automated underwriting approvals, credit
reports, bond rate information and detailed lender information.
Enhances Lenders' Reach and Capabilities. Through efficient access to a
diverse and productive broker network, the Exchange provides lenders with
a low-cost loan origination channel. Lenders who use our Exchange can more
efficiently source loans from existing brokers by replacing time-consuming
fax and telephone communications with faster, more productive online
interactions with brokers. The Exchange also reduces wasted lender effort
and increases the percentage of locked loans that actually close by
preventing a broker from submitting multiple applications for the same
loan or locking the same loan with multiple lenders. In addition, the
Exchange increases the potential number of loan-generating relationships
with new brokers by performing a quality assurance review on each new
broker member. This review gives a lender confidence that it is
transacting business with high quality, credible brokers without the cost
and effort of conducting its own quality assurance reviews. Our dynamic
pricing capability and real-time market information allow lenders to react
quickly to change their pricing strategies as market conditions change.
The ability to precisely select and bid on specific loans gives lenders
complete control over the volume, geographic distribution and types of
loans they procure.
Captures Industry and Market Data. The Exchange captures real-time and
historical industry and market data from members' posting, bidding and
locking activity. Through the collection, consolidation and categorization
of this data, we can create a unique library of objective, industry-
specific information that we believe will be valuable to participants for
forecasting, strategic decision-making, product development and portfolio
management. The quantity and value of this information will grow as more
members utilize the system.
Provides Personalized, Centralized Resources for Mortgage Industry
Professionals. Our web-based portal provides access not only to our
Exchange and all of its features, but also to sources of other products
and services needed by mortgage industry professionals.
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IMX Exchange Strategy
Our objective is to become the eHub for the mortgage industry. We intend to
create a liquid market for mortgage loans by accelerating adoption of the
Exchange by mortgage brokers and lenders and generating increasing volumes of
transactions on the Exchange. To accomplish this objective, we intend to
execute the following strategies:
Drive Adoption of the Exchange by Mortgage Brokers. We intend to position
the Exchange to be the mortgage broker's primary medium for originating loans.
To do so, we will not only educate and encourage brokers to use the Exchange to
transact their business in new ways, but also focus on ways to adapt the
Exchange to the way brokers currently do business. In particular, to expand our
broker network and further drive adoption, we have entered into strategic
relationships with the loan origination software providers that serve
approximately 70% of the broker market to develop an integrated feature that
will automatically post loans on the Exchange and present bids without
disrupting the loan origination process. We are also developing ancillary
services designed to make our eHub the central focus of the broker's business.
Strategically Develop and Manage Key Lender Relationships. We believe that
successful participation in the Exchange by a select group of industry-leading
lenders offering a broad range of loan products and a high level of service
will induce other lenders to join the Exchange in order to remain competitive.
We also believe that endorsement of the Exchange by these key lenders will
enhance our credibility and market penetration with brokers. Accordingly, a
substantial portion of our lender sales and marketing effort is focused on
recruiting a group of large, innovative mortgage lenders that are willing to
devote the resources necessary to fully adopt our solution by offering the
whole spectrum of their loan products on the Exchange. We provide these
strategic lenders with on-site support and training to help them utilize the
Exchange successfully. We will continue to respond to the increasing demand
from small and mid-sized lenders by developing internal sales and integration
resources, as well as group and web-based training capabilities.
Maintain Technological Leadership to Enhance the Functionality of Our eHub.
We intend to continue to devote substantial resources to enhancing the
functionality of our eHub by developing, purchasing and licensing technology
and value-added expertise. We believe these enhancements will encourage members
to remain connected to the Exchange on a continuous basis. Improvements in our
user interfaces will increase efficiency and ease of use to encourage greater
transaction activity by members. Improvements in our eHub's ability to
integrate easily with our members' existing information technology systems will
increase the rate of adoption by new brokers and lenders and increase the costs
of switching to some other solution in the future.
Become the Premier Source for Mortgage Industry Data. The participation of
more brokers and lenders on the Exchange and the resulting increase in
transaction volume will give us access to valuable market data. We plan to
provide real-time and historical mortgage market data, along with analytical
forecasting tools, to establish the Exchange as the standard data source for
lenders, brokers, service providers, analysts and press, as well as for
ancillary industries such as home products and insurance. We believe that
access to this data will allow us to create and market standard industry data
services such as an IMX Exchange Index of mortgage market activity, to drive
adoption of the Exchange by mortgage brokers and lenders and to develop new
sources of revenue.
Use Our Web Portal to Attract Additional Users. Through the MyIMX web
portal, we will deliver additional business-critical applications and services,
including mortgage-related services, business operations tools, content and
community. We will do this through alliances as well as internal development of
services. In addition to making the full range of offerings available to
Exchange members, a sub-set of the content and services will be made available
to non-members through our home page. We believe that this tiered access to the
value-added services will
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encourage non-members to initiate and develop a relationship with us that will
ultimately lead them to become members and generate transaction activity on the
Exchange. We believe that the expanded portal offerings will increase the
frequency and depth of all users' interactions with the Exchange and lead to
increased transactions, as well as incremental revenue opportunities.
The Exchange
The Exchange is an online bid/ask trading platform where mortgage brokers
can post loans for bidding by lenders. We offer software applications and
content databases that enable lenders and mortgage brokers to buy and sell
mortgage loans online by helping to automate solicitations of attractive loan
terms, pricing of loans by lenders, comparisons of competing loans and locking
of loan commitments. As a result of this automation and the aggregation of
lenders, we believe that the Exchange allows mortgage brokers to obtain market-
priced loans in a fraction of the time typically required and allows lenders to
substantially reduce sales and marketing costs in reaching large numbers of
brokers.
A typical transaction on the Exchange involves the following steps:
Posting of Loans. A transaction begins when a mortgage broker posts a
loan on the Exchange. The information included in a loan posting is that
which would appear in a loan application, including the requested loan
amount, the appraised property value and the borrower's income level and
credit history. In most cases, the broker will import loan information
directly from a loan origination software, or LOS, system, in which the
broker has already entered the data as part of the loan application
process. Most of these LOS systems will soon have the capability to post
loans automatically without any effort on the part of the broker. To avoid
wasted effort on the part of lenders, the Exchange prevents the same loan
from being submitted multiple times by one or more brokers.
Bidding on Posted Loans. Participating lenders may then search for loans
meeting their lending criteria and place bids on those loans, either
individually or using a program trading function to automatically bid on
all loans meeting the lender's criteria. A bid will include information
regarding the program type (such as 30-year fixed or one-year ARM),
interest rate, fees or "points," underwriting, lock and documentation
preparation time, administration fees and other information relating to
the loan terms. Each bid also identifies the lender making the bid. To
support fair lending practices, the lender is not able to view information
identifying the borrower or the property until the loan is locked.
Acceptance of a Bid. The broker can accept a bid simply by clicking the
Accept Bid button on the Pending Bids screen, upon which the acceptance is
transmitted to the lender over the Exchange, and the loan is locked. After
accepting the bid, the broker can immediately begin the process of
documenting and closing the loan with the lender. The lender's delivery
instructions appear on the broker's screen, advising the broker where and
how to send the loan file and providing contact information and other
pertinent details. The lender also receives broker and borrower details
once the bid is accepted and can contact the broker directly. The system
prevents a broker from locking multiple bids on a single loan.
Components of the Exchange
IMXBroker
IMXBroker is the user interface through which brokers post new loans on the
Exchange, check the status of posted loans and accept or decline lenders' bids
on posted loans. IMXBroker allows a broker to enter new loans by either:
. entering the loan information directly into the fields presented in the
IMXBroker interface; or
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. transferring data that has previously been collected using the broker's
loan origination software.
IMXBroker is designed to be flexible and easy to use. The broker is alerted
if a required field is left blank. Information that requires calculation based
on available information, such as loan-to-value ratio, is calculated
automatically. By clicking a particular column heading on the Pending Bids
screen, the broker can sort bids by variables such as interest rate, fees or
delivery times. The broker can also click on a particular bid and open a screen
that displays more detailed information about the terms of the loan. IMXBroker
includes an Ask Price screen that allows the broker to specify preferences such
as program type, maximum interest rate, maximum points and lock period. These
preferences will appear in the loan posting that lenders receive, providing
lenders with market information for use in placing bids that meet the broker's
requirements.
The current version of IMXBroker resides on the user's PC and communicates
with our servers over the Internet. An initial web-based version of IMXBroker
was introduced in March 1999, providing brokers with the option of accessing
the Exchange using a standard browser. A further upgrade, which will provide
full functionality through the web, is scheduled for release in March 2000, at
which time all broker users will be converted from the PC-based client software
to the web version.
XpressPost
XpressPost is a custom interface that we have developed as a feature of the
loan origination software, or LOS, applications used by mortgage brokers to
originate loans for their borrowers. When a broker originates a loan using an
LOS program that includes XpressPost, that loan will be posted on the Exchange
automatically without any action on the part of the broker and with no
disruption or delay in the loan origination process. We currently have
agreements with three LOS providers, Calyx Technology, Inc., Byte Enterprises,
Incorporated and Contour Software, Incorporated, to include XpressPost in the
future versions of their LOS applications. These LOS applications are used by
approximately 70% of the mortgage brokers in the United States.
XpressPost will post loans regardless of whether the broker is a member of
the Exchange, although only approved members can lock loans. If the broker is
not connected to the Internet at the time the loan is originated, XpressPost
will save the data locally and then automatically upload it to the Exchange the
next time the broker connects to the Internet. If bids are received on a loan
posted through an LOS application, the broker will receive notification of the
bids on the LOS screen, which member brokers can accept and lock directly
through the LOS system. We believe that providing bid notifications and
visibility into the pricing, programs and lenders on the Exchange will educate
non-member brokers about the benefits of the Exchange and encourage them to
become members. Non-member brokers who use these LOS applications will also see
a pop-up screen inviting them to become members, advising them of membership
benefits and offering a convenient way to apply online.
We believe that, by offering brokers a convenient and seamless way to post
loans on the Exchange, our LOS interface will increase the volume of loans
posted on the Exchange and therefore attract more bidding by lenders. The
implementation of this interface will be included in the next upgrade provided
by the LOS providers, requiring no separate installation on the part of the
broker. Further upgrades to XpressPost will be implemented via automatic
download from IMX Exchange when the broker is connected to the Internet.
IMXLender
IMXLender is the user interface utilized by lenders bidding on the Exchange.
A lender seeking to bid on loans will first construct a search query using
criteria presented on the IMXLender Search
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screen. The lender can choose from among more than 30 variables, including loan
amount, loan type (such as conventional, sub-prime, government-qualified),
program type (such as 30-year fixed or one-year adjustable), loan-to-value
ratio, property type, property location and credit score. After the query is
submitted, posted loans meeting the lender's criteria appear on a Matched Loans
screen. As long as the query is kept open and active, the lender will receive
notification throughout the day of any new loans posted that meet these
criteria. IMXLender allows the lender to click on a column heading to sort the
displayed results by the variable represented by that column, and to click on a
particular loan to open a screen that displays more detailed information about
the loan, the borrower and the property. To place a bid on one or more loans,
the lender selects the desired loans, enters the interest rate, program type,
points and other terms on the Place Bids screen and then transmits the
information over the Exchange.
IMXLender displays both accepted and unaccepted bids. A lender whose bid has
not been accepted may view the terms of the winning bid to obtain feedback on
market conditions to help the lender prepare its future bids.
XpressBid
XpressBid, a program-trading feature, allows the lender to define a set of
pricing and loan parameters and automatically bid on any loans that meet its
requirements. XpressBid can bid up to 400 loans a minute, enabling lenders to
cost-effectively increase loan production.
XpressMatch
XpressMatch allows a lender to establish specific profiles of loans on which
the lender wishes to bid. Such loan profiles are posted on the Exchange, so
that when a broker posts a loan, the broker immediately sees a report
indicating the number of active loan profiles that match the loan, and each of
those lenders is immediately notified that a matching loan has been posted.
This process is designed to allow lenders to place a bid within minutes of a
matching loan being posted.
MyIMX Portal
MyIMX is our web portal for mortgage industry professionals. We are
developing MyIMX as the "mortgage professional's desktop"--a site through which
brokers, lenders and other mortgage professionals can operate their businesses.
We launched an initial pilot version of MyIMX for brokers in September 1999 and
are planning a complete launch in March 2000. The current features of MyIMX
include:
. web-based version of the IMXBroker trading interface;
. profiling and contact information on IMX Exchange member lenders and
their programs;
. bond and stock market feeds and news streams from mortgage, real estate
and general news sources;
. business tools and services, including mortgage-specific calculators,
electronic faxing, training resources, office supplies and shipping
services; and
. marketing support, including template materials for the brokers' use and
information about a co-marketing fund through which brokers are
reimbursed for a portion of their costs for ads that feature IMX
Exchange.
After its full launch in March 2000, MyIMX will offer enhanced content and
functionality to brokers and lenders, including fully web-based versions of the
IMXBroker and IMXLender trading interfaces. We plan to add features and
functionality over time, including searchable lender rates and
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product offerings, broker quality assurance materials, expanded bidding rules
management, additional mortgage service links, hosted e-mail and community
interaction.
Other Features of the Exchange
Automated Underwriting. Through our pilot program with Freddie Mac, loans
posted by participating brokers are run through its Loan Prospector automated
underwriting system prior to posting. The availability of a credit decision at
the point of origination allows lenders to more efficiently select and price
the loans and reduces processing requirements and costs for both the broker
and the lender. We plan to offer additional automated underwriting options as
agreements with their providers are finalized.
Credit Report. When a broker posts a sub-prime loan, as determined by the
borrower's credit score, the system pulls a full credit report for the
borrower. The borrower's personal identifying information is stripped from the
credit report, which is then included in the loan posting for lenders' review
prior to placing bids. This provides a more complete profile of the sub-prime
borrower's credit history, allowing the lender to accurately price the loan.
IMX Guaranteed Accept. In posting a loan, a broker can choose the IMX
Guaranteed Accept option, which automatically accepts the first bid that meets
or beats the requirements specified by the broker.
Integration of New Members
Lenders
From the time of initial engagement with targeted lender members, our focus
is on developing an in-depth understanding of the lender in order to create
and execute an integration plan that will result in significant and increasing
levels of activity on the Exchange while adding measurable value to the
lender's operations.
Throughout the sales cycle, the IMX account executive gathers information
about the lender's processes, organizational structure, product lines,
technology infrastructure and interfaces, as well as its production goals and
expansion targets. We put specific focus on understanding any Internet
initiatives that the lender is pursuing, often acting in a consulting role to
help educate the lender on additional developments in electronic commerce, and
working together to define how the Exchange best fits within the lender's
existing initiatives. Inputs are gathered from a wide variety of functional
areas within the lender's operations, including production, credit,
underwriting, sales and senior management.
Based on this discovery process, we develop an account plan for each
lender, which includes:
. definition of service delivery structure appropriate to the lender's
operations;
. plan for promotion of lender's offerings to Exchange broker members;
. clear definition of transaction volume targets;
. analysis identifying expected cost savings; and
. pricing structure.
Once a contract is signed, we assemble a team to implement the lender's
plan and provide support and training. The lender's staff is trained on how to
build loan program searches and how to bid, both manually and using XpressBid
program trading. For some accounts, we assign an IMX Exchange trading
representative to work on-site at the lender's location for several weeks to
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facilitate the integration process. As part of ongoing account management, we
regularly report progress and develop and implement plans to address issues and
increase activity levels.
Brokers
Before becoming a member of the Exchange, the broker must undergo an initial
quality assurance review, which we have modeled after the process an individual
lender would undertake before doing business with a mortgage broker. We have
designed our membership requirements and verification processes to satisfy the
requirements of all of our lender members. Accordingly, by becoming a member of
the Exchange, a broker can conduct business with all of our lender members
without having to undergo an individual quality assurance process with each
lender, resulting in cost savings and reduced effort for brokers and lenders
alike.
The quality assurance process includes verification of a valid broker's
license, a reference check with at least three lenders, a credit report and a
review of publicly-available databases for reports of fraudulent activity. We
also review the broker's financial statements to evaluate the broker's
financial strength and the broker's resume to determine that the broker has
adequate industry experience. In addition, each broker is required to execute
the Code of Ethics and Best Business Practices developed by the National
Association of Mortgage Brokers and the Mortgage Bankers Association of
America. The process generally takes eight to twelve days to complete. Each
broker's quality assurance file is updated annually to ensure continued
compliance with our broker guidelines. A broker's quality assurance file is
provided to lenders on request and may, in the future, be made available on the
MyIMX portal.
Because mortgage brokers represent the Exchange's source of loans, we devote
significant resources to helping new brokers adopt our technology and use the
Exchange successfully. We offer new brokers extensive online and telephone
training to acclimate them to the IMXBroker interface. We work closely with
brokers to help them assimilate the Exchange into their business, with the goal
of making the Exchange the focus of their daily business routine. We also plan
to offer new features and services, such as enhancements to MyIMX and greater
integration with LOS systems, to better facilitate trading on the Exchange and
make it more useful to a broker's business.
Participating Lenders
As of February 29, 2000, 40 lenders were active members of the Exchange. Our
top ten lenders, based on the number of loans locked on the Exchange during the
period from October 1, 1999 to February 29, 2000, are as follows:
<TABLE>
<S> <C>
Aurora Loan Services Monument Mortgage
Bank United Norwest Mortgage
CMG Mortgage Provident Funding
First Nationwide Mortgage Union Federal Savings Bank
First Union Mortgage Wausau Mortgage
</TABLE>
Geographic Coverage
Although we initially focused on brokers located in California, in mid-1999
we began expanding the Exchange's geographic coverage nationwide. The following
table shows, for each of the principal
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geographic regions that we serve, the number of brokers that were members of
the Exchange as of February 29, 2000:
<TABLE>
<S> <C>
Member
Region Brokers
----------------- ------------
California 789
Other Western States 141
Rocky Mountain States 139
Midwest/Texas 134
Northeast 107
Southeast 93
----------------- ------------
TOTAL 1,403
</TABLE>
Strategic Relationships
LOS Providers
We have entered into agreements with three LOS providers, Calyx, Byte and
Contour, pursuant to which we have jointly developed XpressPost to enable their
LOS systems to seamlessly post loans on the Exchange. XpressPost will be
automatically installed on the broker's LOS system when the broker installs an
upgrade that includes the feature, unless the broker chooses not to enable it.
The agreement with Calyx has a term of two years from the date of execution.
The agreement with Byte has a term of two years from the date of Byte's first
release of software containing the XpressPost feature, subject to automatic
annual renewal unless either party provides prior notice of nonrenewal. The
agreement with Contour has a term of four years from the date of Contour's
first release of software containing XpressPost, subject to automatic annual
renewal unless either party provides prior notice of nonrenewal.
Freddie Mac
In November 1999 we initiated a pilot program with the Federal Home Loan
Mortgage Corporation, commonly referred to as Freddie Mac, a corporation
chartered by the U.S. government to purchase mortgage loans from lenders and
package them into securities that are sold to investors. In this pilot program,
we have incorporated Freddie Mac's widely-used Loan Prospector automated
underwriting system into the IMX Exchange process. Loan Prospector pre-screens
loans for compliance with Freddie Mac's underwriting criteria, so that, after
they are funded, the loans can be sold to Freddie Mac without an intervening
underwriting process. Loans posted by the brokers participating in the pilot
program are run through Loan Prospector prior to bidding so that the
underwriting results are available to the pilot program participants as they
consummate the loan transaction. The availability of the credit decision at the
point of origination allows lenders to more efficiently select loans and
determine their risk-based bids. Since the availability of an automated
underwriting decision improves loan quality, it reduces the lender's costs and
allows it to shorten the loan approval timeframe.
National Association of Mortgage Brokers
In September 1999, we entered into an alliance with the National Association
of Mortgage Brokers, or NAMB, designed to achieve our mutual objective of
ensuring professionalism and good business practices among mortgage brokers. As
part of our role in the alliance, we require that our broker members agree to
adhere to the Code of Ethics and Best Business Practices developed by NAMB and
the Mortgage Bankers Association of America, or MBA. Both IMX Exchange and NAMB
continue to promote the initiative, the alliance and the alliance partner to
our respective
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memberships. In addition, we are currently developing the capability to
highlight one another's respective members within the broker listings and
referrals that each of us provides to consumers. We have agreed to provide
technical and consulting guidance to the NAMB/MBA Best Business Practices
committee, which is developing a national registry for loan officers.
Marketing, Sales and Support
Our marketing activities are primarily focused on member acquisition and
assimilation support. Member acquisition programs include joint marketing with
LOS providers, participation in trade shows and industry conferences, direct
marketing and advertising campaigns and development of sales tools. Lender
assimilation programs include assisting lenders with promotional campaigns to
brokers and facilitation of weekly product education teleconferences for
brokers. Future plans include development of lender web pages within the MyIMX
portal and facilitation of targeted broker marketing capabilities. Marketing
programs for broker members include a monthly newsletter, a Broker Rewards
Program that offers prizes for achieving targeted levels of Exchange activity,
and a Broker Co-Marketing Program that provides brokers with templates for
advertising, direct marketing and press releases, along with partial
reimbursement for ads that feature IMX Exchange. We also engage in lower-scale
marketing efforts directed toward consumers and real estate professionals to
drive business to IMX Exchange member brokers. We expect these efforts to
increase over time as we continue to grow the broker member base and expand
geographic coverage.
Our sales and support efforts are focused on wholesale mortgage lenders and
mortgage brokers. We employ a direct lender sales force based in major markets
across the United States, which targets the top 50 wholesale mortgage lenders.
The sales process can involve interactions with multiple decision-makers
including the senior executives responsible for wholesale production, secondary
marketing and credit risk management, as well as the chief executive officer
and IT management. Sales efforts include presentations and demos to key
audiences and development of customized proposals based on comprehensive
profiling of each lender. Once a lender has signed a membership contract,
ongoing support is provided by dedicated training and installation teams, as
well as by trading experts who work closely with the lenders to help them trade
successfully. In addition to targeting the largest lenders, we are now adding
sales resources to respond to steadily increasing demand from small and mid-
size lenders. In order to handle these lenders in a cost-effective manner,
sales conversion and ongoing interaction will be primarily by telephone,
supplemented by group training sessions held at our headquarters.
Our broker sales staff is organized into teams, each responsible for a
particular geographic region. Because the Exchange concept is easy to
understand, the initial sale to a broker is relatively straightforward. Most of
the team's effort is directed toward the first few weeks after a broker becomes
a member, during which the team assists the member in changing existing
behavior patterns and incorporating IMX Exchange into the fabric of daily
operations within the broker shop. These teams generally consist of:
. broker representatives who solicit and develop new accounts;
. service and support representatives who provide customer service, quality
assurance, product fulfillment and technical support; and
. a broker trading executive who assists with production, pipeline
management and member development.
The teams are supported by the broker training staff, which develops
training curricula, coordinates broker assimilation events and administers web-
based training programs. The primary decision-maker is the broker/owner, but we
also develop and maintain relationships with the broker's employees, including
loan officers and loan processors, who are critical to successful integration
of the Exchange into each broker shop.
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<PAGE>
Product Development
Our product development organization is focused on developing and enhancing
the Exchange and ancillary services which together comprise our eHub, as well
as continuous improvements to the IMXBroker, IMXLender and LOS/XpressPost
interfaces. Development projects are defined and prioritized based on user
feedback. Key objectives for new product development include market liquidity,
compatibility with existing business practices to increase adoption and
assimilation, close integration with members' operations and development of new
revenue streams. We are currently in the process of transitioning away from our
client-server configuration and toward a fully web-based architecture, thus
eliminating the distribution and installation of locally-resident software.
Upcoming enhancements to the Exchange will simplify trading of all common
mortgage loan types, enable electronic file transfer between lenders and
brokers and incorporate significant improvements to the IMXLender user
interface. We are continually enhancing the MyIMX web site to add features and
functionality, including enhanced personalized news feeds and content, hosted
e-mail, additional mortgage service vendor links, business tools, and community
interaction.
Technology
The Exchange resides on IMX-managed servers, using proprietary technology in
combination with standard off-the-shelf software, accessible through web
browsers. We have developed a patented online process for matching loan
postings and lender bids on the Exchange in real time. Our systems, built using
standard components from Cisco Systems, Oracle and Sun Microsystems, employ
redundant configurations to sustain uninterrupted service to our members and
are designed to balance requests during peak usage periods. These systems are
hosted at Exodus Communications' facility in Sunnyvale, California which
provides conditioned space, redundant high-bandwidth communication lines and
emergency power back-up. Transactions are processed centrally on our servers
and are accessible to members via a standard web browser.
The Exchange utilizes an Oracle relational database for housing and matching
transactions. The production database houses specific lender information about
desired loan types and XpressBid parameters. It also contains all current and
historical application files submitted by brokers in the form of posted loans.
Key technologies of the Exchange include the following:
. Broker and Lender Services, which define the information parameters and
functionality of the IMXBroker and IMXLender interfaces and embody loan
pipeline management functions necessary for brokers to track loans on the
Exchange and for lenders to track and manage their price offerings.
. XpressPost, which connects legacy LOS systems on the broker's desktop to
the Exchange, seamlessly importing data from the LOS system using a
standard secure HTTP communication protocol.
. XpressMatch, which embodies the algorithms designed to identify all
active lenders' guidelines that match a given loan and to notify the
broker and the lender when a match occurs, as well as a database
containing a rich set of parameters and attributes of comparison and
match.
. XpressBid, which contains the interface to capture lenders' rates and all
the functions that dynamically calculate pricing based on lenders'
pricing rules.
. Third-Party Services, which incorporates value-added functions seamlessly
into the loan-posting process, allowing brokers to take advantage of
industry services such as credit reporting and automated underwriting.
Access to the Exchange is controlled through user name and password and is
protected by industry-leading firewall technology. Communications on the
Exchange are secured using 128-bit
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<PAGE>
secure socket layer encryption. Loan information is stored in a secure
database. We periodically test the security of the Exchange by hiring outside
consultants to attempt to bypass our security features.
Intellectual Property
Our success is dependent in part on the protection of our proprietary
technology and information. We rely on a combination of patent, copyright,
trademark and trade secret laws to establish and protect our proprietary
rights. We have obtained a U.S. patent for our method and system for trading
loans on the Exchange in real time. Despite our receipt of this patent and our
other efforts to protect our proprietary rights, existing patent, copyright,
trademark and trade secret laws afford only limited protection, and there can
be no assurance that our intellectual property rights, if challenged, will be
upheld as valid, will be adequate to protect our proprietary technology and
information, or will prevent other parties from designing competing products or
services that do not infringe our intellectual property rights. In addition,
the laws of some foreign countries may not protect our proprietary rights to
the same extent as do the laws of the United States. Other parties may attempt
to copy or reverse-engineer aspects of our technology or to obtain and use
information that we regard as proprietary. We may be required to resort to
litigation in the future to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. This
litigation could result in substantial costs and diversion of resources and
could significantly harm our business.
Although we have not been notified that our technology infringes the
proprietary rights of other parties, in the future other parties may assert
patent, copyright, trademark and other intellectual property rights with
respect to technologies that are important to our business. Any claims
asserting that our products or services infringe or may infringe proprietary
rights of third parties, if determined adversely to us, could significantly
harm our business. Any such claims, with or without merit, could result in
costly litigation, divert the efforts of our technical and management personnel
or require us to enter into royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us, if at all. In the event a claim
against us were successful and we could not obtain a license to the relevant
technology on acceptable terms or license a substitute technology to avoid
infringement, our business would be significantly harmed.
Competition
The online mortgage exchange industry is rapidly evolving, and we expect it
to become highly competitive. Our business model is focused on improving the
efficiency of mortgage loan origination in the wholesale channel, where loans
are originated through mortgage brokers. We believe that the principal bases
for competition in the market for online origination of mortgage loan
transactions include access to a large number of competing lenders and brokers,
ease of use and the availability of ancillary products and services. Our
primary competition comes from other online marketplaces designed to facilitate
communication and transactions between brokers and lenders. In addition, other
companies with large customer bases among mortgage brokers or lenders, such as
loan origination software vendors, could develop online services that compete
with the Exchange.
Increased competition could result in reductions in our fees, increases in
the fees we pay to enter into strategic relationships, reduced margins or loss
of market share, any of which could harm our business. We believe we will face
increasing competition as the online financial services industry develops and
evolves. Some of our current or potential competitors may have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do and may be able to:
. undertake more extensive marketing campaigns for their brands and
services;
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<PAGE>
. provide more extensive services to mortgage brokers or lenders;
. enter into more productive strategic relationships with higher-profile
companies;
. devote more resources to their web site or online marketplace; or
. adopt more aggressive pricing policies.
Our business model is dependent upon the broker and lender choosing to
conduct mortgage loan transactions through an online exchange. The online
exchange concept is one of several means for originating a loan. If traditional
or other emerging models preclude the online exchange concept, our business may
fail. These alternative models include:
. retail lenders that market directly to borrowers using traditional
methods designed to drive borrowers to their retail branches, including
some retail lenders that have begun to offer loans online directly to
borrowers;
. wholesale lenders that market to mortgage brokers using traditional sales
and marketing techniques, including some wholesale lenders that have
adopted technology enabling them to communicate or transact business with
brokers online; and
. Internet-based mortgage lenders who acquire borrowers or brokers through
their own web sites.
Even if we are successful in becoming the standard method of acquiring
mortgage loans originated through mortgage brokers, our member brokers may not
successfully compete for market share with other origination channels. Should
brokers lose significant market share, the number of transactions between
brokers and wholesale lenders available to be originated through the Exchange
would be reduced, and we may be unable to achieve our anticipated revenue
growth.
Government Regulation
The residential mortgage banking business is heavily regulated by federal
and state laws and regulations. Among other requirements, these laws and
regulations impose licensing obligations on mortgage brokers and mortgage
lenders, require that certain disclosures be given to consumers, limit the
fees, charges and interest rates that may be imposed on consumers, prohibit
unlawful discrimination and otherwise restrict the way in which residential
mortgage loans may be marketed, made, purchased, sold and administered. Failure
to comply with these requirements may result in revocation of required licenses
and approvals, class action and individual lawsuits, administrative enforcement
actions and fines, civil and criminal liability and indemnification liability
to third parties, among other consequences. Moreover, lenders could be
reluctant to transact business through the Exchange as a result of uncertainty
as to whether we are subject to such laws and regulations and related concerns
about liability for doing business through the Exchange.
While many of the laws and regulations relating to residential mortgage
loans apply to our broker and lender members and to loans that pass through the
Exchange, we believe that these laws and regulations do not directly apply to
us because we do not act as a lender and we believe that we do not act as a
broker. For this reason, we have not obtained mortgage broker licenses in any
states that require mortgage brokers to be licensed. However, because of the
uncertainties as to the applicability to us of these laws and regulations now
and as our business may evolve in the future, we may not always have been, and
may not in the future always be, in compliance with such laws and regulations.
This risk is increased by the relative lack of clarity regarding the
applicability of laws and regulations to electronic commerce generally and the
conduct of an Internet-based, business-to-business mortgage exchange
specifically.
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<PAGE>
For example, the federal Real Estate Settlement Procedures Act, or RESPA,
generally prohibits the payment or receipt of a fee for the referral of
business incident to a real estate settlement service, including the making or
brokering of residential mortgage loans. This law also generally prohibits fee
splitting in connection with the provision of residential real estate
settlement services. In either case, however, such fees may be paid or split as
payment for the reasonable value of services actually performed or goods and
facilities actually furnished. Exchange fees paid by participating lenders or
other settlement service providers may be subject to this law and the
regulations promulgated by the U.S. Department of Housing and Urban
Development. Although we do not believe that RESPA applies to our core
business, we have sought to structure our relationships with participating
lenders and brokers to comply with the requirements of RESPA.
While we believe that we have complied in all material respects with all
applicable laws and regulations, as we continue, and expand, our business
activities, it is likely that we will be required to evaluate the applicability
of current and future laws and regulations relating to residential mortgage
lending and electronic commerce over the Internet.
We intend to expand our operations to include new products and services and
to offer existing and new products in new jurisdictions within and outside the
United States. For example, we may in the future offer to perform additional
steps in the process of completing a loan transaction, such as arranging for
appraisals and preparation of loan documentation. This expansion may require us
to comply with additional laws and regulations, including state mortgage broker
licensing laws. Compliance with these laws and regulations may require us to
obtain appropriate business licenses, make necessary filings and obtain
necessary bonds, appoint agents and make periodic business reports. If we fail
to adequately comply with these laws and regulations, our ability to offer some
of our products or services in a particular jurisdiction could be delayed or
prevented and our business could be harmed.
Employees
As of December 31, 1999, we had 114 full-time employees, including 26
employees primarily engaged in operations, 44 in sales and marketing, 27 in
engineering and 17 in management and administration. We have never had a work
stoppage, and none of our employees are currently represented under collective
bargaining agreements. We consider our relations with our employees to be good.
Facilities
Our corporate headquarters and principal administrative, product
development, sales and marketing operations are located in approximately 30,000
square feet of office space in San Ramon, California, which we occupy under a
lease expiring in August 2004, with an option to extend the term for an
additional five years. We believe that our existing facilities are adequate to
meet our needs for the immediate future and that future growth can be
accommodated through the leasing of additional or alternative space near our
current facilities.
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<PAGE>
MANAGEMENT
Executive Officers, Directors and Other Key Employees
Our executive officers, directors, and certain key employees and their ages
as of February 29, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers and
Directors
Richard E. Wilkes....... 53 President, Chief Executive Officer and Director
Jeffrey A. Pullen....... 44 Senior Vice President, Chief Financial Officer and Secretary
Erin L. Esparza......... 36 Senior Vice President, Strategy and Marketing
John R. Hummer.......... 51 Chairman of the Board of Directors
Jay C. Hoag............. 41 Director
William H. Lacy......... 55 Director
Fred P. Phillips IV..... 35 Director
Derek A. Proudian....... 41 Director
Other Key Employees
Kevin P. Gillespie...... 42 Vice President, Sales and Operations
Gregory G. Austin....... 41 Vice President, Sales
Deborah L. Gross........ 48 Vice President, Human Resources
W. Scott Jones.......... 47 Vice President, Lender Sales, Eastern Region
Robert E. Mihalyi....... 43 Vice President, Engineering and Technology Services
Chad A. Neel............ 30 Vice President, Operations
Michael A. Neylan....... 43 Vice President, Business Development
</TABLE>
Executive Officers and Directors
Richard E. Wilkes has served as our President and Chief Executive Officer
since May 1999. From October 1995 to April 1999, Mr. Wilkes served as President
and owner of GMI Group Millenium, Inc., a consulting firm for the mortgage
industry. From December 1989 until October 1995, he held senior management
positions at several mortgage industry-related companies which were wholly
owned by MacAndrews and Forbes Holdings, Inc., a diversified holding company.
Most recently, Mr. Wilkes served as President and Chief Executive Officer of
First Nationwide Mortgage Corporation, a wholly owned subsidiary of First
Nationwide Bank, where he also served as Executive Vice President and Chief
Mortgage Officer. He currently is a member of the board of directors of
FiNet.com, an online mortgage company. Mr. Wilkes holds a B.S. in economics
from the University of Houston and is a certified mortgage banker.
Jeffrey A. Pullen has served as our Senior Vice President and Chief
Financial Officer since September 1999. Mr. Pullen joined us in September 1998
as Vice President and Chief Financial Officer. From March 1996 to July 1997, he
served as Vice President, Business Systems of Petrolite Corporation, a chemical
company serving the petroleum industry. After Petrolite's acquisition by Baker
Hughes, Inc. in July 1997, he served as Vice President, Finance and
Administration of Baker Petrolite Corporation, a wholly owned subsidiary of
Baker Hughes, until September 1998. From July 1988 to March 1996, he worked at
Coopers & Lybrand, where he held various auditing and consulting positions,
most recently as a partner in Financial Advisory Services. Mr. Pullen is a
Certified Public Accountant and holds a B.S. in business administration and
accounting from the University of Nebraska.
Erin L. Esparza has served as our Senior Vice President, Strategy and
Marketing since September 1999. Ms. Esparza joined us in September 1998 as Vice
President, Marketing. From June 1997 until August 1998, Ms. Esparza worked for
Intel Corporation, a semiconductor manufacturer, in its corporate business
development department. From July 1996 until May 1997,
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<PAGE>
she was a strategic planner at David Esparza Consulting, a public policy
consulting firm. From April 1991 to June 1996, she worked at Intel as a product
line manager. Ms. Esparza holds a B.A. in economics from Harvard University.
John R. Hummer has served as our Chairman of the Board of Directors since
December 1996. Mr. Hummer served as our acting Chief Executive Officer from
September 1998 to May 1999. Since 1989, he has been a partner at Hummer Winblad
Venture Partners, a venture capital firm, of which he was a co-founding
partner. He is currently a director of Extensity, Inc., an electronic commerce
applications provider, Pets.com, an online pet supply company, and several
private companies. Mr. Hummer holds a B.A. in English from Princeton University
and an M.B.A. from Stanford University.
Jay C. Hoag has served as a director of IMX since March 1998. Since June
1995, Mr. Hoag has been a General Partner at Technology Crossover Ventures, a
venture capital firm. From July 1982 to December 1994 he served as a Managing
Director and fund manager, among other capacities, at Chancellor Capital
Management. He currently serves on the board of directors of Autoweb.com, a
consumer automotive Internet service, iVillage, an online women's network, ONYX
Software, a software company, eLoyalty Corporation, an online customer
relations company, and several privately held companies. Mr. Hoag holds a B.A.
in economics and political science from Northwestern University and an M.B.A.
from the University of Michigan.
William Lacy has served as a director of IMX since January 1999. From
October 1987 until December, 1999, Mr. Lacy was President and Chief Executive
Officer of MGIC Investment Corporation, and its wholly owned subsidiary,
Mortgage Guaranty Insurance Corporation. He serves on the board of directors of
Johnson Controls, Inc., an automotive systems and building controls company,
and a privately held company. Mr. Lacy holds a B.S. in business from the
University of Wisconsin-Milwaukee.
Fred P. Phillips IV has served as a director of IMX since February 2000.
Since 1997, Mr. Phillips has invested in high technology companies on behalf of
ABN AMRO Investments (Belgie) NV, an international financial institution
headquartered in the Netherlands. From September 1996 to September 1997, he was
an officer of Tescorp, Inc. a telecommunications firm with assets concentrated
in Argentina. From 1994 to September 1996, he was employed as an attorney with
the law firm of Vinson & Elkins. Mr. Phillips holds a B.S. in economics from
Cornell University, a B.Phil. in philosophy from Oxford University and a J.D.
from Yale University Law School.
Derek A. Proudian has served as a director of IMX since July 1997. Mr.
Proudian was Chief Executive Officer of Zip2 Corporation, an online media
corporation, from May 1998 until the company was acquired by Compaq Computer
Corporation in April 1999. From June 1995 until June 1999, he was a partner at
Mohr, Davidow Ventures. From September 1994 to June 1995, Mr. Proudian attended
Stanford Business School. He is currently a director of several privately held
companies. Mr. Proudian holds undergraduate degrees in English and cognitive
science, an M.S. in computer science and an M.B.A. from Stanford University.
Kevin P. Gillespie has served as our Vice President, Sales and Operations
since February 2000. Mr. Gillespie joined us in November 1999 as Vice
President, Lender Sales, Western Region. From March 1999 to October 1999, he
was employed as Executive Vice President, Sales and Marketing of Monument
Mortgage, a mortgage lending company. From April 1998 until February 1999, he
served as Executive Vice President of Standard Financial Corporation, a
mortgage lending company. From December 1997 to April 1998, he worked as a
self-employed mortgage industry consultant. From July 1996 to December 1997, he
served as Executive Vice President of Weyerhauser Mortgage Corporation, a
mortgage company. From January 1989 to June 1996, he served as Executive Vice
President of First Nationwide Mortgage Corporation. Mr. Gillespie received an
A.A. degree in management from Owens College.
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<PAGE>
Gregory G. Austin has served as our Vice President, Sales since September
1998 and as a lender sales executive from July 1997 to August 1998. Mr. Austin
joined us in April 1997 and served as an account executive of brokerage sales
until July 1997. From August 1996 to April 1997, he served as branch manager of
Occidental Mortgage, a wholesale mortgage provider. From February 1994 to July
1996, he served as regional manager at Mission Hills Mortgage Corporation, a
wholesale mortgage provider.
Deborah L. Gross has served as our Vice President, Human Resources since May
1999. Ms. Gross served as our Director of Human Resources from January 1999
until April 1999. From March 1998 to December 1998, she worked as a self-
employed human resources consultant. From December 1994 to February 1998, she
served as Vice-President, Human Resources at Maxis, Inc., a software publisher.
Ms. Gross holds a B.A. in management from St. Mary's College.
W. Scott Jones has served as our Vice President, Lender Sales, Eastern
Region since August 1999. From November 1997 to July 1999, he served as Vice
President, National Accounts of Triad Guaranty, a private mortgage insurance
company. From July 1995 to August 1997, Mr. Jones served as Senior Vice
President and Director of Wholesale Lending of Greenpoint Mortgage Corporation,
a mortgage lending company. From October 1990 to July 1995, he served as Senior
Vice President and Director of Wholesale Lending of Barclays American Mortgage
Corporation. Mr. Jones holds a B.A. in finance from the University of Texas.
Robert E. Mihalyi has served as our Vice President, Engineering and
Technology Services since March 1998. Mr. Mihalyi joined us in March 1997 as
Vice President, Engineering. From November 1986 to February 1997, he worked at
Sybase, an enterprise data management and application development company,
where he held various managerial positions in research and development. Mr.
Mihalyi holds a degree in digital electronics and computer sciences from the
Human and Real Sciences Gymnasium in Romania.
Chad A. Neel has served as our Vice President, Operations since October
1999. Mr. Neel joined us in August 1999 as Director of Operations. From June
1997 to July 1999, he served as Vice President and Assistant Director of The
Money Store, a consumer lending company. From August 1992 to June 1997, he
worked at FGB Realty Advisors, Inc., a specialty loan service company and a
wholly owned subsidiary of First Nationwide Bank, where he served as Vice
President and Director of Property Management. Mr. Neel holds a B.S. in finance
from Oklahoma State University.
Michael A. Neylan has served as our Vice President, Business Development
since May 1999. Mr. Neylan joined Investor Director Funding, our wholly owned
subsidiary, in January 1999 as Executive Vice-President. From May 1997 to
December 1998, he served as Director, Mortgage Banking Division of CMG
Mortgage, Inc., a mortgage lending company. From January to May 1997, Mr.
Neylan worked as a self-employed mortgage broker. From December 1995 to
September 1996, he served as Regional Manager for wholesale and credit union
lending with Colonial Savings Bank. From September 1994 to December 1995, he
served as Vice President and Correspondent Lending Manager at National Home
Mortgage Corporation, a mortgage company. Mr. Neylan holds a B.A. and an M.A.
in European history from the University of California at San Diego.
Board Composition
Our board of directors is currently fixed at six directors. Upon the closing
of this offering, our certificate of incorporation will provide that the board
of directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2000; Class II,
whose term will expire at the annual meeting of stockholders to be held in
2001; and Class III,
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<PAGE>
whose term will expire at the annual meeting of stockholders to be held in
2002. The Class I directors are Messrs. Hoag and Phillips. The Class II
directors are Messrs. Hummer and Proudian. The Class III directors are Messrs.
Lacy and Wilkes. At each annual meeting of stockholders, the successors to
directors whose term will then expire will be elected to serve from the time of
election until the third annual meeting following their election. In addition,
upon the closing of this offering, our bylaws will provide that the authorized
number of directors may be changed only by resolution of the board. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible,
each class will consist of one-third of the total number of directors. This
classification of the board may delay or prevent changes in control or changes
in our management.
Each of our executive officers is elected by the board of directors and
serves at its discretion. Each of our officers and directors, other than
nonemployee directors, devotes his or her full time to the affairs of our
company. Our nonemployee directors devote such time to our affairs as is
necessary to discharge their duties.
Board Committees
Our board of directors has an audit committee and a compensation committee.
Audit committee. The audit committee recommends the appointment of our
independent auditors, reviews our internal accounting procedures and financial
statements and consults with and reviews the services provided by our
independent auditors, including the results and scope of their audit. The audit
committee currently consists of Messrs. Lacy, Phillips and Proudian.
Compensation committee. The compensation committee reviews and makes
recommendations to our board of directors regarding the annual compensation and
bonuses payable to our executive officers, administers our stock plans and
establishes and reviews general policies relating to compensation and benefits.
The compensation committee currently consists of Messrs. Lacy and Proudian.
Compensation Committee Interlocks and Insider Participation
Our compensation committee was created in March 2000. Prior thereto, with
the exception of an option granted to Mr. Hummer in consideration of his
service as acting Chief Executive Officer, which was approved by a special
committee composed of non-employee directors, all deliberations regarding
compensation of our executive officers were conducted by the full board of
directors, including Mr. Hummer and Mr. Wilkes, our President and Chief
Executive Officer. Mr. Wilkes has not participated in any deliberations
regarding his own compensation. During the last fiscal year, other than Mr.
Wilkes, no executive officer served on our board of directors, nor did any of
our executive officers serve as a member of the board of directors of any
entity of which any of our directors was an executive officer.
Compensation of Directors
Our directors do not receive cash compensation for their services as
directors or members of committees of the board of directors but are reimbursed
for their reasonable expenses incurred in attending meetings of the board of
directors. After the completion of this offering, our 1996 Stock Plan will
provide for automatic grants of options to nonemployee directors. See "-- Stock
Plans--1996 Stock Plan."
In January 1999, Mr. Hummer was granted a fully vested and exercisable
option to purchase 250,000 shares of common stock at an exercise price of $0.35
per share in consideration of his service as acting Chief Executive Officer
during our search for a full-time Chief Executive Officer.
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<PAGE>
In January 2000, Mr. Lacy was granted two options, each entitling him to
purchase 50,000 shares of common stock at an exercise price of $0.50 per share.
Each option is fully exercisable, with the underlying shares vesting in
quarterly installments over four years beginning on January 1, 2000 in the case
of one option and January 1, 2001 in the case of the other option, subject to
Mr. Lacy's continued service on our board of directors.
In February 2000, Mr. Proudian was granted an option to purchase 60,000
shares of common stock at an exercise price of $0.50 per share. The option is
fully exercisable, with the underlying shares vesting in monthly installments
over four years beginning on January 1, 2000, subject to Mr. Proudian's
continued service on our board of directors.
Executive Compensation
Summary Compensation Information
The following table sets forth information regarding compensation received
during the fiscal year ended December 31, 1999 by each person who served as
Chief Executive Officer during that year and the two other persons who were
executive officers as of December 31, 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation
---------------- Shares
Salary Underlying All Other
Name and Principal Position (1) Bonus Options Compensation
- -------------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Richard E. Wilkes (2) $321,177 $ -- 1,294,279 $75,000(3)
President and Chief Executive
Officer
John R. Hummer (4) -- -- 250,000 --
Acting Chief Executive Officer
Jeffrey A. Pullen 177,625 20,000 75,120 --
Senior Vice President and Chief
Financial Officer
Erin L. Esparza 134,018 20,000 75,120 --
Senior Vice President, Strategy
and Marketing
</TABLE>
- --------
(1) Includes amounts (if any) deferred under our 401(k) Plan.
(2) Mr. Wilkes joined as President and Chief Executive Officer in May 1999.
(3) Consists of relocation expenses reimbursed by IMX.
(4) Mr. Hummer, a nonemployee director, served as acting Chief Executive
Officer from September 1998 until Mr. Wilkes joined in May 1999.
Option Grants in Last Fiscal Year
The following table sets forth information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table
during the fiscal year ended December 31, 1999. All of these options were
granted under our 1996 Stock Plan. The percentage of total options set forth
below is based on an aggregate of 3,569,339 options granted to our employees
during the fiscal year, including the option granted to Mr. Hummer in
consideration of his service as acting Chief Executive Officer. All options
were granted at the fair market value of our
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<PAGE>
common stock on the date of grant, as determined by our board of directors.
Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with the rules of the Securities and Exchange Commission and do not represent
our estimate or projection of the future common stock price.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential
% of Realizable Value
Total at Assumed Annual
Options Rates of Stock
Number of Granted Price
Securities to Appreciation for
Underlying Employees Exercise Option Term
Options in Fiscal Price Expiration -----------------
Name Granted Year ($/Share) Date 5% 10%
----------------- ---------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Wilkes 1,294,279(1) 36.2% $0.35 5/1/09 $284,730 $721,962
John R. Hummer 250,000(2) 7.0 0.35 1/26/09 55,028 139,452
Jeffrey A. Pullen 75,120(3) 2.1 0.50 9/28/09 23,621 59,861
Erin L. Esparza 75,120(3) 2.1 0.50 9/28/09 23,621 59,861
</TABLE>
--------
(1) The option is immediately exercisable but vests at the rate of 1/8 of
the total number of shares after six months and 1/48 of the shares
monthly thereafter. Upon termination of employment, any un-vested
shares are subject to repurchase at the original purchase price.
(2) The option is fully vested and exercisable from the date of grant.
(3) The options are immediately exercisable but vest at a rate of 1/4 of
the total number of shares after one year and 1/48 of the shares
monthly thereafter. Upon termination of employment, any unvested shares
are subject to repurchase at the original purchase price.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth the number of shares of common stock subject
to exercisable and unexercisable options held as of December 31, 1999 by each
of the executive officers named in the Summary Compensation Table above. None
of these executive officers exercised any options during the year ended
December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options at 12/31/99 Money Options at 12/31/99(1)
---------------------------- ----------------------------
Name Exercisable(2) Unexercisable Exercisable(2) Unexercisable
----------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Richard E. Wilkes 1,294,279 -- $194,142 --
John R. Hummer 250,000 -- 37,500 --
Jeffrey A. Pullen 299,300 -- 67,254 --
Erin L. Esparza 299,300 -- 67,254 --
</TABLE>
--------
(1) The value of unexercised options is equal to the fair market value of
the underlying shares of $0.50 on December 31, 1999, as determined by
our board of directors, less the per share exercise price, multiplied
by the number of shares issuable upon exercise of the option.
(2) All options are fully exercisable from the date of grant, with unvested
shares subject to repurchase at the original purchase price upon
termination of employment. At December 31, 1999, the option held by Mr.
Wilkes was vested as to 188,748 shares, the option held by Mr. Hummer
was fully vested and the options held by Mr. Pullen and Ms. Esparza
were vested as to 70,056 shares each.
Employment, Termination of Employment and Change-in-Control Arrangements
In May 1999, we entered into an employment agreement with Richard E. Wilkes,
our President and Chief Executive Officer. The agreement fixes Mr. Wilkes' base
salary at $400,000 per year, subject to annual adjustment by our board of
directors, and entitles him to the same benefits,
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<PAGE>
vacation and business expense reimbursement as are provided to other employees.
Pursuant to the agreement, Mr. Wilkes was issued an option to purchase
1,294,279 shares of common stock in May 1999 and an option to purchase 547,139
shares of common stock in February 2000. Each of these options vests at the
rate of 1/8 of the shares six months after the date when Mr. Wilkes' employment
commenced and 1/48 of the shares monthly thereafter. Under the Agreement, we
also paid Mr. Wilkes $75,000 in reimbursement of expenses related to his
relocation from Houston, Texas to the San Francisco Bay Area. The agreement
requires Mr. Wilkes to devote his full time and attention to his duties as
Chief Executive Officer, subject to his right to continue to engage in
unrelated business activities specified in the agreement so long as those
activities do not materially interfere with his duties as Chief Executive
Officer. Should Mr. Wilkes be terminated from the employ of the Company other
than for cause within one year of May 1, 1999, he will receive a lump sum cash
payment equal to six months salary.
Stock Plans
1996 Stock Plan
Our 1996 Stock Plan was originally adopted by our board of directors in
November 1996 and approved by our stockholders in November 1996, and has since
been amended from time to time. A total of 7,718,961 shares of common stock
have been reserved for issuance under the 1996 Stock Plan. The share reserve
will automatically be increased on the first day of each fiscal year beginning
on and after December 31, 2000 by the lesser of:
. shares;
. 5% of the number of shares of our common stock that was issued and
outstanding on the last day of the immediately preceding fiscal year; or
. a lesser number of shares as determined by our board of directors or a
committee of our board of directors.
Under the 1996 Stock Plan, all of our employees or employees of a
subsidiary, all nonemployee directors and any independent contractor or advisor
who performs services for us or a subsidiary are eligible to receive
nonstatutory stock options or stock purchase rights. Employees are also
eligible to receive incentive stock options intended to qualify under Section
422 of the Internal Revenue Code of 1986. The plan is administered by our board
of directors or a committee thereof, which selects the persons who will receive
awards, determines the number of shares subject to each award and prescribes
other terms and conditions, including the type of consideration to be paid to
us upon exercise and vesting schedules, in connection with each award.
The exercise price of nonstatutory stock options granted under the plan must
be at least 85% of the fair market value of our common stock on the date of
grant. The exercise price of incentive stock options cannot be lower than 100%
of the fair market value of our common stock on the date of grant and, in the
case of incentive stock options granted to 10% stockholders, not less than 110%
of the fair market value. The term of an option cannot exceed 10 years. An
individual's options generally expire three months following his termination of
service or 12 months following the individual's termination date if the
termination was due to his death or disability.
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<PAGE>
Options granted under the plan are generally exercisable in full beginning
on the grant date, subject to our right to repurchase the shares acquired upon
exercise of the option at the original cost if the optionee terminates service
with us. This repurchase right lapses as the shares vest. Shares subject to
options granted under the plan generally vest over four years, although the
board or committee may specify a different vesting schedule for a particular
grant. Options granted under the 1996 Stock Plan are generally nontransferable
other than by will or the laws of descent and distribution, although the board
or committee may grant nonstatutory stock options which allow for limited
transferability.
After the completion of this offering, the plan will provide that upon each
new nonemployee director's initial election or appointment, he will
automatically receive a nonstatutory stock option to purchase shares
of common stock. As long as the director continues to serve on the board, 1/3
of the option shares will vest after one year and the remaining 2/3 will vest
in equal monthly increments over the following two years. In addition,
beginning in 2001, each person who continues to serve on our board after each
annual meeting will automatically be granted a nonstatutory stock option to
purchase shares of common stock, unless that person has served on
our board for less than one year. Each of these additional options will vest in
twelve equal monthly increments, with the first increment vesting 25 months
after the grant date. Each option granted to a nonemployee director will have a
per share exercise price equal to the fair market value of a share of our
common stock on the grant date, and will have a term of ten years. Vesting of
nonemployee director options will accelerate in full if we are subject to a
change in control before the option becomes fully vested.
In the event we are subject to a change in control, the acquiring or
successor corporation may assume or substitute for the outstanding awards
granted under the plan. Any options not assumed or substituted for by the
acquiring or successor corporation will terminate upon the change in control.
As of February 29, 2000, there were outstanding options granted under our
1996 Stock Plan to purchase 3,939,267 shares of common stock at a weighted
average exercise price of $0.40 per share. As of February 29, 2000, options to
acquire 2,756,631 shares have been exercised, and a total of 1,023,063 shares
of common stock were available for future options grants. If any award granted
under the 1996 Stock Plan expires, terminates or is canceled for any reasons,
or if we repurchase shares of stock issued subject to a right of repurchase at
the original cost, the shares allocable to the unexercised award or the
repurchased shares will become available for further issuance for grants under
the 1996 Stock Plan.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
in , 2000 and approved by our stockholders in , 2000. This
plan will be effective upon the completion of this offering. Initially, a total
of shares of common stock will be reserved for issuance under the
purchase plan, none of which will be issued as of the effective date of this
offering. The share reserve will automatically increase on January 1, 2001, and
on each following January 1 until and including January 1, 2010, by an amount
equal to the lesser of:
. shares;
. 2% of the number of shares of our common stock that was issued and
outstanding on the last day of the immediately preceding fiscal year; or
. a lesser number of shares as determined by our board of directors or a
committee of our board of directors.
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<PAGE>
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, will be administered by our board of directors
or by a committee of our board of directors. Employees, including our officers
and directors who are also employees, of IMX or any subsidiary designated by
our board of directors for participation in the purchase plan, will be eligible
to participate in the purchase plan if they are customarily employed for more
than 20 hours per week and more than five months per year.
The first offering period under the purchase plan will commence on the date
of this prospectus and will end on the last day of April 2002. This initial
offering period will be comprised of four six-month purchase periods, although
the first purchase period will commence on the date of this prospectus and end
on October 31, 2000. Each subsequent offering of common stock under the
purchase plan will be for a period of twelve months, and will be comprised of
two six-month purchase periods. An offering period will generally commence on
the first days of May and November of each year and end on the last days of the
following April and October. Shares are purchased on the last day of each
purchase period. The board may establish a different term for one or more
offerings or purchase periods or different commencement or ending dates for an
offering or a purchase period.
The purchase plan will permit eligible employees to purchase shares of
common stock through payroll deductions at a price equal to 85% of the lower of
the fair market value of our common stock on (a) the first day of the offering
period or (b) the purchase date. Participants generally may not purchase more
than shares on any purchase date or purchase stock having a value, measured
at the beginning of the offering period, greater than $25,000 in any calendar
year. In the event of a change in control of IMX, our board of directors may
adjust the last day of the then current offering period to a date on or before
the change in control, or the acquiring corporation may assume or replace the
outstanding purchase rights under the purchase plan.
401(k) Plan
We have adopted a 401(k) plan, which is intended to be a tax-qualified
defined contribution plan under Sections 401(a) and 401(k) of the Internal
Revenue Code of 1986. Under the terms of the 401(k) plan, eligible employees
may elect to contribute from 1% to 15% of their compensation as salary deferral
contributions to the 401(k) plan, subject to the statutory limits of $10,000
for calendar year 1999 and $10,500 for calendar year 2000. The 401(k) plan also
permits us to make discretionary matching contributions, although we have not
made any such contributions to date. Amounts contributed to the 401(k) plan are
not taxable to participants until they are received in the form of
distributions from the plan.
Limitations of Liability and Indemnification Matters
We have adopted provisions in our certificate of incorporation pursuant to
which our directors shall not be personally liable to us or our stockholders
for monetary damages resulting from a violation of the directors' duty to act
with care and in the best interests of the stockholders, except for liability:
. for acts or omissions that are not in good faith, are deliberately
improper or are known to be illegal;
. relating to improper dividends or other stockholder distributions; or
. for any transaction from which the director obtained an improper personal
benefit.
This limitation of liability does not affect the availability of equitable
remedies, including injunctive relief or rescission.
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<PAGE>
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the Delaware General Corporation Law. Section
145 of the Delaware General Corporation Law empowers us to enter into
indemnification agreements with our officers, directors, employees and agents.
We have entered into indemnification agreements which require us to indemnify
our executive officers and directors against liabilities that may arise by
reason of their status or service as directors or executive officers and to
advance expenses they spend as a result of any proceeding against them for
which they could be indemnified to the fully extent permitted by the Delaware
General Corporation Law. These indemnification agreements may, in some cases,
be broader than the indemnification provisions contained the Delaware General
Corporation Law.
We intend to obtain liability insurance for our directors and officers and
intend to obtain a rider to extend that coverage for public securities matters.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of IMX where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
Financing Transactions
In December 1996, we sold a total of 4,216,216 shares of Series A preferred
stock at a price of $0.4625 per share. In August 1997, we sold a total of
4,970,179 shares of Series B preferred stock at a price of $1.2072 per share.
In March and July 1998, we sold a total of 6,822,579 shares of Series C
preferred stock at a price of $1.55 per share. In January 1999, we sold a total
of 8,763,958 shares of Series D preferred stock at a price of $2.37 per share.
In February and March 2000, we sold a total of 3,925,961 shares of Series E
preferred stock at a price of $4.00 per share. The following directors and
holders of more than 5% of our common stock purchased shares of our Series A,
Series B, Series C, Series D and Series E preferred stock:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Preferred Preferred Preferred Preferred Preferred
Purchaser Stock Stock Stock Stock Stock
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Citicorp, Inc............... -- -- -- 1,687,764 182,243
Entities affiliated with
Hummer Winblad Venture
Partners (1)............... 4,000,000 1,801,690 1,290,322 1,687,764 948,032
William H. Lacy............. -- -- -- -- 50,000
Entities affiliated with
Lehman
Brothers .................. -- -- -- 3,375,528 364,486
Entities affiliated with
Mohr, Davidow Ventures(2).. -- 3,147,780 645,161 299,906 417,551
ABN Amro Investments (3).... -- -- -- -- 1,250,000
Entities affiliated with
Technology Crossover
Ventures (4)............... -- -- 2,580,645 625,739 346,222
</TABLE>
- --------
(1) John Hummer, one of our directors, is a general partner of Hummer Winblad
Venture Partners. Mr. Hummer also served as our acting Chief Executive
Officer at the time of the issuance of Series D preferred stock.
(2) Derek Proudian, one of our directors, was a general partner of Mohr,
Davidow Ventures at the time of its purchase of Series B, Series C and
Series D preferred stock.
(3) Fred Phillips, one of our directors, is an affiliate of ABN AMRO
Investments.
(4) Jay Hoag, one of our directors, is a general partner of Technology
Crossover Ventures.
Loans to Executive Officers
Jeffrey A. Pullen, our Senior Vice President and Chief Financial Officer,
and Erin L. Esparza, our Senior Vice President, Strategy and Marketing, have
each provided us with two full-recourse promissory notes in the principal
amounts of $44,386 and $37,560 in payment of the exercise price of options that
they exercised in February 2000. The annual interest on each of these notes is
9.75%. payable on a semi-monthly basis. The principal amounts under these notes
are due in full on September 5, 2007 in the case of the $44,386 notes and
September 28, 2008 in the case of the $37,560 notes.
Indemnification Agreements
We have entered into indemnification agreements which require us to
indemnify our executive officers and directors against liabilities that may
arise by reason of their status or service as executive officers or directors.
See "Management--Limitations of Liability and Indemnification Matters."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table set forth below presents information concerning the beneficial
ownership of the shares of our common stock as of February 29, 2000, and as
adjusted to reflect the sale of shares of common stock in this offering, by:
. each of our executive officers listed on the Summary Compensation Table
above under "Management" and each of our directors;
. each person we know to be the beneficial owner of 5% of more of our
outstanding shares of common stock; and
. all executive officers and directors of IMX as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power over
securities. Except in cases where community property laws apply or as indicated
in the footnotes to this table, we believe that each shareholder identified in
the table possesses sole voting and investment power over all shares of common
stock shown as beneficially owned by the shareholder. Shares of common stock
subject to options that are currently exercisable or exercisable within 60 days
of February 29, 2000 are considered outstanding and beneficially owned by the
person holding the options for the purpose of computing the percentage
ownership of that person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Unless indicated below,
the address of each individual listed below is 2305 Camino Ramon, Suite 200,
San Ramon, California 94583.
<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding
Number of -----------------
Shares Prior to After
Beneficially the the
Beneficial Owner Owned Offering Offering
- ---------------- ------------ -------- --------
<S> <C> <C> <C>
Directors and Executive Officers
John R. Hummer (1).......................................... 9,977,808 29.1%
Jay C. Hoag (2)............................................. 3,552,607 10.5
William H. Lacy (3)......................................... 150,000 *
Fred P. Phillips IV (4)..................................... 1,250,000 3.7
Derek Proudian (5).......................................... 72,500 *
Richard E. Wilkes (6)....................................... 1,901,418 5.3
Jeffrey A. Pullen .......................................... 299,300 *
Erin L. Esparza ............................................ 299,300 *
All executive officers and directors as a group (8 persons)
(7)........................................................ 17,502,932 48.4
Other 5% Stockholders
Citicorp, Inc............................................... 1,870,007 5.5
Angela Carpino Fraser (8)................................... 1,797,424 5.3
Entities affiliated with Hummer Winblad Venture Partners
(9)........................................................ 9,727,808 28.7
Entities affiliated with Lehman Brothers, Inc. (10)......... 3,740,014 11.0
Entities affiliated with Mohr Davidow Ventures (11)......... 4,510,398 13.3
Entities affiliated with Technology Crossover Ventures (2).. 3,552,607 10.5
</TABLE>
- --------
*Less than 1%.
(1) Includes 250,000 shares issuable upon exercise of options that are fully
exercisable. Also includes shares held of record by entities affiliated
with Hummer Winblad Venture Partners. Mr. Hummer, a member of our board of
directors is managing member of Hummer Winblad Venture Partners, exercises
sole voting and investment control with respect to the shares held by these
entities. However, Mr. Hummer disclaims beneficial ownership with respect
to such shares except to the extent of his pecuniary interest therein. See
footnote (2) below. Mr. Hummer's address is c/o Hummer Winblad Venture
Partners, Two South Park, Second Floor, San Francisco, CA 94107.
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<PAGE>
(2) Consists of 55,207 shares held by TCV II, V.O.F.; 1,699,473 shares held by
Technology Crossover Ventures II, L.P.; 1,306,581 shares held by TCV II
(Q), L.P.; 231,871 shares held by TCV II Strategic Partners, L.P.; and
259,475 shares held by Technology Crossover Ventures II, C.V.
(collectively, the "TVC Funds"). Mr. Hoag, a member of our board of
directors, is a Managing Member of Technology Crossover Management II,
L.L.C. which is the General Partner of each of the TCV Funds. Mr. Hoag
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein. The address of Technology Crossover Ventures is
575 High Street, Suite 400, Palo Alto, CA 94301.
(3) Includes 100,000 shares issuable upon exercise of options that are fully
exercisable.
(4) Consists of shares held of record by ABN AMRO Investments (Belgie) NV. Mr.
Phillips, a member of our board of directors, is an affiliate of ABN AMRO
and may be deemed to share voting or investment control with respect to
these shares. However, Mr. Phillips disclaims beneficial ownership with
respect to these shares except to the extent of his pecuniary interest
therein. Mr. Phillips' address is c/o ABN AMRO International Venture,
Capital (AA 3240), Foppingadeft 22, Amsterdam, P.O. Box 283, 1000 EA
Amsterdam, The Netherlands.
(5) Includes 60,000 shares issuable upon exercise of options that are fully
exercisable.
(6) Includes 1,841,418 shares issuable upon exercise of options that are fully
exercisable and 60,000 shares issuable upon exercise of options held by
Michelle E. Wilkes that are fully exercisable. Mr. Wilkes and Ms. Wilkes
are husband and wife, and Mr. Wilkes may be deemed to share voting or
investment control with respect to Ms. Wilkes' shares. However, Mr. Wilkes
disclaims beneficial ownership with respect to such shares.
(7) Includes 2,311,418 shares issuable upon exercise of options that are fully
exercisable, including 60,000 shares issuable upon exercise of options held
by Michelle E. Wilkes. Also includes shares held of record by entities
affiliated with Hummer Winblad Venture Partners, Technology Crossover
Ventures and ABN AMRO Investments (Belgie) NV. See footnotes (2), (4), (6)
and (9) herein.
(8) Ms. Fraser holds these shares as administrator of the Estate of Stephen K.
Fraser. Her address is P.O. Box 778, San Ramon, CA 94583.
(9) Consists of 3,840,000 shares held by Hummer Winblad Venture Partners II,
136,000 shares held by Hummer Winblad Technology Fund II, 24,000 shares
held by Hummer Winblad Technology Fund IIA, 4,540,787 shares held by Hummer
Winblad Venture Partners III, 238,989 shares held by Hummer Winblad
Technology Fund III, 910,111 shares held by Hummer Winblad Venture Partners
IV and 37,921 shares held by Hummer Winblad Technology Fund IV. Mr. Hummer,
a member of our board of directors, is managing member of Hummer Winblad
Venture Partners and exercises sole voting and investment control with
respect to the shares held by these entities. However, Mr. Hummer disclaims
beneficial ownership with respect to such shares except to the extent of
his pecuniary interest therein. The address of Hummer Winblad Venture
Partners is Two South Park, Second Floor, San Francisco, CA 94107.
(10) Consists of 1,402,505 shares held by LB I Group, Inc., 500,894 shares held
by Lehman Brothers Venture Capital Partners I, L.P. and 1,836,615 shares
held by Lehman Brothers VC Partners, L.P. LB I Group, Inc., an affiliated
entity of Lehman Brothers, Inc., is general partner of Lehman Brothers
Venture Capital Partners I, L.P. and Lehman Brothers VC Partners, L.P. The
address of Lehman Brothers, Inc. is 3 World Financial Center, New York, NY
10285.
(11) Consists of 4,284,878 shares held by Mohr, Davidow Ventures IV, L.P. and
225,520 shares held by MDV IV Entrepreneurs' Network Fund, L.P. Fourth MDV
Partners, L.L.C., an affiliate of Mohr, Davidow Ventures, is general
partner of these entities. The address of Mohr, Davidow Ventures is 2775
Sand Hill Road, Suite 240, Menlo Park, CA 94025.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of shares of common stock, $0.001 par value per share, and
shares of preferred stock, $0.001 par value per share. The
following is a summary of the material terms of our common stock and preferred
stock. Please see our certificate of incorporation, filed as an exhibit to the
registration statement of which this prospectus is a part, for more detailed
information.
Common Stock
As of February 29, 2000, there were 5,430,000 shares of common stock
outstanding held of record by stockholders. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of stockholders. Upon the closing of this offering, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Subject to
preferences applicable to any outstanding preferred stock, holders of common
stock are entitled to receive ratably any dividends declared by the board out
of funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of IMX, holders of common stock are
entitled to share ratably in the assets remaining after payment of liabilities
and the liquidation preferences of any outstanding preferred stock. Holders of
common stock have no preemptive, conversion or redemption rights. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon the closing of this offering will be, fully paid and non-
assessable.
Preferred Stock
Upon the closing of this offering, all convertible preferred stock
outstanding will be converted into an aggregate of 28,698,893 shares of common
stock. Thereafter, up to shares of undesignated preferred stock will
be authorized for issuance. Our board of directors has the authority, without
further action by its stockholders, to issue preferred stock in one or more
series. In addition, the board may fix the rights, preferences and privileges
of any preferred stock it determines to issue. Any or all of these rights may
be superior to the rights of the common stock. Preferred stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
IMX or to make removal of management more difficult. Additionally, the issuance
of preferred stock may decrease the market price of our common stock. At
present, we have no plans to issue any shares of preferred stock.
Warrants
As of February 29, 2000, after giving effect to the conversion of all
outstanding shares of preferred stock into common stock, we had issued the
following warrants to purchase common stock:
. warrants to purchase 11,000 shares of common stock at a price per share
of $1.2072, expiring in June 2002; and
. warrants to purchase 125,806 shares of common stock at a price per share
of $1.55, expiring upon the earlier of (i) three years after the closing
date of this offering and (ii) October 28, 2005.
We have also agreed to issue warrants to purchase 1,150,000 shares of common
stock at a price per share of $4.75, expiring ten years from the date of
issuance.
In addition, we will be obligated to issue warrants to purchase an
additional 125,806 shares of common stock at a price per share of $1.55 to a
lender in the event we borrow any additional funds
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<PAGE>
under a loan agreement with that lender. These warrants, if issued, will expire
upon the earlier of (i) three years after the closing date of this offering and
(ii) October 28, 2005.
Registration Rights
The holders of approximately 28,709,893 shares of common stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
Beginning six months following the date of this prospectus, these holders
have the right to require us, on not more than two occasions, to file a
registration statement under the Securities Act to register their shares at our
expense. Such demand must be made by the holders of at least 40% of the shares
having registration rights. We may, under some circumstances, defer such a
registration for up to 60 days, and the underwriters of the offering under that
registration have the right, subject to some limitations, to limit the number
of shares included. At such time as we are eligible to file a registration
statement on Form S-3, any holder having registration rights has the right to
demand that we file a registration statement on Form S-3 to register their
shares at our expense, as long as the amount of securities to be sold under the
registration statement exceeds $500,000 or holders of at least 20% of the
shares having registration rights request it.
If we register any securities for public sale, the foregoing stockholders
rights will have the right to include their shares in the registration
statement at our expense. The underwriters of any underwritten offering will
have the right to limit the number of shares to be included in the
registration. In the event of such a registered offering, the holders of an
additional 1,797,424 shares of common stock will have the right to include
their shares in the registration statement, provided that if the underwriters
limit the number of shares to be included in the registration, all of these
shares must be omitted from the registration before any other shares with
registration rights can be omitted.
The registration rights described above will expire five years after this
offering is completed. The registration rights will terminate earlier for a
particular stockholder if that holder can resell all of its securities in a
three-month period under Rule 144 of the Securities Act.
Rights to Purchase Stock in Our Initial Public Offering
The holders of our Series C preferred stock and our Series E preferred stock
each have the right to purchase an aggregate of $1,500,000 of the common stock
offered in our initial public offering, based on the mid-point of the price
range set forth in our preliminary prospectus, subject to the approval of our
board of directors. Our agreement with these stockholders provides that such
board approval may not be unreasonably withheld, provided that it will be
deemed not to have been unreasonably withheld if our board determines in good
faith that:
. the foregoing allocation of stock is reasonably likely to be detrimental
to the success of our initial public offering;
. based upon an opinion of counsel, such allocation of stock violates
applicable securities laws; or
. based upon an opinion of the underwriters' counsel such allocation
violates applicable rules and regulations of the National Association of
Securities Dealers.
Our board has not yet considered the foregoing stock allocations, and we are
continuing to review the advisability and legality of such allocations.
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<PAGE>
Antitakeover Provisions
Delaware Law
We will be subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers, which prohibits a Delaware corporation from
engaging in any business combination with an "interested stockholder," unless:
. prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
. the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding (a) shares
owned by persons who are directors and also officers, and (b) shares
owned by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
. on or subsequent to the date of the transaction, the business combination
is approved by the board and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting securities of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the date of determination and (b) the affiliates and
associates of any such person.
Certificate of Incorporation and Bylaw Provisions
Provisions of our certificate of incorporation and bylaws, which will become
effective upon the closing of this offering, may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of IMX. These provisions could cause the
price of IMX common stock to decrease. These provisions include:
. the authorization in the certificate of incorporation of undesignated
preferred stock, which can be issued without stockholder approval;
. the division of our board of directors into three classes of directors,
each of whom is only required to stand for reelection every three years
and may be removed by stockholders only for cause; and
. provisions in our bylaws eliminating stockholders' rights to call a
special meeting of stockholders and requiring advance notice of any
stockholder nomination of director candidates or any stockholder proposal
to be presented at an annual meeting.
These provisions may enable us to issue preferred stock in a manner designed
to prevent or discourage a takeover and may make it more difficult for
stockholders to wage a proxy contest for control of our board or to vote to
repeal any of the antitakeover provisions contained in our certificate of
incorporation or bylaws.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is
.
Listing
We have applied to have our common stock approved for listing on the Nasdaq
National Market under the trading symbol "IMXX."
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for our common
stock. Furthermore, as described below, no shares currently outstanding will be
available for sale immediately after this offering due to contractual and legal
restrictions on resale. Nevertheless, future sales of substantial amounts of
our common stock in the public market after the restrictions lapse, or the
possibility of these sales, could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options to purchase common stock after February
29, 2000. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, except for any shares purchased by "affiliates" of IMX, as
defined in Rule 144 under the Securities Act, which would be subject to the
limitations and restrictions described below.
The remaining 34,029,091 shares of common stock outstanding upon completion
of this offering will be "restricted securities" as defined in Rule 144. These
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 under the
Securities Act, which are summarized below. Sales of these restricted
securities in the public market, or the availability of these shares for sale,
could adversely affect the trading price of IMX's common stock.
Holders of approximately of these restricted securities, including all
of IMX's officers and directors and the entities affiliated with them, have
entered into lock-up agreements providing that, subject to limited exceptions,
they will not sell, directly or indirectly, any common stock without the prior
consent of Deutsche Bank Securities Inc. for a period of 180 days from the date
of this prospectus.
Of the 34,029,091 shares of restricted securities:
. Approximately shares will be eligible for sale without
restriction beginning 180 days after the date of this prospectus upon
expiration of the lock-up agreements described above.
. Approximately shares will be eligible for sale beginning 180
days after the date of this prospectus upon expiration of the lock-up
agreements described above, subject to volume limitations and other
restrictions of Rule 144.
. Approximately remaining restricted securities will not be
eligible for sale pursuant to Rule 144 until the expiration of the
applicable one-year holding period, which will expire between January 28,
2001 and March 7, 2001.
Shares issued upon exercise of options granted by IMX prior to the date of
this prospectus will be available for sale in the public market under Rule 701
of the Securities Act. Rule 701 permits resales of these shares in reliance
upon Rule 144 but without compliance with various restrictions, including the
holding period requirement, imposed under Rule 144. In general, under Rule 144,
beginning 90 days after the date of this prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned restricted securities for at
least one year would be entitled to sell within any three-month period a number
of shares not to exceed the greater of (1) one percent of the then outstanding
shares of common stock or (2) the average weekly trading volume of IMX's common
stock during the four calendar weeks preceding the filing of a Form 144 with
respect to the sale. Sales under Rule 144 are also subject to manner of sale
and notice
64
<PAGE>
requirements, as well as to the availability of current public information
about IMX. Under Rule 144(k), a person who is not deemed to have been an
affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
We have reserved an aggregate of shares of common stock for issuance
pursuant to our 1996 Stock Plan and our 2000 Employee Stock Purchase Plan. As
of February 29, 2000, options to purchase an aggregate of 3,939,267 shares of
common stock were outstanding under our 1996 Stock Plan. We intend to file
registration statements on Form S-8 under the Securities Act approximately 90
days after the date of this prospectus to register an aggregate of shares
of common stock issued or reserved for issuance under our 1996 Stock Plan and
2000 Employee Stock Purchase Plan. Shares of common stock issued under the
foregoing plans, after the filing of related registration statements, will be
freely tradable in the public market, subject in the case of the holders to the
Rule 144 limitations applicable to IMX affiliates, lock-up agreements with the
underwriters and vesting restrictions imposed by IMX.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., J.P. Morgan Securities Inc., SG Cowen Securities Corporation
and E*OFFERING Corp. have severally agreed to purchase from IMX the following
respective number of shares of common stock at a public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
- ----------- ------
<S> <C>
Deutsche Bank Securities Inc.............................................
J.P. Morgan Securities Inc...............................................
SG Cowen Securities Corporation..........................................
E*OFFERING Corp. ........................................................
----
Total.................................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The underwriters may allow, and these
dealers may re-allow, a concession of not more than $ per share to other
dealers. After the initial public offering, representatives of the underwriters
may change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of the common stock offered hereby.
To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to the total number of shares of common stock offered hereby. We will be
obligated, pursuant to the option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer
the additional shares on the same terms as those on which the
shares are being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is % of the initial public offering price. We
have agreed to pay the underwriters the following fees, assuming either no
exercise or full exercise by the underwriters of the underwriters' over-
allotment option:
<TABLE>
<CAPTION>
Total fees
-------------------------------------------------
Fee per Without Exercise of the With Full Exercise of the
share Over-Allotment Option Over-Allotment Option
-------- ----------------------- -------------------------
<S> <C> <C> <C>
Fees paid by IMX.... $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
66
<PAGE>
We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in
the disposition of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of our common stock
or derivatives of our common stock owned by these persons prior to this
offering or common stock issuable upon exercise of options or warrants held by
these persons for a period of 180 days after the effective date of the
registration statement of which this prospectus is a part without the prior
written consent of Deutsche Bank Securities Inc. This consent may be given at
any time without public notice. We have entered into a similar agreement with
the representatives of the underwriters, except that we may grant options and
sell shares pursuant to our 1996 Stock Plan and our 2000 Employee Stock
Purchase Plan without such consent. There are no agreements between the
representatives and any of our stockholders or affiliates releasing them from
these lock-up agreements prior to the expiration of the 180-day period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these over-
allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price:
. up to shares for our vendors, employees, family members of
employees, customers and other third parties; and
. up to shares to be allocated to mortgage brokers who are current or
potential members of the exchange.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent these reserved shares are purchased. Any
reserved shares that are not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the other shares in
this offering.
Pricing of this Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
. prevailing market conditions;
. our results of operations in recent periods;
67
<PAGE>
. the present stage of our development;
. the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
. estimates of our business potential
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Certain legal
matters relating to the offering will be passed upon for the underwriters by
Morrison & Foerster, LLP, San Francisco, California. As of the date of this
prospectus, investment partnerships composed of current and former partners of
and persons associated with Gray Cary Ware & Freidenrich LLP and one partner of
Gray Cary Ware & Freidenrich LLP beneficially own an aggregate of 40,428 shares
of our common stock.
EXPERTS
Ernst & Young, LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999 and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act that registers the shares of our common stock to be sold in this
offering. The registration statement, including the attached exhibits and
schedules, contain additional relevant information about us and our capital
stock. The rules and regulations of the SEC allow us to omit various
information included in the registration statement from this document.
In addition, upon completion of this offering, we will become subject to the
reporting and information requirements of the Exchange Act and, as a result,
will file periodic reports, proxy statements and other information with the
SEC. You may read and copy this information at the following public reference
rooms of the SEC:
450 Fifth Street, 7 World Trade Center 500 West Madison
N.W. Suite 1300 Street
Room 1024 New York, NY 10048 Suite 1400
Washington, DC 20549 Chicago, IL 60661-
2511
You also obtain copies of this information by mail from the public reference
section of the SEC, 450 Fifth St., N.W. Room 1024, Washington, DC 20549, at
prescribed rates. You may obtain information on the operation of the public
reference rooms by calling the SEC at 1 (800) SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information about issuers, like IMX, who file
electronically with the SEC. The address of that web site is www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited
financial statements, and make available to our stockholders quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
68
<PAGE>
IMX EXCHANGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Deficit................................................................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
IMX Exchange, Inc.
We have audited the accompanying balance sheets of IMX Exchange, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
redeemable convertible preferred stock and stockholders' deficit and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of IMX's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IMX Exchange, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Francisco, California
February 11, 2000, except as to Note 11, as to which the date is March 7, 2000
F-2
<PAGE>
IMX Exchange, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 923,162 $ 2,391,003
Short-term investments............................ -- 4,375,168
Restricted cash................................... -- 416,250
Accounts receivable............................... 41,800 33,700
Prepaid and other current assets.................. 101,915 245,057
------------ ------------
Total current assets............................. 1,066,877 7,461,178
Property and equipment, net........................ 1,067,702 2,027,359
Restricted cash related to lease commitments....... 200,000 600,000
Deposits and other assets.......................... 55,517 408
------------ ------------
Total assets..................................... $ 2,390,096 $ 10,088,945
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................. $ 335,639 $ 490,759
Accrued expenses.................................. 373,331 705,671
Subordinated debt, current portion................ 445,547 499,573
Obligations under capital leases, current
portions......................................... 427,449 446,825
Liabilities of discontinued operations, net....... 1,447,434 962,400
------------ ------------
Total current liabilities........................ 3,029,400 3,105,228
Subordinated debt, less current portion............ 966,976 482,785
Obligations under capital leases, less current
portions.......................................... 285,380 219,401
Redeemable convertible preferred stock, $0.001 par
value:
Authorized shares--17,939,328 and 27,139,328 at
December 31, 1998 and 1999; Issued and
outstanding shares--16,008,974 and 24,772,932 at
December 31, 1998 and 1999, respectively
(aggregate liquidation preference--$18,525,000
and $39,295,580 at December 31, 1998 and 1999,
respectively).................................... 18,386,096 39,089,737
Stockholders' deficit:
Common stock, $0.001 par value:
Authorized shares--39,000,000 at December 31,
1998 and 1999
Issued and outstanding shares--2,859,808 and
3,598,734 at December 31, 1998 and 1999,
respectively.................................... 2,859 3,598
Additional paid-in capital........................ 248,042 2,670,548
Deferred stock compensation....................... -- (1,730,147)
Accumulated deficit............................... (20,528,657) (33,752,205)
------------ ------------
Total stockholders' deficit...................... (20,277,756) (32,808,206)
------------ ------------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit....... $ 2,390,096 $ 10,088,945
============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
IMX Exchange, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenue.............................. $ 44,087 $ 597,866 $ 319,142
Operating expenses:
Operations.......................... 1,224,776 1,806,318 2,610,069
Sales and marketing................. 1,698,813 2,970,172 5,563,727
Product development................. 968,819 1,080,907 1,743,192
General and administrative.......... 2,168,515 2,979,397 3,402,796
Amortization of deferred stock
compensation....................... -- -- 604,532
----------- ------------ ------------
Total operating expenses.......... 6,060,923 8,836,794 13,924,316
----------- ------------ ------------
Loss from operations................. (6,016,836) (8,238,928) (13,605,174)
Interest income...................... 68,481 260,469 676,012
Interest expense..................... (96,063) (186,579) (294,386)
----------- ------------ ------------
Loss from continuing operations...... (6,044,418) (8,165,038) (13,223,548)
Discontinued operations:
Loss from discontinued operations of
Investor Direct Funding Corp....... -- (2,092,580) --
Loss on disposal of Investor Direct
Funding Corp., including provision
of $2,750,000 for operating losses
during the phase-out period........ -- (3,649,000) --
----------- ------------ ------------
Net loss......................... $(6,044,418) $(13,906,618) $(13,223,548)
=========== ============ ============
Basic and diluted loss per common
share from continuing operations.... $ (2.79) $ (3.12) $ (3.98)
=========== ============ ============
Basic and diluted net loss per common
share............................... $ (2.79) $ (5.31) $ (3.98)
=========== ============ ============
Weighted average common shares used
in loss per common share from
continuing operations and net loss
per common share calculations....... 2,164,014 2,616,714 3,322,312
=========== ============ ============
Pro forma basic and diluted loss per
common share from continuing
operations and pro forma basic and
diluted net loss per common share
(unaudited, see Notes 2 and 11) .... $ (0.48)
============
Weighted average common shares used
in pro forma loss per common share
from continuing operations and pro
forma net loss per common share
calculations (unaudited, see Notes 2
and 11)............................. 27,565,772
============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
IMX Exchange, Inc.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Stockholders' Deficit
------------------------------------------------------------------------
Redeemable Convertible
Preferred Stock Common Stock Additional Deferred Total
---------------------- ----------------- Paid-in Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Deficit Deficit
---------- ----------- --------- ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997.................... 4,000,000 $ 1,827,298 2,676,900 $2,677 $ 129,719 -- $ (577,621) $ (445,225)
Issuance of Series A
redeemable convertible
preferred stock at
$0.4625 per share....... 216,216 100,000 -- -- -- -- -- --
Issuance of Series B
redeemable convertible
preferred stock at
$1.2072 per share (net
of issuance costs of
$36,471)................ 4,970,179 5,963,529 -- -- -- -- -- --
Exercise of stock
options................. -- -- 5,000 5 225 -- -- 230
Repurchase of common
stock................... -- -- (105,000) (105) (5,145) -- -- (5,250)
Net loss................ -- -- -- -- -- -- (6,044,418) (6,044,418)
---------- ----------- --------- ------ ---------- ----------- ------------ ------------
Balance at December 31,
1997.................... 9,186,395 7,890,827 2,576,900 2,577 124,799 -- (6,622,039) (6,494,663)
Issuance of Series C
redeemable convertible
preferred stock at $1.55
per share (net of
issuance costs of
$79,728)................ 6,822,579 10,495,269 -- -- -- -- -- --
Warrants issued to
purchase Series C
redeemable convertible
preferred stock......... -- -- -- -- 45,290 -- -- 45,290
Exercise of stock
options................. -- -- 276,458 276 16,669 -- -- 16,945
Issuance of common stock
in exchange for
services................ -- -- 6,450 6 1,284 -- -- 1,290
Fair value of consulting
services................ -- -- -- -- 60,000 -- -- 60,000
Net loss................ -- -- -- -- -- -- (13,906,618) (13,906,618)
---------- ----------- --------- ------ ---------- ----------- ------------ ------------
Balance at December 31,
1998.................... 16,008,974 18,386,096 2,859,808 2,859 248,042 -- (20,528,657) (20,277,756)
Issuance of Series D
redeemable convertible
preferred stock at $2.37
per share (net of
issuance costs of
$66,939)................ 8,763,958 20,703,641 -- -- -- -- -- --
Exercise of stock
options................. -- -- 734,143 734 59,514 -- -- 60,248
Fair value of consulting
services................ -- -- 6,450 6 28,645 -- -- 28,651
Repurchase of common
stock................... -- -- (1,667) (1) (332) -- -- (333)
Deferred stock
compensation............ -- -- -- -- 2,334,679 (2,334,679) -- --
Amortization of deferred
stock compensation...... -- -- -- -- -- 604,532 -- 604,532
Net loss................ -- -- -- -- -- -- (13,223,548) (13,223,548)
---------- ----------- --------- ------ ---------- ----------- ------------ ------------
Balance at December 31,
1999.................... 24,772,932 $39,089,737 3,598,734 $3,598 $2,670,548 $(1,730,147) $(33,752,205) $(32,808,206)
========== =========== ========= ====== ========== =========== ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
IMX Exchange, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Operating activities
Net loss............................ $(6,044,418) $(13,906,618) $(13,223,548)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Discontinued operations............ -- 1,447,434 (485,034)
Depreciation and amortization...... 251,346 498,929 689,168
Loss on sale of property and
equipment......................... -- -- 76,749
Fair value of servieces rendered by
a consultant...................... -- 60,000 28,651
Amortization of deferred stock
compensation...................... -- -- 604,532
Change in operating assets and
liabilities:
Restricted cash................... -- (200,000) (816,250)
Accounts receivable............... -- (41,800) 8,100
Prepaid and other current assets.. -- (101,915) (143,142)
Deposits and other assets......... (169,555) 126,089 55,109
Accounts payable and accrued
expenses......................... 169,490 310,406 487,460
----------- ------------ ------------
Net cash used in operating
activities.......................... (5,793,137) (11,807,475) (12,718,205)
----------- ------------ ------------
Investing activities
Purchase of short-term
investments....................... -- -- (4,375,168)
Acquisition of property and
equipment......................... (393,024) (172,292) (1,373,476)
Proceeds from the sale of property
and equipment...................... -- -- 3,450
----------- ------------ ------------
Net cash used in investing
activities.......................... (393,024) (172,292) (5,745,194)
----------- ------------ ------------
Financing activities
Payment of note payable to
employee.......................... -- (37,500) --
Proceeds from subordinated debt
financing......................... -- 1,500,000 --
Principal payments on subordinated
debt financing..................... -- (42,187) (430,165)
Principal payments on capital lease
obligations....................... (159,185) (339,555) (402,151)
Net proceeds from issuance of
common stock...................... 230 18,235 60,248
Net proceeds from issuance of
preferred stock................... 6,063,529 10,495,269 20,703,641
Repurchase of common stock......... (5,250) -- (333)
----------- ------------ ------------
Net cash provided by financing
activities........................ 5,899,324 11,594,262 19,931,240
----------- ------------ ------------
Net (decrease) increase in cash and
cash equivalents.................... (286,837) (385,505) 1,467,841
Cash and cash equivalents at
beginning of year................... 1,595,504 1,308,667 923,162
----------- ------------ ------------
Cash and cash equivalents at end of
year................................ $ 1,308,667 $ 923,162 $ 2,391,003
=========== ============ ============
Supplemental disclosure:
Interest paid...................... $ 94,000 $ 182,863 $ 280,804
=========== ============ ============
Supplemental disclosure of noncash
investing and financing activities:
Capital lease obligations
incurred.......................... $ 1,065,303 $ 146,266 $ --
=========== ============ ============
Warrants issued in conjunction with
subordinated debt financing....... $ -- $ 45,290 $ --
=========== ============ ============
Deferred stock compensation........ $ -- $ -- $ 2,334,679
=========== ============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
IMX Exchange, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Business
IMX Exchange, Inc., formerly known as IMX Inc. ("IMX"), was incorporated on
November 6, 1996 in the state of Delaware, for the purpose of operating an
electronic residential mortgage exchange service ("the Exchange"). The Exchange
began trading mortgages in October 1997, and operates a business-to-business,
electronic commerce solution enabling mortgage brokers (originators of
residential mortgage loans) to communicate and conduct business with mortgage
lenders in an electronic marketplace. IMX earns a fee for loans that are traded
on the Exchange.
IMX has experienced operating losses to date and had an accumulated deficit
at December 31, 1999. Significant net losses are expected for the foreseeable
future. Since its formation, IMX has raised capital through private placements
of redeemable convertible preferred stock. Future capital requirements,
however, depend on many factors including IMX's ability to execute its business
plan. IMX may need to raise additional capital through the issuance of debt or
equity securities. There can be no assurance that IMX will be able to raise
additional financing, or that such financing will be available on terms
satisfactory to IMX. See Note 11.
As further described in Note 3, on May 18, 1999, the Board of Directors
approved a formal plan to discontinue operations of IMX's wholly owned
subsidiary, Investor Direct Funding Corp. ("IDF"), a specialized mortgage loan
funding facility. The results of operations and cash flows of IDF for the years
ended December 31, 1998 and 1999 were accounted for as discontinued operations
in the accompanying financial statements. The assets and liabilities of IDF
have been recorded as liabilities of discontinued operations, net in the
accompanying balance sheet.
Certain reclassifications have been made to prior years financial statements
to conform to the 1999 presentation.
2. Significant Accounting Policies
Cash, Cash Equivalents and Short-term Investments
IMX considers all highly liquid investments with a maturity of ninety days
or less to be cash equivalents. IMX considers investments with maturities of
more than ninety days but less than one year to be short-term investments. The
carrying amount reported in the balance sheets for cash, cash equivalents and
short-term investments approximates their fair value. IMX has classified all
cash equivalents and short-term investments as available-for-sale. Securities
classified as available-for-sale are carried at fair value with material
unrealized gains and losses reported in stockholders' deficit. The cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest income. Realized gains
and losses and declines in value judged to be other-than-temporary are recorded
in other income or expense. The cost of securities sold is based on the
specific identification method. At December 31, 1999, IMX had no material
unrealized gains or losses on short term investments.
F-7
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
Cash, Cash Equivalents and Short-term Investments (continued)
The following schedule summarizes the estimated fair value of IMX's cash,
cash equivalents and short-term investments:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Cash and cash equivalents:
Cash................................................ $221,462 $ 53,279
Money market funds.................................. 701,700 832,956
Corporate debt securities........................... -- 1,504,768
-------- ----------
$923,162 $2,391,003
======== ==========
Short-term investments:
Corporate debt securities........................... $ -- $4,375,168
======== ==========
</TABLE>
Restricted Cash
As a condition of its credit card issuer, IMX is required to maintain
minimum collateral with a financial institution of 125% of the outstanding
credit card limits. At December 31, 1999, $416,250 of cash and cash equivalents
was restricted related to this collateral requirement.
The terms of IMX's operating lease obligations for its corporate
headquarters and its discontinued operations, require IMX to maintain minimum
collateral with a financial institution of $200,000 and $600,000 in
certificates of deposit at December 31, 1998 and December 31, 1999,
respectively.
Concentration of Credit Risk
Financial instruments that potentially subject IMX to concentrations of
credit risk consist principally of cash deposits and short-term investments and
accounts receivable. Cash, cash equivalents and short-term investments are
deposited with high credit quality financial institutions. These securities
generally mature within a year and, therefore, bear minimal risk. IMX has not
experienced any material losses on its investments. IMX performs periodic
credit evaluations of its customers' financial condition and generally requires
no collateral from its customers. IMX's losses on accounts receivable have been
immaterial to date.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
computed on a straight-line basis over the estimated useful lives of the
related assets, generally three years for computers and equipment and five
years for furniture. Assets under capital leases are recorded at the lower of
the net present value of the minimum lease payments or fair value at the
inception of the lease. Assets under capital lease are amortized using the
straight-line method over the shorter of the estimated useful life or lease
term, which is generally three years. Amortization of assets under capital
leases is included in depreciation expense.
Software Development Costs
IMX accounts for software development costs in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased,
F-8
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
Software Development Costs (continued)
or Otherwise Marketed," under which certain software development costs incurred
subsequent to the establishment of technological feasibility are capitalized
and amortized over the estimated lives of the related products. Technological
feasibility is established upon completion of a working model. Through December
31, 1999, development costs incurred subsequent to the establishment of
technological feasibility have not been significant, and all software
development costs have been charged to product development in the accompanying
statements of operations.
IMX has adopted the Statement of Position No. 98-1, "Accounting for the
Costs of Software Developed or Obtained for Internal Use," which defines
specific criteria that determine when internal use software costs are required
to be expensed and when they may be capitalized. At December 31, 1999, IMX has
recorded approximately $205,350 of capitalized software and related
implementation costs.
Provision for Income Taxes
IMX accounts for income taxes using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
The provision for income tax expense represents taxes payable for the current
period, plus the net change in deferred tax assets and liabilities.
Revenue Recognition
IMX's principle revenue source is transaction fees earned from lenders based
on the number of loans traded on the Exchange. Transaction fees are recognized
when IMX earns the fee in accordance with the terms of lender subscription
agreements and collectibility of the fee is considered probable.
Revenues from three lenders accounted for approximately 45%, 24% and 11% of
our revenues for the year ended December 31, 1999. Revenues from three lenders
accounted for approximately 52%, 13% and 10% of our revenues for the year ended
December 31, 1998. Revenues from one lender accounted for approximately 88% of
our revenues for the year ended December 31, 1997.
Product Development
IMX expenses research and development costs as product development expense
in the period in which they are incurred.
Advertising Costs
IMX expenses advertising costs in the period in which they are incurred.
Advertising costs were $187,512, $501,108 and $776,386 for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-9
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
Stock-Based Compensation
IMX accounts 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 and complies with the
disclosure provision of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
IMX accounts for equity instruments issued to non-employees in accordance
with the provision of SFAS 123 and the Emerging Issues Task Force in Issue No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
Segment Information
IMX adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" in 1998.
IMX has determined that through December 31, 1999 it has one operating and
reportable segment, the operation of a residential mortgage exchange service in
an electronic market place for United States mortgage brokers and lenders,
which is further described in Note 1.
Use of Estimates
The preparation of IMX's financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
Comprehensive Income (Loss)
IMX adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" at December 31, 1998. Comprehensive income (loss)
includes certain changes in equity that are excluded from net income (loss).
IMX has no material components of other comprehensive loss and, accordingly,
the comprehensive loss is the same as net loss for all periods presented.
Net Loss per Common Share
Basic net loss per common share and diluted net loss per common share are
presented in conformity with Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), for all periods presented. In
accordance with SFAS 128, basic and diluted net loss per common share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase.
IMX has excluded all redeemable convertible preferred stock, warrants for
redeemable convertible preferred stock, outstanding stock options and shares
subject to repurchase from the calculation of diluted loss per common share
because their inclusion would be antidilutive (i.e., reduce the net loss per
common share) for all periods presented. The total number of shares excluded
from the calculations of diluted net loss per common share are 12,218,226
shares, 18,697,197 shares, and 29,706,782 shares for the years ended December
31, 1997, 1998 and 1999, respectively. Such securities, had they been dilutive,
would have been included in the computations
F-10
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
Net Loss per Common Share (continued)
of diluted net loss per common share using the treasury stock method. Pro forma
basic and diluted net loss per common share, as presented in the consolidated
statements of operations, has been computed for the year ended December 31,
1999 as described above, and also gives effect under the Securities and
Exchange Commission guidance to the conversion of the convertible preferred
stock (using the if-converted method) from the original date of issuance.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per common share:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss............................... $(6,044,418) $(13,906,618) $(13,223,548)
Basic and Diluted:
Weighted average shares of common
stock outstanding................... 2,576,695 2,683,378 3,329,469
Less: Weighted average shares subject
to repurchase......................... (412,681) (66,664) (7,157)
----------- ------------ ------------
Weighted average shares used in
computing basic and diluted net loss
per common share...................... 2,164,014 2,616,714 3,322,312
=========== ============ ============
Basic and diluted net loss per common
share................................. $ (2.79) $ (5.31) $ (3.98)
=========== ============ ============
Pro forma:
Net Loss............................... $(13,223,548)
============
Shares used above...................... 3,322,312
Pro forma adjustment to reflect the
assumed conversion of convertible
preferred stock from the date of
issuance (unaudited).................. 24,243,460
------------
Weighted average common shares used in
computing pro forma basic and diluted
net loss per common share
(unaudited)........................... 27,565,772
============
Pro forma basic and diluted net loss
per common share (unaudited).......... $ (0.48)
============
</TABLE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that derivatives be recognized in the balance sheet at
fair value and specifies the accounting for changes in fair value. In June
1999, the FASB issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," to defer the effective date of SFAS
133 until fiscal years beginning after June 15, 2000. IMX currently has no
derivative financial instruments and does not currently engage in hedging
activities; therefore, SFAS 133 is expected to have no impact on IMX's
financial position or operations.
F-11
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Discontinued Operations
Investor Direct Funding Corp. ("IDF"), a wholly owned subsidiary, was
incorporated in Delaware on March 19, 1998 and commenced operations in August
1998. IDF was a specialized mortgage loan funding facility for certain
customers who participated on the Exchange. IDF entered into agreements to
process, fund, and deliver loans to customers at the price set when the loan
locked on the Exchange.
On May 18, 1999, IMX and its Board of Directors approved its strategic
decision to discontinue the operations of IDF in order to concentrate its
financial and human resources on the core Exchange business. In November 1999,
IDF ceased operations. The results of IDF have been reported separately as
discontinued operations in the accompanying statements of operations and cash
flows.
The components of liabilities of discontinued operations, net, included in
the accompanying balance sheets are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Assets:
Loans pending settlement, net....................... $20,214,724 $ --
Other current assets................................ 162,472 88,072
Property and equipment, net......................... 639,696 --
Other non-current assets............................ 311,159 124,089
----------- ----------
Total assets...................................... 21,328,051 212,161
Liabilities:
Warehouse funding facility.......................... 18,343,377 --
Accounts payable.................................... 492,827 244,260
Accrued exit cost................................... 3,649,000 902,011
Non-current liabilities............................. 290,281 28,290
----------- ----------
Total liabilities..................................... 22,775,485 1,174,561
----------- ----------
Liabilities of discontinued operations, net........... $ 1,447,434 $ 962,400
=========== ==========
</TABLE>
F-12
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Discontinued Operations (continued)
A condensed statement of operations relating to the discontinued operations
is presented below:
<TABLE>
<CAPTION>
For the Period
March 19, 1998
(inception)
through Year ended
December 31, December 31,
1998 1999
-------------- ------------
<S> <C> <C>
Exit accrual, beginning balance................... $ -- $ 3,649,000
Loan processing fees and other income............. 588,866 1,464,368
Operating expenses................................ (2,681,446) (4,211,357)
----------- -----------
Operating loss.................................... (2,092,580) (2,746,989)
Costs to exit business............................ (3,649,000) --
----------- -----------
Loss from discontinued operations................. $(5,741,580) $ --
=========== ===========
Exit accrual, ending balance...................... $ 3,649,000 $ 902,011
=========== ===========
Basic and diluted loss per common share from
discontinued operations.......................... $ (2.19) $ --
=========== ===========
Weighted average shares used in computing basic
and diluted net loss per common share............ 2,616,714 3,322,312
=========== ===========
</TABLE>
Warehouse Funding Facility and Loans Pending Settlement
IDF had a $50,000,000 warehouse funding facility (the "Facility") with a
financial institution for warehousing mortgage loans prior to settlement. The
Facility bore interest, payable monthly, at a rate per annum equal to 1.00% to
1.25% in excess of the Commercial Paper Rate (6.534% at December 31, 1998).
The borrowings under the Facility were collateralized by loans pending
settlement. For the years ended December 31, 1998 and 1999, commitment fees
and interest paid on the Facility totaled $61,420 and $213,855, and $82,950
and $536,691, respectively. The Facility terminated December 14, 1999.
Loans pending settlement, net, were funded mortgage loans that were
committed for delivery to IDF's approved customers. The loans are recorded at
their funded amount, net of any premiums or discounts associated with funding
the loan, which approximates the ultimate delivery price to the customer. IDF
relinquishes all servicing rights to the loans upon settlement.
Lease and Loan Contingencies
IDF leases certain facilities under non-cancelable operating agreements
that are guaranteed by IMX. Unoccupied facilities are sublet to third parties.
Future minimum payments and receipts under these leases and subleases with
remaining terms of one year or more consist of the following at December 31,
1999:
<TABLE>
<CAPTION>
Year ending December 31, Leases Subleases Net
---------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
2000.................................... $ 982,376 $ (426,527) $ 555,849
2001.................................... 1,008,893 (617,966) 390,927
2002.................................... 1,054,409 (637,886) 416,523
2003.................................... 920,497 (505,994) 414,503
2004.................................... 133,125 (112,266) 20,859
---------- ----------- ----------
$4,099,300 $(2,300,639) $1,798,661
========== =========== ==========
</TABLE>
F-13
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Discontinued Operations (continued)
Agreements to process, fund and deliver loans contain representations and
warranties regarding the repurchase of loans due to fraud, misrepresentation
and other failures to comply with agreements. During the years ended December
31, 1998 and 1999, no customers requested the repurchase of any loans.
4. Property and Equipment
The components of property and equipment are as follows at December 31:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Computers and equipment............................. $1,707,783 $ 2,704,344
Furniture........................................... 125,080 761,962
---------- -----------
1,832,863 3,466,306
Less accumulated depreciation and amortization...... (765,161) (1,438,947)
---------- -----------
$1,067,702 $ 2,027,359
========== ===========
</TABLE>
Computers and equipment also includes $1,069,079 of cost and $638,393 of
accumulated depreciation related to assets held under capital lease at December
31, 1999.
5. Subordinated debt
In October 1998, IMX entered into a subordinated loan and security agreement
(the "Loan Agreement") with a finance company. The total amount of the Loan
Agreement is $3,000,000, which is available to IMX in two phases of $1,500,000.
In connection with Phase I of the Loan Agreement, IMX issued the finance
company a warrant to purchase 125,806 shares of Series C redeemable convertible
preferred stock at an exercise price of $1.55 per share.
The warrant is exercisable for a period of seven years or three years from
the effective date of an initial public offering of IMX's unissued common
stock, whichever is shorter. IMX deemed the fair value of the warrant to be
$45,290. This amount has been recorded as a discount on the subordinated loan
and as additional paid-in capital. IMX amortized $1,709 and $15,381 of the
discount to interest expense for the years ended December 31, 1998 and 1999,
respectively.
Phase I was immediately available to IMX and had an outstanding balance of
$1,412,523 and $982,358 at December 31, 1998 and 1999, respectively. The
outstanding amount shown on the balance sheet is net of the unamortized
discount of $43,581 and $28,200 at December 31, 1998 and 1999, respectively,
representing the unamortized fair value of warrants granted to the finance
company. The balance outstanding at December 31, 1999 is due in 23 equal
monthly installments of $49,166. The Loan Agreement is secured by a pledge of
all IMX assets not otherwise encumbered and bears interest at 11.5% per annum.
Phase II is available in installments of $500,000 and is available subject
to due diligence and approval from the finance company. Under Phase II, IMX
will be required to meet certain earnings requirements as defined by the Loan
Agreement. In the event that IMX utilizes any of the Phase II installments, the
finance company will have the right to purchase 41,935 shares of Series C
redeemable convertible preferred stock at an exercise price of $1.55 per share
for each $500,000 drawn down by IMX.
The carrying amount reported in the balance sheet for subordinated debt
approximates its fair value.
F-14
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Commitments and Contingencies
IMX leases certain facilities and equipment under noncancelable operating
and capital lease agreements. Future minimum payments including purchase
options under these leases with initial or remaining terms of one year or more
relating to continuing operations consist of the following at December 31,
1999:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- --------
<S> <C> <C>
Year ending December 31,
2000.................................................... $ 693,104 $492,350
2001.................................................... 723,360 246,583
2002.................................................... 723,360 --
2003.................................................... 753,500 --
2004.................................................... 690,708 --
---------- --------
Total minimum lease payments.............................. $3,584,032 738,933
==========
Less amounts representing interest........................ (72,707)
--------
Present value of net minimum capital lease payments....... 666,226
Less current portions of capital lease obligations........ (446,825)
--------
Obligations under capital leases, less current portions... $219,401
========
</TABLE>
Rent expense under operating leases totaled $285,282, $277,084 and $283,902
for the years ended December 31, 1997, 1998 and 1999, respectively.
During December 1999 and January 2000, IMX committed approximately $800,000
to purchase various software systems related to website content management and
personalization, e-marketing campaign automation, client relationship
management, accounting and financial reporting, and a report writing tool for
use in operating the Exchange. In addition, IMX has committed to pay up to $2.5
million to certain strategic partners if designated software development
milestones are achieved and certain broker membership goals are attained.
7. Redeemable Convertible Preferred Stock
At December 31, 1999, IMX was authorized to issue 27,139,328 shares of
redeemable convertible preferred stock in one or more series. Redeemable
convertible preferred stock ("preferred stock") consisted of the following at
December 31, 1999:
<TABLE>
<CAPTION>
Shares Shares Issued Liquidation
Series Authorized and Outstanding (1) Preference
- ------ ---------- ------------------- -----------
<S> <C> <C> <C>
A.................................... 4,216,216 4,216,216 $ 1,950,000
B.................................... 4,981,179 4,970,179 6,000,000
C.................................... 8,741,933 6,822,579 10,575,000
D.................................... 9,200,000 8,763,958 20,770,580
---------- ---------- -----------
Totals............................... 27,139,328 24,772,932 $39,295,580
========== ========== ===========
</TABLE>
- --------
(1) The per share issuance price for Series A, B, C and D was $0.4625, $1.2072,
$1.55 and $2.37, respectively.
F-15
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Redeemable Convertible Preferred Stock (continued)
Voting
The holder of each share of preferred stock is entitled to the number of
votes equal to the number of shares of common stock into which each share of
preferred stock could be converted, and has voting rights and powers equal to
the voting rights and powers of the common stock.
Dividends
The holders of shares of Series D preferred stock, in preference to the
holders of any other stock of IMX, are entitled to receive dividends at the
rate of $0.1422 per annum on each outstanding share of Series D preferred stock
(as adjusted for any stock dividends, combinations or splits with respect to
such shares).
If, after dividends in full preferential amount for Series D preferred stock
have been paid or declared, then the holders of Series C preferred stock, in
preference to the holders of Series B preferred stock and common stock, are
entitled to receive dividends at the rate of $0.093 per annum on each
outstanding share of Series C preferred stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares).
If, after dividends in full preferential amount for Series D and Series C
preferred stock have been paid or declared, then the holders of shares of
Series B preferred stock, in preference to the holders of Series A preferred
stock and common stock, are entitled to receive dividends at the rate of
$0.07243 per annum on each outstanding share of Series B preferred stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares).
If, after dividends in the full preferential amount for Series D, Series C
and Series B preferred stock have been paid or declared, then the holders of
Series A preferred stock shall be entitled to receive dividends, out of any
assets that are legally available, in preference to the holders of common stock
at the rate of $0.02775 per annum on each outstanding share of Series A
preferred stock (as adjusted for any stock dividends, combinations or splits
with respect to such shares).
If, after dividends in the full preferential amount specified above for the
preferred stock has been paid or declared in any calendar year, and the Board
of Directors declares additional dividends out of funds legally available in
that calendar year, then those additional dividends shall de declared pro rata
on the common stock and the preferred stock according to the number of shares
of common stock held, where each holder of preferred stock is to be treated as
holding the greatest whole number of shares of common stock then issuable upon
conversion of all shares of preferred stock held.
Such dividends are payable when, as and if declared by the Board of
Directors, but only out of funds that are legally available, and are non-
cumulative. As of December 31, 1999, the Board of Directors has declared no
dividends on the redeemable convertible preferred stock or common stock.
F-16
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Redeemable Convertible Preferred Stock (continued)
Conversion
Each share of preferred stock is convertible, at the option of the holder,
into the number of fully-paid and nonassessable shares of common stock,
according to a conversion ratio, subject to adjustment for dilution. Each share
of preferred stock automatically converts into the number of shares of common
stock into which such shares are convertible at the then effective conversion
ratio (currently one to one) upon: (1) the closing of a public offering of
common stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, at a price per share of at least $7.2432
(as adjusted for stock dividends, stock splits, or other recapitalizations),
with gross proceeds of at least $15.0 million, or (2) the affirmative vote of
the holders of at least two-thirds of the outstanding shares of the preferred
stock.
Liquidation
In the event of any liquidation, dissolution or winding up of IMX, whether
voluntary or involuntary, the holders of preferred stock are entitled to
receive, prior and in preference to any distribution of any assets of IMX to
the holders of common stock, by reason of their ownership, an amount equal to
the sum of (i) $0.4625 for each share of Series A preferred stock, $1.2072 for
each share of Series B preferred stock, $1.55 for each share of Series C
preferred stock, and $2.37 for each share of Series D preferred stock (as
adjusted for stock dividends, stock splits, or other recapitalizations), and
(ii) any declared but unpaid dividends with respect to such shares. If, upon
the occurrence of a liquidation event, the assets and funds distributed among
the holders of the preferred stock are insufficient to permit the payment to
such holders of the full preferential amount, then the entire assets and funds
of IMX legally available for distribution are to be distributed ratably among
the holders of the preferred stock, in proportion to the preferential amount
each such holder is otherwise entitled to received.
After payment of the full liquidation preference of the preferred
stockholders, any remaining assets of IMX legally available are to be
distributed ratably to the holders of the common stock and preferred stock on
an as-if-converted to common stock basis until such time as the holders of
Series A, Series B, Series C and Series D preferred stock have received a total
liquidation amount of $2.775, $7.2432, $9.30 and $14.22 per share,
respectively. The remaining assets of IMX legally available for distribution,
if any, are to be distributed ratably to the holders of common stock.
Redemption
At any time after January 22, 2004, upon the request of the holders of at
least 66-2/3% of the outstanding preferred stock, IMX will within forty-five
days of the request, and on the first and second anniversary of the request
("the Redemption Dates"), redeem 33.3% of the number of shares of preferred
stock outstanding on the initial Redemption Date until all outstanding shares
of preferred stock have been redeemed or converted into common stock. IMX will
effect such redemptions on the applicable Redemption Date by paying in cash in
exchange for the shares of preferred stock to be redeemed a sum equal to
$0.4625 for each share of Series A preferred stock, $1.2072 for each share of
Series B preferred stock, $1.55 for each share of Series C preferred stock, and
$2.37 for each share of Series D preferred stock (as adjusted for any stock
dividends, combinations or splits), plus any declared but unpaid dividends with
respect to such shares.
If IMX does not have sufficient funds legally available to redeem all shares
to be redeemed at the Redemption Date (including, if applicable, those to be
redeemed at the option of IMX), then IMX
F-17
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Redeemable Convertible Preferred Stock (continued)
Redemption (continued)
shall redeem the maximum number of such shares ratably among the holders of the
preferred stock to the extent possible and shall redeem the remaining shares to
be redeemed as soon as sufficient funds are legally available.
Antidilution Provisions
The conversion price of the preferred stock is subject to adjustment to
prevent dilution on a price-based weighted average basis in the event that IMX
issues additional shares of common stock or common stock equivalents at a
purchase price less than the then-effective conversion price provided, however,
that without triggering antidilution adjustments, IMX may issue to directors,
officers, employees or consultants shares of common stock that are reserved for
issuance under the 1996 Stock Plan (see Note 8) or otherwise part of the
employee pool as of the closing date plus any shares that were issued from the
employee pool and subsequently repurchased.
8. Stockholders' Deficit
Common Stock
In December 1996, IMX acquired all of the outstanding equity interests of
Industrywide Mortgage Exchange, LLC, a California limited liability company
(the "LLC"), in exchange for the issuance of 2,676,900 shares of its common
stock. Of the total shares issued, 1,721,300 common shares that vested over
time were issued to employees of the LLC. Until vested, those common shares
were subject to IMX's right, but not its obligation, to repurchase the common
shares in the event of termination of employment, death or disability at a
purchase price of $0.05 per share. In 1997, 105,000 of these common shares were
repurchased by IMX. At December 31, 1998, 12,034 shares issued to employees
were outstanding and unvested. At December 31, 1999, all 1,616,300 shares
issued to employees were outstanding and vested.
Stock Option Plan
Under the 1996 Stock Plan ("the Plan"), IMX offers options to purchase
shares of its common stock to employees, including officers and directors, and
consultants to IMX. At December 31, 1998 and 1999, IMX had reserved 3,861,100
and 5,966,100 shares of common stock for issuance through the Plan. Under the
Plan, participants may exercise their options prior to vesting; however, such
unvested shares are subject to IMX's right, but not its obligation, to
repurchase the common shares in the event of termination of employment, death
or disability at the original purchase price paid. In January 2000, IMX
increased the number of shares of common stock reserved for issuance through
the Plan to 7,718,961. The Plan is administered by the Board of Directors.
Under the Plan, the Board of Directors may award a number of forms of stock-
based compensation to eligible participants, including incentive stock options
("ISO's") and non-qualified stock options ("NQSO's"). The ISO's may be granted
at a price per share not less than the fair market value at the date of grant.
The NQSO's may be granted at a price per share not less than 85% of the fair
market value at the date of grant. The options generally vest over four years
and expire ten years after the date of grant. Restricted stock purchase rights
may also be granted under the Plan.
F-18
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Stockholders' Deficit (continued)
Stock Option Plan (continued)
The following summarizes stock option activity and related information
during the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Weighted -
Average
Number Exercise Price
of Shares per Share
---------- --------------
<S> <C> <C>
Outstanding at January 1, 1997.................... -- $ --
Granted.......................................... 3,028,243 0.052
Exercised........................................ (5,000) 0.046
Forfeited........................................ (200,500) 0.048
---------- ------
Outstanding at December 31, 1997.................. 2,822,743 0.052
Granted.......................................... 1,389,540 0.187
Exercised........................................ (276,458) 0.061
Forfeited........................................ (1,396,442) 0.072
---------- ------
Outstanding at December 31, 1998.................. 2,539,383 0.113
Granted.......................................... 3,575,339 0.417
Exercised........................................ (734,143) 0.082
Forfeited........................................ (626,544) 0.197
---------- ------
Outstanding at December 31, 1999.................. 4,754,035 $0.336
========== ======
Options vested at December 31, 1998............... 807,167 $0.052
========== ======
Options vested at December 31, 1999............... 1,091,965 $0.209
========== ======
</TABLE>
At December 31, 1999, there were 198,131 options to purchase common stock
available for future grant.
Exercise prices for stock options outstanding as of December 31, 1999 and
the weighted average remaining contractual life are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
-------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life (Years) Price Vested Price
-------- ----------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.046 510,000 7.45 $0.046 353,490 $0.046
0.150 103,281 8.03 0.150 49,104 0.150
0.200 779,915 8.72 0.200 243,768 0.200
0.350 1,865,599 9.28 0.350 445,603 0.350
0.500 1,495,240 9.70 0.500 -- --
--------- ---------
4,754,035 1,091,965
========= =========
</TABLE>
The fair value of these awards for the purpose of the alternative fair value
disclosures required by SFAS 123 was estimated as of the date of grant as
prescribed by SFAS 123. The fair value of options granted during the years
ended December 31, 1997, 1998 and 1999 was determined using the minimum value
method with a risk free interest rate of 5.73%, 4.70% and 6.35%, respectively,
an expected life of four years, and a dividend yield of zero.
F-19
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Stockholders' Deficit (continued)
Stock Option Plan (continued)
For the purposes of IMX's pro forma disclosures, the estimated fair value of
the options is amortized to expense over the option's vesting period. IMX's pro
forma information follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Loss from continuing operations:
As reported...................... $(6,044,418) $ (8,165,038) $(13,223,548)
Pro forma........................ (6,049,690) (8,173,346) (13,288,608)
Basic and diluted loss from
continuing operations per common
share
As reported...................... $ (2.79) $ (3.12) $ (3.98)
Pro forma........................ (2.80) (3.12) (4.00)
Net loss:
As reported...................... $(6,044,418) $(13,906,618) $(13,223,548)
Pro forma........................ (6,049,690) (13,914,926) (13,288,608)
Basic and diluted net loss per
common share
As reported...................... $ (2.79) $ (5.31) $ (3.98)
Pro forma........................ (2.80) (5.32) (4.00)
</TABLE>
Because the determination of fair value granted after IMX becomes a public
entity will include an expected volatility factor and because additional option
grants are expected to be made each year, the compensation expense for each of
the three years ended December 31, 1999 are not representative of the pro forma
effects of option grants on reported net loss for future years.
Deferred Stock Compensation
In connection with certain stock option grants, IMX recognizes deferred
stock compensation representing the difference between the exercise price and
the deemed fair value of IMX's common stock on the date such stock options were
granted. IMX is amortizing the deferred stock compensation over the vesting
period of the related options, generally four years. The fair value per share
used to calculate deferred stock compensation was derived by reference to the
redeemable convertible preferred stock values, reduced by a discount factor.
The total unearned compensation recorded by IMX during the year ended
December 31, 1999 was $2,334,679. Future compensation charges are subject to
reduction for any employee who terminates employment prior to the expiration of
such employee's option vesting period. The amortization of unearned
compensation during the year ended December 31, 1999 totaled $604,532.
Through February 9, 2000, IMX issued 1,608,839 additional stock options to
employees. These options were issued at exercise prices subsequently determined
to be less than the fair value of the common stock at the date of the grant. As
a result, IMX expects to record unearned compensation of approximately $4.8
million related to these stock options.
F-20
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Stockholders' Deficit (continued)
Warrants
IMX had the following outstanding warrants to purchase its securities at
December 31, 1999:
<TABLE>
<CAPTION>
Number of Exercise Number of
Warrants Price Warrants
Issued Per Share Exercisable
--------- --------- -----------
<S> <C> <C> <C>
Series B redeemable convertible preferred
stock.................................... 11,000 $1.21 11,000
Series C redeemable convertible preferred
stock.................................... 125,806 $1.55 125,806
------- -------
136,806 136,806
======= =======
</TABLE>
These warrants were issued to third parties for loan fees. Expenses related
to the deemed fair value of these warrants for loans were not material. The
warrants expire in 2002 and 2003.
In connection with strategic alliances with providers of loan origination
software, IMX committed to issue warrants to purchase up to 1,150,000 shares
of Series D redeemable convertible preferred stock at an exercise price of
$4.75 per share upon the successful release of software including an embedded
IMX connector. The warrants expire ten years from the issue date. No expense
related to these warrants has been recorded as of December 31, 1999, as
delivery of a successful release has not yet occurred.
9. Defined Contribution 401(k) Plan
IMX sponsors a defined contribution 401(k) plan offering tax-deferred
investment opportunities to substantially all of its employees who have
completed at least one month of service. Employees may elect to make both pre-
tax and after-tax contributions based on certain limits established by the
Internal Revenue Service. IMX may elect to make contributions to the 401(k)
plan in an amount determined at its discretion. No contributions to the 401(k)
plan were made by IMX for the years ended December 31, 1997, 1998 or 1999.
10. Income Taxes
There was no benefit for income taxes for the years ended December 31,
1997, 1998 and 1999 due to IMX's inability to recognize the benefit of net
operating losses. At December 31, 1999, IMX had net operating loss
carryforwards of approximately $31.3 million for federal and $23.5 million for
state income tax purposes. The federal net operating loss carryforwards will
begin to expire in the year 2011. The state net operating loss carryforwards
will begin to expire in the year 2004.
F-21
<PAGE>
IMX EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Income Taxes (continued)
The primary components of temporary differences, which give rise to deferred
taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 6,357,000 $ 12,043,000
Reserve for discontinued operations.............. 1,460,000 361,000
Research credit carryforward..................... 108,000 230,000
----------- ------------
Total deferred tax assets....................... 7,925,000 12,634,000
Valuation allowance............................... (7,925,000) (12,634,000)
----------- ------------
$ -- $ --
=========== ============
</TABLE>
Management evaluates the recoverability of the deferred tax asset and the
level of the valuation allowance. Due to the uncertainty surrounding the
realization of the favorable tax attributes in future tax returns, IMX has
recorded a valuation allowance against its net deferred tax asset at
December 31, 1998 and 1999. At such time as it is determined that it is more
likely than not that the deferred tax asset will be realizable, the valuation
allowance will be reduced.
Because of the "change in ownership" provisions of the Internal Revenue
Code, a portion of IMX's net operating carryforwards and tax credit
carryforwards could be subject to an annual limitation regarding their
utilization against taxable income in future periods. As a result of the annual
limitation, a portion of these carryforwards may expire before becoming
ultimately available to reduce future income tax liabilities.
11. Proposed Initial Public Offering and Other Subsequent Events
On March 1, 2000, IMX's Board of Directors authorized IMX to file a
registration statement with the Securities and Exchange Commission for the
purpose of the initial public offering of IMX's unissued common stock. If the
initial public offering is consummated under the terms presently anticipated,
all of IMX's outstanding redeemable preferred stock will automatically convert
into common stock. All outstanding shares of redeemable convertible preferred
stock will be canceled and retired. Upon the conversion of the redeemable
convertible preferred stock, all rights to accrued and unpaid dividends are
waived. Additionally, upon the completion of the offering, IMX will be
authorized to issue shares of undesignated preferred stock. The Board of
Directors will have the authority to determine the price, rights, preferences,
privileges and restrictions of the preferred stock. At December 31, 1999, on an
unaudited pro forma basis, 24,772,932 shares of common stock would be issued
upon automatic conversion of the preferred stock. The pro forma effect on
stockholders' deficit and pro forma effect on basic and diluted net loss per
common share, as adjusted for the assumed conversion of the preferred stock, is
set forth on the accompanying balance sheet and statement of operations, and in
Note 2 under Net Loss per Common Share.
In February and March 2000, IMX issued 3,925,961 shares of Series E
redeemable convertible preferred stock to various investors at $4.00 per share,
with aggregate gross proceeds to IMX of approximately $15.7 million. The terms
of the Series E redeemable convertible preferred stock are substantially the
same as IMX's other redeemable convertible preferred stock issuances. As a
result of the Series E redeemable convertible preferred stock offering, the
public offering price at which each share of redeemable convertible preferred
stock converts to common stock increased from $7.2432 per share to $8.00 per
share.
F-22
<PAGE>
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in the
prospectus is current only as of its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 20
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 30
Management............................................................... 48
Certain Transactions..................................................... 58
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 64
Underwriting............................................................. 66
Legal Matters............................................................ 68
Experts.................................................................. 68
Where You Can Find Additional Information................................ 68
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. Dealers are also
obligated to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
[IMX LOGO]
IMX Exchange, Inc.
Shares
Common Stock
Deutsche Banc Alex. Brown
J.P. Morgan & Co.
SG Cowen
E*OFFERING
Prospectus
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale and distribution of the common stock being registered. All
amounts shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market
application fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 15,180
NASD filing fee.................................................. 5,500
Nasdaq National Market application fee........................... 95,000
Blue sky qualification fees and expenses......................... 6,000
Printing and engraving expenses.................................. 250,000
Legal fees and expenses.......................................... 375,000
Accounting fees and expenses..................................... 375,000
Director and officer liability insurance......................... 200,000
Transfer agent and registrar fees................................ 4,000
Miscellaneous expenses........................................... 68,320
----------
Total........................................................ $1,400,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant has entered into separate indemnification agreements (Exhibit 10.1)
with its directors and officers that require the Registrant, among other
things, to indemnify them against certain liabilities which may arise by reason
of their status or service (other than liabilities arising from willful
misconduct of a culpable nature). The Registrant also intends to maintain
director and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
Item 15. Recent Sales of Unregistered Securities.
(a) Since January 1, 1997, the Registrant has issued and sold the following
unregistered securities:
1. From inception January 1, 1997 through February 29, 2000, the
Registrant issued options to purchase an aggregate of 8,954,822
shares of common stock to employees and consultants under its 1996
Stock Plan, of which 2,758,298 have been exercised and 2,257,257
have been cancelled. 1,667 shares of common stock purchased through
the exercise of options have been repurchased by IMX.
2. In August 1997, the Registrant sold 4,970,179 shares of Series B
preferred stock to a group of venture capital investors at a price
of $1.2072 per share, for an aggregate purchase price of $6,000,000.
II-1
<PAGE>
3. In March and July 1998, the Registrant sold 6,822,579 shares of
Series C preferred stock to a group of venture capital and corporate
investors at a price of $1.55 per share, for an aggregate purchase
price of $10,574,997.
4. In January 1999, the Registrant sold 8,763,958 shares of Series D
preferred stock to a group of venture capital and corporate
investors at a price of $2.37 per share, for an aggregate purchase
price of $20,770,580.
5. In February and March 2000, the Registrant sold 3,925,961 shares of
its Series E preferred stock to a group of venture capital and
corporate investors and individual accredited investors at a
purchase price of $4.00 per share, for an aggregate purchase price
of $15,703,844.
6. In June 1997, the Registrant issued a warrant to purchase 11,000
shares of Series B preferred stock to an equipment lessor at an
exercise price per share of $1.2072.
7. In March 1998, the Registrant issued a warrant to purchase 125,806
shares of Series C preferred stock to a finance company at an
exercise price per share of $1.55.
8. In December 1998, the Registrant issued to an executive recruiter
6,450 shares of common stock.
9. In April 1999, the Registrant issued to an executive recruiter an
additional 6,450 shares of common stock.
10. In January 2000, the Registrant issued 88,569 shares of common
stock to the estate of a founder pursuant to an agreement entered
into with the founder prior to his death.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.
For additional information concerning these equity investment transactions,
see the section entitled "Certain Transactions" in the prospectus.
The issuances described in Items 15(a)(1) through 15(a)(10) were deemed
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as transactions by an issuer not involving a public
offering. Certain issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other
instruments issued in such transactions. All recipients either received
adequate information about IMX or had access, through employment or other
relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules.
(a)Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ---------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of Registrant
3.2 Amended and Restated Bylaws of Registrant
*3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering
4.1 Fourth Amended and Restated Investor Rights Agreement dated February
18, 2000, between IMX and the investors and the estate of the founder
as named therein
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ---------------------------------------------------------------------
<C> <S>
*4.2 Specimen certificate representing the common stock
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP
10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers
*10.2 1996 Stock Plan
*10.3 2000 Employee Stock Purchase Plan
10.4 Series B Preferred Stock Purchase Agreement dated August 12, 1997
10.5 Series C Preferred Stock Purchase Agreement dated March 3, 1998
10.6 Series D Preferred Stock Purchase Agreement dated January 22, 1999
10.7 Series E Preferred Stock Purchase Agreement dated February 18, 2000
10.8 Employment Agreement between Registrant and Richard E. Wilkes
effective May 1, 1999
10.9 Bishop Ranch Business Park Business Lease between the Registrant and
Annabel Investment Company dated July 16, 1999
+10.10 Agreement between the Registrant and Contour Software, Incorporated
dated September 29, 1999
+10.11 Agreement between the Registrant and Byte Enterprises, Incorporated
dated October 8, 1999
+10.12 Agreement between the Registrant and Calyx Technology, Inc. dated
January 27, 2000
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, independent auditors
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested as to a portion of this Exhibit.
(b)Financial Statement Schedules.
Not applicable.
Item 17. Undertakings
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions 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 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 hereunder, 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the 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; and
(2) For the purpose of determining any liability under the Securities Act of
1933, 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 the time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in San Ramon, State of California, on
March 8, 2000.
IMX EXCHANGE, INC.
By: /s/ Richard E. Wilkes
__________________________________
Richard E. Wilkes
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Richard E. Wilkes and Jeffrey A. Pullen,
and each of them acting individually, as his true and lawful attorneys-in-fact
and agents, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments or any abbreviated registration statement
and any amendments thereto filed pursuant to Rule 462(b) increasing the number
of securities for which registration is sought), 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, with full power of each to act alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or his or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------ ---------------------------- ---------------
<S> <C> <C>
/s/ Richard E. Wilkes President, Chief Executive March 8, 2000
____________________________________ Officer and Director
Richard E. Wilkes (Principal Executive Officer)
/s/ Jeffrey A. Pullen Senior Vice President and March 8, 2000
____________________________________ Chief Financial Officer
Jeffrey A. Pullen (Principal Financial and
Accounting Officer)
/s/ Jay C. Hoag Director March 8, 2000
____________________________________
Jay C. Hoag
/s/ John R. Hummer Director March 8, 2000
____________________________________
John R. Hummer
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------ ---------------------------- ---------------
<S> <C> <C>
/s/ William H. Lacy Director March 8, 2000
____________________________________
William H. Lacy
/s/ Fred P. Phillips IV Director March 8, 2000
____________________________________
Fred P. Phillips IV
/s/ Derek Proudian Director March 8, 2000
____________________________________
Derek Proudian
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ---------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of Registrant
3.2 Amended and Restated Bylaws of Registrant
*3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering
4.1 Fourth Amended and Restated Investor Rights Agreement dated February
18, 2000, between IMX and the investors and the estate of the founder
as named therein
*4.2 Specimen certificate representing the common stock
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP
10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers
*10.2 1996 Stock Plan
*10.3 2000 Employee Stock Purchase Plan
10.4 Series B Preferred Stock Purchase Agreement dated August 12, 1997
10.5 Series C Preferred Stock Purchase Agreement dated March 3, 1998
10.6 Series D Preferred Stock Purchase Agreement dated January 22, 1999
10.7 Series E Preferred Stock Purchase Agreement dated February 18, 2000
10.8 Employment Agreement between Registrant and Richard E. Wilkes
effective May 1, 1999
10.9 Bishop Ranch Business Park Business Lease between the Registrant and
Annabel Investment Company dated July 16, 1999
+10.10 Agreement between the Registrant and Contour Software, Incorporated
dated September 29, 1999
+10.11 Agreement between the Registrant and Byte Enterprises, Incorporated
dated October 8, 1999
+10.12 Agreement between the Registrant and Calyx Technology, Inc. dated
January 27, 2000
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, independent auditors
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested as to a portion of this Exhibit.
<PAGE>
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IMX EXCHANGE, INC.
IMX Exchange, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is IMX Exchange, Inc. The original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on November 6, 1996, under the name of IMX, Inc.
2. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
I.
The name of this corporation is IMX Exchange, Inc.
II.
The address of the registered office of this corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19081. The name of this corporation's registered
agent at said address is The Corporation Trust Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
(A) Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock to be designated, respectively "Common Stock" and "Preferred Stock".
The total number of shares which the corporation is authorized to issue is
Eighty One Million Thirty Five Thousand Five Hundred Forty Four (81,035,544)
shares. Fifty Million (50,000,000) shares shall be Common Stock and Thirty One
Million Thirty Five Thousand Five Hundred Forty Four (31,035,544) shares shall
be Preferred Stock. This corporation is authorized to issue five series of
Preferred Stock, one of which shall be known as Series A Preferred Stock (the
"Series A Preferred Stock") and shall consist of Four Million Two Hundred
Sixteen Thousand Two Hundred and Sixteen (4,216,216), one of which shall be
known as Series B Preferred Stock ("Series B Preferred Stock") and shall consist
of Four Million Nine Hundred Eighty One Thousand One Hundred Seventy Nine
(4,981,179) shares, one of which shall be known as
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Series C Preferred Stock (the "Series C Preferred Stock") and shall consist of
Seven Million Seventy-Four Thousand One Hundred Ninety-One (7,074,191) shares,
one of which shall be known as Series D Preferred Stock ("Series D Preferred
Stock") and shall consist of Eight Million Seven Hundred Sixty Three Thousand
Nine Hundred Fifty Eight (8,763,958) shares and one of which shall be known as
Series E Preferred Stock ("Series E Preferred Stock") and shall consist of Six
Million (6,000,000) shares. Except as specifically set forth herein, reference
hereafter to "Preferred Stock" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock. The Preferred Stock shall have a par
value of one-tenth of one cent ($.001) per share and the Common Stock shall have
a par value of one-tenth of one cent ($.001) per share.
(B) Rights, Preferences and Restrictions of Preferred Stock. The rights,
-------------------------------------------------------
preferences, privileges, and restrictions granted to and imposed on the
Preferred Stock are as set forth below in this Article IV(B).
1. Dividend Provisions.
-------------------
(a) The holders of Series E Preferred Stock shall be entitled to
receive dividends, out of any 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
holders thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Series D Preferred Stock, Series C Preferred
Stock, Series B Preferred Stock, Series A Preferred Stock and Common Stock of
this corporation, at the rate of $0.32 per share per annum (adjusted to reflect
stock dividends, stock splits or other recapitalizations with respect to the
Series E Preferred Stock), payable when, as and if declared by the Board of
Directors of this corporation (the "Board"). Such dividends shall not be
cumulative.
(b) If, after dividends in the full preferential amount specified
in Section 1(a) for the Series E Preferred Stock have been paid or declared and
set apart in any calendar year of this corporation, the holders of shares of
Series D Preferred Stock shall be entitled to receive dividends, out of any
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 holders thereof to receive,
directly or indirectly, additional shares of Common Stock of this corporation)
on the Series C Preferred Stock, Series B Preferred Stock, Series A Preferred
Stock and Common Stock of this corporation, at the rate of $0.1422 per share per
annum (adjusted to reflect stock dividends, stock splits or other
recapitalizations with respect to the Series D Preferred Stock), payable when,
as and if declared by the Board. Such dividends shall not be cumulative.
(c) If, after dividends in the full preferential amount specified
in Sections 1(a) and 1(b) for the Series E Preferred Stock and the Series D
Preferred Stock have been paid or declared and set apart in any calendar year of
this corporation, the holders of shares of Series C Preferred Stock shall be
entitled to receive dividends, out of any 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
2
<PAGE>
holders thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Series B Preferred Stock, Series A Preferred
Stock and Common Stock of this corporation, at the rate of $0.093 per share per
annum (adjusted to reflect stock dividends, stock splits or other
recapitalizations with respect to the Series C Preferred Stock), payable when,
as and if declared by the Board. Such dividends shall not be cumulative.
(d) If, after dividends in the full preferential amount specified
in Sections 1(a), 1(b) and 1(c) for the Series E Preferred Stock, the Series D
Preferred Stock and the Series C Preferred Stock have been paid or declared and
set apart in any calendar year of this corporation, the holders of shares of
Series B Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any declaration or
payment of any dividends payable (other than in Common Stock or other securities
and rights convertible into or entitling the holders thereof to receive,
directly or indirectly additional shares of Common Stock of this corporation) on
the Series A Preferred Stock and Common Stock of this corporation, at the rate
of $0.07243 per share, per annum (adjusted to reflect stock dividends, stock
splits or other recapitalizations with respect to the Series B Preferred Stock),
payable when, as and if declared by the Board. Such dividends shall not be
cumulative.
(e) If, after dividends in the full preferential amount specified
in Sections 1(a), 1(b), 1(c) and 1(d) for the Series E Preferred Stock, the
Series D Preferred Stock, the Series C Preferred Stock and the Series B
Preferred Stock have been paid or declared and set apart in any calendar year of
this corporation, the holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividends payable
(other than in Common Stock or other securities and rights convertible into or
entitling the holders thereof to receive, directly or indirectly additional
shares of Common Stock of this corporation) on the Common Stock of this
corporation, at the rate of $0.02775 per share, per annum (adjusted to reflect
stock dividends, stock splits or other recapitalizations with respect to the
Series A Preferred Stock), payable when, as and if declared by the Board. Such
dividends shall not be cumulative.
(f) If, after dividends in the full preferential amounts
specified in Sections 1(a), 1(b), 1(c), 1(d) and 1(e) for the Preferred Stock
have been paid or declared and set apart in any calendar year of this
corporation, the Board shall declare additional dividends out of funds legally
available therefor in that calendar year, then such additional dividends shall
be declared pro rata on the Common Stock and the Preferred Stock according to
the number of shares of Common Stock held by such holders, where each holder of
shares of Preferred Stock is to be treated for this purpose as holding the
greatest whole number of shares of Common Stock then issuable upon conversion of
all shares of Preferred Stock held by such holder pursuant to Section 3.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of 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, an amount per share equal to the sum of (i)
$0.4625 per share for each share of Series A Preferred Stock, $1.2072 per share
for
3
<PAGE>
each share of Series B Preferred Stock, $1.55 per share for each share of Series
C Preferred Stock, $2.37 per share for each share of Series D Preferred Stock
and $4.00 per share of Series E Preferred Stock (adjusted to reflect stock
dividends, stock splits or other recapitalizations with respect to such series
of Preferred Stock), and (ii) any 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 Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the corporation legally available for distribution
shall be distributed ratably among the holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive under this subsection (a).
(b) If there are any assets remaining after the payment or
distribution (or the setting aside for payment or distribution) to the holders
of the Preferred Stock of their full preferential amounts described in Section
2(a) above, then all such remaining assets shall be distributed among the
holders of the then outstanding Common Stock and Preferred Stock pro rata
according to the number of shares of Common Stock held by such holders (where,
for this purpose, holders of shares of Preferred Stock will be deemed to hold
(in lieu of their Preferred Stock) the greatest whole number of shares of Common
Stock then issuable upon conversion in full of such shares of Preferred Stock
pursuant to Section 3) until, with respect to the holders of Series A Preferred
Stock, such holders shall have received an aggregate of $2.775 per share as
adjusted for any stock splits, stock dividends, recapitalizations or the like
with respect to such shares, and including amounts paid pursuant to Section 2(a)
above), and until, with respect to the holders of Series B Preferred Stock, such
holders shall have received an aggregate of $7.2432 per share (as adjusted for
any stock splits, stock dividends, recapitalizations or the like with respect to
such shares, and including amounts paid pursuant to Section 2(a) above), and
until, with respect to the holders of Series C Preferred Stock, such holders
shall have received an aggregate of $9.30 per share (as adjusted for any stock
splits, stock dividends, recapitalizations or the like with respect to such
shares, and including amounts paid pursuant to Section 2(a) above) and until,
with respect to the holders of Series D Preferred Stock, such holders have
received an aggregate of $14.22 per share (as adjusted for any stock splits,
stock dividends, recapitalizations or the like with respect to such shares, and
including amounts paid pursuant to Section 2(a) above) and until, with respect
to the holders of Series E Preferred Stock, such holders have received an
aggregate of $16.00 per share (as adjusted for any stock splits, stock
dividends, recapitalizations or the like with respect to such shares, and
including amounts paid pursuant to Section 2(a) above); thereafter, if assets
remain in this corporation, the holders of the Common Stock of this corporation
shall receive all of the remaining assets of this corporation pro rata based on
the number of shares of Common Stock held by each such holder.
(c) (i) A consolidation or merger of this corporation with or
into any other corporation or corporations, or a sale, transfer, lease,
conveyance or disposition of all or substantially all of the assets of this
corporation or the effectuation by this corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
corporation is disposed of, shall be deemed to be a liquidation, dissolution or
winding up of this corporation with the meaning of this Section 2, unless the
stockholders of this corporation immediately prior to such transaction own,
immediately following the consummation of such transaction by virtue of their
shares in this corporation and/or securities received in exchange for
4
<PAGE>
their shares in this corporation in connection with such transaction, at least
fifty percent (50%) of the voting power of the surviving or purchasing entity in
substantially similar proportions to each holder's interest in this corporation
prior to such transaction.
(ii) In any of such events, if the consideration received
by this corporation is other than cash, its value will be deemed its fair market
value as mutually determined in good faith by the Board of Directors and the
holders of at least a majority of the voting power of all then outstanding
Preferred Stock.
(iii) This corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than ten
(10) days prior to the stockholders' meeting called to approve such transaction,
or ten (10) 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,
and this corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than ten
(10) days after this corporation has given the first notice provided for herein
or sooner than ten (10) days after this corporation has given notice of any
material changes provided for herein. Notwithstanding the foregoing, the periods
described in this paragraph may be shortened upon the written consent of the
holders of Preferred Stock that are entitled to such notice rights or similar
notice rights and that represent at least a majority of the voting power of all
then outstanding shares of such Preferred Stock.
3. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Subject to subsection (c), each share of Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of this corporation or
any transfer agent for the Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $0.4625, with
respect to the Series A Preferred Stock, (the "Original Series A Issue Price"),
or $1.2072, with respect to the Series B Preferred Stock (the "Original Series B
Issue Price"), or $1.55, with respect to the Series C Preferred Stock (the
"Original Series C Issue Price"), or $2.37, with respect to the Series D
Preferred Stock (the "Original Series D Issue Price"), or $4.00, with respect to
the Series E Preferred Stock (the "Original Series E Issue Price"),
respectively, by the Conversion Price at the time in effect for such share. The
initial Conversion Price per share for shares of Series A Preferred Stock shall
be the Original Series A Issue Price, the initial Conversion Price per share for
shares of Series B Preferred Stock shall be the Original Series B Issue Price,
the initial Conversion Price per share for shares of Series C Preferred Stock
shall be the Original Series C Issue Price, the initial Conversion Price per
share for shares of Series D Preferred Stock shall be the Original Series D
Issue Price and the initial Conversion Price per share for shares of Series E
Preferred Stock shall be the Original Series E Issue Price; provided, however,
that the Conversion Price for the Series A, Series B, Series C, Series D and
Series E Preferred Stock shall be subject to adjustment as set forth in
subsection 3(c).
5
<PAGE>
(ii) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such Preferred Stock immediately upon the earlier of (A) the closing
of this corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended (the "Securities Act"), the public offering
price of which was not less than $8.00 per share (adjusted to reflect stock
dividends, stock splits or other recapitalizations) and in excess of $15,000,000
in the aggregate or (B) with respect to each series of Preferred Stock, the date
upon which the corporation obtains the consent of the holders of two-thirds
(2/3) of the then outstanding shares of such series of Preferred Stock. In the
event of an offering referred to above in this clause (ii), the person(s)
entitled to receive the Common Stock issuable upon such conversion of Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such underwritten public offering.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, 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 of Preferred Stock,
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 immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, 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 in connection with an underwritten offer of
securities registered pursuant to the Securities Act, the conversion may, at the
option of any holder tendering Preferred Stock for conversion, be conditioned
upon the closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(c) Conversion Price Adjustments of Preferred Stock. The
-----------------------------------------------
Conversion Price of the Preferred Stock shall be subject to adjustment from time
to time as follows:
(i) (A) If, after the date upon which any shares of Series E
Preferred Stock were first issued, the corporation shall issue any Additional
Stock (as defined below) without consideration or for a consideration per share
less than the Conversion Price for the Series A, Series B, Series C, Series D or
Series E Preferred Stock in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price for the Series A, Series B, Series C,
Series D or Series E Preferred Stock, 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 number of shares of
Common Stock outstanding immediately prior to such issuance
6
<PAGE>
plus the number of shares of Common Stock which the aggregate consideration
received by this corporation for the total number of shares of Additional Stock
so issued would purchase at such Conversion Price; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of shares of Additional Stock so issued. The
number of shares of Common Stock outstanding immediately prior to such issuance
shall be calculated on a fully diluted basis, as if all shares of Preferred
Stock and all Convertible Securities (as defined below) had been fully converted
into shares of Common Stock immediately prior to such issuance and any
outstanding Options (as defined below) had been fully exercised immediately
prior to such issuance (and the resulting securities fully converted into shares
of Common Stock, if so convertible) as of such date, but not including in such
calculation any additional shares of Common Stock issuable with respect to
shares of Preferred Stock, Convertible Securities or Options, solely as a result
of the adjustment of the Conversion Price resulting from the issuance of
Additional Stock causing such adjustment. "Options" shall mean rights, options
or warrants to subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities. "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(B) No adjustment of the Conversion Price for the
Preferred Stock shall be made in an amount less than one cent per share,
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 (E)3
and (E)4, no adjustment of such Conversion Price pursuant to this subsection
3(c)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable 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.
(D) In the case of the issuance of the Common Stock for
a 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 in good
faith by the Board of Directors.
(E) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common 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 subsection 3(c)(i) and
subsection 3(c)(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 Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for
7
<PAGE>
a consideration equal to the consideration (determined in the manner provided in
subsections 3(c)(i) and 3(c)(i)(D)), if any, received by this 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 this 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 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
subsections 3(c)(i)(C) and 3(c)(i)(D)).
(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
Conversion Price of the Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be 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.
(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 Conversion Price of the Series A, Series B, Series C, Series D,
or Series E Preferred Stock, 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 subsections
3(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
3(c)(i)(E)(3) or (4).
8
<PAGE>
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 3(c)(i)(E))
by this corporation after the date of the initial issuance of shares of Series E
Preferred Stock (the "Purchase Date"), other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 3(c)(iii), 3(c)(iv), 3(d) or 3(e) hereof.
(B) Up to 8,366,100 shares of Common Stock issued (or
deemed to have been issued pursuant to subsection 3(c)(i)(E)) to directors,
officers, employees and/or consultants of this corporation pursuant to
arrangements approved by the Board of Directors of this corporation, including
options that are outstanding as of the Purchase Date, provided that the
foregoing number of shares shall be adjusted to reflect stock dividends, stock
splits or other recapitalizations.
(C) (i) Up to 11,000 shares of Series B Preferred Stock
issuable on exercise of Series B Preferred Stock warrants outstanding as of the
Purchase Date (ii) up to 125,806 shares of Series C Preferred Stock issuable on
exercise of Series C Preferred Stock warrants outstanding as of the Purchase
Date, (iii) warrants to purchase up to 125,806 shares of Series C Preferred
Stock issuable pursuant to commitments in effect as of the Purchase Date, and
any shares of Series C Preferred Stock issuable upon exercise of such warrants,
(iv) up to 1,150,000 shares of Series E Preferred Stock issuable on exercise of
the Series E Preferred Stock warrants issuable pursuant to commitments in effect
as of the Purchase Date or (vi) Common Stock issuable on conversion of Series A,
Series B, Series C, Series D or Series E Preferred Stock.
(D) Up to 50,000 shares of Common Stock in the
aggregate issued after the date of this Fifth Amended and Restated Certificate
of Incorporation pursuant to unanimous approval by the Board of Directors of
this corporation that the Board of Directors unanimously determines are
specifically excluded from the antidilution provisions of this subsection 3(c)
hereof.
(E) Common Stock issued or issuable in connection with
equipment lease financing transactions or bank financing transactions
unanimously approved by the Board of Directors, where the issuance of such
shares is not principally for the purpose of raising additional equity capital
for the corporation.
(F) Up to 88,569 shares of Common Stock issued to
Stephen K. Fraser pursuant to a consulting agreement approved by the Board of
Directors of the corporation.
(iii) In the event this corporation should at any time or
from time to time after the Purchase Date 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 entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock
9
<PAGE>
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock 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), the Conversion Price of the Series
A, Series B, Series C, Series D and Series E Preferred Stock 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 Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, as of the record date of such
combination (or the date of such combination if no record date is fixed), the
Conversion Price for the Series A, Series B, Series C, Series D and Series E
Preferred Stock 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.
(d) 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 subsection 3(d), then,
in each such case for the purpose of this subsection 3(c)(iii), the holders of
the 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 this corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of this corporation entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time to
-----------------
time there shall be a recapitalization of the Common Stock (other than a stock
split, subdivision, dividend, distribution or combination provided for elsewhere
in this Section 3 or a liquidation event provided for in Section 2), provision
shall be made so that the holders of the Preferred Stock shall thereafter be
entitled to receive upon conversion of the Preferred Stock the number of shares
of stock or other securities or property of the corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3 with
respect to the rights of the holders of the Preferred Stock after the
recapitalization to the end that the provisions of this Section 3 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by
-------------
amendment of its Certificate 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 3 and in the taking of all
such action as may be necessary or
10
<PAGE>
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(g) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of
the Preferred Stock, and the number of shares of Common Stock to be issued shall
be rounded to the nearest whole share. The number of shares of Common Stock
issuable upon such conversion shall be determined on the basis of the total
number of shares of 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 Conversion Price of Preferred Stock pursuant to this Section 3, 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 Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock 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 Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this
----------------------
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, this
corporation shall mail to each holder of 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 of such dividend, distribution or right.
(i) 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 the 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 the 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 the 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 its best efforts to obtain
stockholder approval of any necessary amendment to the Certificate of
Incorporation of this corporation.
11
<PAGE>
(j) Notices. Any notice required by the provisions of this
-------
Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
4. Redemption.
----------
(a) Upon request of the holders of at least a majority of
the outstanding Series E Preferred Stock, either (i) at any time after February
17, 2003, or (ii) if the corporation redeems any shares of Series A, Series B,
Series C or Series D Preferred Stock, this corporation shall, on the date that
is 45 days following the time when the request is received or such later date as
is specified in the request (the "Series E Redemption Date"), redeem all shares
of Series E Preferred Stock outstanding on the Series E Redemption Date. At the
time of redemption, each holder of Series E Preferred Stock shall concurrently
surrender such holder's certificates representing such shares and this
corporation shall, to the extent it may lawfully do so, redeem the shares by
paying in cash therefor a sum per share equal to $4.00 per share of Series E
Preferred Stock (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all declared but unpaid dividends on such
shares (the "Series E Redemption Price").
(b) If the funds of this corporation legally available for
redemption of shares of Series E Preferred Stock on the Series E Redemption Date
are insufficient to redeem the total number of shares of Series E Preferred
Stock to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of such shares ratably among the
holders of such shares to be redeemed based on the amounts payable to them under
subsection (a). The shares of Series E Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein.
(c) At any time thereafter when additional funds of this
corporation are legally available for the redemption of shares of Series E
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares that this corporation has become obliged to redeem on the Series E
Redemption Date but that it has not redeemed.
(d) At least fifteen (15) but no more than thirty (30) days
prior to the Series E 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 E
Preferred Stock 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 on the Series E Redemption Date, specifying the number of shares to be
redeemed from such holder, the Series E Redemption Date, the Series E 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 "Series E Redemption Notice"). Except as provided in subsection
4(b), on or after the Series E Redemption Date, each holder of Series E
Preferred Stock to be redeemed on the Series E Redemption Date shall surrender
to this corporation the certificate or certificates representing such shares, in
the manner and at the place designated in the Series E Redemption Notice, and
thereupon the applicable Series E Redemption Price of
12
<PAGE>
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 less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(e) At any time after January 22, 2004, upon request of the
holders of at least 66-2/3% of the outstanding Series A, Series B, Series C and
Series D Preferred Stock voting together as a single class, this corporation
shall, on the date that is 45 days following the time when the request is
received or such later date as is specified in the request (the "Initial
Redemption Date"), and on each of the first and second anniversary of the
Initial Redemption Date (such anniversary dates and the Initial Redemption Date
each being referred to herein as a "Redemption Date") redeem 33-1/3% of the
number of shares of Series A, Series B, Series C and Series D Preferred Stock
outstanding on the Initial Redemption Date until all outstanding shares of
Series A, Series B, Series C and Series D Preferred Stock shall have been
redeemed or converted into Common Stock. At the time of redemption, each holder
shall concurrently surrender such holder's certificates representing such shares
and this corporation shall, to the extent it may lawfully do so, redeem the
shares by paying in cash therefor a sum per share equal to $0.4625 per share of
Series A Preferred Stock (as adjusted for any stock dividends, combinations or
splits with respect to such shares) plus all declared but unpaid dividends on
such shares (the "Series A Redemption Price"), $1.2072 per share of Series B
Preferred Stock (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus all declared but unpaid dividends on such
shares (the "Series B Redemption Price"), $1.55 per share of Series C Preferred
Stock (as adjusted for any stock dividends, combinations or splits with respect
to such shares) plus all declared but unpaid dividends on such shares (the
"Series C Redemption Price") and $2.37 per share of Series D Preferred Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus all declared but unpaid dividends on such shares (the "Series D
Redemption Price").
(f) If the funds of this corporation legally available for
redemption of shares of Series A, Series B, Series C and Series D Preferred
Stock on any Redemption Date are insufficient to redeem the total number of
shares of Series A, Series B, Series C and Series D Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed based on the amounts payable to them under
subsection (e). The shares of Series A, Series B, Series C and
Series D Preferred Stock not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein.
(g) At any time thereafter when additional funds of this
corporation are legally available for the redemption of shares of Series A,
Series B, Series C and Series D Preferred Stock, such funds will immediately be
used to redeem the balance of the shares that this corporation has become
obliged to redeem on any Redemption Date but that it has not redeemed.
(h) 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 A,
Series B, Series C and Series D Preferred Stock to be redeemed, at the
13
<PAGE>
address last shown on the records of this corporation for such holder, notifying
such holder of the redemption to be effected on the applicable Redemption Date,
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"). Except as provided in
subsection 4, on or after each Redemption Date, each holder of Series A, Series
B, Series C and Series D Preferred Stock to be redeemed on such Redemption Date
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 applicable Redemption Price of 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 less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
(i) Notwithstanding the provisions of subsections (a), (b),
(c), (e), (f) and (g), in the event a Redemption Date and a Series E Redemption
Date are at any time scheduled to both occur within the following 12 months, if
the funds of this Corporation are legally available for redemption of Series A,
Series B, Series C, Series D and Series E Preferred Stock on the earlier of such
Redemption Date or Series E Redemption Date (the "Earlier Redemption Date") are
insufficient to redeem the total number of shares of Series A, Series B, Series
C, Series D and Series E Preferred Stock to be redeemed on such Redemption Date
and Series E Redemption Date (collectively, the "Combined Redemption Dates"),
then, on the Earlier Redemption Date, those funds that would legally be
available to redeem such shares on the Combined Redemption Dates will be used
(as to the shares to be redeemed on the Earlier Redemption Date) or set aside
(as to the other shares to be redeemed pursuant to this Section 4) to redeem the
maximum possible number of such shares ratably among the holders of such shares
based on the amounts payable to them under subsection (a) or (e), as
appropriate. The shares of Series A, Series B, Series C, Series D and Series E
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when additional
funds of this corporation are legally available for the redemption of shares of
Series A, Series B, Series C, Series D and Series E Preferred Stock, such funds
will immediately be used or set aside, as applicable, to redeem the balance of
the shares that this corporation has become obliged to redeem on any Redemption
Date or Series E Redemption Date but that it has not redeemed.
5. Voting Rights. The holder of each share of Preferred Stock
-------------
shall have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted (with any fractional share determined on
an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shall have full voting rights and powers
equal (except as otherwise provided below) to the voting rights and powers of
the holders of Common Stock, and shall be entitled, notwithstanding any
provision hereof but subject to Section 6 below, to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and 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.
14
<PAGE>
6. Board of Directors.
------------------
(a) Board Size. The authorized number of directors of the
----------
corporation's Board of Directors shall be six (6). The corporation shall not
alter the authorized number of directors in this Certificate of Incorporation,
its Bylaws or otherwise, except by an amendment to this Fifth Amended and
Restated Certificate of Incorporation.
(b) Election. So long as at least 1,000,000 shares of Series A
--------
Preferred Stock remain outstanding, the holders of the Series A Preferred Stock,
voting as a separate class, shall be entitled to elect one (1) director of the
corporation. So long as at least 1,000,000 shares of Series B Preferred Stock
remain outstanding, the holders of Series B Preferred Stock, voting as a
separate class, shall be entitled to elect one (1) director of the corporation.
So long as at least 1,000,000 shares of Series C Preferred Stock remain
outstanding, the holders of the Series C Preferred Stock, voting as a separate
class, shall be entitled to elect one (1) director of the corporation. So long
as at least 1,000,000 shares of Series D Preferred Stock remain outstanding, the
holders of the Series D Preferred Stock, voting as a separate class, shall be
entitled to elect one (1) director of the corporation. So long as at least
1,000,000 shares of Series E Preferred Stock remain outstanding, the holders of
the Series E Preferred Stock, voting as a separate class, shall be entitled to
elect one (1) director of the corporation. The one (1) remaining director shall
be elected by the holders of the Preferred Stock and Common Stock voting
together, on an as-if-converted basis, as a single class and not as separate
series. In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this section 6, the remaining directors
so elected by that class or series may, by affirmative vote of a majority
thereof (or the remaining director so elected if there be but one, or if there
are no such directors remaining, by the affirmative vote of the holders of a
majority of the shares of that class or series), elect a successor or successors
to hold office for the unexpired term of the director or directors whose place
or places shall be vacant. Any director who shall have been elected by the
holders of a class or series of stock or by any directors so elected as provided
in the immediately preceding sentence hereof may be removed during the aforesaid
term of office, either with or without cause, by, and only by, the affirmative
vote of the holders of the shares of the class or series of stock entitled to
elect such director or directors, given either at a special meeting of such
stockholders duly called for that purpose or pursuant to a written consent of
stockholders, and any vacancy thereby created may be filled by the holders of
that class or series of stock represented at the meeting or pursuant to
unanimous written consent.
7. Restrictions and Limitations.
----------------------------
(a) So long as shares of Series A, Series B, Series C, Series D
or Series E Preferred Stock remain outstanding, the corporation shall not,
without the approval, by vote or written consent, of the holders of a majority
of the Series A, Series B, Series C, Series D and Series E Preferred Stock then
outstanding, each voting as a separate series (to the extent any shares of such
series are then outstanding):
(i) amend this Fifth Amended and Restated Certificate of
Incorporation so as to change or adversely affect any right, preference or
privilege or the
15
<PAGE>
authorized number of shares of Series A, Series B, Series C, Series D or Series
E Preferred Stock, as the case may be;
(ii) reclassify any outstanding shares of securities of
the corporation into shares having rights, preferences or privileges senior to
or on a parity with the Series A, Series B, Series C, Series D or Series E
Preferred Stock;
(iii) authorize or issue any equity security, including any
security exercisable or convertible into an equity security, having rights,
privileges or preferences senior to or on a parity with the Series A, Series B,
Series C, Series D or Series E Preferred Stock;
(iv) effectuate a consolidation or merger of this
corporation with or into any other corporation or corporations, or a transaction
or series of related transactions in which more than 50% of the voting power of
the corporation is disposed of, unless the stockholders of this corporation
immediately prior to such transaction own, immediately following the
consummation of such transaction by virtue of their shares in this corporation
and/or securities received in exchange for their shares in this corporation in
connection with such transaction, more than fifty percent (50%) of the voting
power of the surviving or purchasing entity in proportions substantially similar
to those that existed immediately prior to such transaction;
(v) sell, transfer, lease, convey or dispose of all or
substantially all the corporation's assets in a single transaction or series of
related transactions;
(vi) liquidate or dissolve;
(vii) declare or pay a dividend on Common Stock, other than
a dividend payable solely in shares of Common Stock;
(viii) redeem or acquire any shares of its Common Stock or
Preferred Stock; provided, however, that this restriction, shall not apply to
the mandatory redemption under Section 4 or the repurchase of shares of Common
Stock held by employees, officers, directors, consultants or other persons
performing services for this corporation pursuant to arrangements approved by
the Board of Directors under which this corporation has the option to repurchase
such shares upon the occurrence of certain events, such as the termination of
employment; or
(ix) incur any indebtedness which has equity participation
rights or is issued in conjunction with any equity securities, including any
security exercisable or convertible into an equity security, representing in
excess of 5% of the Company's outstanding capital stock.
(b) So long as 1,000,000 shares of any series of Preferred Stock
remain outstanding, the corporation shall not, without the approval, by vote or
written consent, of the holders of two-thirds (2/3) of the outstanding shares of
such series of Preferred Stock, amend Section 3(a)(ii) of this Article IV(B) to
change the proportion of shares of that series whose consent is necessary to
cause the automatic conversion of outstanding shares of that series.
16
<PAGE>
8. Section 305. So long as any shares of Preferred Stock remain
-----------
outstanding, the corporation will not, without approval of holders of a majority
of the Preferred Stock then outstanding, voting together on an as-converted
basis, do any act or thing which would result in taxation of the holders of
shares of Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
9. Status of Converted or Redeemed Stock. In the event any shares
-------------------------------------
of Preferred Stock shall be converted or redeemed pursuant to Section 3 or
Section 4 hereof, the shares so converted or redeemed shall be canceled, shall
not be reissuable by the corporation, and shall cease to be a part of the
authorized capital stock of the corporation.
(C) Common Stock.
------------
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. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote for each share, and shall be entitled to notice of
any stockholders' meeting 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. The right to vote for directors shall be subject to Section 6
of Division (B) of this Article IV.
V.
(A) Limitation of Directors' Liability. The liability of the directors of
----------------------------------
this corporation for monetary damages shall be eliminated to the fullest extent
permissible under Delaware law.
(B) Indemnification of Corporate Agents. To the fullest extent permitted
-----------------------------------
by applicable law, this corporation is authorized to provide indemnification of
(and advancement of expenses to) directors, officers, employees and other agents
of this corporation (and any other persons to which Delaware law permits this
corporation to provide indemnification), through Bylaw provisions, agreements
with any such director, officer, employee or other agent or other person, vote
of stockholders or disinterested directors, or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware law (statutory or nonstatutory), with respect to actions for breach of
duty to a corporation, its stockholders and others.
17
<PAGE>
(C) Repeal or Modification. Any repeal or modification of the foregoing
----------------------
provisions of this Article by the stockholders of this corporation shall not
adversely affect any right or protection of an agent of the corporation existing
at the time of such repeal or modification.
3. This Fifth Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this corporation.
4. This Fifth Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228 and 245 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, IMX Exchange, Inc. has caused this Fifth Amended and
Restated Certificate of Incorporation to be signed by the Vice President on this
17th day of February, 2000.
IMX Exchange, Inc.
By: /s/ Jeffrey A. Pullen
-----------------------------
Jeffrey A. Pullen
Senior Vice President, Secretary
and Chief Financial Officer
18
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
IMX EXCHANGE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 STOCKHOLDERS.................................................................................. 1
1.1 ANNUAL MEETINGS............................................................................... 1
1.2 SPECIAL MEETINGS.............................................................................. 1
1.3 NOTICE OF MEETINGS............................................................................ 1
1.4 ADJOURNMENTS.................................................................................. 1
1.5 QUORUM........................................................................................ 1
1.6 ORGANIZATION.................................................................................. 2
1.7 VOTING; PROXIES............................................................................... 2
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD....................................... 2
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................................................... 3
1.10 ACTION BY CONSENT OF STOCKHOLDERS............................................................. 3
ARTICLE 2 BOARD OF DIRECTORS............................................................................ 4
2.1 NUMBER; QUALIFICATIONS........................................................................ 4
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES..................................................... 4
2.3 REGULAR MEETINGS.............................................................................. 4
2.4 SPECIAL MEETINGS.............................................................................. 4
2.5 TELEPHONIC MEETINGS PERMITTED................................................................. 4
2.6 QUORUM; VOTE REQUIRED FOR ACTION.............................................................. 4
2.7 ORGANIZATION.................................................................................. 4
2.8 INFORMAL ACTION BY DIRECTORS.................................................................. 5
ARTICLE 3 COMMITTEES.................................................................................... 5
3.1 COMMITTEES.................................................................................... 5
3.2 COMMITTEE RULES............................................................................... 5
ARTICLE 4 OFFICERS...................................................................................... 5
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION: REMOVAL; VACANCIES............................................................... 5
4.2 POWERS AND DUTIES OF OFFICERS................................................................. 6
4.3 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS.................................................. 6
ARTICLE 5 STOCK......................................................................................... 6
5.1 CERTIFICATES.................................................................................. 6
5.2 LOST; STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES.................... 6
ARTICLE 6 INDEMNIFICATION............................................................................... 6
6.1 RIGHT TO INDEMNIFICATION...................................................................... 6
6.2 PREPAYMENT OF EXPENSES........................................................................ 7
6.3 CLAIMS........................................................................................ 7
6.4 NON-EXCLUSIVITY OF RIGHTS..................................................................... 7
6.5 OTHER INDEMNIFICATION......................................................................... 7
6.6 AMENDMENT OR REPEAL........................................................................... 7
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 7 MISCELLANEOUS.............................................................. 7
7.1 FISCAL YEAR................................................................ 7
7.2 DESIGNATION OF AUDITORS.................................................... 7
7.3 DRAFT OPERATING BUDGET AND BALANCE SHEET................................... 7
7.4 MANAGEMENT ACCOUNTS........................................................ 8
7.5 BALANCE SHEET & PROFIT AND LOSS STATEMENT.................................. 8
7.6 FURTHER INFORMATION........................................................ 8
7.7 SEAL....................................................................... 8
7.8 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES..... 8
7.9 INTERESTED DIRECTORS; QUORUM............................................... 8
7.10 FORM OF RECORDS............................................................ 9
7.11 AMENDMENT OF BY-LAWS....................................................... 9
7.12 NOTICE..................................................................... 9
</TABLE>
-ii-
<PAGE>
BY-LAWS
OF
IMX EXCHANGE, INC.
ARTICLE 1
STOCKHOLDERS
------------
1.1 ANNUAL MEETINGS. An annual meeting of stockholders shall be held for
---------------
the election of directors at such date, time and place, either within or without
the State of Delaware, as may be designated by resolution of the Board of
Directors from time to time. Any other proper business may be transacted at the
annual meeting.
1.2 SPECIAL MEETINGS. Special meetings of stockholders for any purpose or
----------------
purposes may be called at any time by the Board of Directors, or by a committee
of the Board of Directors which has been duly designated by the Board of
Directors and whose powers and authority, as expressly provided in a resolution
of the Board of Directors, include the power to call such meetings, but such
special meetings may not be called by any other person or persons.
1.3 NOTICE OF MEETINGS. Whenever stockholders are required or permitted
------------------
to take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, the certificate of incorporation or these by-
laws, the written notice of any meeting shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting. If mailed, such notice shall be deemed to be given
when deposited in the mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
1.4 ADJOURNMENTS. Any meeting of stockholders, annual or special, may
------------
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
1.5 QUORUM. Except as otherwise provided by law, the certificate of
------
incorporation or these by-laws, at each meeting of stockholders the presence in
person or by proxy of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to constitute
a quorum. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 1.4 of these by-laws until a quorum shall attend. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such
1
<PAGE>
other corporation is held, directly or indirectly, by the corporation, shall
neither be entitled to vote nor be counted for quorum purposes, provided,
however, that the foregoing shall not limit the right of the corporation to
vote stock, including, but not limited to its own stock, held by it in a
fiduciary capacity.
1.6 ORGANIZATION. Meetings of stockholders shall be presided over by the
------------
Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the President, or in his absence by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
1.7 VOTING; PROXIES. Except as otherwise provided by the certificate of
---------------
incorporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by him which has
voting power upon the matter in question. Each stockholder entitled to vote at
a meeting of stockholders may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date
with the Secretary of the corporation. Voting at meetings of stockholders need
not be by written ballot and need not be conducted by inspectors of election
unless so determined by the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote thereon which are present in person or by proxy at such
meeting. At all meetings of stockholders for the election of directors a
plurality of the votes cast shall be sufficient to elect. All other elections
and questions shall, unless otherwise provided by law, the certificate of
incorporation or these by-laws, be decided by the vote of the holders of shares
of stock having a majority of the votes which could be cast by the holders of
all shares of stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.
1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order
-------------------------------------------------------
that the corporation may determine the stockholders entitled to notice of or to
vote at any meeting stockholders or any adjournment thereof or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors and
which record date: (1) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than sixty nor less than ten days before
the date of such meeting; (2) in the case of determination of stockholders
entitled to express consent to corporate action in writing without a meeting,
shall not be more than ten days from the date upon which the resolution fixing
the record date is adopted by the Board of
2
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Directors; and in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall prepare
-------------------------------------
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the
willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
1.10 ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise restricted by the
---------------------------------
certificate of incorporation, any action required or permitted to be taken at
any annual or special meeting of the stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having 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 thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
3
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ARTICLE 2
BOARD OF DIRECTORS
------------------
2.1 NUMBER; QUALIFICATIONS. The Board of Directors shall consist of such
----------------------
number of persons as shall be determined from time to time by the Board of
Directors. Directors need not be stockholders.
2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES. The Board of Directors
-----------------------------------------
shall initially consist of the persons named as directors in the incorporator's
statement and each director so elected shall hold office until the first annual
meeting of stockholders or until his successor is elected and qualified. At the
first annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors each of whom shall hold office for a term of
one year or until his successor is elected and qualified. Any director may
resign at any time upon written notice to the corporation. Any newly created
directorship or any vacancy occurring in the Board of Directors for any cause
may be filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum, or by a plurality of the votes
cast at a meeting of stockholders, and each director so elected shall hold
office until the expiration of the term of office of the director whom he has
replaced or until his successor is elected and qualified.
2.3 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
----------------
held at such places within or without the State of Delaware and at such times as
the Board of Directors may from time to time determine, and if so determined
notices thereof need not be given.
2.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
----------------
held at any time or place within or without the State of Delaware whenever
called by the President, any Vice President, the Secretary, or by any member of
the Board of Directors. Notice of a special meeting of the Board of Directors
shall be given by the person or persons calling the meeting at least twenty-four
hours before the special meeting.
2.5 TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors, or
-----------------------------
any committee designated by the Board of Directors, may participate in a meeting
thereof by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this by-law shall constitute presence in
person at such meeting.
2.6 QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board of
--------------------------------
Directors a majority of the whole Board of Directors shall constitute a quorum
for the transaction of business. Except in cases in which the certificate of
Incorporation or these by-laws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
2.7 ORGANIZATION. Meetings of the Board of Directors shall be presided
------------
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the President, or in their
absence by a chairman chosen at the meeting. The
4
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Secretary shall act as secretary of the meeting, but in his absence the chairman
of the meeting may appoint any person to act as secretary of the meeting.
2.8 INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted by the
----------------------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board of Directors
or such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or such committee.
ARTICLE 3
COMMITTEES
----------
3.1 COMMITTEES. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such a absent or disqualified member. Any such
committee, to the extent permitted by law and to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
3.2 COMMITTEE RULES. Unless the Board of Directors otherwise provides,
---------------
each committee designated by the Board of Directors may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article 2 of these by-laws.
ARTICLE 4
OFFICERS
--------
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
-------------------------------------------------------------
RESIGNATION: REMOVAL; VACANCIES. All officers of the corporation shall be
- -------------------------------
appointed by the Board of Directors. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting or upon written consent of the Board
of Directors.
5
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4.2 POWERS AND DUTIES OF OFFICERS. The officers of the corporation shall
-----------------------------
have such powers and duties in the management of the corporation as may be
prescribed by the Board of Directors and, to the extent not so provided, as
generally pertain to their respective offices, subject to the control of the
Board of Directors. The Board of Directors may require any officer, agent or
employee to give security for the faithful performance of his duties.
4.3 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS. No officer shall take
--------------------------------------------
any action, enter into any agreement, make any representation or, by purposeful
inaction, effect any of the actions or decisions which the Board of Directors is
prohibited or restricted from enacting pursuant to this Section 4 hereof or any
other section of these Bylaws and their further amendments or the certificate of
incorporation.
ARTICLE 5
STOCK
-----
5.1 CERTIFICATES. Every holder of stock shall be entitled to have a
------------
certificate signed by or in the name of the corporation by the Chairman or Vice
Chairman of the Board of Directors, if any, or the President or Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the corporation, certifying the number of shares owned by him in
the corporation. Any of or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. No
certificates may be issued without the written consent of the Board of
Directors.
5.2 LOST; STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
-------------------------------------------------------------
CERTIFICATES. The corporation may issue a new certificate of stock in the place
- ------------
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE 6
INDEMNIFICATION
---------------
6.1 RIGHT TO INDEMNIFICATION. The corporation shall indemnify and hold
------------------------
harmless, to the fullest extent permitted by applicable law as presently exists
or may hereafter be amended, any person who was or is made or is threatened to
be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding") by
reason of the fact that he, or a person for whom he is the legal representative,
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including
6
<PAGE>
service with respect to employee benefit plans, against all liability and loss
suffered and expenses reasonably incurred by such person. The corporation shall
be required to indemnify a person in connection with a proceeding initiated by
such person only if the proceeding was authorized by the Board of Directors of
the corporation.
6.2 PREPAYMENT OF EXPENSES. The corporation shall pay the expenses
----------------------
incurred in defending any proceeding in advance of its final disposition,
provided, however, that the payment of expenses incurred by a director or
officer in advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this Article or otherwise.
6.3 CLAIMS. If a claim for indemnification or payment of expenses under
------
this Article is not paid in full within sixty days after a written claim
therefor has been received by the corporation the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
6.4 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
-------------------------
Article 6 shall not be exclusive of any other rights which such person may have
or hereafter acquire under any statute, provision of the certificate of
incorporation, these by-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
6.5 OTHER INDEMNIFICATION. The corporation's obligation, if any, to
---------------------
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or non-profit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation, partnership,
joint venture, trust, enterprise or non-profit enterprise.
6.6 AMENDMENT OR REPEAL. Any repeal or modification of the foregoing
-------------------
provisions of this Article 6 shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 FISCAL YEAR. The fiscal year of the corporation shall be fixed by
-----------
resolution of the board of directors and may be changed by the board of
directors.
7.2 DESIGNATION OF AUDITORS. The corporate accountants/auditors of the
-----------------------
corporation shall be determined from time to time by the Board of Directors.
7.3 DRAFT OPERATING BUDGET AND BALANCE SHEET. Before January 15 of each
----------------------------------------
year a detailed draft operating budget, including estimated major items of
revenue and capital expenditure, for the then current fiscal year, together with
a balance sheet showing the
7
<PAGE>
projected position of the company as at the end of the then current fiscal year
will be submitted by the corporation to the Board of Directors.
7.4 MANAGEMENT ACCOUNTS. Within twenty calendar days after the end of
-------------------
each calendar month, unaudited management accounts for the month then ended
shall be submitted to the Board of Directors by the corporation.
7.5 BALANCE SHEET & PROFIT AND LOSS STATEMENT. Within twenty-five
-----------------------------------------
calendar days after the end of each of the first three quarters of each fiscal
year of the corporation and within forty days after the end of the last quarter
of each fiscal year of the company, a balance sheet and a profit and loss
statement, all in reasonable detail, as determined by the Board of Directors
shall be submitted by the corporation to the Board of Directors.
7.6 FURTHER INFORMATION. The corporation shall promptly submit to the
-------------------
Board of Directors such further information relating to the business or
financial condition of the company as the Board of Directors shall request.
7.7 SEAL. The corporate seal shall have the name of the corporation
----
inscribed thereon and shall be in such form as may be approved from time to time
by the Board of Directors.
7.8 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
-----------------------------------------------------------
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
7.9 INTERESTED DIRECTORS; QUORUM. No contract or transaction between the
----------------------------
corporation and one or more of its directors or officers, or between the
corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be
8
<PAGE>
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
7.10 FORM OF RECORDS. Any records maintained by the corporation in the
---------------
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same and any record shall
at any time be made available to the Board of Directors or an individual
appointed by the Board of Directors.
7.11 AMENDMENT OF BY-LAWS. These by-laws may be altered or repealed, and
--------------------
new by-laws made, by the Board of Directors or stockholders.
7.12 NOTICE. All notices and other communications required or permitted
------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one business day after the business day of
delivery by facsimile transmission with copy by first class mail, postage
prepaid, and shall be addressed, if to a director or stockholder, to the
director or stockholder's address as it appears on the records of the Company,
and, if to the Company, at the address of its principal corporate offices
(attention: Secretary) or at such other address as designated by the addressee.
9
<PAGE>
EXHIBIT 4.1
IMX EXCHANGE, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Fourth Amended and Restated Investor Rights Agreement (this
"Agreement") is made as of February 18, 2000 by and among IMX Exchange, Inc., a
Delaware corporation (the "Company"), the Administrator of the estate of Stephen
K. Fraser (the "Founder"), the entities listed as "Investors" on signature pages
hereto (individually, an "Investor" and collectively, the "Investors"), and
First Corp. (the "Lender").
RECITALS
--------
WHEREAS, certain Investors (the "Prior Purchasers") purchased from the
Company and the Company sold to the Prior Purchasers an aggregate of 4,216,216
shares of Series A Preferred Stock pursuant to a Series A Preferred Stock
Purchase Agreement dated December 20, 1996 (the "Series A Purchase Agreement"),
4,970,179 shares of Series B Preferred Stock pursuant to a Series B Preferred
Stock Purchase Agreement dated August 12, 1997 (the "Series B Purchase
Agreement"), 6,822,579 shares of Series C Preferred Stock pursuant to a Series C
Preferred Stock Purchase Agreement dated March 3, 1998 (the "Series C Purchase
Agreement") and 8,763,958 shares of Series D Preferred Stock pursuant to a
Series D Preferred Stock Purchase Agreement dated January 22, 1999 (the "Series
D Agreement");
WHEREAS, the Lender holds a warrant to purchase 11,000 shares of the
Company's Series B Preferred Stock (the "Warrant");
WHEREAS, in connection with the Series A Purchase Agreement, the Series B
Purchase Agreement, the Series C Purchase Agreement, the Series D Purchase
Agreement and the Warrant, the Prior Purchasers and Stephen K. Fraser were
granted certain rights and privileges set forth in the Third Amended and
Restated Investor Rights Agreement dated January 22, 1999 (the "Prior Rights
Agreement");
WHEREAS, certain of the Investors and the Company have entered or will
enter into a Series E Preferred Stock Purchase Agreement (the "Series E Purchase
Agreement") dated the date hereof in which such Investors purchased or will
purchase from the Company and the Company sold or will sell to such Investors up
to 5,500,000 shares of Series E Preferred Stock;
WHEREAS, the obligations of the Company and such Investors under the Series
E Purchase Agreement are conditioned, among other things, upon the execution and
delivery of this Agreement by the Investors and the Company; and
WHEREAS, the Company, the Investors, the Founder and the Lender desire to
enter into this Agreement and to amend, restate and replace their rights under
the Prior Rights Agreement with the rights set forth in this Agreement as
provided in Section 16.1 of the Prior Rights Agreement;
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. Certain Definitions. All capitalized terms used and not otherwise
-------------------
defined herein shall have the meanings given them in the Series E Purchase
Agreement. 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.
"Common Stock" shall mean the Common Stock of the Company.
------------
"Conversion Stock" shall mean the Common Stock issued or issuable
----------------
pursuant to conversion of the Preferred Stock.
"Holder(s)" shall mean (i) any Investor holding Registrable
---------
Securities, (ii) any person holding Registrable Securities to whom the rights
under this Agreement have been transferred in accordance with Section 510
hereof, (iii) following any exercise of the Warrant, the Lender, and (iv) for
the limited purposes set forth in Section 52 hereof, the Founder.
"Initiating Holders" shall mean any Holders who in the aggregate hold
------------------
at least forty percent (40%) of the outstanding Registrable Securities.
"Permitted Holder(s)" shall mean any person holding registration
-------------------
rights as to whom the grant of such rights has been authorized in accordance
with Section 54 hereof.
"Preferred Stock" shall mean (i) the Series A Preferred Stock of the
---------------
Company issued pursuant to the Series A Purchase Agreement, the Series B
Preferred Stock of the Company issued pursuant to the Series B Purchase
Agreement, the Series C Preferred Stock of the Company issued pursuant to the
Series C Purchase Agreement, the Series D Preferred Stock of the Company issued
pursuant to the Series D Purchase Agreement and the Series E Preferred Stock of
the Company issued pursuant to the Series E Agreement, as such agreements may be
amended from time to time, and (ii) up to 11,000 shares of Series B Preferred
Stock of the Company issued to the Lender upon the exercise of the Warrant.
"Registrable Securities" means the Conversion Stock and any Common
----------------------
Stock of the Company issued or issuable in respect of the Conversion Stock upon
any stock split, stock dividend, recapitalization or similar event, or any
Common Stock otherwise issuable with respect to the Conversion Stock; provided,
however, that shares of Conversion Stock or other securities shall be treated as
Registrable Securities only if and so long as they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction.
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.
2
<PAGE>
"Registration Expenses" shall mean all expenses, except as otherwise
---------------------
stated below, incurred by the Company in complying with Sections 51, 52 and 53
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, the expense of any services of the
Company's independent auditors incident to or required by any such registration
including, without limitation, the expenses of any regular or special audits
incident to or required by such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company, and Selling Expenses) and the reasonable fees and disbursements of one
counsel for all Holders selected by the Holders and approved by the Company
(which consent will not be unreasonably withheld).
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 3 hereof (or any similar
legend).
"SBIC Investor" means an Investor that is a licensed Small Business
-------------
Investment Company.
"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, except as set forth under "Registration Expenses," all
reasonable fees and disbursements of counsel for any Holder.
2. Restrictions on Transferability. The Preferred Stock, the Conversion
-------------------------------
Stock and any other securities issued in respect of the Preferred Stock or the
Conversion Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event 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.
Each Investor or Lender, as the case may be, will cause any proposed purchaser,
assignee, transferee, or pledgee of any such shares held by such Investor or
Lender, as the case may be, to agree to take and hold such securities subject to
the provisions and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Preferred
------------------
Stock, (ii) the Conversion Stock, and (iii) any other securities issued in
respect of the Preferred Stock or the Conversion Stock upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 4 below) be stamped or
otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE
3
<PAGE>
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
Each Investor and/or Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Preferred Stock
or the Common Stock in order to implement the restrictions on transfer
established in this Agreement.
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 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership, (ii) in transactions
involving the transfer or distribution of Restricted Securities by a Holder that
is a partnership, corporation or limited liability company to (A) a partner of
such partnership, a stockholder of such corporation or member of such limited
liability company, (B) a retired partner of such partnership who retires after
the date hereof, (C) the estate of any such partner, stockholder or member, or
(D) an affiliate (as defined in Rule 405 under the Securities Act) of any such
partnership, corporation or limited liability company, (iii) in transactions
involving the transfer without consideration of Restricted Securities by the
Investor during his lifetime by way of gift or on death by will or intestacy,
(iv) in transactions involving the transfer or distribution of Restricted
Securities by a corporation or partnership to an affiliate (as defined in Rule
405 under the Securities Act) or (v) in transactions in compliance with Rule 144
(provided that the Holder provides a statement of circumstances to indicate that
Rule 144 is applicable), so long as each such transferee agrees in writing to be
bound by the terms of this Agreement), 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, if reasonably requested by the Company, by either (i) an unqualified
written opinion of legal counsel who shall be, 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, 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. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 3 above, except that such certificate shall not bear such restrictive
legend if, (i) in the opinion of counsel for such Holder and the Company, such
legend is not required in order to establish compliance with any provision of
the Securities Act; (ii) such transfer is made pursuant to Rule 144(k); or (iii)
such transfer is otherwise made pursuant to Rule 144 and counsel for the Company
does not deem it necessary to require such legend. Notwithstanding the
foregoing, no such opinion of counsel or "No Action" letter shall be necessary
for a transfer without value by an Investor to an affiliate (as such term is
defined in Rule 405 under the Securities Act) of such Investor, if the
transferee agrees in writing to be subject to the terms of this Agreement.
4
<PAGE>
5. Registration.
------------
5.1 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 more than forty
percent (40%) of the outstanding shares of the Registrable Securities, or any
lesser number of shares if the anticipated aggregate offering price, before
underwriting discounts and commissions, would exceed (i) with respect to the
first underwritten firm commitment public offering of securities of the Company,
Fifteen Million Dollars ($15,000,000) at a price per share of not less than
$8.00 (adjusted to reflect stock dividends, stock splits or other
recapitalizations), or (ii) with respect to any other public offering, Five
Million Dollars ($5,000,000), the Company will:
(i) within 20 days of receipt of such request, give
written notice of the proposed registration, qualification or compliance to all
other Holders; and
(ii) use its best efforts to effect, as soon as
practicable, such registration, qualification or compliance (including, without
limitation, the filing of 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 of such Registrable
Securities as are specified in such request, together with all 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 51:
(A) 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;
(B) Prior to the earlier of January 22, 2003 or six
months after the effective date of the Company's first registered public
offering of its stock;
(C) If the Company, within thirty (30) days of the
receipt of the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within ninety (90) days of receipt of such request (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), which registration statement is subject to Section 52 hereof, provided
that the Company in good faith uses all reasonable efforts to cause such
registration statement to become effective in a timely manner;
(D) During the period starting with the date of
filing of, and ending on the date 180 days immediately following the effective
date of, any registration statement pertaining to securities of the Company
(other than a registration of securities in a
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<PAGE>
Rule 145 transaction or with respect to an employee benefit plan) which
registration statement is subject to Section 52 hereof, provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(E) After the Company has effected two (2) such
registrations pursuant to this Section 51, and such registrations have been
declared or ordered effective and pursuant to which securities have been sold;
or
(F) If the Company shall furnish to such Initiating
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company or its stockholders for a registration
statement to be filed in the near future, in which case the Company's obligation
to use its best efforts to register, qualify or comply under this Section 51
shall be deferred for a period not to exceed 60 days from the date of receipt of
written request from the Initiating Holders, provided that the Company may not
exercise this deferred right more than twice per twelve-month period.
Subject to the foregoing clauses through , the Company shall
file a registration statement under the Securities Act 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. In the event that a registration pursuant to
------------
Section 51 is for a public offering involving an underwriting, the Company shall
so advise the Holders as part of the notice given pursuant to Section 51, and
the right of any Holder to include its Registrable Securities in such
registration pursuant to this Section 51 shall be conditioned upon such Holder's
participation in such underwriting arrangements, and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent requested
shall be limited 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, but subject to the Initiating Holders'
reasonable approval. Notwithstanding any other provision of this Section 51, if
the managing underwriter advises the Initiating Holders in writing 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, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders and Permitted Holders (which Permitted Holders have rights on par with
and not subordinate to the Holders) requesting registration in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities or
other securities entitled to registration rights held by such Holders or
Permitted Holders (which Permitted Holders have rights on parity with and not
subordinate to the 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 and registration shall not be reduced unless all
other securities of the Company not entitled to registration rights pursuant to
this Section 51 are first entirely excluded from the
6
<PAGE>
underwriting and registration, and thereafter, all securities held by the
Founder are entirely excluded from the underwriting and registration. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in any 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 Permitted Holder to the nearest 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 non-registered public distribution prior to 180 days after
the effective date of such registration, or such other shorter period of time as
the underwriters may require.
5.2 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to
----------------------
time the Company shall determine to register any of its equity securities,
either for its own account or for the account of a security holder or holders,
other than (A) a registration relating solely to employee benefit plans, or (B)
a registration relating solely to a Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof,
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company, by any Holder.
(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 52. In such event the right of any Holder to registration
pursuant to Section 52 shall be conditioned upon such Holder's participation in
such underwriting, and the inclusion of Registrable Securities in the
underwriting shall be limited 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 52, 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 Registrable Securities and other securities entitled
to registration rights to be included in such registration (i) in the case of
the Company's initial public offering, to zero, provided that any such
--------
limitation or "cut-back" shall first be applied to all shares proposed to be
sold in such offering other than for the account of the Company that are not
Registrable Securities or other securities entitled to registration rights, and
thereafter to all securities held by the Founder, and
7
<PAGE>
thereafter to shares proposed to be sold by stockholders with registration
rights other than those granted pursuant to this Agreement, and (ii) in the case
of any other offering, to an amount no less than twenty-five percent (25%) of
all shares to be included in such offering, provided that (x) any such
--------
limitation or "cut-back" shall first be applied to all shares proposed to be
sold in such offering other than for the account of the Company which are not
Registrable Securities or other securities entitled to registration rights, and
thereafter to all securities held by the Founder, and thereafter to shares
proposed to be sold by stockholders with registration rights other than those
granted pursuant to this Agreement, and (y) notwithstanding clause (x), in no
event shall any shares being sold by a stockholder exercising a demand
registration right similar to that granted in Section 51 be excluded from such
offering. The Company shall so advise all Holders and other holders distributing
their securities through such underwriting, and the number of shares of
Registrable Securities or other securities that may be included in the
registration and underwriting shall be first allocated among all the Holders and
Permitted Holders (which Permitted Holder has rights on parity with and not
subordinate to the Holders) in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities or other securities entitled to
registration rights held by such Holder or Permitted Holder at the time of
filing the Registration Statement. For purposes of the preceding sentence
concerning apportionment, for any Holder that is a partnership or corporation,
the partners, retired partners and stockholders of such Holder, together with
the estates and family members of any such partners and retired partners and any
trust for the benefit of any of the foregoing persons or any affiliate (as
defined in Rule 405 under the Securities Act) of the foregoing persons, shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
Holder shall be based upon the aggregate amount of Registrable Securities owned
by all such related entities and individuals. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocated to any Holder or Permitted Holder to the nearest 100 shares.
If any Holder or Permitted Holder disapproves of the terms
of any such underwriting, he 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 non-registered public distribution prior to 180
days after the effective date of the registration statement relating thereto, or
such other shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have
-------------------------------
the right to terminate or withdraw any registration initiated by it under this
Section 52 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 55 hereof.
(d) Registration Rights of Founder. The Founder shall be
------------------------------
entitled to include any shares of Common Stock of the Company held by him in any
registration that is subject to Section 52 above, subject to the limitations,
obligations and restrictions set forth in Section 52 above. In such event, the
Founder shall be deemed to be a "Holder" for purposes of Sections 56 and 57
hereof and this Section 52.
8
<PAGE>
5.3 Registration on Form S-3.
------------------------
(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities at such time as the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, and either (i) the reasonably anticipated
aggregate price to the public of such shares would equal or exceed $500,000 or
(ii) such Holder or Holders in the aggregate hold not less than twenty percent
(20%) of the outstanding Registrable Securities, then the Company shall use its
best efforts to cause such Registrable Securities to be registered for the
offering as soon as practicable on such form and to cause such Registrable
Securities to be qualified in such jurisdictions as such Holder or Holders may
reasonably request; provided, however, that the Company shall not be required to
effect more than two registrations pursuant to this Section 5.3 in any twelve
(12) month period. The Company shall promptly inform other Holders of the
proposed registration and offer them the opportunity to participate and shall
include in such registration all the Registrable Securities specified in a
written request or requests made within thirty (30) days after receipt of notice
from the Company by the Holder. In the event the registration is proposed to be
part of a firm commitment underwritten public offering, the substantive
provisions of Section 5.1(b) shall be applicable to each such registration
initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 53:
(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) if the Company, within thirty (30) days of the
receipt of the request of the initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within ninety (90) days of receipt of such request (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), which registration statement is subject to Section 52 hereof, provided
that the Company in good faith uses all reasonable efforts to cause such
registration statement to become effective in a timely manner;
(iii) during the period starting with the date of filing
of, and ending on the date 180 days immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan) which registration statement is subject to Section 52
hereof, provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or
(iv) if the Company shall furnish to such Holder or
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company or its stockholders for registration
statements to be filed in the near future, in which case the
9
<PAGE>
Company's obligation to use its best efforts to file a registration statement
shall be deferred for a period not to exceed sixty (60) days from the receipt of
the request to file such registration statement by such Holder or Holders,
provided that the Company may not exercise this deferral right more than twice
per twelve-month period.
5.4 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date hereof, the Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities without the written consent of the
holders of a majority of the Registrable Securities then outstanding, unless (i)
such other registration rights are subordinate to the registration rights
granted to the Holders hereunder and the inclusion of such securities will not
reduce the amount of the Registrable Securities of the Holders that are included
in a given registration, and (ii) the holders of such rights are subject to
market standoff obligations no more favorable to such persons than those
contained herein.
5.5 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with (i) two registrations pursuant to Section 51, (ii) all
registrations pursuant to Section 52, and (iii) all registrations pursuant to
Section 53, shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
5.6 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) 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 for at least one hundred
twenty (120) days or until the distribution described in the registration
statement has been completed, whichever first occurs;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus and final
prospectus, each in conformity with the Securities Act, and such other documents
as such Holders and 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
10
<PAGE>
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions;
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriters of such offering; each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or authorized for quotation
on each automated quotation system on which similar securities issued by the
Company are then listed or authorized for quotation;
(h) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities, and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities;
(i) Provide a transfer agent and registrar and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration; and
(j) In the event of any underwritten public offering, cooperate
with the participating Holders, the underwriters participating in the offering
and their counsel in any due diligence investigation reasonably requested by the
participating Holders or the underwriters in connection therewith, and
participate, to the extent reasonably requested by the managing underwriter for
the offering or the participating Holders, in efforts to sell the Registrable
Securities under the offering (including, without limitation, participating in
"roadshow" meetings with prospective investors) that would be customary for
underwritten primary offerings of a comparable amount of equity securities by
the Company.
11
<PAGE>
5.7 Indemnification.
---------------
(a) The Company will indemnify and hold harmless each Holder of
Registrable Securities included in a registration pursuant to this Agreement,
each of its officers and directors and partners, members, managers, stockholders
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 Agreement, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or 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 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 or
necessary to make the statements therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended, state securities law or any Rule or regulation
promulgated under the such laws 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, directors and partners, stockholders,
members, managers, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by any Holder, controlling person or underwriter and stated to be
specifically for use therein; provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the amended prospectus filed with
the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter, if a copy of the
Final Prospectus was not furnished to the person asserting the loss, liability,
claim or damage at or prior to the time such action is required by the
Securities Act, and if the Final Prospectus would have cured the defect giving
rise to the loss, liability, claim or damage; provided that such indemnity
agreement contained in this Section 57 shall not apply to amounts paid in
settlement of any such loss, liability, claim or damage if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld.
(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 and hold harmless 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, directors and
partners, stockholders, members, managers and each person controlling such
Holder within the meaning
12
<PAGE>
of Section 15 of the Securities Act, against all expenses, claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, partners, stockholders, members, managers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred, as such expenses are incurred, in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein. Notwithstanding the foregoing, the liability of
each Holder under this Section 57 shall be limited in an amount equal to the net
proceeds of the shares sold by such Holder, unless such liability arises out of
or is based upon a willful material misrepresentation by such Holder. Such
indemnity agreement contained in this Section 57 shall not apply to amounts paid
in settlement of any such loss, liability, claim or damage of such settlement is
effected without the consent of such Holder, which consent shall not be
unreasonably withheld.
(c) Each party entitled to indemnification under this Section 57
(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, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 57 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action,
in which case the Indemnifying Party shall be relieved of its obligations under
this Section 57 to the extent of such prejudice (the omission to so deliver
written notice to the Indemnifying Party will not relieve it of any liability
that it may have to any Indemnified Party otherwise than as set forth in this
Section 57), and provided further that the Indemnifying Party shall not assume
the defense for matters as to which representation of both the Indemnifying
Party and the Indemnified Party by the same counsel would be inappropriate due
to actual or potential differing interests between them, but shall instead in
such event pay the fees and costs of separate counsel for the Indemnified Party.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 57 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
herein, then the Indemnifying Party, in lieu
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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. 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, provided, however, that, in any such case, (A) no such
-----------------
Holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered and sold by such
Holder pursuant to such registration statement, net of Selling Expenses; and (B)
no person or entity guilty or fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and Holders under this
Section 57 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.
5.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration undertaken pursuant to this Agreement
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 reasonably request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement.
5.9 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration or
pursuant to a registration statement on Form S-3, 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 Securities Act or the Securities Exchange Act of 1934, as
amended;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements); and
(c) So long as a Holder owns any Restricted Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said 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
14
<PAGE>
securities to the general public) and of the Securities Act and the Securities
Exchange Act of 1934, as amended (at any time after it has become subject to
such reporting requirements), or as to its eligibility to file a registration
statement on Form S-3 with respect to the resale of Registrable Securities, 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 the Holder may
reasonably request in availing itself of any Rule or regulation of the
Commission allowing the Holder to sell any such securities without registration
or pursuant to Form S-3 (at any time after the Company has become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended).
5.10 Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted Holders under Sections 51, 52 and 53 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by the Holder provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee acquires at least 250,000 shares of
Preferred Stock and/or Conversion Stock held by the assignor or transferor
(appropriately adjusted for recapitalizations, stock splits and the like) or
such lesser number, if it constitutes all such shares held by the assignor or
transferor, (iii) written notice is promptly given to the Company and (iv) such
transferee agrees to be bound by the provisions of this Agreement.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned by any Holder that is a partnership, corporation or
limited liability company to (A) a partner of such partnership, a stockholder of
such corporation or member of such limited liability company, (B) a retired
partner of such partnership who retires after the date hereof, (C) the estate of
any such partner, stockholder or member or (D) an affiliate (as defined in Rule
405 under the Securities Act) of any such partnership, corporation or limited
liability company, provided written notice thereof is promptly given to the
Company and the transferee agrees to be bound by the provisions of this
Agreement.
5.11 Termination of Registration Rights. The rights granted pursuant
----------------------------------
to Sections 51, 52 and 53 of this Agreement shall terminate as to any Holder
upon the earliest of (i) at such time as such Holder holds less than 1% of the
Company's outstanding stock and is able (A) to sell all of his Registrable
Securities pursuant to Rule 144(k) promulgated under the Securities Act, or (B)
to sell all Registrable Securities held by him in one three (3) month period
under Rule 144 promulgated under the Securities Act; or (ii) five (5) years
after the effective date of the Company's first registered public offering of
its stock (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan).
6. Financial Information. The Company will provide the following reports
---------------------
to each holder of at least 1,000,000 shares of Preferred Stock and/or Conversion
Stock (appropriately adjusted for recapitalizations, stock splits and the like)
(each such holder referred to herein as a "Qualified Investor"):
(i) As soon as practicable after the end of each fiscal year, and
in any event within ninety (90) days thereafter, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of operations and of cash flows and stockholders' equity
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles ("GAAP") and
15
<PAGE>
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and audited by independent public
accountants of national standing selected by the Company, and a capitalization
table in reasonable detail for such fiscal year.
(ii) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of operations and of cash flows of
the Company and its subsidiaries for such period and for the current fiscal year
to date, prepared in accordance with GAAP (other than for accompanying notes),
subject to changes resulting from year-end audit adjustments, in reasonable
detail and accompanied by a certificate signed by the principal financial or
accounting officer of the Company certifying that such financial statements have
been prepared in accordance with GAAP and fairly present the Company's financial
condition and results of operation as of the date and for the period specified
therein, and a capitalization table in reasonable detail for such quarterly
period, if requested by a Qualified Investor.
(iii) At least thirty (30) days after the beginning of each fiscal
year, a budget adopted by the Company's Board of Directors for the fiscal year,
prepared on a monthly basis, and, as soon as prepared, any other budgets or
revised budgets prepared by the Company.
(iv) Within thirty (30) days after the end of the first and second
monthly accounting period in each quarter, a consolidated condensed balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
monthly period, and consolidated condensed statement of operations of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with GAAP (other than for accompanying notes),
subject to changes resulting from year-end audit adjustments, together with a
statement of the chief financial or accounting officer of the Company explaining
any differences from the budget for such monthly accounting period, and signed
by the principal financial or accounting officer of the Company certifying that
such financial statements have been prepared in accordance with GAAP and fairly
present the Company's financial condition and results of operation as of the
date and for the period specified therein.
(v) As soon as practicable after the meeting of the Board of
Directors at which the annual business plan is presented by management, a copy
of such business plan.
7. Right of First Offer.
--------------------
(a) The Company hereby grants to each Qualified Investor the
right of first offer to purchase its Pro Rata Share of New Securities (as
defined in this Section 7) which the Company may, from time to time, propose to
sell and issue. For purposes of this right of first offer, "Pro Rata Share"
shall mean the ratio that (i) the sum of the number of shares of Common Stock
then held by such Holder and the number of shares of Common Stock issuable upon
conversion of the Preferred Stock then held by such Holder bears to (ii) the sum
of the total number of shares of Common Stock then outstanding and the number of
shares of Common Stock issuable upon conversion of all the then outstanding
shares of Preferred Stock.
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<PAGE>
(b) Except as set forth below, "New Securities" shall mean any
shares of capital stock of the Company, including Common Stock and any series of
preferred stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or preferred stock, and securities of
any type whatsoever that are, or may become, convertible into or exchangeable
for said shares of Common Stock or preferred stock. Notwithstanding the
foregoing, "New Securities" does not include (i) the Conversion Stock, (ii)
Common Stock offered to the public generally pursuant to a registration
statement under the Securities Act, (iii) securities issued pursuant to the
acquisition of another corporation or entity by the Company by merger, purchase
of all or substantially all of the assets or other reorganization whereby the
Company acquires substantially all the assets of such other corporation or
entity or the Company or its stockholders own more than fifty percent (50%) of
the voting power of the surviving or successor corporation, (iv) up to 8,366,100
shares of the Company's Common Stock or related options, warrants or other
rights to purchase such Common Stock, including options, warrants or other
rights outstanding as of the date hereof, issued to employees, officers and
directors of, and consultants to, the Company, pursuant to arrangements approved
by the Board of Directors of the Company provided that the foregoing number of
shares shall be increased by the number of shares of Common Stock that were
outstanding prior to the date of this Agreement and that are repurchased by the
Company at cost upon termination of the holder's service relationship with the
Company, (v) any other stock issued pursuant to any rights, agreements or
convertible securities, including without limitation options and warrants,
provided that the rights of first offer established by this Section 7 applied
with respect to the initial sale or grant by the Company of such rights,
agreements or convertible securities, (vi) up to 11,000 shares of Series B
Preferred Stock issuable upon exercise of the Warrant, (vii) up to 125,806
shares of Series C Preferred Stock issuable to Comdisco upon exercise of
warrants to purchase Series C Preferred Stock issued to Comdisco, (viii) up to
125,806 shares of Series C Preferred Stock issuable upon exercise of Series C
Preferred Stock warrants issuable to Comdisco pursuant to commitments in effect
as of the date hereof, (ix) up to 1,150,000 shares of Series E Preferred Stock
issuable upon exercise of warrants issuable to loan origination software vendors
(the "Series E Warrants"), (x) stock issued in connection with any stock split,
stock dividend or other recapitalization by the Company, (xi) the issuance of
stock or warrants in connection with equipment lease financing transactions or
bank financing transactions unanimously approved by the Board of Directors,
where the issuance of such shares is not principally for the purpose of raising
additional equity capital for the Company, (xii) up to 88,569 shares of Common
Stock issued to Stephen K. Fraser pursuant to a consulting agreement approved by
the Board of Directors of the Company, or (xiii) up to an aggregate of 50,000
shares of the Company's Common Stock issued after the date of this Agreement
pursuant to unanimous approval by the Board of Directors of the Company that the
Board of Directors unanimously determines are specifically excluded from this
right of first offer.
(c) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Qualified Investor written notice of its
intention, describing the amount and type of New Securities, and the price and
terms upon which the Company proposes to issue the same. Each Qualified Investor
shall have twenty (20) days from the date of receipt of any such notice to agree
to purchase up to its respective Pro Rata Share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
17
<PAGE>
(d) In the event all of the New Securities are not elected to be
purchased pursuant to Section 7 above, the Company shall have one hundred and
twenty (120) days thereafter to sell the New Securities not elected to be
purchased at the price and upon the terms no more favorable to the purchasers of
such securities than specified in the Company's notice to Qualified Investors
pursuant to Section 7(c). In the event the Company has not sold the New
Securities within said one hundred and twenty (120) day period, the Company
shall not thereafter issue or sell any New Securities without first offering
such securities in the manner provided in Section 7(c) above.
8. Right to Participate in Initial Public Offering.
-----------------------------------------------
8.1 Grant of Rights. The Company hereby agrees to cause the
---------------
underwriters of its initial public offering (the "IPO") to allocate to each
Qualified Investor who holds shares of Series C Preferred Stock or Series C
Conversion Shares (as defined below), without regard to the number of such
shares held (a "Series C Investor") and each Qualified Investor who holds shares
of Series E Preferred Stock or Series E Conversion Shares (as defined below),
without regard to the number of such shares held (a "Series E Investor"), a
right to purchase certain shares of Common Stock in the IPO, subject to the
terms and conditions of this Section 8. For purposes of this Section 8, "Series
C Investor" includes any Series C Investor's general partners, managing members
and affiliates that hold shares of Series C Preferred Stock or Series C
Conversion Shares. In addition, for the purposes of this Section 8, "Series E
Investor" includes any Series E Investor's general partners, managing members
and affiliates that hold shares of Series E Preferred Stock or Series E
Conversion Shares.
8.2 Allocation of Shares.
--------------------
(a) In connection with the IPO, subject to the approval of the
Company's Board of Directors in consultation with the managing underwriters of
the IPO, which approval shall not be unreasonably withheld (subject to Section
8.2(c)), the Company will cause the underwriters of the IPO to offer to each
Series C Investor its IPO Pro Rata Share (as defined in Section 8.3(b)) of a
number of shares of the Company's Common Stock to be sold in the IPO (the
"Series C IPO Shares") equal to an amount no less than $1,500,000 divided by the
midpoint of the filing range set forth in the preliminary prospectus.
(b) In connection with the IPO, subject to the approval of the
Company's Board of Directors in consultation with the managing underwriters of
the IPO, which approval shall not be unreasonably withheld (subject to Section
8.2(c)), the Company will cause the underwriters of the IPO to offer to each
Series E Investor its IPO Pro Rata Share (as defined in Section 8.3(c)) of a
number of shares of the Company's Common Stock to be sold in the IPO (the
"Series E IPO Shares," and, together with the Series C IPO Shares, the "IPO
Shares") equal to an amount no less than $1,500,000 divided by the midpoint of
the filing range set forth in the preliminary prospectus.
(c) For purposes of Sections 8.2(a) and 8.2(b), the approval of
the Board of Directors shall be deemed to have been reasonably withheld if the
Board determines in good faith that (i) the allocation of IPO Shares pursuant to
Sections 8.2(a) and 8.2(b) is reasonably likely to be materially detrimental to
the success of the IPO, (ii) based on an opinion
18
<PAGE>
of underwriter's or the Company's counsel, such allocation of IPO Shares
pursuant to Sections 8.2(a) and 8.2(b) violates applicable securities laws
including, but not limited to, Section 5 of the Securities Act, or (iii) based
on an opinion of underwriters' counsel, such allocation of IPO Shares pursuant
to Sections 8.2(a) and 8.2(b) violates applicable rules and regulations,
including, without limitation, the "Free Riding and Withholding" and other
applicable conduct rules of the National Association of Securities Dealers.
8.3 Allocation Procedures. The procedures for allocating IPO Shares
---------------------
shall be as follows (or shall conform to such other procedures as the managing
underwriters of the IPO may reasonably propose):
(a) The Company shall deliver a notice in accordance with
Section 166 ("IPO Notice") to the Series C Investors and the Series E Investors
stating (i) its bona fide intention to consummate the IPO, (ii) the amount of
Common Stock proposed to be offered (including the number of shares, when
determined) and (iii) the proposed price range (if such a price range will be
set forth on the cover of the preliminary prospectus). The preliminary
prospectus for the IPO shall accompany the IPO Notice if available or shall be
delivered to the Series C Investors and the Series E Investors as soon after
delivery of the IPO Notice as such preliminary prospectus becomes available.
(b) Each Series C Investor shall have the right to purchase from
the managing underwriters, at the public offering price appearing on the final
prospectus for the IPO, up to that number of Series C IPO Shares (the Series C
Investor's "IPO Pro Rata Share") that equals that number of Series C IPO Shares
multiplied by (i) the number of shares of Common Stock of the Company then
issued or issuable to that Series C Investor upon conversion of shares of Series
C Preferred Stock ("Series C Conversion Shares") divided by (ii) the number of
Series C Conversion Shares then held or deemed to be held by all of the Series C
Investors.
(c) Each Series E Investor shall have the right to purchase from
the managing underwriters, at the public offering price appearing on the final
prospectus for the IPO, up to that number of Series E IPO Shares (the Series E
Investor's "IPO Pro Rata Share") that equals the full number of Series E IPO
Shares multiplied by (i) the number of shares of Common Stock of the Company
then issued or issuable to that Series E Investor upon conversion of shares of
Series E Preferred Stock (the "Series E Conversion Shares") divided by (ii) the
number of Series E Conversion Shares then held or deemed to be held by all of
the Series E Investors.
(d) Each Series C Investor that offers to purchase its full IPO
Pro Rata Share (a "Fully-Exercising Series C Investor") may, by so specifying in
its notice of election, offer to purchase Series C IPO Shares for which other
Series C Investors were entitled to subscribe but which were not subscribed for
by such Series C Investors; including Series C Investors whose subscriptions are
void pursuant to Section 8.3(f) (the "Unsubscribed Series C IPO Shares"). In
making such offer, the Fully-Exercising Series C Investor shall specify the
maximum number of shares that such Fully-Exercising Series C Investor is
offering to purchase, or alternatively may state that it is offering to purchase
any and all shares that are allocated to the Series C Investors. Such Fully-
Exercising Series C Investor shall be entitled to purchase up to that portion of
the Series C IPO Shares that is equal to (i) the number of Series C Conversion
Shares then held or deemed to be held by that Fully-Exercising Series C Investor
divided by
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<PAGE>
(ii) the number of Series C Conversion Shares then held or deemed to be held by
all of the Fully-Exercising Series C Investors who are subscribing for the
Unsubscribed Series C IPO Shares. Any Series C IPO Shares remaining unallocated
at the conclusion of such reallocation among Fully-Exercising Series C Investors
shall be further reallocated at the sole discretion of the managing
underwriters.
(e) Each Series E Investor that offers to purchase its full IPO
Pro Rata Share (a "Fully-Exercising Series E Investor") may, by so specifying in
its notice of election, offer to purchase Series E IPO Shares for which other
Series E Investors were entitled to subscribe but which were not subscribed for
by such Series E Investors; including Series E Investors whose subscriptions are
void pursuant to Section 8.3(f) (the "Unsubscribed Series E IPO Shares"). In
making such offer, the Fully-Exercising Series E Investor shall specify the
maximum number of shares that such Fully-Exercising Series E Investor is
offering to purchase, or alternatively may state that it is offering to purchase
any and all shares that are allocated to the Series E Investors. Such Fully-
Exercising Series E Investor shall be entitled to purchase up to that portion of
Series E IPO Shares that is equal to (i) the number of Series E Conversion
Shares then held or deemed to be held by that Fully-Exercising Series E Investor
divided by (ii) the number of Series E Conversion Shares then held or deemed to
be held by all of the Fully-Exercising Series E Investors who are subscribing
for the Unsubscribed Series E IPO Shares. Any Series E IPO Shares remaining
unallocated at the conclusion of such reallocation among Fully-Exercising Series
E Investors shall be further reallocated at the sole discretion of the managing
underwriters.
(f) In offering to purchase IPO Shares, a Series C Investor or
Series E Investor may specify a price range above or below which the offer shall
be void.
9. Issuances to Employees and Consultants; Insurance.
-------------------------------------------------
9.1 Vesting and Transfer Restrictions. Unless otherwise determined
---------------------------------
by a majority of the members of the Board of Directors elected by, as the case
may be, the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock, the holders of Series C Preferred Stock, the holders of Series
D Preferred Stock or the holders of Series E Preferred Stock, each voting as a
separate series, following the Closing (as defined in the Series E Purchase
Agreement), the Company shall not issue shares of Common Stock or other
securities of the Company or any option, warrant or right to acquire such shares
to any of its employees, officers, directors or consultants which vest on a
schedule other than twenty-five percent (25%) vesting at the end of the first
year of the holder's employment or service with the Company and the remaining
seventy-five percent (75%) vesting on a monthly basis over the following thirty-
six months, with unvested shares being repurchasable by the Company or its
assignee at cost upon termination of the holder's employment or services with
the Company for any reason. No shares of Common Stock or other securities of
the Company issued to employees, officers, directors and consultants of the
Company shall be transferable other than to the Company or the Holders prior to
vesting, and all such shares shall be subject to market standoff agreements at
least as restrictive as those set forth in Section 11 hereof in connection with
the initial public offering of the Company's securities.
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<PAGE>
9.2 Right of First Refusal. All such shares issued to any employee,
----------------------
officer, director or consultant shall be subject to a right of first refusal
held, initially, by the Company and, secondarily if the Company does not
exercise its right, by the Holders pro rata in proportion to the number of
shares of Conversion Stock held, or issuable upon conversion of Preferred Stock
held, by each. Upon receipt of any notice of a proposed sale that will be
subject to such right of first refusal, unless the Company exercises its right
in full, it will use its best efforts to forward the notice to the Holders a
reasonable time prior to the time when the right of first refusal lapses to
enable the Holders to evaluate whether to exercise such right.
9.3 Key Person Insurance. The Company shall maintain a One Million
--------------------
Dollar ($1,000,000) insurance policy in favor of the Company on the life of
Richard Wilkes, as long as he is employed by the Company. The Company covenants
that it will not assign the benefits of such key person insurance, except to an
acquiror of the Company or substantially all of its assets. Any insurance
obligations of the Company under this Section 9.3 shall terminate upon the
Company's initial public offering.
10. Termination of Covenants. The covenants set forth in Sections 6, 7,
------------------------
9, 131 and 15 shall terminate and be of no further force or effect upon the
consummation of a firm commitment underwritten public offering at a price of
$8.00 per share and of an aggregate value of $15,000,000 or at such time as the
Company (or if the Company is acquired, the survivor) is required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, whichever shall occur first (the "Termination Date"). The covenants
set forth in Section 13.2 shall terminate and be of no further force and effect
on the fifth (5th) anniversary of the Termination Date. The covenants set forth
in Section 14 shall terminate and be of no further force or effect as to any
SBIC Investor at such time as such SBIC Investor no longer holds shares of
Preferred Stock or Conversion Stock.
11. Standoff Agreement. In connection with the initial public offering of
------------------
the Company's securities, each Investor and Holder agrees, upon request of the
Company or the underwriters managing such offering, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration), IPO
Shares or Series E IPO Shares without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
one hundred eighty (180) days) from the effective date of such registration as
may be requested by the underwriters, provided that all officers and directors
of the Company who own more than one percent (1%) of the outstanding capital
stock of, or hold options to purchase stock of, the Company, and all Holders,
Permitted Holders and other persons with registration rights, also agree to such
restrictions. The Investors and Holders agree that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce the
provisions of this Section 11. The Company shall cause the underwriters to
agree that they shall not waive or terminate the foregoing transfer restrictions
as to any securities, except (i) with respect to up to 5,000 shares sold by any
single stockholder or group of affiliated stockholders (as such number may be
adjusted for stock splits, reverse stock splits and the like) or (ii) in the
case of financial hardship on the part of the holder of such securities, unless
each Holder is granted the same waiver or termination on a pro rata basis, or
unless the Holders of two-thirds (2/3) of the Registrable Securities then
outstanding consent to such waiver or termination, which consent shall not be
unreasonably withheld.
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12. Determination of Share Amounts and Percentages. For the purposes of
----------------------------------------------
determining the minimum holdings set forth in this Agreement, including without
limitation the minimum holdings pursuant to Sections 510, 5.11, 6, 7, 8, 161 and
161, the following rules shall govern:
(a) All shares held by entities affiliated with the holder shall
be deemed held by such holder, and any holder which is a partnership shall be
deemed to hold any shares of Preferred Stock and/or Conversion Stock originally
purchased by such holder and subsequently distributed to partners of such
holder, but which have not been resold by such partners.
(b) When shares of Preferred Stock are counted together with
shares of Conversion Stock or shares of Common Stock, shares of Preferred Stock
shall be counted on an as-converted into Common Stock basis, and the term
"Conversion Stock" shall mean only the shares of Common Stock which have been
issued pursuant to conversion of Preferred Stock.
13. Section 1202.
------------
13.1 Section 1202 Compliance. The Company shall use its reasonable
-----------------------
best efforts to:
(a) comply with the reporting and recordkeeping requirements of
Sections 1202 of the Internal Revenue Code of 1986, as amended (the "Code"); and
(b) refrain from taking any of the following actions:
(i) within one (1) year after the date hereof, purchasing
an amount of its own stock (within the meaning of Section 1202(c)(3) of the
Code) having an aggregate value at the time(s) of purchase exceeding five
percent (5%) of the aggregate value of all of its outstanding stock determined
as of the date one (1) year prior to the date hereof, other than repurchases of
unvested stock from terminated employees, consultants or other service providers
at the original purchase price in transactions approved by the Board of
Directors;
(ii) conducting any of the following businesses (as
defined for purposes of Section 1202(e)(3) of the Code), except to the extent
that the activities described in the Company's Business Overview that was
provided to the Investors in connection with the offer and sale of Series D
Preferred Stock, or approved by the Board of Directors of the Company including
the affirmative vote of a director nominated by the holders of Series C
Preferred Stock would be treated as constituting the conduct of any such
business:
(A) any business involving the performance of
services in the fields of law, accounting, actuarial science, performing arts,
athletics or brokerage services;
(B) any banking or insurance business;
(C) any farming business (including the business of
raising or harvesting trees);
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(D) any business involving the production or
extraction of natural resources with respect to which a deduction is allowable
under Section 613 or 613A of the Code; or
(E) any business of operating a hotel, motel,
restaurant or similar establishment;
(iii) permitting more than ten percent (10%) of the value
of its assets to consist of stock issued by other companies (other than stock of
companies that qualify as subsidiaries of the Company within the meaning of
Section 1202(e)(5) of the Code or stock that is held as working capital or
reasonably expected to be sold within two years to finance research and
experimentation within the meaning of Section 1202(e)(6) of the Code);
(iv) permitting more than ten percent (10%) of the value
of its assets to consist of real property that is not used in the active conduct
of a qualified trade or business within the meaning of Section 1202(e)(7) of the
Code;
(v) making an election under Section 936 of the Code
(relating to the Puerto Rico and possessions tax credit) or permitting a
subsidiary to make such an election; or
(vi) in a single transaction or series of related
transactions, raising capital through the issuance of securities or the
incurrence of indebtedness if such transaction or series of related transactions
would cause the Company to fail to satisfy the active business requirement set
forth in Section 1202(e)(1) of the Code by virtue of holding excess cash or
investment assets.
For purposes of the foregoing, any valuation or other determination (including,
without limitation, a determination that a specific course of action does not
constitute the conduct of a business described in Section 13 above) made by the
Company's Board of Directors in good faith or for which there was, at the time
made, a reasonable basis in law or fact shall be conclusive.
13.2 Certification as to Compliance. The Company shall submit to the
------------------------------
Investors and to the Internal Revenue Service any reports that may be required
under Section 1202(d)(1)(C) of the Code and any related Treasury Regulations.
In addition, within thirty (30) days after any written request of any Investor,
the Company will deliver to such Investor a certificate in the form attached
hereto as Exhibit A (a "QSBS Certificate") informing the Investor whether such
Investor's interest in the Company constitutes, to the best of the Company's
knowledge, a qualified small business stock, as defined in Section 1202(c) of
the Code. The Company's obligation to furnish a QSBS Certificate pursuant to
this Section 13.2 shall continue notwithstanding the fact that a class of the
Company's stock may be traded on an established securities market.
14. SBA Matters.
-----------
14.1 Use of Proceeds. The proceeds from the issuance and sale of the
---------------
Series E Preferred Stock pursuant to the Series E Purchase Agreement (the
"Proceeds") shall be used by
23
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the Company for its growth, modernization or expansion. The Company shall
provide each SBIC Investor and the Small Business Administration (the "SBA")
reasonable access to the Company's books and records for the purpose of
confirming the use of the Proceeds.
14.2 Business Activity. For a period of one year following the
-----------------
Closing (as defined in the Series D Purchase Agreement), the Company shall not
change the nature of its business activity if such change would render the
Company ineligible as provided in 13 C.F.R. (S) 107.720.
14.3 Compliance. So long as any SBIC Investor holds any securities of
----------
the Company, the Company will at all times comply with the non-discrimination
requirements of 13 C.F.R. Parts 112, 113 and 117.
14.4 Information for SBIC Investor. Within 45 days after the end of
-----------------------------
each fiscal year and at such other times as an SBIC Investor may reasonably
request, the Company shall deliver to such SBIC Investor a written assessment,
in form and substance satisfactory to such SBIC Investor, of the economic impact
of such SBIC Investor's financing specifying the full-time equivalent jobs
created or retained in connection with such investment, and the impact of the
financing on the Company's business in terms of profits and on taxes paid by the
Company and its employees. Upon request, the Company agrees to promptly provide
each SBIC Investor with sufficient information to permit such Purchasers to
comply with their obligations under the Small Business Investment Act; provided,
however, each SBIC Investor agrees that it will protect any information which
the Company labels as confidential to the extent permitted by law. Any
submission of any financial information under this section shall include a
certificate of the Company's president, chief executive officer, treasurer or
chief financial officer. The Company shall provide each SBIC Investor and the
SBA reasonable access to the Company's books, records and properties for the
purposes of confirming the use of the proceeds received hereunder.
14.5 Number of Holders of Voting Securities. So long as any SBIC
--------------------------------------
Investor holds any securities purchased pursuant to the Series C, Series D or
Series E Purchase Agreement or issued by the Company with respect thereto, the
Company shall notify each SBIC Investor (i) at least 15 days prior to taking any
action after which the number of record holders of the Company's voting
securities would be increased from fewer than 50 to 50 or more, if, immediately
following such action, such SBIC Investor, together with its affiliates and
associates, will own at least 25% of the Company's outstanding voting
securities, and (ii) of any other action or occurrence after which the number of
record holders of the Company's voting securities was increased (or would
increase) from fewer than 50 to 50 or more, as soon as practicable after the
Company becomes aware that such other action or occurrence has occurred or is
proposed to occur.
15. Additional Covenants.
--------------------
15.1 Certain Transactions. The Company shall not enter into any (i)
--------------------
material agreement or transaction with any affiliate of the Company (as defined
in Rule 144 promulgated under the Securities Act), other than a Purchaser under
the Series E Purchase Agreement, (ii) sale or exclusive license, to any third
party, of any intellectual property material to the Company, or (iii) repurchase
of its Common Stock above cost unless, in each case, the
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Company, in addition to all consents and approvals that may be required by the
Company's Bylaws and Certificate of Incorporation, also obtains the approval of
a majority of the members of the Board of Directors of the Company who have been
elected by the holders of Preferred Stock.
15.2 Nondisclosure and Confidentiality Agreement. With respect to any
-------------------------------------------
current employee that has executed a Nondisclosure and Confidentiality Agreement
that contains an expiration date, the Company shall use its best efforts to
cause such employee, prior to that expiration date, to enter into a new
agreement containing no expiration date and otherwise containing terms and
conditions that are no less favorable to the Company than the employee's current
Nondisclosure and Confidentiality Agreement.
15.3 Like Treatment of Holders. Neither the Company nor any of its
-------------------------
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemption or
exchange of any shares of any series of its Preferred Stock (all such series
being collectively referred to as "Preferred Stock"), or otherwise, to any
holder of Preferred Stock for or as an inducement to, or in connection with
solicitation of, any consent, waiver or amendment of any terms or provisions of
its Preferred Stock or this Agreement, the Company's Certificate of
Incorporation, the Third Amended and Restated Voting Agreement of even date
herewith or the Fourth Amended and Restated Co-Sale Agreement of even date
herewith, unless such consideration is paid to all holders of Preferred Stock
bound by such consent, waiver or amendment, whether or not such holders so
consent, waive or agree to amend and whether or not such holders tender their
Preferred Stock for redemption or exchange.
16. Miscellaneous.
-------------
16.1 Amendments.
----------
(a) Any provision of Section 5 of this Agreement or this Section
161 may be amended or the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding or deemed to be outstanding. Any
amendment or waiver effected in accordance with this Section 161 shall be
binding upon each Investor and each Holder of Registrable Securities at the time
outstanding or deemed to be outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
(b) Any provision of Section 8 or this Section 161 may be
amended or the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Series C Investors holding two-thirds (2/3)
of the Series C Preferred Stock or Series C Conversion Stock then held by all of
the Series C Investors; provided, however, that nothing in this paragraph shall
in any way limit the discretion of the Board of Directors of the Company set
forth in Section 8.2 with respect to allocation of IPO Shares to Series C
Investors.
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<PAGE>
(c) Any provision of Section 14 of this Agreement or this
Section 16.1(c) may be amended or the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and each SBIC
Investor.
(d) Except as expressly provided herein, no other section of
this Agreement may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; provided, however, that
holders of a majority of the Preferred Stock and Conversion Stock outstanding or
issuable upon conversion of outstanding Preferred Stock may, with the Company's
prior written consent, waive, modify or amend on behalf of all holders any
provisions hereof other than the provisions of Sections 5, 8 and 14 so long as
the effect thereof will be that all such persons will be treated in the same
manner.
16.2 Governing Law. This Agreement and the legal relations between
-------------
the parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations between the parties arising under this Agreement.
16.3 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
16.4 Prior Rights Agreement Superseded. Pursuant to Section 16.1 of
---------------------------------
the Prior Rights Agreement, the undersigned parties who are parties to such
Prior Rights Agreement hereby restate the Prior Agreement to read in its
entirety as set forth in this Agreement, such that the Prior Rights Agreement is
hereby terminated and entirely replaced and superseded by this Agreement.
16.5 Waiver of Right of First Refusal. Pursuant to Section 16.1(d) of
--------------------------------
the Prior Rights Agreement, the undersigned parties, constituting all of the
parties to such Prior Rights Agreement hereby waive all of such parties' right
of first refusal under Section 7 of the Prior Rights Agreement with respect to
the Company's issuance of Series E Preferred Stock under this Agreement.
16.6 Notices, Etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified twenty-four (24) hours after
confirmed transmission of a facsimile, one business day after deposit with a
recognized overnight courier and four business days after deposit in the U.S.
mail, certified or registered, return receipt requested, addressed (a) if to an
Investor, at such Investor's address or addresses as set forth on the Schedule
of Investors attached hereto, or at such other address or addresses as such
Investor shall have furnished to the Company in writing in accordance with this
Section 166, with a copy to special counsel to the Investors, (b) if to any
other holder of Preferred Stock or Conversion Stock, at such address as
26
<PAGE>
such holder shall have furnished the Company in writing in accordance with this
Section 166, or, until any such holder so furnishes an address to the Company,
then to and at the address of the last holder thereof who has so furnished an
address to the Company, or (c) if to the Company, at its principal office with a
copy to Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, CA 94301-
1825, Attn: Paul A. Blumenstein.
16.7 Consent to Grant of Warrants. Pursuant to Section 7 of the
----------------------------
Company's Fifth Amended and Restated Certificate of Incorporation, the holders
of Preferred Stock of the Company hereby consent to the issuance of the Series E
Warrants and the shares of Series E Preferred Stock issuable upon exercise
thereof.
16.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16.9 Attorney's Fees. In the event of any action to enforce any of
---------------
the terms of this Agreement, the prevailing party shall be entitled to
reimbursement from the non-prevailing party of its costs and expenses (including
reasonable attorneys' fees) incurred in connection therewith, in addition to all
other remedies and relief to which such prevailing party is entitled.
16.10 Severability. If any provision of this Agreement shall be
------------
judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
27
<PAGE>
EXHIBIT 10.1
IMX Exchange, Inc.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of
________________, 199__, by and between IMX Exchange, Inc., a Delaware
corporation (the "Company"), and ________________________ ("Indemnitee").
Recitals
A. The Company desires to attract and retain qualified directors, officers,
employees and other agents, and to provide them with protection against
liability and expenses incurred while acting in that capacity;
B. The Certificate of Incorporation and Bylaws of the Company contain
provisions for indemnifying directors and officers of the Company, and the
Bylaws and Delaware law contemplate that separate contracts may be entered into
between the Company and its directors and officers, employees and other agents
with respect to their indemnification by the Company, which contracts may
provide greater protection than is afforded by the Certificate of Incorporation
and Bylaws;
C. The Company understands that Indemnitee has reservations about serving or
continuing to serve the Company without adequate protection against personal
liability arising from such service, and that it is also of critical importance
to Indemnitee that adequate provision be made for advancing costs and expenses
of legal defense; and
D. The Board of Directors and the stockholders of the Company have approved as
being in the best interests of the Company indemnity contracts substantially in
the form of this Agreement for directors and officers of the Company and its
subsidiaries and for certain other employees and agents of the Company
designated by the Board of Directors.
NOW, THEREFORE, in order to induce Indemnitee to serve or to continue to serve
as a director and/or officer of the Company, and in consideration of
Indemnitee's service to the Company, the parties agree as follows:
1. Contractual Indemnity. In addition to the indemnification provisions of the
By-laws of the Company, the Company hereby agrees, subject to the limitations of
Sections 2 and 5 hereof:
(a) To indemnify, defend and hold Indemnitee harmless to the
greatest extent possible under applicable law from and against
any and all judgments, fines, penalties, amounts paid in
settlement and any other amounts reasonably incurred or suffered
by Indemnitee (including attorneys' fees) in connection with any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative,
including an action by or in the right of the Company, to which
Indemnitee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer,
employee or agent of the Company or is or
1
<PAGE>
was serving or at any time serves at the request of the Company
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise
(collectively referred to hereafter as a "Claim"), whether or not
arising prior to the date of this Agreement.
(b) To pay any and all expenses reasonably incurred by
Indemnitee in defending any Claim or Claims (including reasonable
attorneys' fees and other reasonable costs of investigation and
defense), as the same are incurred and in advance of the final
disposition of any such Claim or Claims, upon receipt of an
undertaking by or on behalf of Indemnitee to reimburse such
amounts if it shall be ultimately determined that Indemnitee (i)
is not entitled to be indemnified by the Company under this
Agreement, and (ii) is not entitled to be indemnified by the
Company under the Certificate of Incorporation or the Bylaws of
the Company.
The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself create a presumption that (i)
Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in the best interests of the
Company, or (ii) with respect to any criminal action or
proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
2. Limitations on Contractual indemnity. Indemnitee shall not be entitled to
indemnification or advancement of expenses under Section 1:
(a) if a court of competent jurisdiction, by final judgment or
decree, shall determine that (i) the Claim or Claims in respect
of which indemnity is sought arise from Indemnitee's fraudulent,
dishonest or willful misconduct, or (ii) such indemnity is not
permitted under applicable law; or
(b) on account of any suit in which judgment is rendered 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 and amendments thereto or similar provisions of any federal,
state or local statutory law; or
(c) for any acts or omissions or transactions from which a
director may not be relieved of liability under the Delaware
General Corporation Law; or
(d) with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i)
with respect to proceedings brought in good faith to establish or
enforce a right to indemnification under this Agreement or any
other statute or law, or (ii) at the Company's discretion, in
specific cases if the Board of Directors of the Company has
approved the initiation or bringing of such suit; or
(e) for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise
taxes or penalties, and amounts paid in settlement) which have
been paid directly to Indemnitee by an insurance carrier
2
<PAGE>
under a policy of directors' and officers' liability insurance
maintained by the Company; or
(f) on account of any suit brought against Indemnitee for misuse
or misappropriation of non-public information, or otherwise
involving Indemnitee's status as an "insider" of the Company, in
connection with any purchase or sale by Indemnitee of securities
of the Company.
3. Continuation of Contractual Indemnity. Subject to the termination
provisions of Section 11, all agreements and obligations of the Company
contained herein shall continue for so long as Indemnitee shall be subject to
any possible action, suit, proceeding or other assertion of Claim or Claims.
4. Expenses Indemnification Procedure. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section 1
hereof (but not amounts actually paid in settlement of any such action or
proceeding). Indemnitee hereby undertakes to repay such amounts advanced if, and
to the extent that, it shall ultimately be determined that Indemnitee is not
entitled to be indemnified by the Company as authorized hereby. The advances to
be made hereunder shall be paid by the Company to Indemnitee within twenty (20)
days following delivery of a written request therefor by Indemnitee to the
Company.
5. Notification and Defense of Claim. If any action, suit, proceeding or other
Claim is brought against Indemnitee in respect of which indemnity may be sought
under this Agreement:
(a) Indemnitee will promptly notify the Company in writing of
the commencement thereof; and the Company and any other
indemnifying party similarly notified will be entitled to
participate therein at its own expense or to assume the defense
thereof and to employ counsel reasonably satisfactory to
Indemnitee. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall
be deemed received three (3) business days after the date
postmarked if sent by domestic certified or registered mail,
properly addressed; otherwise notice shall be deemed received
when such notice shall actually be received by the Company.
Indemnitee shall have the right to employ its own counsel in
connection with any such Claim and to participate in the defense
thereof; but the fees and expenses of such counsel shall be at
the expense of Indemnitee unless (i) the Company shall not have
assumed the defense of the Claim and employed counsel for such
defense, or (ii) the named parties to any such action (including
any impleaded parties) include both Indemnitee and the Company,
and Indemnitee shall have reasonably concluded that joint
representation is inappropriate under applicable standards of
professional conduct due to a material conflict of interest
between Indemnitee and the Company, in either of which events the
reasonable fees and expenses of such counsel to the Indemnitee
shall be borne by the Company upon delivery to the Company of the
undertaking referred to in subparagraph (b) of Section 1.
However, in no event
3
<PAGE>
will the Company be obligated to pay the fees or expenses of more
than one firm of attorneys representing Indemnitee and any other
agents of the Company in connection with any one Claim or
separate but substantially similar or related Claims in the same
jurisdiction arising out of the same general allegations or
circumstances.
(b) The Company shall not be liable to indemnify Indemnitee for
any amounts paid in settlement of any Claim effected without the
Company's written consent, and the Company shall not settle any
Claim in a manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent; provided,
however, that neither the Company nor Indemnitee will
unreasonably withhold its consent to any proposed settlement and,
provided further, that if a claim is settled by the Indemnitee
with the Company's written consent, or if there be a final
judgment or decree for the plaintiff in connection with the Claim
by a court of competent jurisdiction, the Company shall indemnify
and hold harmless Indemnitee from and against any and all losses,
costs, expenses and liabilities incurred by reason of such
settlement or judgment.
(c) Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(d) Any indemnification provided for in Section 1 shall be made
no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a Claim under this Agreement, under any
statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a
written request for payment thereof has first been received by
the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 13 of this Agreement,
Indemnitee shall also be entitled to be reimbursed for the
expenses (including attorneys' fees) of bringing such action. It
shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection
with any action or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct
which make it permissible under applicable law for the Company to
indemnify Indemnitee for the amount claimed but the burden of
proving such defense shall be on the Company, and Indemnitee
shall be entitled to receive interim payments of expenses
pursuant to Subsection 4 unless and until such defense may be
finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification,
the question of Indemnitee's right to indemnification shall be
for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of
the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification
of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its
Board of Directors, any committee or sub-group of the
4
<PAGE>
Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee
has or has not met the applicable standard of conduct.
(e) If, at the time of the receipt of a notice of a Claim, 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 thereafter
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.
6. Scope. Notwithstanding any other provision of this Agreement, the Company
hereby agrees to indemnify the Indemnitee against any Claim to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute
or rule which expands the right of a Delaware corporation to indemnify a member
of its Board of Directors, an officer or other corporate agent, such changes
shall be, ipso facto, within the purview of Indemnitee's rights and Company's
obligations, under this Agreement. In the event of any change in any applicable
law, statute, or rule which narrows the right of a Delaware corporation to
indemnify a member of its Board of Directors, an officer, or other corporate
agent, such changes, to the extent not otherwise required by applicable law to
be applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder.
7. Partial Indemnification. If Indemnitee is entitled under a provision of
this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action or proceeding, but not, however, for the total amount thereof; the
Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
8. Public Policy. Both the Company and Indemnitee acknowledge that in certain
instances, Federal law or applicable public policy may prohibit the Company from
indemnifying its directors and officers under this Agreement or otherwise,
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and Exchange
Commission 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.
9. Insurance. Although the Company may from time to time maintain insurance
for the purpose of indemnifying Indemnitee and other agents of the Company
against personal liability, including costs of legal defense, nothing in this
Agreement shall obligate the Company to do so.
5
<PAGE>
10. No Restrictions. The rights and remedies of Indemnitee under this Agreement
shall not be deemed to exclude or impair any other rights or remedies to which
Indemnitee may be entitled under the Certificate of Incorporation or Bylaws of
the Company, or under any other agreement, provision of law or otherwise, nor
shall anything contained herein restrict the right of the Company to indemnify
Indemnitee in any proper case even though not specifically provided for in this
Agreement, nor shall anything contained herein restrict Indemnitee's right to
contribution as may be available under applicable law.
11. Termination. The Company may terminate this Agreement at any time upon 90
days written notice, but any such termination will not affect Claims relating to
events occurring prior to the effective date of termination.
12. Severability. Each of the provisions of this Agreement is a separate and
distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
13. Attorneys Fees. In the event of any litigation or other action or
proceeding to enforce or interpret this Agreement the prevailing party as
determined by the court shall be entitled to an award of its reasonable
attorneys fees and other costs, in addition to such relief as may be awarded by
a court or other tribunal.
14. Further Assurances. The parties will do, execute and deliver, or will cause
to be done, executed and delivered, all such further acts, documents and things
as may be reasonably required for the purpose of giving effect to this Agreement
and the transactions contemplated hereby.
15. Acknowledgment. The Company expressly acknowledges that it has entered into
this Agreement and assumed the obligations imposed on the Company hereunder in
order to induce Indemnitee to serve or to continue to serve as an agent of the
Company, and acknowledges that Indemnitee is relying on this Agreement in
serving or continuing to serve in such capacity.
16. Construction of Certain Phrases.
(a) "Company": For purposes of this Agreement, references to the
"Company" shall also include, in addition to the resulting
corporation in any consolidation or merger to which IMX Exchange,
Inc. is a party, any constituent corporation (including any
constituent of a constituent) absorbed in consolidation or merger
which, if its separate existence had continued, would have had
power and authority to indemnity its directors, officers,
employees or agents, so that if Indemnitee is or was a director,
officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation
as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
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(b) Benefit Plans: References to "fines" contained in this
Agreement shall include any excise taxes assessed on Indemnitee
with respect to an employee benefit plan; and references to
"serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company which
imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
18. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party
addressee, on the date of such receipt, or (ii) if mailed by domestic
certified or registered mail with postage prepaid, on the third
business day after the date postmarked. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
19. Governing Law Binding Effect Amendment.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware applicable to
contracts entered into in Delaware.
(b) This Agreement shall be binding upon Indemnitee and the
Company, their successors and assigns, and shall inure to the
benefit of Indemnitee, his heirs, personal representatives and
assigns and to the benefit of the Company, its successors and
assigns.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"Company"
IMX Exchange, Inc.
a Delaware corporation
By:______________________________
Name:____________________________
Title:___________________________
7
<PAGE>
"Indemnitee"
_____________________________________
(Signature of Indemnitee)
Address:
8
<PAGE>
EXHIBIT 10.4
IMX, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of August 12, 1997 among IMX, Inc., a Delaware
corporation, with a principal place of business at 111 Deerwood Road, Suite
220, San Ramon, California 94583 (the "Company"), and the persons and entities
listed on the Schedule of Purchasers attached hereto as Exhibit A (the
"Purchasers").
SECTION I
Authorization and Sale of Preferred Stock
-----------------------------------------
1.1 Authorization. The Company will authorize the sale and issuance of
-------------
4,970,179 shares (the "Shares") of its Series B Preferred Stock (the
"Preferred"), at the price of $1.2072 per share, having the rights, preferences,
privileges and restrictions as set forth in the Amended and Restated Certificate
of Incorporation (the "Restated Certificate") in the form attached to this
Agreement as Exhibit B .
1.2 Sale of Preferred. Subject to the terms and conditions hereof, the
-----------------
Company will issue and sell to each of the Purchasers at the Closing (as defined
below), and the Purchasers will severally buy from the Company at the Closing,
the total number of shares of Preferred specified opposite such Purchaser's name
on the Schedule of Purchasers, at the aggregate purchase price set forth on the
Schedule of Purchasers. The Company's agreements with each of the Purchasers are
separate agreements, and the sales of the Preferred to each of the Purchasers
are separate sales.
SECTION II
Closings; Delivery
------------------
2.1 Closing. The closing of the purchase and sale of the Shares being issued
-------
and sold hereunder shall be held at the offices of Gray Cary Ware & Freidenrich,
A Professional Corporation, 400 Hamilton Avenue, Palo Alto, CA 94301 at 10:00
a.m., local time, on August 12, 1997 (the "Closing") or at such other time and
place upon which the Company and the Purchasers shall agree (the date of the
Closing is hereinafter referred to as the "Closing Date").
2.2 Delivery. At the Closing, the Company shall deliver to each Purchaser
--------
a certificate or certificates, registered in such Purchaser's name set forth on
the Schedule of Purchasers, representing the number of Shares designated on the
Schedule of Purchasers to be purchased by such Purchaser, against payment of the
purchase price therefor, by cancellation of indebtedness, check payable to the
Company or wire transfer per the Company's instructions, or a combination
thereof.
<PAGE>
SECTION III
Representations and Warranties of the Company
---------------------------------------------
Except as set forth on Exhibit C attached hereto, the Company represents
and warrants to the Purchasers as follows:
3.1 Organization and Standing; Certificate and Bylaws. The Company is a
-------------------------------------------------
corporation duly organized and existing under, and by virtue of, the laws of the
State of Delaware and is in good standing under such laws. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as currently conducted and as proposed to
be conducted. The Company is not currently qualified to do business as a
foreign corporation in any jurisdiction, and the failure to be so qualified will
not have a material adverse affect on the Company's business as now conducted.
The Company has furnished the Purchasers' special counsel with true and complete
copies of its Certificate of Incorporation and Bylaws, as amended to date.
3.2 Corporate Power. The Company has all requisite corporate power and
---------------
authority to execute and deliver this Agreement, the Amended and Restated
Investor Rights Agreement in substantially the form attached hereto as Exhibit D
(the "Rights Agreement"), the Voting Agreement in substantially the form
attached hereto as Exhibit E (the "Voting Agreement"), to sell and issue the
Shares hereunder, to issue the Common Stock of the Company (the "Common Stock")
issuable upon conversion of the Shares, and to carry out and perform all of its
obligations under the terms of this Agreement, the Rights Agreement, the Voting
Agreement and the Certificate of Incorporation and to carry on its business as
presently conducted and as presently proposed to be conducted, and such other
agreements and instruments.
3.3 Capitalization. The authorized capital stock of the Company consists,
--------------
or will, upon the filing of the Restated Certificate, consist, of 15,802,605
shares of Common Stock, of which 2,676,900 shares will be issued and outstanding
immediately prior to the Closing, and 9,197,395 shares of Preferred Stock, of
which 4,216,216 shares have been designated "Series A Preferred Stock" and
4,981,179 shares have been designated "Series B Preferred Stock." Immediately
prior to the Closing, 4,216,216 shares of Series A Preferred Stock and no shares
of Series B Preferred Stock will be issued and outstanding. All outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, were issued in compliance with all federal and state
securities laws, and were not issued in violation of any preemptive rights.
There are no authorized or outstanding subscription, warrant, option or other
rights or commitments (including, without limitation, preemptive rights or
rights of first refusal) to purchase or acquire from the Company any shares of
any class of capital stock of the Company or securities convertible into or
exchangeable for such capital stock.
3.4 Authorization. All corporate action on the part of the Company, its
-------------
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement, the Rights Agreement and the Voting Agreement
by the Company, the authorization, sale, issuance and delivery of the Shares and
the Common Stock issuable upon conversion of the Shares and the performance of
all of the Company's obligations hereunder and thereunder has been taken or will
be taken prior to the Closing. Each of this Agreement, the Rights Agreement
<PAGE>
and the Voting Agreement, when each is executed and delivered by the Company,
shall constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as the indemnification provisions of Section
5.7 of the Rights Agreement may be limited by principles of public policy, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief of other equitable remedies. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will have the rights, preferences, privileges and
restrictions described in the Restated Certificate. The Common Stock issuable
upon conversion of the Shares has been duly and validly reserved and, when
issued in compliance with the provisions of this Agreement and the Restated
Certificate will be validly issued, fully paid and nonassessable. The issuance
and delivery of the Shares and such Common Stock issuable upon conversion
thereof, as applicable, is not subject to any preemptive or other similar rights
or any liens or encumbrances that have not been waived or complied with;
provided, however, that the Shares, and such Common Stock issuable upon
conversion thereof, as applicable, may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or in the Rights
Agreement.
3.5 Financial Statements. The Company has delivered to each Purchaser its
--------------------
balance sheet as of June 30, 1997 and statements of income, stockholders' equity
and cash flows for the period then ended (collectively, the "Financial
Statements"). Except as set forth in the Financial Statements, the Company has
no liabilities of any nature (matured or unmatured, fixed or contingent), other
than (x) liabilities incurred in the ordinary course of business subsequent to
June 30, 1997 and (y) obligations under contracts and commitments incurred in
the ordinary course of business which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
3.6 Business Condition. Since June 30, 1997, the Company has not:
------------------
(a) incurred any absolute or contingent material obligation by way of
guaranty, endorsement, indemnity or warranty;
(b) suffered any damage, destruction or loss, whether or not covered
by insurance, to any of its material assets;
(c) waived or compromised a material right or debt owed to it;
(d) made any loan to its employees, officers or directors, other than
travel advances made in the ordinary course of business;
(e) entered into any contract or other arrangement relating to
compensation of the Company's employees, officers or directors;
(f) declared or paid any dividend or other distribution of the assets
of the Company;
(g) redeemed, repurchased, canceled, granted or issued or effected any
other change to any of the capital stock of the Company or options to purchase
the same; or
<PAGE>
(h) entered into any agreement obligating the Company to make payments
exceeding $50,000 in any fiscal year.
3.7 Compliance with Other Instruments: No Conflicts. The Company is not
-----------------------------------------------
in breach or violation of any term of its Certificate of Incorporation or
Bylaws, of any term or provision of any contract, agreement, instrument,
judgment or decree, or any order, statute, rule or regulation, in each case
where such breach or violation would have a material adverse effect on the
Company. The execution, delivery and performance of and compliance with this
Agreement, the Rights Agreement and the Voting Agreement and the issuance, sale
and delivery of the Shares and the Common Stock issuable upon conversion of the
Shares will not result in any such breach or violation.
3.8 Litigation, etc. There is no action, proceeding or investigation
---------------
pending, or to the best of the Company's knowledge threatened, against the
Company or any of its properties or assets or that questions the validity of
this Agreement, the Rights Agreement or the Voting Agreement, or any action
taken or to be taken in connection herewith. The foregoing includes, without
limitation, actions involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. No action, suit or proceeding has been instituted or is
threatened by the Company.
3.9 Intangible Property. The Company owns, or has the right to use (or
-------------------
can obtain the right to use on reasonable commercial terms), all patents,
trademarks, service marks, names, trade names, copyrights, licenses, trade
secrets or other proprietary rights necessary to its business as now conducted,
and has not received any written notice that it is infringing upon or otherwise
acting adversely to the right or claimed right of any person under or with
respect to any of the foregoing, and to the Company's knowledge there is no
basis for any such claim. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing, nor is the Company bound by or
a party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and process of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products. The Company has not received
any communication alleging that the Company has violated any third party's
patent, maskwork right, moral right, trademark, trade secret, trade name or
copyright. To the Company's knowledge, none of the Company's offices or
employees has improperly used or is making improper use of any confidential
information or trade secrets of others, including those of any former employer
of such officer or employee. The Company is not aware of any violation by a
third party of any of its patents, licenses, trademarks, trade names, service
marks, copyrights, trade secrets or other proprietary rights.
3.10 Securities Laws; Governmental Consent. Based in part on the accuracy
-------------------------------------
of the Purchasers' representations and warranties set forth in Section 4, the
offer, sale and issuance of the Shares as provided in this Agreement are exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and have been qualified (or are
exempt from qualification) under all applicable state securities
<PAGE>
qualification requirements. Except for the filing of the Restated Certificate
and except for the filing of notices required or permitted to be filed after the
Closing Date with certain United States federal and state securities
commissions, which notices the Company will file on a timely basis, no consent,
approval or authorization of, or designation, declaration or filing with, any
governmental authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement, the Rights
Agreement or the Voting Agreement, the offer, sale or issuance of the Shares
(and the issuance of the Common Stock issuable upon conversion of the Shares) or
the consummation of any other transaction contemplated hereby, or by the Rights
Agreement or the Voting Agreement.
3.11 Contracts and Other Commitments. The Company is not a party to or in
-------------------------------
breach of any:
(a) agreement for the purchase of assets that involves an expenditure
by the Company in excess of $50,000;
(b) indenture, loan or credit agreement, security agreement,
promissory note or other agreement or instrument relating to or evidencing
indebtedness for borrowed money in excess of $50,000;
(c) lease or other agreement under which the Company is lessee of or
holds or operates any property, real or personal, owned by any other person
under which payments to such person exceed $50,000 per year;
(d) license agreement, either as licensor or licensee, that is
material to the Company's business; or
(e) other agreement under which the Company is obligated to make
payments exceeding $50,000 or which could result in the loss by the Company of
any rights that are material to the conduct of its business.
3.12 Registration Rights. Except as provided in the Rights Agreement, the
-------------------
Company has not granted or agreed to grant to any person or entity any rights
(including piggyback registration rights) to have any securities of the Company
registered with the United States Securities and Exchange Commission ("SEC") or
any other governmental authority.
3.13 Minute Books. The minute books of the Company provided to special
------------
counsel to the Purchasers contain a complete summary of all meetings, consents
and actions of the board of directors and the shareholders of the Company since
the time of its incorporation, accurately reflecting all transactions referred
to in such minutes in all material respects.
3.14 Title to Property and Assets. The Company owns its material
----------------------------
properties and assets free and clear of all mortgages, deeds of trust, liens,
encumbrances, security interests and claims except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not affect the Company's rights to use and possess such properties and assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of the Company's knowledge, the Company holds
valid leasehold interests in such
<PAGE>
assets free of any liens, encumbrances, security interests or claims of any
party other than the lessors of such property and assets.
3.15 Labor Agreements and Actions. The Company is not bound by or subject
----------------------------
to any contract, commitment or arrangement with any labor union, and to the
Company's best knowledge, no labor union has requested, sought or attempted to
represent any employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending nor, to the
Company's best knowledge, threatened, nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that
any officer or employee intends to terminate their employment with the Company,
nor does the Company have any present intention to terminate the employment of
any of its officers or employees.
3.16 Interested Party Transactions. To the best knowledge of the Company,
-----------------------------
no officer or director of the Company or any "affiliate" or "associate" (as
those terms are defined in Rule 405 promulgated under the Securities Act) of any
such person has, either directly or indirectly, a material interest in: (i) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or services; or (ii) any contract or agreement to which the Company is a party
or by which it may be bound or affected.
3.17 Stock Restriction Agreements. The Company has furnished to special
----------------------------
counsel to the Purchasers true and complete copies of all stock restriction or
other agreements pursuant to which shares of the Company's Common Stock have
been issued.
3.18 Invention Assignment and Confidentiality Agreement. Each current and
--------------------------------------------------
former employee and contractor of the Company has entered into and executed an
Invention Assignment and Confidentiality Agreement in the form attached to this
Agreement as Exhibit G or an employment or consulting agreement containing
substantially similar terms. No such employee or contractor has excluded works
or inventions from his or her assignment of inventions to such employee or
contractor's Invention Assignment and Confidentiality Agreement.
3.19 Disclosure. The Company has fully provided the Purchasers with all
----------
the information the Purchasers have requested for deciding whether to purchase
the Shares. This Agreement and the Exhibits hereto (when read together) do not
contain any untrue statement of a material fact and do not omit to state a
material fact necessary to make the statements therein or herein not misleading.
3.20 No Breach by Employee. The Company is not aware that any employee or
---------------------
consultant of the Company is obligated under any agreement (including licenses,
covenants or commitments of any nature) or subject to any judgment, decree or
order of any court or administrative agency, or any other restriction relating
to the relationship of any such employee or consultant with the Company or any
prior employer that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, the Rights
Agreement or the Voting
<PAGE>
Agreement, nor the carrying on of the Company's business by the employees and
contractors of the Company and the conduct of the Company's business as
presently proposed will not, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such employees or contractors or the Company is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions of any
employees of the Company (or persons the Company currently intends to hire) made
prior to their employment by the Company.
3.21 Subsidiaries. The Company does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, association, or other
business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
3.22 Tax Returns, Payments and Elections. The Company has filed all tax
-----------------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith that are set forth
on Exhibit C hereto. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation or a collapsible corporation pursuant to Section 1362(a) and Section
341(f) of the Code, respectively, nor has it made any other elections pursuant
to the Code (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never
had any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. Since inception, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations.
The Company has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes) required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositories.
3.23 Insurance. The Company has in full force and effect fire, casualty
---------
and liability insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed and adequate to protect the Company and its
financial condition against the risks involved in the business of the Company.
3.24 Marketing Rights. The Company has not granted rights to license,
----------------
market, or sell its products to any other person and is not bound by any
agreement that affects the Company's exclusive right to develop, distribute,
market, or sell its products.
<PAGE>
SECTION IV
Representations and Warranties of the Purchasers
------------------------------------------------
Each Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of Shares as follows:
4.1 Investment Experience. It is aware of the Company's business affairs
---------------------
and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Shares
and the underlying Common Stock. Such Purchaser: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that such Purchaser is able to fend for itself, can bear the economic risk of
such Purchaser's investment in the Shares and has such knowledge and experience
in financial or business matters that such Purchaser is capable of evaluating
the merits and risks of this investment in the Shares and protecting its own
interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
director or controlling persons of a nature and duration that enables such
Purchaser to be aware of the character, business acumen and financial
circumstances of such persons. Such Purchaser is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act.
4.2 Investment intent. It is acquiring the Shares and the underlying
-----------------
Common Stock for investment only for its own account, and not with the view to,
or for resale in connection with, any distribution thereof. It understands that
the issuances of the Shares and the underlying Common Stock to such Purchaser
have not been, and will not be, registered under the Securities Act by reason of
a specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent of such Purchaser as expressed herein.
4.3 Rule 144. It acknowledges that the Shares and the underlying Common
--------
Stock must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available. It
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after the security was last held by the Company or an affiliate of the
Company, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" and the number of shares being sold
during any three-month period not exceeding specified limitations.
4.4 No Public Market. It understands that no public market now exists for
----------------
any of the securities issued by the Company, and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 Access to Data. It has had an opportunity to discuss the Company's
--------------
business, management and financial affairs with the Company's management. It
understands that such discussions, as well as any written information issued by
the Company, were intended to describe certain aspects of the Company's business
and prospects which the Company believes
<PAGE>
to be material, but were not a thorough or exhaustive description, except as set
forth in Section 3 hereof. The foregoing, however, does not limit or modify the
representations and warranties made by the Company in Section 3.
4.6 Authorization. Each of this Agreement, the Rights Agreement and the
-------------
Voting Agreement when executed and delivered by such Purchaser will constitute a
valid and legally binding obligation of the Purchaser, enforceable in accordance
with its terms, except as the indemnification provisions of Section 5.7 of the
Rights Agreement may be limited by principles of public policy, and subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
4.7 Legends. It is understood that the certificates evidencing the Shares
-------
may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A OF SUCH ACT. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFER FOLLOWING AN INITIAL PUBLIC OFFERING PURSUANT TO AN AGREEMENT BETWEEN
THE HOLDERS OF THESE SECURITIES AND THE COMPANY."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
4.8 California Corporate Securities Law. THE SALE OF THE SECURITIES THAT
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS EXEMPT.
<PAGE>
SECTION V
Conditions to Closing
---------------------
5.1 Conditions to the Purchasers' and the Company's Obligations. The
-----------------------------------------------------------
obligations of a Purchaser to purchase and of the Company to issue and sell the
Shares are subject to the fulfillment, on or prior to the Closing, of all of the
following conditions, any of which may be waived in whole or in part by mutual
agreement of such Purchaser and the Company:
(a) The Company shall have obtained all consents, permits and waivers
necessary or appropriate on the part of the Company for consummation of the
transactions contemplated by this Agreement, the Rights Agreement and the Voting
Agreement at such Closing. Except for the notices required to be filed after
such Closing with certain federal and state securities commissions, which
notices the Company will file on a timely basis, the Company shall have obtained
all approvals of any federal or state governmental authority or regulatory body
that are required on the part of the Company in connection with the lawful sale
and issuance of the Shares and the Common Stock issuable upon conversion of the
Shares at such Closing.
(b) At such Closing, the purchase of the Shares by the Purchasers
hereunder shall be legally permitted by all laws and regulations to which the
Purchasers or the Company is subject.
(c) The Restated Certificate shall have been filed with and accepted
by the Secretary of State of the State of Delaware.
(d) The Company and the Purchasers shall have entered into the Rights
Agreement and the Voting Agreement.
5.2 Additional Conditions to the Purchasers' Obligations. In addition to
----------------------------------------------------
the conditions set forth in Section 5.1 hereof, each Purchaser's obligation to
purchase the Shares is subject to the fulfillment, on or prior to the Closing,
of all of the following conditions (except as otherwise provided below), any of
which may be waived in whole or in part by such Purchaser:
(a) The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct as
of the Closing with the same force and effect as if they had been made on and as
of the Closing.
(b) The Company shall have performed all obligations and conditions
herein or in the Rights Agreement required to be performed or observed by it on
or prior to the Closing.
(c) The Purchasers shall have received from Gray Cary Ware &
Freidenrich, A Professional Corporation, counsel to the Company, an opinion
letter addressed to them, dated such Closing Date and in substantially the form
attached hereto as Exhibit F.
(d) The Voting Agreement and the Rights Agreement shall have been
executed by the parties thereto (other than the Purchasers).
<PAGE>
(e) The Company shall have delivered to the Purchasers a certificate,
executed by the President of the Company and dated the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 5.1(a), and 5.2(b)
and that there has been no materially adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since June
30, 1997.
(f) All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Purchaser and to
the Purchasers' special counsel, and they shall each have received all such
counterpart originals and certified or other copies of such documents as they
may reasonably request. Such documents shall include (but not be limited to)
the following:
(i) A copy of the Restated Certificate and the Bylaws of the
Company (as amended through the date of such Closing), certified by the
Secretary of the Company as true and correct copies thereof as of such Closing.
(ii) A certificate of the Secretary or an Assistant Secretary or
other officer of the Company certifying the names of the officers of the Company
authorized to sign this Agreement, the certificates for the Shares and the other
documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers.
(iii) A copy of the resolutions of the Board of Directors and, if
required, the stockholders of the Company evidencing the amendment to the
Company's Certificate of Incorporation providing for the authorization of the
Shares, the approval of this Agreement, the Rights Agreement, the Voting
Agreement and the issuance of the Shares and the other matters contemplated
hereby.
(iv) Good standing certificates issued by the Delaware Secretary
of State dated within ten (10) days of the Closing.
(g) The Board of Directors shall at the Closing consist of Stephen K.
Fraser, Mark Korell, John Hummer and Derek Proudian. In accordance with the
Voting Agreement, one (1) additional director shall be designated by the
unanimous consent of the other four (4) directors as soon as practicable after
the Closing. After the Closing, the directors shall be elected and removed
pursuant to the Restated Certificate and the Voting Agreement.
5.3 Additional Condition to Obligations of the Company. In addition to
--------------------------------------------------
the conditions set forth in Section 5.1 hereof, the Company's obligation to
issue and sell the Shares to each Purchaser is subject to the fulfillment to the
Company's satisfaction, on or prior to the Closing, of the following conditions,
any of which may be waived in whole or in part by the Company:
(a) The representations and warranties made by such Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct as of such Closing with the same force and effect as if they had been
made on and as of the Closing.
<PAGE>
(b) Such Purchaser shall have performed all obligations and conditions
herein or in the Rights Agreement required to be performed or observed by it on
or prior to the Closing.
(c) Such Purchaser shall have paid the consideration for the Shares to
be sold to such Purchaser as set forth on Exhibit A hereto.
SECTION VI
Miscellaneous
--------------
6.1 Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California.
6.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided, however, that the rights of the Purchaser to purchase
Preferred shall not be assignable without the written consent of the Company.
6.4 Entire Agreement; Amendment. This Agreement and the other documents
---------------------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof. Neither this
Agreement nor any provision hereof may be amended, changed, waived, discharged
or terminated other than by a written instrument signed by the party against who
enforcement of any such amendment, change, waiver, discharge or termination is
sought; provided, however, that holders of more than fifty percent (50%) of the
outstanding Shares (or Common Stock issued upon conversion of the Shares or a
combination thereof) may waive or amend, with the Company's written consent, on
behalf of all Purchasers and other holders of Shares, any provisions hereof
benefiting the Purchasers (other than the provisions of Sections 5.1 and 5.2) so
long as the effect thereof will be that all such Purchasers and other holders of
Shares will be treated equally.
6.5 Notices. etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified twenty-four (24) hours after
confirmed transmission of a facsimile, one business day after deposit with a
recognized overnight courier and four business days after deposit in the U.S.
mail, certified or registered, return receipt requested, addressed (a) if to a
Purchaser, at the address set forth on Exhibit A or at such other address as
such Purchaser shall have furnished the Company in writing, with a copy to
Gordon K. Davidson, Esq., Fenwick &
<PAGE>
West LLP, Two Palo Alto Square, Palo Alto, California 94306, or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchaser in writing,
with a copy to Gregory M. Gallo, Esq., Gray Cary Ware & Freidenrich, A
Professional Corporation, 400 Hamilton Avenue, Palo Alto, California 94301.
6.6 Severability. If any provision of this Agreement shall be judicially
------------
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.7 Finder's Fees.
-------------
(a) Except as set forth on Exhibit C hereto, the Company (i)
represents and warrants that it has retained no finder or broker in connection
with the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Purchasers harmless of and from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the Company, or any of its employees
or representatives, is responsible.
(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other Purchasers harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which such Purchaser, or any of its employees or representatives,
is responsible.
6.8 Titles and Subtitles. The titles of the Certificate and Sections of
--------------------
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.10 Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to any party upon any breach or
default of any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of 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. It is further agreed that any waiver, permit, consent or approval of
any kind or character of any breach or default under this Agreement, or any
waiver of any provisions or conditions of this Agreement must be in writing and
shall be effective only to the extent specifically set forth in writing, and
that all remedies, either under this Agreement, by law or otherwise, shall be
cumulative and not alternative.
6.11 Payment of Fees and Expenses. Each party shall be responsible for
----------------------------
paying its own fees, costs and expenses in connection with this Agreement and
the transactions herein contemplated; provided, however, that if the Closing is
effected, the Company agrees to pay the reasonable fees and expenses; provided
that such fees and expenses of special counsel to the
<PAGE>
Purchasers are presented to the Company in a reasonably detailed invoice and
that such amount does not exceed $20,000. In the event of any action to enforce
any of the terms of this Agreement, the prevailing party shall be entitled to
reimbursement from the non-prevailing party of its costs and expenses (including
reasonable attorneys' fees) incurred in connection therewith, in addition to all
other remedies and relief to which such prevailing party is entitled.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
EXHIBIT 10.5
IMX, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of March 3, 1998 among IMX, Inc., a Delaware
corporation, with a principal place of business at 111 Deerwood Road, Suite 220,
San Ramon, California 94583 (the "Company"), and the persons and entities listed
on the Schedule of Purchasers attached hereto as Exhibit A (the "Purchasers").
SECTION I
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 Authorization. The Company will authorize the sale and issuance of
8,741,933 shares (the "Shares") of its Series C Preferred Stock (the
"Preferred"), at the price of $1.55 per share, having the rights, preferences,
privileges and restrictions as set forth in the Third Amended and Restated
Certificate of Incorporation (the "Restated Certificate") in the form attached
to this Agreement as Exhibit B.
1.2 Sale of Preferred. Subject to the terms and conditions hereof, the
Company will issue and sell to each of the Purchasers at the Closing (as defined
below), and the Purchasers will severally buy from the Company at the Closing,
the total number of Shares of Preferred specified opposite such Purchaser's name
on the Schedule of Purchasers, at the aggregate purchase price set forth on the
Schedule of Purchasers. The Company's agreements with each of the Purchasers are
separate agreements, and the sales of the Shares to each of the Purchasers are
separate sales.
SECTION II
CLOSINGS; DELIVERY
2.1 Closings.
(a) The Closing of the purchase and sale of the Preferred Shares (the
"Closing") shall take place at the offices of Gray Cary Ware & Freidenrich LLP,
400 Hamilton Ave., Palo Alto, CA 94301 at 3:00 p.m., local time, on March 3,
1998 (the "Closing"), or at such other time and place as the Company and the
Purchasers shall agree (the date of the Closing is hereinafter referred to as
the "Closing Date").
(b) At its option, the Company may schedule one or more additional
closings ("Additional Closings") for the purchase and sale of any Shares not
sold at the Closing on such date or dates after the Closing as the Company may
determine, but not later than sixty (60) days after the initial Closing Date at
a price not less than $1.55 per share to Centex Corporation or entities
affiliated therewith, provided that such party or parties enter into the Rights
Agreement, the Voting Agreement and the Co-Sale Agreement (each as defined in
Section 32). Pursuant to this Agreement, the Company may sell Shares at the
Additional Closings, if any, without any
<PAGE>
waiver, consent or approval of the Purchasers who participated in the Closing.
Each purchaser of Shares at any Additional Closing will become a party to this
Agreement and will be a "Purchaser," and such purchaser's shares will be
"Shares," for all purposes of this Agreement after such Additional Closing.
2.2 Delivery. At the Closing, the Company shall deliver to each Purchaser
a certificate or certificates, registered in such Purchaser's name set forth on
the Schedule of Purchasers, representing the number of Shares designated on the
Schedule of Purchasers to be purchased by such Purchaser, against payment of the
purchase price therefor, by check payable to the Company or wire transfer per
the Company's instructions, or a combination thereof.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Exhibit C attached hereto, the Company represents
and warrants to the Purchasers as follows:
3.1 Organization and Standing; Certificate and Bylaws. The Company is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Company has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as currently conducted and
as proposed to be conducted in the Business Plan dated January 30, 1998 (the
"Business Plan"). The Company is currently qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the failure to
be so qualified would have a material adverse affect on the Company's business
as now conducted or its properties. The Company has furnished the Purchasers'
special counsel with true and complete copies of its Certificate of
Incorporation and Bylaws, as amended to date.
3.2 Corporate Power. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Second Amended and Restated
Investor Rights Agreement in substantially the form attached hereto as Exhibit D
(the "Rights Agreement"), the First Amended and Restated Voting Agreement in
substantially the form attached hereto as Exhibit E (the "Voting Agreement"),
the Second Amended and Restated Co-Sale Agreement in substantially the form
attached hereto as Exhibit H (the "Co-Sale Agreement"), to sell and issue the
Shares hereunder, to issue the Common Stock of the Company (the "Common Stock")
issuable upon conversion of the Shares, and to carry out and perform all of its
obligations under the terms of this Agreement, the Rights Agreement, the Voting
Agreement, the Co-Sale Agreement and the Restated Certificate and to carry on
its business as presently conducted and as presently proposed to be conducted,
and such other agreements and instruments.
3.3 Capitalization. The authorized capital stock of the Company consists,
or will, upon the filing of the Restated Certificate, consist, of 26,000,000
shares of Common Stock, of which 2,576,900 shares will be issued and outstanding
immediately prior to the Closing, and 17,939,328 shares of Preferred Stock, of
which 4,216,216 shares have been designated "Series A Preferred Stock",
4,981,179 shares have been designated "Series B Preferred Stock" and
2
<PAGE>
8,741,933 shares have been designated "Series C Preferred Stock". Immediately
prior to the Closing, 4,216,216 shares of Series A Preferred Stock, 4,970,179
shares of Series B Preferred Stock and no shares of Series C Preferred Stock
will be issued and outstanding. All outstanding shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock have been duly authorized and
validly issued, are fully paid and nonassessable, were issued in compliance with
all federal and state securities laws, and were not issued in violation of any
preemptive rights. There are no authorized or outstanding subscription, warrant,
option or other rights or commitments (including, without limitation, preemptive
rights, conversion rights or rights of first refusal) to purchase or acquire
from the Company any shares of any class of capital stock of the Company or
securities convertible into or exchangeable for such capital stock, other than
outstanding warrants to purchase 11,000 shares of Series B Preferred Stock and
authorized options to purchase 3,861,100 shares of Common Stock pursuant to the
Company's 1996 Stock Plan, of which 3,185,743 shares are subject to outstanding
options, 5,000 shares have been issued upon exercise of options and 670,357
shares are available for future grant. Other than the Voting Agreement, the
Company is not a party or subject to any agreement or understanding, and, to the
best of the Company's knowledge, there is no agreement or understanding between
any person and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
3.4 Authorization. All corporate action on the part of the Company, its
directors, officers and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement by the Company, the authorization, sale,
issuance and delivery of the Shares and the Common Stock issuable upon
conversion of the Shares and the performance of all of the Company's obligations
hereunder and thereunder has been taken or will be taken prior to the Closing.
Each of this Agreement, the Rights Agreement, the Voting Agreement and the Co-
Sale Agreement when each is executed and delivered by the Company, shall
constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as the indemnification provisions of Section
5.7 of the Rights Agreement may be limited by principles of public policy, and
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief of other equitable remedies. The Shares, when issued in
compliance with the provisions of this Agreement, will be duly and validly
issued, fully paid and nonassessable, and will have the rights, preferences,
privileges and restrictions described in the Restated Certificate. The Common
Stock issuable upon conversion of the Shares has been duly and validly reserved
and, when issued in compliance with the provisions of this Agreement and the
Restated Certificate will be duly and validly issued, fully paid and
nonassessable. The issuance and delivery of the Shares and such Common Stock
issuable upon conversion thereof, as applicable, is not subject to any
preemptive or other similar rights or any liens or encumbrances or other
restrictions on transfer that have not been waived or complied with; provided,
however, that the Shares, and such Common Stock issuable upon conversion
thereof, as applicable, may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or in the Rights Agreement.
3.5 Financial Statements. The Company has delivered to each Purchaser its
unaudited balance sheet as of December 31, 1997 and statements of income,
stockholders' equity and cash flows for the period then ended (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting
3
<PAGE>
principles applied on a consistent basis throughout the periods indicated. The
Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein.
Except as set forth in the Financial Statements, the Company has no liabilities
of any nature (matured or unmatured, fixed or contingent), other than (x)
liabilities incurred in the ordinary course of business subsequent to December
31, 1997 which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company, and (y) obligations
under contracts and commitments incurred in the ordinary course of business
which, individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
3.6 Business Condition. Since December 31, 1997, the Company has not:
(a) incurred any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) effected any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(c) sold, exchanged, or otherwise disposed of any of its assets or
made any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets; other than in the ordinary course of
business;
(d) received notice of any resignation or termination of employment of
any key officer of the Company and, to the best of its knowledge, there is no
impending resignation or termination of employment of any such officer;
(e) incurred any absolute or contingent material obligation by way of
guaranty, endorsement, indemnity or warranty;
(f) suffered any damage, destruction or loss, whether or not covered
by insurance, to any of its material assets;
(g) waived or compromised a material right or debt owed to it;
(h) made any loan to its employees, officers or directors, other than
travel advances made in the ordinary course of business;
(i) entered into any contract or other arrangement relating to
compensation of the Company's employees, officers or directors;
(j) declared or paid any dividend or other distribution of the assets
of the Company;
(k) redeemed, repurchased, canceled, granted or issued or effected any
other change to any of the capital stock of the Company or options to purchase
the same;
4
<PAGE>
(l) entered into any agreement obligating the Company to make payments
exceeding $50,000 in any fiscal year; or
(m) to the best of its knowledge, suffered any other event or
condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company (as such business is currently conducted and as it is proposed to be
conducted in the Business Plan).
3.7 Compliance with Other Instruments; No Conflicts. The Company is not
in breach or violation of any term of its Certificate of Incorporation, as
amended and restated, or Bylaws, of any term or provision of any contract,
agreement, instrument, judgment or decree, or any order, statute, rule or
regulation, in each case where such breach or violation would have a material
adverse effect on the Company. The execution, delivery and performance of and
compliance with this Agreement, the Rights Agreement, the Voting Agreement and
the Co-Sale Agreement and the issuance, sale and delivery of the Shares and the
Common Stock issuable upon conversion of the Shares and the consummation of the
other transactions contemplated hereby and thereby will not result in any such
breach or violation.
3.8 Litigation, Etc. There is no action, suit, proceeding or
investigation pending, or to the best of the Company's knowledge threatened,
against the Company or any of its properties or assets or that questions the
validity of this Agreement, the Rights Agreement, the Voting Agreement or the
Co-Sale Agreement, or any action taken or to be taken in connection herewith or
that is reasonably likely to result, either individually or in the aggregate, in
any material adverse changes in the assets, condition, affairs or prospects of
the Company, financially or otherwise, or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis for
the foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. No action, suit or proceeding has been instituted or is
threatened by the Company.
3.9 Intangible Property. The Company owns, or has the right to use (or
can obtain the right to use on reasonable commercial terms), all patents,
trademarks, service marks, names, trade names, copyrights, licenses, trade
secrets or other proprietary rights necessary to its business as now conducted,
and has not received any written notice that it is infringing upon or otherwise
acting adversely to the right or claimed right of any person under or with
respect to any of the foregoing, and to the Company's knowledge there is no
basis for any such claim. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing, nor is the Company bound by or
a party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and process of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products. The Company has not received
any communication alleging that the Company has violated or, by conducting its
business as proposed in the Business Plan, would violate any third party's
patent,
5
<PAGE>
maskwork right, moral right, trademark, trade secret, trade name or copyright.
To the Company's knowledge, none of the Company's officers or employees has
improperly used or is making improper use of any confidential information or
trade secrets of others, including those of any former employer of such officer
or employee. The Company is not aware of any violation by a third party of any
of its patents, licenses, trademarks, trade names, service marks, copyrights,
trade secrets or other proprietary rights.
3.10 Securities Laws; Governmental Consent. Based in part on the accuracy
of the Purchasers' representations and warranties set forth in Section 4, the
offer, sale and issuance of the Shares as provided in this Agreement are exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and have been qualified (or are
exempt from qualification) under all applicable state securities qualification
requirements, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption. Except for the filing of the Restated Certificate and except for the
filing of notices required or permitted to be filed after the Closing Date with
certain United States federal and state securities commissions, which notices
the Company will file on a timely basis, no consent, approval or authorization
of, or designation, declaration or filing with, any governmental authority on
the part of the Company is required in connection with the valid execution,
delivery and performance of this Agreement, the Rights Agreement, the Voting
Agreement or the Co-Sale Agreement, the offer, sale or issuance of the Shares
(and the issuance of the Common Stock issuable upon conversion of the Shares) or
the consummation of any other transaction contemplated hereby, or by the Rights
Agreement, the Voting Agreement or the Co-Sale Agreement.
3.11 Contracts and Other Commitments. The Company is not a party to or in
breach of any:
(a) agreement, or group of related agreements, for the purchase of
assets that involves an expenditure by the Company in excess of $25,000;
(b) indenture, loan or credit agreement, security agreement,
promissory note or other agreement or instrument, or group of related agreements
or instruments, relating to or evidencing indebtedness for borrowed money in
excess of $25,000;
(c) lease or other agreement, or group of related leases or other
agreements, under which the Company is lessee of or holds or operates any
property, real or personal, owned by any other person under which payments to
such person exceed $25,000 per year;
(d) license agreement, either as licensor or licensee, that is
material to the Company's business; or
(e) other agreement or group of related agreements under which the
Company is obligated to make payments exceeding $25,000 or which could result in
the loss by the Company of any rights that are material to the conduct of its
business.
3.12 Registration Rights. Except as provided in the Rights Agreement, the
Company has not granted or agreed to grant to any person or entity any rights
(including piggyback
6
<PAGE>
registration rights) to have any securities of the Company registered with the
United States Securities and Exchange Commission ("SEC") or any other
governmental authority.
3.13 Minute Books. The minute books of the Company provided to special
counsel to the Purchasers contain a complete summary of all meetings, consents
and actions of the board of directors and the stockholders of the Company since
the time of its incorporation, accurately reflecting all transactions referred
to in such minutes in all material respects.
3.14 Title to Property and Assets. The Company owns its material
properties and assets free and clear of all mortgages, deeds of trust, liens,
encumbrances, security interests and claims except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not affect the Company's rights to use and possess such properties and assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of the Company's knowledge, the Company holds
valid leasehold interests in such assets free of any liens, encumbrances,
security interests or claims of any party other than the lessors of such
property and assets.
3.15 Labor Agreements and Actions. The Company is not bound by or subject
to any contract, commitment or arrangement with any labor union, and to the
Company's best knowledge, no labor union has requested, sought or attempted to
represent any employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending nor, to the
Company's best knowledge, threatened, nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that any
officer or employee intends to terminate their employment with the Company, nor
does the Company have any present intention to terminate the employment of any
of its officers or employees. The employment of each officer and employee of the
Company is terminable at the will of the Company. To the best of its knowledge,
the Company has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws related to employment. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement.
3.16 Interested Party Transactions. To the best knowledge of the Company,
no officer or director of the Company or any "affiliate" or "associate" (as
those terms are defined in Rule 405 promulgated under the Securities Act) of any
such person has, either directly or indirectly, a material interest in: (i) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or services or is in competition with the Company; or (ii) any contract or
agreement to which the Company is a party or by which it may be bound or
affected. No employee, officer, or director of the Company or member of his or
her immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them.
3.17 Stock Restriction Agreements. The Company has furnished to special
counsel to the Purchasers true and complete copies of all stock restriction or
other agreements pursuant to which shares of the Company's Common Stock have
been issued.
7
<PAGE>
3.18 Invention Assignment and Confidentiality Agreement. Each current and
former employee, consultant and contractor of the Company has entered into and
executed an Invention Assignment and Confidentiality Agreement in the form
attached to this Agreement as Exhibit G or an employment or consulting agreement
containing substantially similar terms. No such employee, consultant or
contractor has excluded works or inventions from his or her assignment of
inventions to such employee or contractor's Invention Assignment and
Confidentiality Agreement. The Company is not aware that any of its employees,
consultants or contractors are in violation of such agreement.
3.19 Disclosure. The Company has fully provided the Purchasers with all
the information the Purchasers have requested for deciding whether to purchase
the Shares. This Agreement and the Exhibits hereto (when read together) do not
contain any untrue statement of a material fact and do not omit to state a
material fact necessary to make the statements therein or herein not misleading.
3.20 No Breach by Employee. The Company is not aware that any employee,
contractor or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction relating to the relationship of any such employee, contractor or
consultant with the Company or any prior employer that would interfere with the
use of his or her best efforts to carry out his or her duties for the Company or
to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, the Rights Agreement, the Voting Agreement or the
Co-Sale Agreement, nor the carrying on of the Company's business by the
employees, consultants and contractors of the Company and the conduct of the
Company's business as presently proposed will not, to the best of the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees, consultants or contractors or the
Company is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions of any employees of the Company (or persons
the Company currently intends to hire) made prior to or outside the scope of
their employment by the Company.
3.21 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
3.22 Tax Returns, Payments and Elections. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith that are set forth
on Exhibit C hereto. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation or a collapsible corporation pursuant to Section 1362(a) and Section
341(f) of the Code, respectively, nor has it made any other elections pursuant
to the Code (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute
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of limitations on the assessment or collection of any tax or governmental
charge. None of the Company's federal income tax returns and none of its state
income or franchise tax or sales or use tax returns has ever been audited by
governmental authorities. Since inception, the Company has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations. The Company has
withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositories.
3.23 Insurance. The Company has in full force and effect fire, casualty
and liability insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed and adequate to protect the Company and its
financial condition against the risks involved in the business of the Company.
3.24 Marketing Rights. The Company has not granted rights to license,
market, or sell its products to any other person and is not bound by any
agreement that affects the Company's exclusive right to develop, distribute,
market, or sell its products.
3.25 Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would be reasonably likely to materially and
adversely affect the business, properties, prospects, or financial condition of
the Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted as set forth in the Business Plan. The Company is not in default in
any material respect under any of such franchises, permits, licenses, or other
similar authority.
3.26 Qualified Small Business Stock. As of the Closing: (i) the Company
will not have taken any of the following actions that would prevent it from
being treated as an "eligible corporation" as defined in Section 1202(e)(4) of
the Code; (ii) the Company will not have made any purchases of its own stock
during the one-year period preceding the Closing having an aggregate value
exceeding 5% of the aggregate value of all of its stock as of the beginning of
such period; and (iii) the Company's aggregate gross assets, as defined by Code
Section 1202(d)(2), at no time between the Company's date of incorporation and
through the Closing will have exceeded or will exceed $50 million, taking into
account the assets of any corporations required to be aggregated with the
Company in accordance with Code Section 1202(d)(3).
3.27 Small Business Concern. The Company, together with its affiliates
(as that term is defined in 13 C.F.R. (S) 121.103), is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended, and the regulations promulgated thereunder (the "Small Business
Investment Act") and Part 121 of Title 13 of the United States Code of Federal
Regulations. The information provided by the Company to each Purchaser that is a
licensed Small Business Investment Company (an "SBIC Investor") on SBA Forms
480, 652 and 1031 delivered in connection herewith is accurate and complete. The
Company acknowledges that,
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based on information provided to the Company by such investor, each SBIC
Investor is a Federal licensee under the Small Business Investment Act.
3.28 Acquisition Discussions. The Company has not engaged in the past
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company or a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of Shares as follows:
4.1 Investment Experience. It is aware of the Company's business affairs
and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Shares
and the underlying Common Stock. Such Purchaser: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that such Purchaser is able to fend for itself, can bear the economic risk of
such Purchaser's investment in the Shares and has such knowledge and experience
in financial or business matters that such Purchaser is capable of evaluating
the merits and risks of this investment in the Shares and protecting its own
interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables such
Purchaser to be aware of the character, business acumen and financial
circumstances of such persons. Such Purchaser is an "accredited investor" within
the meaning of Regulation D promulgated under the Securities Act.
4.2 Investment intent. It is acquiring the Shares and the underlying
Common Stock for investment only for its own account, and not with the view to,
or for resale in connection with, any distribution thereof. It understands that
the issuances of the Shares and the underlying Common Stock to such Purchaser
have not been, and will not be, registered under the Securities Act by reason of
a specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent of such Purchaser as expressed herein.
4.3 Rule 144. It acknowledges that the Shares and the underlying Common
Stock must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available. It is
aware of the provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things,
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the existence of a public market for the shares, the availability of certain
current public information about the Company, the resale occurring not less than
one year after the security was last held by the Company or an affiliate of the
Company, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" and the number of shares being sold
during any three-month period not exceeding specified limitations.
4.4 No Public Market. It understands that no public market now exists for
any of the securities issued by the Company, and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management. It
understands that such discussions, as well as any written information issued by
the Company, were intended to describe certain aspects of the Company's business
and prospects which the Company believes to be material, but were not a thorough
or exhaustive description, except as set forth in Section 3 hereof. The
foregoing, however, does not limit or modify the representations and warranties
made by the Company in Section 3 or the rights of the Purchasers to rely
thereon.
4.6 Authorization. Each of this Agreement, the Rights Agreement, the
Voting Agreement and the Co-Sale Agreement when executed and delivered by such
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as the
indemnification provisions of Section 5.7 of the Rights Agreement may be limited
by principles of public policy, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.7 Legends. It is understood that the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFER
FOLLOWING AN INITIAL PUBLIC OFFERING PURSUANT TO AN AGREEMENT BETWEEN THE
HOLDERS OF THESE SECURITIES AND THE COMPANY."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
4.8 California Corporate Securities Law. THE SALE OF THE SECURITIES THAT
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR
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RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS EXEMPT.
SECTION V
CONDITIONS TO CLOSING
5.1 Conditions to the Purchasers' and the Company's Obligations. The
obligations of a Purchaser to purchase and of the Company to issue and sell the
Shares are subject to the fulfillment, on or prior to the Closing, of all of the
following conditions, any of which may be waived in whole or in part by mutual
agreement of such Purchaser and the Company:
(a) The Company shall have obtained all consents, permits and waivers
necessary or appropriate on the part of the Company for consummation of the
transactions contemplated by this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement at such Closing. Except for the notices
required to be filed after such Closing with certain federal and state
securities commissions, which notices the Company will file on a timely basis,
the Company shall have obtained all approvals of any federal or state
governmental authority or regulatory body that are required on the part of the
Company in connection with the lawful sale and issuance of the Shares and the
Common Stock issuable upon conversion of the Shares at such Closing.
(b) At such Closing, the purchase of the Shares by the Purchasers
hereunder shall be legally permitted by all laws and regulations to which the
Purchasers or the Company is subject.
(c) The Restated Certificate shall have been filed with and accepted
by the Secretary of State of the State of Delaware.
(d) The Company and the Purchasers shall have entered into the Rights
Agreement, the Voting Agreement and the Co-Sale Agreement.
5.2 Additional Conditions to the Purchasers' Obligations. In addition to
the conditions set forth in Section 5.1 hereof, each Purchaser's obligation to
purchase the Shares is subject to the fulfillment, on or prior to the Closing,
of all of the following conditions (except as otherwise provided below), any of
which may be waived in whole or in part by such Purchaser:
(a) The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct as
of the Closing with the same force and effect as if they had been made on and as
of the Closing.
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(b) The Company shall have performed all obligations and conditions
herein and in the Rights Agreement required to be performed or observed by it on
or prior to the Closing.
(c) Effective upon the Closing, the Board of Directors shall consist
of Mark Korell, Steve Fraser, John Hummer, Derek Proudian, Jay Hoag, and one (1)
vacancy.
(d) The Purchasers shall have received from Gray Cary Ware &
Freidenrich LLP, counsel to the Company, an opinion letter addressed to them,
dated such Closing Date and in substantially the form attached hereto as Exhibit
F.
(e) The Voting Agreement, the Co-Sale Agreement and the Rights
Agreement shall have been executed by the parties thereto (other than the
Purchasers).
(f) The Company shall have delivered to the Purchasers a certificate,
executed by the President of the Company and dated the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 5.1(a), 5.2(a),
5.2(b) and 5.2(c) and that there has been no materially adverse change in the
business, affairs, prospects, operations, properties, assets or condition of the
Company since December 31, 1997.
(g) All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Purchaser and to
the Purchasers' special counsel, and they shall each have received all such
counterpart originals and certified or other copies of such documents as they
may reasonably request. Such documents shall include (but not be limited to)
the following:
(i) A copy of the Restated Certificate and the Bylaws of the
Company (as amended through the date of such Closing), certified by the
Secretary or the Assistant Secretary of the Company as true and correct copies
thereof as of such Closing.
(ii) A certificate of the Secretary or an Assistant Secretary or
other officer of the Company certifying the names of the officers of the Company
authorized to sign this Agreement, the Rights Agreement, the Co-Sale Agreement
and the Voting Agreement, the certificates for the Shares and the other
documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers.
(iii) A copy of the resolutions of the Board of Directors and, if
required, the stockholders of the Company evidencing the amendment to the
Company's Certificate of Incorporation providing for the authorization of the
Shares, the approval of this Agreement, the Rights Agreement, the Voting
Agreement, the Co-Sale Agreement and the issuance of the Shares and the other
matters contemplated hereby.
(iv) Good standing certificates issued by the Delaware Secretary
of State and the California Secretary of State dated within ten (10) days of the
Closing.
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(h) The Company shall have executed and delivered to each Purchaser
that is a licensed Small Business Investment Company (an "SBIC Investor") a Size
Status Declaration on SBA form 480 and an Assurance of Compliance on SBA form
652, and shall have provided to each such Purchaser information necessary for
the preparation of a Portfolio financing Report on SBA form 1031.
(i) The Company shall have executed and delivered to Technology
Crossover Ventures II, L.P., a Delaware Limited Partnership, and the other
Purchasers affiliated therewith (collectively, "TCV"), a Management Rights
Agreement in form and substance reasonably acceptable to counsel to the Company
and counsel to the Purchasers.
5.3 Additional Condition to Obligations of the Company. In addition
to the conditions set forth in Section 5.1 hereof, the Company's obligation to
issue and sell the Shares to each Purchaser is subject to the fulfillment to the
Company's satisfaction, on or prior to the Closing, of the following conditions,
any of which may be waived in whole or in part by the Company:
(a) The representations and warranties made by such Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct as of such Closing with the same force and effect as if they had been
made on and as of the Closing.
(b) Such Purchaser shall have performed all obligations and conditions
herein or in the Rights Agreement required to be performed or observed by it on
or prior to the Closing.
(c) Such Purchaser shall have paid the consideration for the Shares to
be sold to such Purchaser as set forth on Exhibit A hereto.
SECTION VI
MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
6.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto, provided, however, that the rights of the Purchaser to purchase
Preferred shall not be assignable without the written consent of the Company.
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6.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof. Neither this
Agreement nor any provision hereof may be amended, changed, waived, discharged
or terminated other than by a written instrument signed by the party against who
enforcement of any such amendment, change, waiver, discharge or termination is
sought; provided, however, that holders of more than fifty percent (50%) of the
outstanding Shares (or Common Stock issued upon conversion of the Shares or a
combination thereof) may waive or amend, with the Company's written consent, on
behalf of all Purchasers and other holders of Shares, any provisions hereof
benefiting the Purchasers (other than the provisions of Sections 5.1 and 5.2) so
long as the effect thereof will be that all such Purchasers and other holders of
Shares will be treated equally.
6.5 Notices. Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified twenty-four (24) hours after
confirmed transmission of a facsimile, one business day after deposit with a
recognized overnight courier and four business days after deposit in the U.S.
mail, certified or registered, return receipt requested, addressed (a) if to a
Purchaser, at the address or addresses set forth on Exhibit A or at such other
address as such Purchaser shall have furnished the Company in writing, with a
copy to Carla Newell, Esq., Gunderson Dettmer Stough Villanueve Franklin &
Hachigian LLP, 155 Constitution Drive, Menlo Park, CA 94025, or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchaser in writing,
with a copy to Gregory M. Gallo, Esq., Gray Cary Ware & Freidenrich LLP, 400
Hamilton Avenue, Palo Alto, California 94301.
6.6 Severability. If any provision of this Agreement shall be judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.7 Finder's Fees.
(a) Except as set forth on Exhibit C hereto, the Company (i)
represents and warrants that it has retained no finder or broker in connection
with the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Purchasers harmless of and from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the Company, or any of its employees
or representatives, is responsible.
(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other Purchasers harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which such Purchaser, or any of its employees or representatives,
is responsible.
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6.8 Invention Assignment and Confidentiality Agreement. The Company shall
use commercially reasonable efforts to prevent any violations of any Invention
Assignment and Confidentiality Agreement between the Company and any employee,
consultant or contractor of or to the Company.
6.9 Titles and Subtitles. The section headings of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.11 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party upon any breach or
default of any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of 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. It is further agreed that any waiver, permit, consent or approval of
any kind or character of any breach or default under this Agreement, or any
waiver of any provisions or conditions of this Agreement must be in writing and
shall be effective only to the extent specifically set forth in writing, and
that all remedies, either under this Agreement, by law or otherwise, shall be
cumulative and not alternative.
6.12 Payment of Fees and Expenses. Each party shall be responsible for
paying its own fees, costs and expenses in connection with this Agreement and
the transactions herein contemplated; provided, however, that if the Closing is
effected, the Company agrees to pay the reasonable fees and expenses of special
counsel to the Purchasers at Closing, provided that such fees and expenses of
special counsel to the Purchasers are presented to the Company in a reasonably
detailed invoice and that such amount does not exceed $20,000. In the event of
any action to enforce any of the terms of this Agreement, the prevailing party
shall be entitled to reimbursement from the non-prevailing party of its costs
and expenses (including reasonable attorneys' fees) incurred in connection
therewith, in addition to all other remedies and relief to which such prevailing
party is entitled.
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EXHIBIT 10.6
IMX, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of January 22, 1999 among IMX, Inc., a Delaware
corporation, with a principal place of business at 111 Deerwood Road, Suite 220,
San Ramon, California 94583 (the "Company"), and the persons and entities listed
on the Schedule of Purchasers attached hereto as Exhibit A (the "Purchasers").
SECTION I
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 Authorization. The Company will authorize the sale and issuance of
9,200,000 shares (the "Shares") of its Series D Preferred Stock (the
"Preferred"), at the price of $2.37 per share, having the rights, preferences,
privileges and restrictions as set forth in the Fourth Amended and Restated
Certificate of Incorporation (the "Restated Certificate") in the form attached
to this Agreement as Exhibit B.
1.2 Sale of Preferred. Subject to the terms and conditions hereof, the
Company will issue and sell to each of the Purchasers at the Closing (as defined
below), and the Purchasers will severally buy from the Company at the Closing,
the total number of Shares of Preferred specified opposite such Purchaser's name
on the Schedule of Purchasers, at the aggregate purchase price set forth on the
Schedule of Purchasers. The Company's agreements with each of the Purchasers are
separate agreements, and the sales of the Shares to each of the Purchasers are
separate sales.
SECTION II
CLOSINGS; DELIVERY
2.1 Closings.
(a) The Closing of the purchase and sale of the Preferred Shares (the
"Closing") shall take place at the offices of Gray Cary Ware & Freidenrich LLP,
400 Hamilton Ave., Palo Alto, CA 94301 at 3:00 p.m., local time, on January 22,
1999 (the "Closing"), or at such other time and place as the Company and the
Purchasers shall agree (the date of the Closing is hereinafter referred to as
the "Closing Date").
(b) At its option, the Company may schedule one or more additional
closings ("Additional Closings") for the purchase and sale of any Shares not
sold at the Closing on such date or dates after the Closing as the Company may
determine, but not later than sixty (60) days after the initial Closing Date at
a price not less than $2.37 per share, provided that such party or parties enter
into the Rights Agreement, the Voting Agreement and the Co-Sale Agreement (each
as defined in Section 32). Pursuant to this Agreement, the Company may sell
Shares at the Additional Closings, if any, without any waiver, consent or
approval of the Purchasers who
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participated in the Closing. Each purchaser of Shares at any Additional Closing
will become a party to this Agreement and will be a "Purchaser," and such
purchaser's shares will be "Shares," for all purposes of this Agreement after
such Additional Closing.
2.2 Delivery. At the Closing, the Company shall deliver to each Purchaser
a certificate or certificates, registered in such Purchaser's name set forth on
the Schedule of Purchasers, representing the number of Shares designated on the
Schedule of Purchasers to be purchased by such Purchaser, against payment of the
purchase price therefor, by check payable to the Company or wire transfer per
the Company's instructions, or a combination thereof.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Exhibit C attached hereto, the Company represents
and warrants to the Purchasers as follows:
3.1 Organization and Standing; Certificate and Bylaws. The Company is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Company has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as currently conducted and
as proposed to be conducted in the Business Overview provided to the Purchasers
(the "Business Plan"). The Company is currently qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
failure to be so qualified would have a material adverse affect on the Company's
business as now conducted or its properties. The Company has furnished the
Purchasers' special counsel with true and complete copies of its Certificate of
Incorporation and Bylaws, as amended to date.
3.2 Corporate Power. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Third Amended and Restated
Investor Rights Agreement in substantially the form attached hereto as Exhibit D
(the "Rights Agreement"), the Second Amended and Restated Voting Agreement in
substantially the form attached hereto as Exhibit E (the "Voting Agreement"),
the Third Amended and Restated Co-Sale Agreement in substantially the form
attached hereto as Exhibit H (the "Co-Sale Agreement"), to sell and issue the
Shares hereunder, to issue the Common Stock of the Company (the "Common Stock")
issuable upon conversion of the Shares, and to carry out and perform all of its
obligations under the terms of this Agreement, the Rights Agreement, the Voting
Agreement, the Co-Sale Agreement and the Restated Certificate and to carry on
its business as presently conducted and as presently proposed to be conducted,
and such other agreements and instruments.
3.3 Capitalization. The authorized capital stock of the Company consists,
or will, upon the filing of the Restated Certificate, consist, of 39,000,000
shares of Common Stock, of which 2,839,808 shares will be issued and outstanding
immediately prior to the Closing, and 25,471,586 shares of Preferred Stock, of
which 4,216,216 shares have been designated "Series A Preferred Stock,"
4,981,179 shares have been designated "Series B Preferred Stock," 7,074,191
shares have been designated "Series C Preferred Stock" and 9,200,000 shares have
been
<PAGE>
designated "Series D Preferred Stock." Immediately prior to the Closing,
4,216,216 shares of Series A Preferred Stock, 4,970,179 shares of Series B
Preferred Stock, 6,822,579 shares of Series C Preferred Stock and no shares of
Series D Preferred Stock will be issued and outstanding. All outstanding shares
of Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock have been duly authorized and validly issued, are fully paid and
nonassessable, were issued in compliance with all federal and state securities
laws, and were not issued in violation of any preemptive rights. There are no
authorized or outstanding subscription, warrant, option or other rights or
commitments (including, without limitation, preemptive rights, conversion rights
or rights of first refusal) to purchase or acquire from the Company any shares
of any class of capital stock of the Company or securities convertible into or
exchangeable for such capital stock, other than outstanding warrants to purchase
11,000 shares of Series B Preferred Stock, warrants to purchase 125,806 shares
of Series C Preferred Stock, and authorized options to purchase 3,861,100 shares
of Common Stock pursuant to the Company's 1996 Stock Plan, of which 2,487,216
shares are subject to outstanding options, 261,458 shares have been issued upon
exercise of options and 1,112,426 shares are available for future grant. Other
than the Voting Agreement, the Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge, there
is no agreement or understanding between any person and/or entities, which
affects or relates to the voting or giving of written consents with respect to
any security or by a director of the Company.
3.4 Authorization. All corporate action on the part of the Company, its
directors, officers and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement by the Company, the authorization, sale,
issuance (or reservation for issuance) and delivery of the Shares and the Common
Stock issuable upon conversion of the Shares and the performance of all of the
Company's obligations hereunder and thereunder has been taken or will be taken
prior to the Closing. Each of this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement when each is executed and delivered by the
Company, shall constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as the indemnification
provisions of Section 5.7 of the Rights Agreement may be limited by principles
of public policy, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief of other equitable remedies. The Shares,
when issued in compliance with the provisions of this Agreement, will be duly
and validly issued, fully paid and nonassessable, and will have the rights,
preferences, privileges and restrictions described in the Restated Certificate.
The Common Stock issuable upon conversion of the Shares has been duly and
validly reserved and, when issued in compliance with the provisions of this
Agreement and the Restated Certificate will be duly and validly issued, fully
paid and nonassessable. The issuance and delivery of the Shares and such Common
Stock issuable upon conversion thereof, as applicable, is not subject to any
preemptive or other similar rights or any liens or encumbrances or other
restrictions on transfer that have not been waived or complied with; provided,
however, that the Shares, and such Common Stock issuable upon conversion
thereof, as applicable, may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or in the Rights Agreement.
<PAGE>
3.5 Financial Statements. The Company has delivered to each Purchaser its
audited balance sheet as of December 31, 1997 and statements of operations,
stockholders' equity and cash flows for the year then ended and its unaudited
balance sheet as of October 31, 1998 and statement of operations for the ten-
month period then ended (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated. The Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein. Except as set forth in the Financial Statements, the Company has no
liabilities of any nature (matured or unmatured, fixed or contingent), other
than (x) liabilities incurred in the ordinary course of business subsequent to
October 31, 1998 which, individually or in the aggregate, are not material to
the financial condition or operating results of the Company, and (y) obligations
under contracts and commitments incurred in the ordinary course of business
which, individually or in the aggregate, are not material to the financial
condition or operating results of the Company. Except as disclosed in the
Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.6 Business Condition. Since October 31, 1998, the Company has not:
(a) incurred any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) effected any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(c) sold, exchanged, or otherwise disposed of any of its assets or
made any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets, other than in the ordinary course of
business;
(d) received notice of any resignation or termination of employment
of any key officer of the Company and, to the best of its knowledge, there is no
impending resignation or termination of employment of any such officer;
(e) incurred any absolute or contingent material obligation by way of
guaranty, endorsement, indemnity or warranty;
(f) suffered any damage, destruction or loss, whether or not covered
by insurance, to any of its material assets;
(g) waived or compromised a material right or debt owed to it;
(h) made any loan to its employees, stockholders, officers or
directors, or any members of their immediate families, other than travel
advances made in the ordinary course of business;
(i) entered into any contract or other arrangement relating to
compensation of the Company's employees, officers or directors;
<PAGE>
(j) declared or paid any dividend or other distribution of the assets
of the Company;
(k) redeemed, repurchased, canceled, granted or issued or effected
any other change to any of the capital stock of the Company or options to
purchase the same;
(l) entered into any agreement obligating the Company to make
payments exceeding $25,000 in any fiscal year;
(m) to the best of its knowledge, suffered any other event or
condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company (as such business is currently conducted and as it is proposed to be
conducted in the Business Plan);
(n) satisfied or discharged any lien, claim or encumbrance and has
not made payment of any material obligation, except in the ordinary course of
business; or
(o) made any agreement or commitment to do any of the things
described in this Section 36.
3.7 Compliance with Other Instruments; No Conflicts. The Company is not
in breach or violation of any term of its Certificate of Incorporation, as
amended and restated to date, or Bylaws, of any term or provision of any
contract, agreement, mortgage, indenture, instrument, judgment or decree, or any
order, writ, statute, rule or regulation, in each case where such breach or
violation would have a material adverse effect on the Company. The execution,
delivery and performance of and compliance with this Agreement, the Rights
Agreement, the Voting Agreement and the Co-Sale Agreement and the issuance, sale
and delivery of the Shares and the Common Stock issuable upon conversion of the
Shares and the consummation of the other transactions contemplated hereby and
thereby will not result in any such breach or violation or be in material
conflict with or constitute, with or without the passage of time or giving of
notice, either a material default under any such provision or an event that
results in the creation of any material lien, charge, or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any material permit, license, authorization or approval applicable
to the Company, its business or operations, or any of its assets or properties.
3.8 Litigation, Etc. There is no action, suit, proceeding or
investigation pending, or to the best of the Company's knowledge threatened,
against the Company or any of its properties or assets or that questions the
validity of this Agreement, the Rights Agreement, the Voting Agreement or the
Co-Sale Agreement or the right of the Company to enter into such agreements or
to consummate the transactions contemplated hereby or thereby, or any action
taken or to be taken in connection herewith or that is reasonably likely to
result, either individually or in the aggregate, in any material adverse changes
in the assets, business, properties, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees,
<PAGE>
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. No action, suit or
proceeding has been instituted or is threatened by the Company.
3.9 Intangible Property. The Company owns, or has the right to use (or
can obtain the right to use on reasonable commercial terms), all patents,
trademarks, service marks, names, trade names, copyrights, licenses, trade
secrets or other proprietary rights necessary to its business as now conducted
and as proposed to be conducted in the Business Plan, and has not received any
written notice that it is infringing upon or otherwise acting adversely to the
right or claimed right of any person under or with respect to any of the
foregoing, and to the Company's knowledge there is no basis for any such claim.
A complete list of patents and pending patent applications of the Company is set
forth in Exhibit C. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and process of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. The Company has not received any communication
alleging that the Company has violated or, by conducting its business as
proposed in the Business Plan, would violate any third party's patent, maskwork
right, moral right, trademark, trade secret, trade name, copyright or other
proprietary right. To the Company's knowledge, none of the Company's officers or
employees has improperly used or is making improper use of any confidential
information or trade secrets of others, including those of any former employer
of such officer or employee. The Company is not aware of any violation by a
third party of any of its patents, licenses, trademarks, trade names, service
marks, copyrights, trade secrets or other proprietary rights.
3.10 Securities Laws; Governmental Consent. Based in part on the
accuracy of the Purchasers' representations and warranties set forth in Section
4, the offer, sale and issuance of the Shares as provided in this Agreement are
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and have been
qualified (or are exempt from qualification) under all applicable state
securities qualification requirements, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption. Except for the filing of the Restated
Certificate and except for the filing of notices required or permitted to be
filed after the Closing Date with certain United States federal and state
securities commissions, which notices the Company will file on a timely basis,
no consent, approval, qualification, order or authorization of, or designation,
declaration or filing with, any governmental authority on the part of the
Company is required in connection with the valid execution, delivery and
performance of this Agreement, the Rights Agreement, the Voting Agreement or the
Co-Sale Agreement, the offer, sale or issuance of the Shares (and the issuance
of the Common Stock issuable upon conversion of the Shares) or the consummation
of any other transaction contemplated hereby, or by the Rights Agreement, the
Voting Agreement or the Co-Sale Agreement.
<PAGE>
3.11 Contracts and Other Commitments. The Company is not a party to
or in breach of any:
(a) agreement, or group of related agreements, for the purchase of
assets that involves an expenditure by the Company in excess of $25,000;
(b) indenture, loan or credit agreement, security agreement,
promissory note or other agreement or instrument, or group of related agreements
or instruments, relating to or evidencing indebtedness for borrowed money in
excess of $25,000;
(c) lease or other agreement, or group of related leases or other
agreements, under which the Company is lessee of or holds or operates any
property, real or personal, owned by any other person under which payments to
such person exceed $25,000 per year;
(d) license agreement, either as licensor or licensee, that is
material to the Company's business; or
(e) other agreement or group of related agreements under which the
Company is obligated to make payments exceeding $25,000 or which could result in
the loss by the Company of any rights that are material to the conduct of its
business.
3.12 Registration Rights. Except as provided in the Rights Agreement, the
Company has not granted or agreed to grant to any person or entity any rights
(including piggyback registration rights) to have any securities of the Company
registered with the United States Securities and Exchange Commission ("SEC") or
any other governmental authority.
3.13 Minute Books. The minute books of the Company provided to special
counsel to the Purchasers contain a complete summary of all meetings, consents
and actions of the board of directors and the stockholders of the Company since
the time of its incorporation, accurately reflecting all transactions referred
to in such minutes in all material respects.
3.14 Title to Property and Assets. The Company owns its material
properties and assets free and clear of all mortgages, deeds of trust, liens,
encumbrances, security interests and claims except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not affect the Company's rights to use and possess such properties and assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of the Company's knowledge, the Company holds
valid leasehold interests in such assets free of any liens, encumbrances,
security interests or claims of any party other than the lessors of such
property and assets.
3.15 Labor Agreements and Actions. The Company is not bound by or subject
to any contract, commitment or arrangement with any labor union, and to the
Company's best knowledge, no labor union has requested, sought or attempted to
represent any employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending nor, to the
Company's best knowledge, threatened, nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that any
officer or employee intends to terminate their employment with the Company, nor
does the
<PAGE>
Company have any present intention to terminate the employment of any of its
officers or employees. The employment of each officer and employee of the
Company is terminable at the will of the Company. To the best of its knowledge,
the Company has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws related to employment. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement.
3.16 Interested Party Transactions. To the best knowledge of the Company,
no officer or director of the Company or any "affiliate" or "associate" (as
those terms are defined in Rule 405 promulgated under the Securities Act) of any
such person has, either directly or indirectly, a material interest in: (i) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or services or is in competition with the Company; or (ii) any contract or
agreement to which the Company is a party or by which it may be bound or
affected. No employee, officer, or director of the Company or member of his or
her immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them.
3.17 Stock Restriction Agreements. The Company has furnished to special
counsel to the Purchasers true and complete copies of all stock restriction or
other agreements pursuant to which shares of the Company's Common Stock have
been issued.
3.18 Invention Assignment and Confidentiality Agreement. Each current and
former employee, consultant and contractor of the Company has entered into and
executed an Invention Assignment and Confidentiality Agreement in the form
attached to this Agreement as Exhibit G or an employment or consulting agreement
containing substantially similar terms. No such employee, consultant or
contractor has excluded works or inventions from his or her assignment of
inventions to such employee or contractor's Invention Assignment and
Confidentiality Agreement. The Company is not aware that any of its employees,
consultants or contractors are in violation of such agreement.
3.19 Disclosure. The Company has fully provided the Purchasers with all
the information the Purchasers have requested for deciding whether to purchase
the Shares and all information that the Company believes is reasonably necessary
to make such a decision, including the Business Plan. Neither this Agreement and
the Exhibits hereto (when read together) nor the Business Plan nor any other
statements, certificates or documents made or delivered in connection herewith
or therewith, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein or herein not misleading
in light of the circumstances under which they were made. To the extent the
Business Plan was prepared by management of the Company, the Business Plan and
the financial projections contained in the Business Plan were prepared in good
faith and based upon assumptions that the Company believes are reasonable;
however the Company does not warrant that it will achieve such financial
projections.
3.20 No Breach by Employee. The Company is not aware that any employee,
contractor or consultant of the Company is obligated under any agreement
(including licenses,
<PAGE>
covenants or commitments of any nature) or subject to any judgment, decree or
order of any court or administrative agency, or any other restriction relating
to the relationship of any such employee, contractor or consultant with the
Company or any prior employer that would interfere with the use of his or her
best efforts to carry out his or her duties for the Company or to promote the
interests of the Company or that would conflict with the Company's business as
proposed to be conducted. Neither the execution nor delivery of this Agreement,
the Rights Agreement, the Voting Agreement or the Co-Sale Agreement, nor the
carrying on of the Company's business by the employees, consultants and
contractors of the Company and the conduct of the Company's business as
presently proposed will not, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such employees, consultants or contractors or the Company is now obligated.
The Company does not believe it is or will be necessary to utilize any
inventions of any employees of the Company (or persons the Company currently
intends to hire) made prior to or outside the scope of their employment by the
Company.
3.21 Subsidiaries. The subsidiaries of the Company are listed on Exhibit
C. Other than as listed therein, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
limited liability company, association, or other business entity. The Company is
not a participant in any joint venture, partnership, or similar arrangement.
3.22 Tax Returns, Payments and Elections. The Company has filed all
federal, state and local tax returns and reports as required by law. These
returns and reports are true and correct in all material respects. The Company
has paid all taxes and other assessments due, except those contested by it in
good faith that are set forth on Exhibit C hereto. The provision for taxes of
the Company as shown in the Financial Statements is adequate for taxes due or
accrued as of the date thereof. The Company has not elected pursuant to the
Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section
1362(a) and Section 341(f) of the Code, respectively, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on the Company, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns and none of its state income or franchise
tax or sales or use tax returns has ever been audited by governmental
authorities. Since inception, the Company has made adequate provisions on its
books of account for all taxes, assessments and governmental charges with
respect to its business, properties and operations. The Company has withheld or
collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
3.23 Insurance. The Company has in full force and effect fire, casualty
and liability insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed and
<PAGE>
adequate to protect the Company and its financial condition against the risks
involved in the business of the Company.
3.24 Marketing Rights. The Company has not granted rights to license,
market, or sell its products to any other person and is not bound by any
agreement that affects the Company's exclusive right to develop, distribute,
market, or sell its products.
3.25 Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would be reasonably likely to materially and
adversely affect the business, properties, prospects, or financial condition of
the Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted as set forth in the Business Plan. The Company is not in default in
any material respect under any of such franchises, permits, licenses, or other
similar authority.
3.26 Qualified Small Business Stock. As of the Closing: (i) the Company
will not have taken any of the following actions that would prevent it from
being treated as an "eligible corporation" as defined in Section 1202(e)(4) of
the Code; (ii) the Company will not have made any purchases of its own stock
during the one-year period preceding the Closing having an aggregate value
exceeding 5% of the aggregate value of all of its stock as of the beginning of
such period; and (iii) the Company's aggregate gross assets, as defined by Code
Section 1202(d)(2), at no time between the Company's date of incorporation and
through the Closing will have exceeded or will exceed $50 million, taking into
account the assets of any corporations required to be aggregated with the
Company in accordance with Code Section 1202(d)(3).
3.27 Small Business Concern. The Company, together with its affiliates
(as that term is defined in 13 C.F.R. (S) 121.103), is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended, and the regulations promulgated thereunder (the "Small Business
Investment Act") and Part 121 of Title 13 of the United States Code of Federal
Regulations. The information provided by the Company to each Purchaser that is a
licensed Small Business Investment Company (an "SBIC Investor") on SBA Forms
480, 652 and 1031 delivered in connection herewith is accurate and complete. The
Company acknowledges that, based on information provided to the Company by such
investor, each SBIC Investor is a Federal licensee under the Small Business
Investment Act.
3.28 Acquisition Discussions. The Company has not engaged in the past
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company or a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
3.29 Environmental and Safety Laws. To the best of its knowledge, the
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or
<PAGE>
occupational health and safety, and to the best of its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.30 Employee Benefit Plans. The Company does not have any "Employee
Benefit Plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations thereunder ("ERISA").
3.31 Year 2000 Compliance. Each product of the Company is (i) able to
receive, record, store, process, calculate, manipulate and output dates from and
after January 1, 2000, time periods that include January 1, 2000, and
information that is dependent on or relates to such dates or time periods, in
the same manner and with the same accuracy, functionality, data integrity and
performance as when dates or time periods prior to January 1, 2000 are involved,
and (ii) able to store and output date information in a manner that is
unambiguous as to century ("Year 2000 Compliant"). To the Company's knowledge,
all internal computer systems that are material to the business, finances or
operations of the Company are Year 2000 Compliant or can be freely modified to
be made Year 2000 Compliant without breaching any third party license agreements
or otherwise infringing any intellectual property rights of any third party.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of Shares as follows:
4.1 Investment Experience. It is aware of the Company's business affairs
and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Shares
and the underlying Common Stock. Such Purchaser: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that such Purchaser is able to fend for itself, can bear the economic risk of
such Purchaser's investment in the Shares and has such knowledge and experience
in financial or business matters that such Purchaser is capable of evaluating
the merits and risks of this investment in the Shares and protecting its own
interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables such
Purchaser to be aware of the character, business acumen and financial
circumstances of such persons. Such Purchaser is an "accredited investor" within
the meaning of Regulation D promulgated under the Securities Act.
4.2 Investment intent. It is acquiring the Shares and the underlying
Common Stock for investment only for its own account, and not with the view to,
or for resale in connection with, any distribution thereof other than a transfer
to "affiliates" (as defined in Rule 405 promulgated under the Securities Act).
It understands that the issuances of the Shares and the underlying Common Stock
to such Purchaser have not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities
<PAGE>
Act, the availability of which depends upon, among other things, the bona fide
nature of the investment intent of such Purchaser as expressed herein.
4.3 Rule 144. It acknowledges that the Shares and the underlying Common
Stock must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available. It is
aware of the provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
the security was last held by the Company or an affiliate of the Company, the
sale being effected through a "broker's transaction" or in transactions directly
with a "market maker" and the number of shares being sold during any three-month
period not exceeding specified limitations.
4.4 No Public Market. It understands that no public market now exists for
any of the securities issued by the Company, and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management. The
foregoing, however, does not limit or modify the representations and warranties
made by the Company in Section 3 or the rights of the Purchasers to rely
thereon.
4.6 Authorization. Each of this Agreement, the Rights Agreement, the
Voting Agreement and the Co-Sale Agreement when executed and delivered by such
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as the
indemnification provisions of Section 5.7 of the Rights Agreement may be limited
by principles of public policy, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.7 Legends. It is understood that the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer without value by a
<PAGE>
Purchaser to an affiliate (as such term is defined in Rule 405 under the
Securities Act) of such Purchaser, if the transferee agrees in writing to be
subject to the terms hereof to the same extent as if he were an original
Purchaser hereunder.
SECTION V
CONDITIONS TO CLOSING
5.1 Conditions to the Purchasers' and the Company's Obligations. The
obligations of a Purchaser to purchase and of the Company to issue and sell the
Shares are subject to the fulfillment, on or prior to the Closing, of all of the
following conditions, any of which may be waived in whole or in part by mutual
agreement of such Purchaser and the Company:
(a) The Company shall have obtained all consents, permits and waivers
necessary or appropriate on the part of the Company for consummation of the
transactions contemplated by this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement at such Closing. Except for the notices
required to be filed after such Closing with certain federal and state
securities commissions, which notices the Company will file on a timely basis,
the Company shall have obtained all approvals of any federal or state
governmental authority or regulatory body that are required on the part of the
Company in connection with the lawful sale and issuance of the Shares and the
Common Stock issuable upon conversion of the Shares at such Closing.
(b) At such Closing, the purchase of the Shares by the Purchasers
hereunder shall be legally permitted by all laws and regulations to which the
Purchasers or the Company is subject.
(c) The Restated Certificate shall have been filed with and accepted
by the Secretary of State of the State of Delaware.
(d) The Company and the Purchasers shall have entered into the Rights
Agreement, the Voting Agreement and the Co-Sale Agreement.
5.2 Additional Conditions to the Purchasers' Obligations. In addition to
the conditions set forth in Section 51 hereof, each Purchaser's obligation to
purchase the Shares is subject to the fulfillment, on or prior to the Closing,
of all of the following conditions (except as otherwise provided below), any of
which may be waived in whole or in part by such Purchaser:
(a) The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct as
of the Closing with the same force and effect as if they had been made on and as
of the Closing.
(b) The Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to the Closing.
<PAGE>
(c) Effective upon the Closing, the Board of Directors shall consist
of five (5) directors.
(d) The Purchasers shall have received from Gray Cary Ware &
Freidenrich LLP, counsel to the Company, an opinion letter addressed to them,
dated such Closing Date and in substantially the form attached hereto as Exhibit
F.
(e) The Voting Agreement, the Co-Sale Agreement and the Rights
Agreement shall have been executed by the parties thereto (other than the
Purchasers).
(f) The Company shall have delivered to the Purchasers a certificate,
executed by the Chief Financial Officer of the Company and dated the Closing
Date, certifying to the fulfillment of the conditions specified in Sections
5.1((a)), 5.2((a)), 5.2((b)) and 5.2((c)) and that there has been no materially
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since October 31, 1998.
(g) All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Purchaser and to
the Purchasers' special counsel, and they shall each have received all such
counterpart originals and certified or other copies of such documents as they
may reasonably request. Such documents shall include (but not be limited to)
the following:
(i) A copy of the Restated Certificate and the Bylaws of the
Company (as amended through the date of such Closing), certified by the
Secretary or the Assistant Secretary of the Company as true and correct copies
thereof as of such Closing.
(ii) A certificate of the Secretary or an Assistant Secretary or
other officer of the Company certifying the names of the officers of the Company
authorized to sign this Agreement, the Rights Agreement, the Co-Sale Agreement
and the Voting Agreement, the certificates for the Shares and the other
documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers.
(iii) A copy of the resolutions of the Board of Directors and, if
required, the stockholders of the Company evidencing the amendment to the
Company's Certificate of Incorporation providing for the authorization of the
Shares, the approval of this Agreement, the Rights Agreement, the Voting
Agreement, the Co-Sale Agreement and the issuance of the Shares and the Common
Stock issuable upon conversion of the Shares and the other matters contemplated
hereby.
(iv) Good standing certificates issued by the Delaware Secretary
of State and the California Secretary of State dated within ten (10) days of the
Closing.
(h) The Company shall have executed and delivered to each Purchaser
that is a licensed Small Business Investment Company (an "SBIC Investor") a Size
Status Declaration on SBA form 480 and an Assurance of Compliance on SBA form
652, and shall have provided
<PAGE>
to each such Purchaser information necessary for the preparation of a Portfolio
financing Report on SBA form 1031.
(i) The Company shall have executed and delivered to Lehman Brothers
Venture Capital I, L.P., and the other Purchasers affiliated therewith
(collectively, "Lehman Brothers"), a side agreement in form and substance
reasonably acceptable to counsel to the Company and counsel to the Purchasers
granting board observer rights to Lehman Brothers.
(j) The Purchasers shall purchase an aggregate of at least 6,329,114
shares of Preferred at the Closing.
5.3 Additional Condition to Obligations of the Company. In addition to the
conditions set forth in Section 51 hereof, the Company's obligation to issue and
sell the Shares to each Purchaser is subject to the fulfillment to the Company's
satisfaction, on or prior to the Closing, of the following conditions, any of
which may be waived in whole or in part by the Company:
(a) The representations and warranties made by such Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct as of such Closing with the same force and effect as if they had been
made on and as of the Closing.
(b) Such Purchaser shall have performed all obligations and
conditions herein or in the Rights Agreement required to be performed or
observed by it on or prior to the Closing.
(c) Such Purchaser shall have paid the consideration for the Shares
to be sold to such Purchaser as set forth on Exhibit A hereto.
SECTION VI
MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
6.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
<PAGE>
6.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof. Neither this
Agreement nor any provision hereof may be amended, changed, waived, discharged
or terminated other than by a written instrument signed by the party against who
enforcement of any such amendment, change, waiver, discharge or termination is
sought; provided, however, that holders of more than fifty percent (50%) of the
outstanding Shares (or Common Stock issued upon conversion of the Shares or a
combination thereof) may waive or amend, with the Company's written consent, on
behalf of all Purchasers and other holders of Shares, any provisions hereof
benefiting the Purchasers (other than the provisions of Sections 51 and 52) so
long as the effect thereof will be that all such Purchasers and other holders of
Shares will be treated equally.
6.5 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified twenty-four (24) hours after
confirmed transmission of a facsimile, one business day after deposit with a
recognized overnight courier and four business days after deposit in the U.S.
mail, certified or registered, return receipt requested, addressed (a) if to a
Purchaser, at the address or addresses set forth on Exhibit A or at such other
address as such Purchaser shall have furnished the Company in writing, with a
copy to David Odrich, Esq., Brobeck, Phleger & Harrison LLP, 550 West C Street,
Suite 1300, San Diego, CA 92101, or (b) if to the Company, at its address set
forth at the beginning of this Agreement, or at such other address as the
Company shall have furnished to the Purchaser in writing, with a copy to Gregory
M. Gallo, Esq., Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo
Alto, California 94301.
6.6 Severability. If any provision of this Agreement shall be judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.7 Finder's Fees.
(a) Except as set forth on Exhibit C hereto, the Company (i)
represents and warrants that it has retained no finder or broker in connection
with the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Purchasers harmless of and from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the Company, or any of its employees
or representatives, is responsible.
(b) Each Purchaser (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other Purchasers harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which such Purchaser, or any of its employees or representatives,
is responsible.
<PAGE>
6.8 Invention Assignment and Confidentiality Agreement. The Company shall
use commercially reasonable efforts to prevent any violations of any Invention
Assignment and Confidentiality Agreement between the Company and any employee,
consultant or contractor of or to the Company.
6.9 Titles and Subtitles. The section headings of this Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.11 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party upon any breach or
default of any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of 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. It is further agreed that any waiver, permit, consent or approval of
any kind or character of any breach or default under this Agreement, or any
waiver of any provisions or conditions of this Agreement must be in writing and
shall be effective only to the extent specifically set forth in writing, and
that all remedies, either under this Agreement, by law or otherwise, shall be
cumulative and not alternative.
6.12 Payment of Fees and Expenses. Each party shall be responsible for
paying its own fees, costs and expenses in connection with this Agreement and
the transactions herein contemplated; provided, however, that if the Closing is
effected, the Company agrees to pay the reasonable fees and expenses of special
counsel to the Purchasers at Closing, provided that such fees and expenses of
special counsel to the Purchasers are presented to the Company in a reasonably
detailed invoice and that such amount does not exceed $20,000. In the event of
any action to enforce any of the terms of this Agreement, the prevailing party
shall be entitled to reimbursement from the non-prevailing party of its costs
and expenses (including reasonable attorneys' fees) incurred in connection
therewith, in addition to all other remedies and relief to which such prevailing
party is entitled.
6.13 Exculpation Among Purchasers. Each Purchaser acknowledges that it is
not relying upon any person, firm or corporation (including without limitation
any other Purchaser), other than the Company and its officers and directors
(acting in their capacity as representatives of the Company), in deciding to
invest and in making its investment in the Company. Each Purchaser agrees that
no other Purchaser nor the respective controlling persons, officers, directors,
partners, agents or employees of any other Purchaser shall be liable to such
Purchaser for any losses incurred by such Purchaser in connection with its
investment in the Company.
6.14 Like Treatment of Holders. Neither the Company nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemption or
exchange of any shares of any series of its Preferred Stock (all such series
being collectively referred to as "Preferred Stock"), or otherwise, to any
holder of Preferred Stock for or as an inducement to, or in connection with
solicitation of, any consent, waiver or amendment of any terms or provisions of
its Preferred Stock or this Agreement, the
<PAGE>
Restated Certificate, the Rights Agreement, the Voting Agreement or the Co-Sale
Agreement, unless such consideration is paid to all holders of Preferred Stock
bound by such consent, waiver or amendment, whether or not such holders so
consent, waive or agree to amend and whether or not such holders tender their
Preferred Stock for redemption or exchange.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
EXHIBIT 10.7
IMX EXCHANGE, INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of February 18, 2000 among IMX Exchange, Inc., a
Delaware corporation, with a principal place of business at 2305 Camino Ramon,
Suite 200, P.O. Box 778, San Ramon, California 94583 (the "Company"), and the
persons and entities listed on the Schedule of Purchasers attached hereto as
Exhibit A (the "Purchasers").
- ---------
SECTION I
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 Authorization. The Company will authorize the sale and issuance of
5,500,000 shares (the "Shares") of its Series E Preferred Stock (the
"Preferred"), at the price of $4.00 per share, having the rights, preferences,
privileges and restrictions as set forth in the Fifth Amended and Restated
Certificate of Incorporation (the "Restated Certificate") in the form attached
to this Agreement as Exhibit B.
---------
1.2 Sale of Preferred. Subject to the terms and conditions hereof, the
Company will issue and sell to each of the Purchasers at the Closing (as defined
below), and the Purchasers will severally buy from the Company at the Closing,
the total number of Shares of Preferred specified opposite such Purchaser's name
on the Schedule of Purchasers, at the aggregate purchase price set forth on the
Schedule of Purchasers. The Company's agreements with each of the Purchasers
are separate agreements, and the sales of the Shares to each of the Purchasers
are separate sales.
SECTION II
CLOSINGS; DELIVERY
2.1 Closings.
(a) The Closing of the purchase and sale of the Preferred Shares (the
"Closing") shall take place at the offices of Gray Cary Ware & Freidenrich LLP,
400 Hamilton Ave., Palo Alto, CA 94301 at 3:00 p.m., local time, on February 18,
2000 (the "Closing"), or at such other time and place as the Company and the
Purchasers shall agree (the date of the Closing is hereinafter referred to as
the "Closing Date").
(i) At its option, the Company may schedule one or more
additional closings ("Additional Closings") for the purchase and sale of any
Shares not sold at the Closing on such date or dates after the Closing as the
Company may determine, but not later than sixty (60) days after the initial
Closing Date at a price not less than $4.00 per share, provided that such party
or parties enter into the Rights Agreement, the Voting Agreement and the Co-Sale
Agreement (each as defined in Section 32). Pursuant to this Agreement, the
Company may sell Shares at the Additional Closings, if any, without any waiver,
consent or approval of the Purchasers who participated in the Closing. Each
purchaser of Shares at any Additional Closing
<PAGE>
will become a party to this Agreement and will be a "Purchaser," and such
purchaser's shares will be "Shares," for all purposes of this Agreement after
such Additional Closing.
2.2 Delivery. At the Closing, the Company shall deliver to each Purchaser
a certificate or certificates, registered in such Purchaser's name set forth on
the Schedule of Purchasers, representing the number of Shares designated on the
Schedule of Purchasers to be purchased by such Purchaser, against payment of the
purchase price therefor, by check payable to the Company or wire transfer per
the Company's instructions, or a combination thereof.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Exhibit C attached hereto, the Company represents
---------
and warrants to the Purchasers as follows:
3.1 Organization and Standing; Certificate and Bylaws. The Company is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Company has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as currently conducted and
as proposed to be conducted in the Business Overview provided to the Purchasers
(the "Business Plan"). The Company is currently qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
failure to be so qualified would have a material adverse affect on the Company's
business as now conducted or its properties. The Company has furnished the
Purchasers' special counsel with true and complete copies of its Certificate of
Incorporation and Bylaws, as amended to date.
3.2 Corporate Power. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Fourth Amended and Restated
Investor Rights Agreement in substantially the form attached hereto as Exhibit D
---------
(the "Rights Agreement"), the Third Amended and Restated Voting Agreement in
substantially the form attached hereto as Exhibit E (the "Voting Agreement"),
---------
the Fourth Amended and Restated Co-Sale Agreement in substantially the form
attached hereto as Exhibit H (the "Co-Sale Agreement"), to sell and issue the
---------
Shares hereunder, to issue the Common Stock of the Company (the "Common Stock")
issuable upon conversion of the Shares, and to carry out and perform all of its
obligations under the terms of this Agreement, the Rights Agreement, the Voting
Agreement, the Co-Sale Agreement and the Restated Certificate and to carry on
its business as presently conducted and as presently proposed to be conducted,
and such other agreements and instruments.
3.3 Capitalization. The authorized capital stock of the Company consists,
or will, upon the filing of the Restated Certificate, consist, of 50,000,000
shares of Common Stock, of which 4,293,706 shares will be issued and outstanding
immediately prior to the Closing, and 31,035,544 shares of Preferred Stock, of
which 4,216,216 shares have been designated "Series A Preferred Stock,"
4,981,179 shares have been designated "Series B Preferred Stock," 7,074,191
shares have been designated "Series C Preferred Stock," 8,763,958 shares have
been designated "Series D Preferred Stock" and 6,000,000 shares have been
designated Series E Preferred Stock (the "Preferred" or the "Series E Preferred
Stock"). Immediately prior to the Closing, 4,216,216
2
<PAGE>
shares of Series A Preferred Stock, 4,970,179 shares of Series B Preferred
Stock, 6,822,579 shares of Series C Preferred Stock, 8,763,958 shares of Series
D Preferred Stock and no shares of Series E Preferred Stock will be issued and
outstanding. All outstanding shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
have been duly authorized and validly issued, are fully paid and nonassessable,
were issued in compliance with all federal and state securities laws, and were
not issued in violation of any preemptive rights. There are no authorized or
outstanding subscription, warrant, option or other rights or commitments
(including, without limitation, preemptive rights, conversion rights or rights
of first refusal) to purchase or acquire from the Company any shares of any
class of capital stock of the Company or securities convertible into or
exchangeable for such capital stock, other than outstanding warrants to purchase
11,000 shares of Series B Preferred Stock, outstanding warrants to purchase
125,806 shares of Series C Preferred Stock, commitments to issue warrants to
purchase 125,806 shares of Series C Preferred Stock, commitments to issue
warrants to purchase 1,150,000 shares of Series E Preferred Stock, and
authorized options to purchase 7,718,961 shares of Common Stock pursuant to the
Company's 1996 Stock Plan, of which 4,860,763 shares are subject to outstanding
options, 1,695,556 shares have been issued upon exercise of options and
1,149,292 shares are available for future grant. In addition to the foregoing,
there are issued and outstanding options to purchase 647,139 shares of Common
Stock pursuant to option agreements outside of the 1996 Stock Plan, and the
Company is committed to issue 88,569 shares of Company Common Stock pursuant to
a consulting agreement with Stephen K. Fraser. Other than the Voting Agreement,
the Company is not a party or subject to any agreement or understanding, and, to
the best of the Company's knowledge, there is no agreement or understanding
between any person and/or entities, which affects or relates to the voting or
giving of written consents with respect to any security or by a director of the
Company.
3.4 Authorization. All corporate action on the part of the Company, its
directors, officers and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement by the Company, the authorization, sale,
issuance (or reservation for issuance) and delivery of the Shares and the Common
Stock issuable upon conversion of the Shares and the performance of all of the
Company's obligations hereunder and thereunder has been taken or will be taken
prior to the Closing. Each of this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement when each is executed and delivered by the
Company, shall constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as the indemnification
provisions of Section 5.7 of the Rights Agreement may be limited by principles
of public policy, and subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief of other equitable remedies. The
Shares, when issued in compliance with the provisions of this Agreement, will be
duly and validly issued, fully paid and nonassessable, and will have the rights,
preferences, privileges and restrictions described in the Restated Certificate.
The Common Stock issuable upon conversion of the Shares has been duly and
validly reserved and, when issued in compliance with the provisions of this
Agreement and the Restated Certificate will be duly and validly issued, fully
paid and nonassessable. The issuance and delivery of the Shares and such Common
Stock issuable upon conversion thereof, as applicable, is not subject to any
preemptive or other similar rights or any liens or encumbrances or other
restrictions on transfer that have not been waived or complied with; provided,
however, that the Shares, and
3
<PAGE>
such Common Stock issuable upon conversion thereof, as applicable, may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or in the Rights Agreement.
3.5 Financial Statements. The Company has delivered to each Purchaser its
audited balance sheet as of December 31, 1998 and statements of operations,
stockholders' equity and cash flows for the year then ended and its unaudited
balance sheet as of November 30, 1999 and statement of operations for the ten-
month period then ended (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated. The Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein. Except as set forth in the Financial Statements, the Company has no
liabilities of any nature (matured or unmatured, fixed or contingent), other
than (x) liabilities incurred in the ordinary course of business subsequent to
November 30, 1999 which, individually or in the aggregate, are not material to
the financial condition or operating results of the Company, and (y) obligations
under contracts and commitments incurred in the ordinary course of business
which, individually or in the aggregate, are not material to the financial
condition or operating results of the Company. Except as disclosed in the
Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.6 Business Condition. Since November 30, 1999, the Company has not:
(a) incurred any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) effected any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(c) sold, exchanged, or otherwise disposed of any of its assets or
made any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets, other than in the ordinary course of
business;
(d) received notice of any resignation or termination of employment of
any key officer of the Company and, to the best of its knowledge, there is no
impending resignation or termination of employment of any such officer;
(e) incurred any absolute or contingent material obligation by way of
guaranty, endorsement, indemnity or warranty;
(f) suffered any damage, destruction or loss, whether or not covered
by insurance, to any of its material assets;
(g) waived or compromised a material right or debt owed to it;
4
<PAGE>
(h) made any loan to its employees, stockholders, officers or
directors, or any members of their immediate families, other than travel
advances made in the ordinary course of business;
(i) entered into any contract or other arrangement relating to
compensation of the Company's employees, officers or directors;
(j) declared or paid any dividend or other distribution of the assets
of the Company;
(k) redeemed, repurchased, canceled, granted or issued or effected any
other change to any of the capital stock of the Company or options to purchase
the same;
(l) entered into any agreement obligating the Company to make payments
exceeding $25,000 in any fiscal year;
(m) to the best of its knowledge, suffered any other event or
condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company (as such business is currently conducted and as it is proposed to be
conducted in the Business Plan);
(n) satisfied or discharged any lien, claim or encumbrance and has not
made payment of any material obligation, except in the ordinary course of
business; or
(o) made any agreement or commitment to do any of the things described
in this Section 36.
3.7 Compliance with Other Instruments; No Conflicts. The Company is not
in breach or violation of any term of its Certificate of Incorporation, as
amended and restated to date, or Bylaws, of any term or provision of any
contract, agreement, mortgage, indenture, instrument, judgment or decree, or any
order, writ, statute, rule or regulation, in each case where such breach or
violation would have a material adverse effect on the Company. The execution,
delivery and performance of and compliance with this Agreement, the Rights
Agreement, the Voting Agreement and the Co-Sale Agreement and the issuance, sale
and delivery of the Shares and the Common Stock issuable upon conversion of the
Shares and the consummation of the other transactions contemplated hereby and
thereby will not result in any such breach or violation or be in material
conflict with or constitute, with or without the passage of time or giving of
notice, either a material default under any such provision or an event that
results in the creation of any material lien, charge, or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any material permit, license, authorization or approval applicable
to the Company, its business or operations, or any of its assets or properties.
3.8 Litigation, Etc. There is no action, suit, proceeding or
investigation pending, or to the best of the Company's knowledge threatened,
against the Company or any of its properties or assets or that questions the
validity of this Agreement, the Rights Agreement, the Voting Agreement or the
Co-Sale Agreement or the right of the Company to enter into such agreements or
to consummate the transactions contemplated hereby or thereby, or any action
taken or to be
5
<PAGE>
taken in connection herewith or that is reasonably likely to result, either
individually or in the aggregate, in any material adverse changes in the assets,
business, properties, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. No action, suit or proceeding has been instituted or is
threatened by the Company.
3.9 Intangible Property. The Company owns, or has the right to use (or
can obtain the right to use on reasonable commercial terms), all patents,
trademarks, service marks, names, trade names, copyrights, licenses, trade
secrets or other proprietary rights necessary to its business as now conducted
and as proposed to be conducted in the Business Plan, and has not received any
written notice that it is infringing upon or otherwise acting adversely to the
right or claimed right of any person under or with respect to any of the
foregoing, and to the Company's knowledge there is no basis for any such claim.
A complete list of patents and pending patent applications of the Company is set
forth in Exhibit C. There are no outstanding options, licenses or agreements of
---------
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and process of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. The Company has not received any communication
alleging that the Company has violated or, by conducting its business as
proposed in the Business Plan, would violate any third party's patent, maskwork
right, moral right, trademark, trade secret, trade name, copyright or other
proprietary right. To the Company's knowledge, none of the Company's officers
or employees has improperly used or is making improper use of any confidential
information or trade secrets of others, including those of any former employer
of such officer or employee. The Company is not aware of any violation by a
third party of any of its patents, licenses, trademarks, trade names, service
marks, copyrights, trade secrets or other proprietary rights.
3.10 Securities Laws; Governmental Consent. Based in part on the accuracy
of the Purchasers' representations and warranties set forth in Section 4, the
offer, sale and issuance of the Shares as provided in this Agreement are exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and have been qualified (or are
exempt from qualification) under all applicable state securities qualification
requirements, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption. Except for the filing of the Restated Certificate and except for the
filing of notices required or permitted to be filed after the Closing Date with
certain United States federal and state securities commissions, which notices
the Company will file on a timely basis, no consent, approval, qualification,
order or authorization of, or designation, declaration or filing with, any
governmental authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement, the Rights
Agreement, the Voting Agreement or the Co-Sale
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Agreement, the offer, sale or issuance of the Shares (and the issuance of the
Common Stock issuable upon conversion of the Shares) or the consummation of any
other transaction contemplated hereby, or by the Rights Agreement, the Voting
Agreement or the Co-Sale Agreement.
3.11 Contracts and Other Commitments. The Company is not a party to or in
breach of any:
(a) agreement, or group of related agreements, for the purchase of
assets that involves an expenditure by the Company in excess of $25,000;
(b) indenture, loan or credit agreement, security agreement,
promissory note or other agreement or instrument, or group of related agreements
or instruments, relating to or evidencing indebtedness for borrowed money in
excess of $25,000;
(c) lease or other agreement, or group of related leases or other
agreements, under which the Company is lessee of or holds or operates any
property, real or personal, owned by any other person under which payments to
such person exceed $25,000 per year;
(d) license agreement, either as licensor or licensee, that is
material to the Company's business; or
(e) other agreement or group of related agreements under which the
Company is obligated to make payments exceeding $25,000 or which could result in
the loss by the Company of any rights that are material to the conduct of its
business.
3.12 Registration Rights. Except as provided in the Rights Agreement, the
Company has not granted or agreed to grant to any person or entity any rights
(including piggyback registration rights) to have any securities of the Company
registered with the United States Securities and Exchange Commission ("SEC") or
any other governmental authority.
3.13 Minute Books. The minute books of the Company provided to special
counsel to the Purchasers contain a complete summary of all meetings, consents
and actions of the board of directors and the stockholders of the Company since
the time of its incorporation, accurately reflecting all transactions referred
to in such minutes in all material respects.
3.14 Title to Property and Assets. The Company owns its material
properties and assets free and clear of all mortgages, deeds of trust, liens,
encumbrances, security interests and claims except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not affect the Company's rights to use and possess such properties and assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of the Company's knowledge, the Company holds
valid leasehold interests in such assets free of any liens, encumbrances,
security interests or claims of any party other than the lessors of such
property and assets.
3.15 Labor Agreements and Actions. The Company is not bound by or subject
to any contract, commitment or arrangement with any labor union, and to the
Company's best
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knowledge, no labor union has requested, sought or attempted to represent any
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending nor, to the Company's best
knowledge, threatened, nor is the Company aware of any labor organization
activity involving its employees. The Company is not aware that any officer or
employee intends to terminate their employment with the Company, nor does the
Company have any present intention to terminate the employment of any of its
officers or employees. The employment of each officer and employee of the
Company is terminable at the will of the Company. To the best of its knowledge,
the Company has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws related to employment. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement.
3.16 Interested Party Transactions. To the best knowledge of the Company,
no officer or director of the Company or any "affiliate" or "associate" (as
those terms are defined in Rule 405 promulgated under the Securities Act) of any
such person has, either directly or indirectly, a material interest in: (i) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or services or is in competition with the Company; or (ii) any contract or
agreement to which the Company is a party or by which it may be bound or
affected. No employee, officer, or director of the Company or member of his or
her immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them.
3.17 Stock Restriction Agreements. The Company has furnished to special
counsel to the Purchasers true and complete copies of all stock restriction or
other agreements pursuant to which shares of the Company's Common Stock have
been issued.
3.18 Invention Assignment and Confidentiality Agreement. Each current and
former employee, consultant and contractor of the Company has entered into and
executed an Invention Assignment and Confidentiality Agreement in the form
attached to this Agreement as Exhibit G or an employment or consulting agreement
---------
containing substantially similar terms. No such employee, consultant or
contractor has excluded works or inventions from his or her assignment of
inventions to such employee or contractor's Invention Assignment and
Confidentiality Agreement. The Company is not aware that any of its employees,
consultants or contractors are in violation of such agreement.
3.19 Disclosure. The Company has fully provided the Purchasers with all
the information the Purchasers have requested for deciding whether to purchase
the Shares and all information that the Company believes is reasonably necessary
to make such a decision, including the Business Plan. Neither this Agreement and
the Exhibits hereto (when read together) nor the Business Plan nor any other
statements, certificates or documents made or delivered in connection herewith
or therewith, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein or herein not misleading
in light of the circumstances under which they were made. To the extent the
Business Plan was prepared by management of the Company, the Business Plan and
the financial projections contained in the Business Plan were prepared in good
faith and based upon assumptions that the
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Company believes are reasonable; however the Company does not warrant that it
will achieve such financial projections.
3.20 No Breach by Employee. The Company is not aware that any employee,
contractor or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction relating to the relationship of any such employee, contractor or
consultant with the Company or any prior employer that would interfere with the
use of his or her best efforts to carry out his or her duties for the Company or
to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, the Rights Agreement, the Voting Agreement or the
Co-Sale Agreement, nor the carrying on of the Company's business by the
employees, consultants and contractors of the Company and the conduct of the
Company's business as presently proposed will not, to the best of the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees, consultants or contractors or the
Company is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions of any employees of the Company (or persons
the Company currently intends to hire) made prior to or outside the scope of
their employment by the Company.
3.21 Subsidiaries. The subsidiaries of the Company are listed on Exhibit
-------
C. Other than as listed therein, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
limited liability company, association, or other business entity. The Company
is not a participant in any joint venture, partnership, or similar arrangement.
3.22 Tax Returns, Payments and Elections. The Company has filed all federal,
state and local tax returns and reports as required by law. These returns and
reports are true and correct in all material respects. The Company has paid all
taxes and other assessments due, except those contested by it in good faith that
are set forth on Exhibit C hereto. The provision for taxes of the Company as
---------
shown in the Financial Statements is adequate for taxes due or accrued as of the
date thereof. The Company has not elected pursuant to the Internal Revenue Code
of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or
a collapsible corporation pursuant to Section 1362(a) and Section 341(f) of the
Code, respectively, nor has it made any other elections pursuant to the Code
(other than elections that relate solely to methods of accounting, depreciation
or amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets. The Company has never had any tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since inception, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations.
The Company has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and
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Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositories.
3.23 Insurance. The Company has in full force and effect fire, casualty
and liability insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed and adequate to protect the Company and its
financial condition against the risks involved in the business of the Company.
3.24 Marketing Rights. The Company has not granted rights to license,
market, or sell its products to any other person and is not bound by any
agreement that affects the Company's exclusive right to develop, distribute,
market, or sell its products.
3.25 Permits. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would be reasonably likely to materially and
adversely affect the business, properties, prospects, or financial condition of
the Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted as set forth in the Business Plan. The Company is not in default in
any material respect under any of such franchises, permits, licenses, or other
similar authority.
3.26 Qualified Small Business Stock. As of the Closing: (i) the Company
will not have taken any of the following actions that would prevent it from
being treated as an "eligible corporation" as defined in Section 1202(e)(4) of
the Code; (ii) the Company will not have made any purchases of its own stock
during the one-year period preceding the Closing having an aggregate value
exceeding 5% of the aggregate value of all of its stock as of the beginning of
such period; and (iii) the Company's aggregate gross assets, as defined by Code
Section 1202(d)(2), at no time between the Company's date of incorporation and
through the Closing will have exceeded or will exceed $50 million, taking into
account the assets of any corporations required to be aggregated with the
Company in accordance with Code Section 1202(d)(3).
3.27 Small Business Concern. The Company, together with its affiliates (as
that term is defined in 13 C.F.R. (S) 121.103), is a "small business concern"
within the meaning of the Small Business Investment Act of 1958, as amended, and
the regulations promulgated thereunder (the "Small Business Investment Act") and
Part 121 of Title 13 of the United States Code of Federal Regulations. The
information provided by the Company to each Purchaser that is a licensed Small
Business Investment Company (an "SBIC Investor") on SBA Forms 480, 652 and 1031
delivered in connection herewith is accurate and complete. The Company
acknowledges that, based on information provided to the Company by such
investor, each SBIC Investor is a Federal licensee under the Small Business
Investment Act.
3.28 Acquisition Discussions. The Company has not engaged in the past
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the
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Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
3.29 Environmental and Safety Laws. To the best of its knowledge, the
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.30 Employee Benefit Plans. The Company does not have any "Employee
Benefit Plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations thereunder ("ERISA").
3.31 Year 2000 Compliance. Each product of the Company is (i) able to
receive, record, store, process, calculate, manipulate and output dates from and
after January 1, 2000, time periods that include January 1, 2000, and
information that is dependent on or relates to such dates or time periods, in
the same manner and with the same accuracy, functionality, data integrity and
performance as when dates or time periods prior to January 1, 2000 are involved,
and (ii) able to store and output date information in a manner that is
unambiguous as to century ("Year 2000 Compliant"). To the Company's knowledge,
all internal computer systems that are material to the business, finances or
operations of the Company are Year 2000 Compliant or can be freely modified to
be made Year 2000 Compliant without breaching any third party license agreements
or otherwise infringing any intellectual property rights of any third party.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of Shares as follows:
4.1 Investment Experience. It is aware of the Company's business affairs
and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Shares
and the underlying Common Stock. Such Purchaser: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that such Purchaser is able to fend for itself, can bear the economic risk of
such Purchaser's investment in the Shares and has such knowledge and experience
in financial or business matters that such Purchaser is capable of evaluating
the merits and risks of this investment in the Shares and protecting its own
interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables such
Purchaser to be aware of the character, business acumen and financial
circumstances of such persons. Such Purchaser is an "accredited investor" within
the meaning of Regulation D promulgated under the Securities Act.
4.2 Investment intent. It is acquiring the Shares and the underlying
Common Stock for investment only for its own account, and not with the view to,
or for resale in connection
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with, any distribution thereof other than a transfer to "affiliates" (as defined
in Rule 405 promulgated under the Securities Act). It understands that the
issuances of the Shares and the underlying Common Stock to such Purchaser have
not been, and will not be, registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent of such Purchaser as expressed herein.
4.3 Rule 144. It acknowledges that the Shares and the underlying Common
Stock must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available. It
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after the security was last held by the Company or an affiliate of the
Company, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" and the number of shares being sold
during any three-month period not exceeding specified limitations.
4.4 No Public Market. It understands that no public market now exists for
any of the securities issued by the Company, and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management. The
foregoing, however, does not limit or modify the representations and warranties
made by the Company in Section 3 or the rights of the Purchasers to rely
thereon.
4.6 Authorization. Each of this Agreement, the Rights Agreement, the
Voting Agreement and the Co-Sale Agreement when executed and delivered by such
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as the
indemnification provisions of Section 5.7 of the Rights Agreement may be limited
by principles of public policy, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.7 Legends. It is understood that the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT."
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(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer without value by a Purchaser to an affiliate (as such term is defined
in Rule 405 under the Securities Act) of such Purchaser, if the transferee
agrees in writing to be subject to the terms hereof to the same extent as if he
were an original Purchaser hereunder.
SECTION V
CONDITIONS TO CLOSING
5.1 Conditions to the Purchasers' and the Company's Obligations. The
obligations of a Purchaser to purchase and of the Company to issue and sell the
Shares are subject to the fulfillment, on or prior to the Closing, of all of the
following conditions, any of which may be waived in whole or in part by mutual
agreement of such Purchaser and the Company:
(a) The Company shall have obtained all consents, permits and waivers
necessary or appropriate on the part of the Company for consummation of the
transactions contemplated by this Agreement, the Rights Agreement, the Voting
Agreement and the Co-Sale Agreement at such Closing. Except for the notices
required to be filed after such Closing with certain federal and state
securities commissions, which notices the Company will file on a timely basis,
the Company shall have obtained all approvals of any federal or state
governmental authority or regulatory body that are required on the part of the
Company in connection with the lawful sale and issuance of the Shares and the
Common Stock issuable upon conversion of the Shares at such Closing.
(b) At such Closing, the purchase of the Shares by the Purchasers
hereunder shall be legally permitted by all laws and regulations to which the
Purchasers or the Company is subject.
(c) The Restated Certificate shall have been filed with and accepted
by the Secretary of State of the State of Delaware.
(d) The Company and the Purchasers shall have entered into the Rights
Agreement, the Voting Agreement and the Co-Sale Agreement.
5.2 Additional Conditions to the Purchasers' Obligations. In addition to
the conditions set forth in Section 51 hereof, each Purchaser's obligation to
purchase the Shares is subject to the fulfillment, on or prior to the Closing,
of all of the following conditions (except as otherwise provided below), any of
which may be waived in whole or in part by such Purchaser:
(a) The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct as
of the Closing with the same force and effect as if they had been made on and as
of the Closing.
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(b) The Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to the Closing.
(c) Effective upon the Closing, the Board of Directors shall consist
of six (6) directors, consisting of Jay Hoag, John Hummer, Derek Proudian,
Richard Wilkes, William H. Lacy and Fred Phillips.
(d) The Purchasers shall have received from Gray Cary Ware &
Freidenrich LLP, counsel to the Company, an opinion letter addressed to them,
dated such Closing Date and in substantially the form attached hereto as Exhibit
-------
F.
- -
(e) The Voting Agreement, the Co-Sale Agreement and the Rights
Agreement shall have been executed by the parties thereto (other than the
Purchasers).
(f) The Company shall have delivered to the Purchasers a certificate,
executed by the Chief Financial Officer of the Company and dated the Closing
Date, certifying to the fulfillment of the conditions specified in Sections 51,
52, 52 and 52 and that there has been no materially adverse change in the
business, affairs, prospects, operations, properties, assets or condition of the
Company since November 30, 1999.
(g) All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Purchaser and to
the Purchasers' special counsel, and they shall each have received all such
counterpart originals and certified or other copies of such documents as they
may reasonably request. Such documents shall include (but not be limited to)
the following:
(i) A copy of the Restated Certificate and the Bylaws of the
Company (as amended through the date of such Closing), certified by the
Secretary or the Assistant Secretary of the Company as true and correct copies
thereof as of such Closing.
(ii) A certificate of the Secretary or an Assistant Secretary or
other officer of the Company certifying the names of the officers of the Company
authorized to sign this Agreement, the Rights Agreement, the Co-Sale Agreement
and the Voting Agreement, the certificates for the Shares and the other
documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers.
(iii) A copy of the resolutions of the Board of Directors and, if
required, the stockholders of the Company evidencing the amendment to the
Company's Certificate of Incorporation providing for the authorization of the
Shares, the approval of this Agreement, the Rights Agreement, the Voting
Agreement, the Co-Sale Agreement and the issuance of the Shares and the Common
Stock issuable upon conversion of the Shares and the other matters contemplated
hereby.
(iv) Good standing certificates issued by the Delaware Secretary
of State and the California Secretary of State dated within ten (10) days of the
Closing.
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(h) The Company shall have executed and delivered to each Purchaser
that is a licensed Small Business Investment Company (an "SBIC Investor") a Size
Status Declaration on SBA form 480 and an Assurance of Compliance on SBA form
652, and shall have provided to each such Purchaser information necessary for
the preparation of a Portfolio financing Report on SBA form 1031.
(i) The Company shall have executed and delivered to ABN Amro Capital
Investments (Belgie) NV, and the other Purchasers affiliated therewith
(collectively, "ABN Amro"), a side agreement in form and substance reasonably
acceptable to counsel to the Company and counsel to the Purchasers granting
board observer rights to ABN Amro in the event that ABN Amro has not designated
one (1) member of the Board.
(i) The Purchasers shall purchase an aggregate of at least
3,750,000 shares of Preferred at the Closing.
(j) Each of the Purchasers shall have entered into a Series E Right of
First Refusal Agreement in substantially the form attached hereto as Exhibit I
---------
(the "Series E First Refusal Agreement").
5.3 Additional Condition to Obligations of the Company. In addition to
the conditions set forth in Section 51 hereof, the Company's obligation to issue
and sell the Shares to each Purchaser is subject to the fulfillment to the
Company's satisfaction, on or prior to the Closing, of the following conditions,
any of which may be waived in whole or in part by the Company:
(a) The representations and warranties made by such Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct as of such Closing with the same force and effect as if they had been
made on and as of the Closing.
(b) Such Purchaser shall have performed all obligations and conditions
herein or in the Rights Agreement, the Co-Sale Agreement and the Voting
Agreement required to be performed or observed by it on or prior to the Closing.
(c) Such Purchaser shall have paid the consideration for the Shares to
be sold to such Purchaser as set forth on Exhibit A hereto.
---------
SECTION VI
MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
6.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto or in connection with the
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transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder as of the date of such certificate or
instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof. Neither this
Agreement nor any provision hereof may be amended, changed, waived, discharged
or terminated other than by a written instrument signed by the party against who
enforcement of any such amendment, change, waiver, discharge or termination is
sought; provided, however, that holders of more than fifty percent (50%) of the
outstanding Shares (or Common Stock issued upon conversion of the Shares or a
combination thereof) may waive or amend, with the Company's written consent, on
behalf of all Purchasers and other holders of Shares, any provisions hereof
benefiting the Purchasers (other than the provisions of Sections 51 and 52) so
long as the effect thereof will be that all such Purchasers and other holders of
Shares will be treated equally.
6.5 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified twenty-four (24) hours after
confirmed transmission of a facsimile, one business day after deposit with a
recognized overnight courier and four business days after deposit in the U.S.
mail, certified or registered, return receipt requested, addressed (a) if to a
Purchaser, at the address or addresses set forth on Exhibit A or at such other
---------
address as such Purchaser shall have furnished the Company in writing, with a
copy to Gregorio Cater, Esq., Wilmer, Cutler & Pickering, 2445 M Street N.W.,
Washington, D.C. 20037, 202-663-6363 (fax) or (b) if to the Company, at its
address set forth at the beginning of this Agreement, or at such other address
as the Company shall have furnished to the Purchaser in writing, with a copy to
Paul A. Blumenstein, Esq., Gray Cary Ware & Freidenrich LLP, 400 Hamilton
Avenue, Palo Alto, California 94301.
6.6 Severability. If any provision of this Agreement shall be judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.7 Finder's Fees.
(a) Except as set forth on Exhibit C hereto, the Company (i)
---------
represents and warrants that it has retained no finder or broker in connection
with the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Purchasers harmless of and from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the Company, or any of its employees
or representatives, is responsible.
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(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other Purchasers harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which such Purchaser, or any of its employees or representatives,
is responsible.
6.8 Invention Assignment and Confidentiality Agreement. The Company shall
use commercially reasonable efforts to prevent any violations of any Invention
Assignment and Confidentiality Agreement between the Company and any employee,
consultant or contractor of or to the Company.
6.9 Titles and Subtitles. The section headings of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.11 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party upon any breach or
default of any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of 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. It is further agreed that any waiver, permit, consent or approval of
any kind or character of any breach or default under this Agreement, or any
waiver of any provisions or conditions of this Agreement must be in writing and
shall be effective only to the extent specifically set forth in writing, and
that all remedies, either under this Agreement, by law or otherwise, shall be
cumulative and not alternative.
6.12 Payment of Fees and Expenses. Each party shall be responsible for
paying its own fees, costs and expenses in connection with this Agreement and
the transactions herein contemplated; provided, however, that if the Closing is
effected, the Company agrees to pay the reasonable fees and expenses of special
counsel to ABN Amro Capital Investments (Belgie) NV at Closing, provided that
such fees and expenses of special counsel to the Purchasers are presented to the
Company in a reasonably detailed invoice and that such amount does not exceed
$20,000. In the event of any action to enforce any of the terms of this
Agreement, the prevailing party shall be entitled to reimbursement from the non-
prevailing party of its costs and expenses (including reasonable attorneys'
fees) incurred in connection therewith, in addition to all other remedies and
relief to which such prevailing party is entitled.
6.13 Exculpation Among Purchasers. Each Purchaser acknowledges that it is
not relying upon any person, firm or corporation (including without limitation
any other Purchaser), other than the Company and its officers and directors
(acting in their capacity as representatives of the Company), in deciding to
invest and in making its investment in the Company. Each Purchaser agrees that
no other Purchaser nor the respective controlling persons, officers, directors,
partners, agents or employees of any other Purchaser shall be liable to such
Purchaser for any losses incurred by such Purchaser in connection with its
investment in the Company.
17
<PAGE>
6.14 Like Treatment of Holders. Neither the Company nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemption or
exchange of any shares of any series of its Preferred Stock (all such series
being collectively referred to as "Preferred Stock"), or otherwise, to any
holder of Preferred Stock for or as an inducement to, or in connection with
solicitation of, any consent, waiver or amendment of any terms or provisions of
its Preferred Stock or this Agreement, the Restated Certificate, the Rights
Agreement, the Voting Agreement or the Co-Sale Agreement, unless such
consideration is paid to all holders of Preferred Stock bound by such consent,
waiver or amendment, whether or not such holders so consent, waive or agree to
amend and whether or not such holders tender their Preferred Stock for
redemption or exchange.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
18
<PAGE>
EXHIBIT 10.8
May 20, 1999
Mr. Richard Wilkes
Millennium
4635 SouthWest Freeway
10th Floor
Houston, TX 77027
Re: Employment with IMX
Dear Richard:
I am pleased to offer you a position with IMX, Inc. (the "Company"). This
letter sets forth what will be the terms and conditions of our employment
relationship, as well as our understanding with respect to any termination of
that employment relationship, if you decide to join us.
1. POSITION AND DUTIES: You will be employed by the Company as its
-------------------
President and Chief Executive Officer, commencing on May 1, 1999 (the
"Commencement Date"). You accept employment with the Company on the terms and
conditions set forth in this Agreement, and you agree to devote your full
business time, energy and skills to your duties at the Company except for the
time required to attend to your personal investments and the time required to
attend to the matters set forth on Exhibit A attached hereto, provided that
neither such activity materially interferes with your duties as President and
Chief Executive Officer of the Company. These duties shall include, but not be
limited to, any duties consistent with your position, as well as any other
duties that may be assigned to you from time to time by the Company's Board of
Directors (the "Board"). Subject to the foregoing, you may, with the approval
of the Board, engage in activities on behalf of nonprofit corporations, serve on
the boards of directors of other companies and engage in other reasonable
activities that are not in competition with the Company. The Company will use
its best efforts to have you elected to the Board during the term of your
employment, and you agree that upon the termination of your employment for any
reason you shall promptly resign from the Board.
2. TERM OF EMPLOYMENT: Your employment with the Company is for an
------------------
initial term of one (1) year from the Commencement Date, and shall continue
thereafter until terminated by you or the Company, which either party may do at
any time, with or without cause. Upon the termination of your employment,
neither you nor the Company shall have any further obligation or liability to
the other, except as set forth in Paragraphs 4 and 5 below.
3. COMPENSATION: You will be compensated by the Company for your
------------
services as follows:
(a) Salary: You will be paid a monthly salary of $33,333.33
------
($400,000.00 on an annualized basis), less applicable withholding, in accordance
with the Company's normal
<PAGE>
Mr. Richard Wilkes
May 20, 1999
Page Two
payroll procedures. Your salary will be reviewed by the Board on an annual
basis, and may be subject to adjustment upward, but not downward (except in
proportion to any across-the-board salary reduction taken by all of the
Company's executive officers), based upon various factors including, but not
limited to, your performance and the Company's profitability. Subject to the
foregoing, any adjustment to your salary shall be in the sole discretion of the
Board.
(b) Bonus: In the event the Company closes its initial public
-----
offering within 12 months of the commencement of your employment, you will
receive a bonus of $50,000, less applicable withholding.
(c) Benefits: You will have the right, on the same basis as other
--------
executive employees of the Company, to participate in and to receive benefits
under the Company's medical, dental, disability or other group insurance plans,
as well as under any and all of the Company's present of future benefit plans
made available to executive employees, including, without limitation, the
Company's vacation and business expense reimbursement policies.
(d) Relocation Expenses: You will be reimbursed for your reasonable
-------------------
expenses (as described in Exhibit B attached hereto) in relocating from Texas to
northern California up to $75,000 upon the presentation of appropriate
supporting documentation. You will be required to reimburse the Company for all
relocation/moving expenses paid on your behalf if you voluntarily terminate your
employment with the Company or are terminated for cause within one year of the
date of this Agreement. You shall not be required to reimburse the Company in
the event that your notice of voluntary termination occurs at a time when the
Company is in material breach of its obligations hereunder.
(e) Stock Options: Subject to the approval of the Company's Board of
-------------
Directors:
(i) you will be granted one or more option(s) to purchase
1,294,279 shares of Common Stock of the Company (the "First Option(s)"). The
shares subject to the First Option(s) shall vest over a four-year period as
follows: twenty-five percent (25%) of the total shares upon the first
anniversary of the Commencement Date and 1/48th of the total shares per full
month of employment thereafter; and
(ii) you will be eligible to receive additional grants for one or
more option(s) to purchase up to 647,139 additional shares of Common Stock of
the Company (the "Second Option(s)") upon the attainment by you and the Company
of certain milestones during your employment to be reasonably agreed to by you
and the Board within 30 days of the Commencement Date. The shares subject to the
Second Option(s) shall vest with respect to 1/8 of the total shares upon the six
month anniversary of the Commencement Date and 1/48th of the total shares per
full month of employment thereafter.
<PAGE>
Mr. Richard Wilkes
May 20, 1999
Page Three
The First and Second Option shares shall be treated as incentive stock options
to the maximum extent permitted under section 422 of the Internal Revenue Code,
applicable securities and other laws and relevant Company documents applicable
to the issuance of its stock, including but not limited to the Company's 1996
Stock Option Plan. The exercise price of the First and Second Option(s) shall be
the fair market value at the time of the grant of the Option(s) as determined by
the Company's Board of Directors, which fair market value is currently estimated
as $0.35 per share. The foregoing Option(s) is (are) further subject to: i) the
terms of the Company's standard Stock Option Agreement; and, ii) the Company's
ability to obtain necessary waivers, amendments, shareholder approvals or board
approvals required under applicable Company documents, for issuance of the
Option(s) and/or avoidance of preferred shareholder anti-dilution or first
refusal rights, including but not limited to: Section 3 of the Third Amended and
Restated Certificate of Incorporation and Sections 7 and 9 of the Third Amended
and Restated Investor Rights Agreement.
4. BENEFITS UPON VOLUNTARY TERMINATION: In the event that you
-----------------------------------
voluntarily resign from your employment with the Company, or in the event that
your employment terminates as a result of your death or disability (including
your inability to return to work after exhausting available leave time for your
own serious health condition under the federal Family and Medical Leave Act ),
you shall be entitled to no compensation or benefits from the Company other than
those earned under Paragraph 3 through the date of your termination. You agree
that in the event you voluntarily terminate your employment with the Company for
any reason, you shall provide the Company with at least one months' written
notice of your termination. The Company may elect to waive all or any part of
such notice period and accept your voluntary termination at an earlier date.
5. BENEFITS UPON OTHER TERMINATION: In the event your employment is
-------------------------------
terminated by the Company for the reasons set forth below, you shall be entitled
to the following:
(a) Termination for Cause: If your employment is terminated by the
---------------------
Company for cause as defined below, you shall be entitled to no compensation or
benefits from the Company other than those earned under Paragraph 3 through the
date of your termination.
For purposes of this Agreement, any of the following events shall
constitute "cause": (i) theft, dishonesty, or falsification of any employment or
company records; (ii) improper disclosure of the Company's confidential or
proprietary information in a manner constituting a material breach of the
Confidentiality Agreement referred to in Paragraph 7 below; (iii) any willful
action by you (other than in accordance with the instructions of the Board of
Directors of the Company), or any act of gross negligence by you, which has a
material detrimental effect on the Company's reputation or business; (iv) your
failure or inability to perform any reasonable assigned duties that
<PAGE>
Mr. Richard Wilkes
May 20, 1999
Page Four
are within the scope of your position, after notice from the Company of, and a
reasonable opportunity to cure, such failure or inability; (v) any material
breach of this Agreement, which breach is not cured within ten (10) days
following written notice of such breach; or (vi) your conviction for any
criminal act which impairs your ability to perform your duties under this
Agreement.
(b) Termination for Other than Cause: If your employment is
--------------------------------
terminated by the Company for any reason other than cause within one year of the
Commencement Date, you will be entitled to a lump-sum severance payment equal to
the greater of 6 months' salary or salary which would be due and owing for the
remainder of the initial term of this Agreement, payable within 30 days after
the date of termination and subject to applicable withholding. In addition, if
your employment is terminated by the Company for any reason other than cause
within six months of the Commencement Date, vesting in the First Option(s)
referenced in Paragraph 3(e) shall be accelerated such that you will be
immediately vested in 1/48th of the total shares subject to the Option(s) for
each full month of employment. In addition to any severance payments and
accelerated vesting to which you are entitled under this subsection, you shall
also be entitled to receive any compensation and benefits which you earn under
Paragraph 3 through the date of your termination.
6. EXCLUSIVE REMEDY: We agree that the compensation described in
----------------
Paragraph 5 shall be your sole and exclusive remedy in the event that the
Company terminates your employment, and you shall be entitled to no other
compensation for any damage or injury arising out of the termination of your
employment by the Company. The provisions of this Paragraph 6 shall not affect
any obligation of the Company to indemnify you against certain liabilities,
costs or expenses arising from your position as an officer or director of the
Company, whether arising under the Certificate of Incorporation, bylaws or
otherwise.
7. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of your
----------------------------------------
employment with the Company, you will be required to execute a Confidentiality
Agreement concerning your obligations to protect the Company's confidential and
proprietary information.
8. DISPUTE RESOLUTION: In the event of any dispute or claim relating to
------------------
or arising out of our employment relationship or this Agreement (including, but
not limited to, any claims of breach of contract, wrongful termination
discrimination or harassment under any state or federal statute or common law),
we each waive our respective rights to have any such claims or disputes tried by
a judge or jury and agree that all such disputes shall be exclusively and
finally resolved by binding arbitration conducted by the American Arbitration
Association ("AAA") in California, unless otherwise agreed to in writing by the
parties. We specifically agree that an arbitrator may be appointed under an
expedited process and shall have full authority to order
<PAGE>
Mr. Richard Wilkes
May 20, 1999
Page Five
injunctive relief in the event of a claim relating to the misappropriation or
misuse of intellectual property.
9. ATTORNEYS' FEES: The prevailing party shall be entitled to recover
---------------
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Agreement. If neither party is
the "prevailing" party in such action, attorneys' fees and costs shall be paid
as provided by the Arbitrator(s).
10. INTERPRETATION: This Agreement shall be interpreted in accordance
--------------
with and governed by the laws of the State of California.
11. ASSIGNMENT: In view of the personal nature of the services to be
----------
performed under this Agreement by you, you shall not have the right to assign or
transfer any of your rights, obligations or benefits under this Agreement.
12. ENTIRE AGREEMENT: This letter constitutes the entire Agreement
----------------
between you and the Company regarding the terms and conditions of your
employment, and it supersedes all prior negotiations, representations or
agreements between you and the Company regarding your employment, whether
written or oral.
<PAGE>
Mr. Richard Wilkes
May 20, 1999
Page Six
13. MODIFICATION: This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by you and a member of the Board.
Richard, we are truly looking forward to working with you at IMX. Please
sign this letter on the space provided below to acknowledge your acceptance of
the terms of this Agreement.
Sincerely,
IMX, INC.
John Hummer
Chairman, Board of Directors
I agree to and accept employment with IMX, Inc. on the terms and conditions
set forth in this Agreement.
Date: _______________
_______________________________________
Richard Wilkes
<PAGE>
Mr. Richard Wilkes
May 20, 1999
Page Seven
EXHIBIT A
GMI Group Millennium, L.P. Co-managing partner and more than 10% equity
holder. GMI is a third-party provider of
mortgage-related products and services.
M2R, LLC Owner (99%). M2R owns four rental properties
in Houston
Home Partnership I Managing Partner and more than 10% owner HPI
owns two rental properties in Houston.
Finet Holdings, Inc. Director and less-than-1% shareholder Finet
is a publicly-traded business-to-consumer e-
commerce mortgage originator.
Casa Confia Holdings, LLC Director and 10% shareholder. Casa Confia is
a company formed to market homes in Mexico
to U.S. residents of Mexican origin.
Auction Marketing Services Owner. This dba auction model home furniture
and accessories for homebuilders. Wilkes has
no active involvement in the company and
expects to convey 90% of his interest to the
manager of the business in 1999
Unit 1010, Lamar Tower, Houston Owner. This is a rental property.
<PAGE>
Mr. Richard Wilkes
May 20, 1999
Page Eight
EXHIBIT B
For purposes of this Agreement, "relocation expenses" include the
following expenses incurred by you:
1. Expenses incurred in connection with the sale of your residence located
at 289 Bryn Mawr Circle, Houston, Texas, including real estate
commissions and customary expenses of sale and closing costs;
2. Customary closing costs incurred by you in the purchase of a new home in
California;
3. Packing, unpacking, moving, storage and travel costs incurred by you and
your family in connection with your move to California.
4. Vehicle and air transportation costs incurred by you in connection with
your move to California;
5. Mortgage payments incurred by you on your Houston residence after the
date of this Agreement until the sale of your house at 289 Bryn Mawr
Circle, Houston, Texas; and
6. Miscellaneous costs not to exceed $2,500.00.
<PAGE>
EXHIBIT 10.9
IMX, INC.
--------
BISHOP RANCH BUSINESS PARK - BUILDING LEASE
-------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PREMISES......................................................... 1
--------
1.1 Measurement of Premises................................... 2
-----------------------
2. TERM............................................................. 2
----
2.1 Term...................................................... 2
----
2.2 Delay In Commencement..................................... 2
---------------------
2.3 Prior Occupancy........................................... 3
---------------
2.4 Acknowledgment Of Commencement Date....................... 3
-----------------------------------
3. RENT............................................................. 3
----
3.1 Base Rent................................................. 3
---------
3.2 Adjustments To Base Rent.................................. 3
------------------------
3.3 Amounts Constituting Rent................................. 4
-------------------------
4. SECURITY DEPOSIT................................................. 4
----------------
5. TAX AND BUILDING OPERATING COST INCREASES........................ 4
-----------------------------------------
5.1 Definitions............................................... 4
-----------
5.2 Tenant's Share............................................ 7
--------------
5.3 Notice and Payment........................................ 7
------------------
5.4 Tenant's Right to Audit................................... 9
-----------------------
5.5 Additional Taxes.......................................... 9
----------------
5.6 Tenant's Taxes............................................ 10
--------------
6. USE.............................................................. 10
---
6.1 Use....................................................... 10
---
6.2 Suitability............................................... 10
-----------
6.3 Uses Prohibited........................................... 10
---------------
7. SERVICE AND UTILITIES............................................ 11
---------------------
7.1 Landlord's Obligations.................................... 11
----------------------
7.2 Tenant's Obligation....................................... 12
-------------------
7.3 Tenant's Additional Requirements.......................... 12
--------------------------------
7.4 Nonliability.............................................. 13
------------
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS............... 14
--------------------------------------------------
8.1 Maintenance And Repairs................................... 14
-----------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.2 Alterations And Additions................................. 15
-------------------------
9. ENTRY BY LANDLORD................................................ 16
-----------------
10. LIENS............................................................ 17
-----
11. INDEMNITY........................................................ 17
---------
11.1 Indemnity................................................. 17
---------
11.2 Exemption of Landlord From Liability...................... 18
------------------------------------
12. INSURANCE........................................................ 18
---------
12.1 Coverage.................................................. 18
--------
12.2 Insurance Policies........................................ 19
------------------
12.3 Landlord's Insurance...................................... 19
--------------------
12.4 Waiver of Subrogation..................................... 20
---------------------
13. DAMAGE OR DESTRUCTION............................................ 20
---------------------
13.1 Landlord's Duty to Repair................................. 20
-------------------------
13.2 Landlord's Right to Terminate............................. 21
-----------------------------
13.3 Tenant's Right to Terminate............................... 21
---------------------------
13.4 Exclusive Rights.......................................... 22
----------------
14. CONDEMNATION..................................................... 22
------------
15. ASSIGNMENT AND SUBLETTING........................................ 23
-------------------------
15.1 Landlord's Consent Required............................... 23
---------------------------
15.2 Reasonable Consent........................................ 23
------------------
15.3 Excess Consideration...................................... 24
--------------------
15.4 No Release Of Tenant...................................... 24
--------------------
15.5 Attorneys' Fees........................................... 25
---------------
15.6 Transfer Of Ownership Interest............................ 25
------------------------------
15.7 Effectiveness of Transfer................................. 25
-------------------------
15.8 Landlord's Right to Space................................. 25
-------------------------
15.9 Permitted Assignment or Sublease.......................... 25
--------------------------------
15.10 No Net Profits Leases..................................... 26
---------------------
16. SUBORDINATION.................................................... 26
-------------
16.1 Subordination............................................. 26
-------------
16.2 Junior Liens.............................................. 27
------------
16.3 Subordination Agreements.................................. 27
------------------------
16.4 Attornment................................................ 27
----------
17. QUIET ENJOYMENT.................................................. 27
---------------
18. DEFAULT; REMEDIES................................................ 28
-----------------
18.1 Default................................................... 28
-------
18.2 Remedies.................................................. 29
--------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
18.3 Late Charges.............................................. 32
------------
18.4 Interest.................................................. 32
--------
18.5 Default By Landlord....................................... 32
-------------------
19. PARKING.......................................................... 33
-------
20. RELOCATION OF PREMISES........................................... 33
----------------------
20.1 Conditions................................................ 33
----------
20.2 Notice.................................................... 33
------
21. MORTGAGEE PROTECTION............................................. 34
--------------------
22. ESTOPPEL CERTIFICATES............................................ 34
---------------------
23. SURRENDER, HOLDING OVER.......................................... 36
-----------------------
23.1 Surrender................................................. 36
---------
23.2 Holding Over.............................................. 36
------------
24. HAZARDOUS MATERIALS.............................................. 37
-------------------
25. MISCELLANEOUS.................................................... 38
-------------
25.1 Attornment................................................ 38
----------
25.2 Captions; Attachments; Defined Terms...................... 38
------------------------------------
25.3 Entire Agreement.......................................... 38
----------------
25.4 Severability.............................................. 39
------------
25.5 Costs Of Suit............................................. 39
-------------
25.6 Time; Joint And Several Liability......................... 39
---------------------------------
25.7 Binding Effect; Choice Of Law............................. 40
-----------------------------
25.8 Waiver.................................................... 40
------
25.9 Force Majeure............................................. 40
-------------
25.10 Landlord's Liability...................................... 40
--------------------
25.11 Consents and Approvals.................................... 41
----------------------
25.12 Signs..................................................... 42
-----
25.13 Rules And Regulations..................................... 42
---------------------
25.14 Notices................................................... 43
-------
25.15 Authority................................................. 43
---------
25.16 Lease Guaranty............................................ 43
--------------
25.17 Brokers................................................... 43
-------
25.18 Reserved Rights........................................... 44
---------------
25.19 Right of First Refusal.................................... 44
----------------------
25.20 Letter of Credit.......................................... 45
----------------
25.21 Option to Extend.......................................... 47
----------------
25.22 Right to Contract......................................... 49
-----------------
</TABLE>
<PAGE>
EXHIBIT A - SITE AND FLOOR PLANS
EXHIBIT B - WORK LETTER
EXHIBIT C - SPACE PLAN
EXHIBIT D - RULES AND REGULATIONS
EXHIBIT E - JANITORIAL SPECIFICATIONS
EXHIBIT F - DOOR SIGN, DIRECTORY STRIP AND MAIL BOX REQUEST
EXHIBIT G - COMMENCEMENT OF LEASE
EXHIBIT H - ADJUSTMENTS TO AREA CALCULATIONS AND RELATED SECTIONS
<PAGE>
BISHOP RANCH BUSINESS PARK
--------------------------
BUILDING LEASE
--------------
This Lease is made and entered into this __________ day of
_________________, 1999, by and between ANNABEL INVESTMENT COMPANY, a California
partnership, (hereinafter "Landlord") and IMX, INC., a Delaware corporation
(hereinafter "Tenant"). For and in consideration of the rental and of the
covenants and agreements hereinafter set forth to be kept and performed by
Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the premises herein described for the term, at the rental and subject to and
upon all of the terms, covenants and agreements hereinafter set forth.
1. PREMISES
--------
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises (the "Premises") crosshatched on Exhibit A containing
22,576 rentable square feet, (21,399 usable square feet), known as Suite 200,
located on the Second floor of 2305 Camino Ramon, Building C (including all
tenant improvements thereto, the "Building"), located at San Ramon, California
94583. The Building is part of a Complex containing the Building and Two (2)
other buildings (the "Complex"). The Complex, which contains 145,989 rentable
square feet, the land on which the Complex is situated (the "Land"), the common
areas of the Complex, any other improvements in the Complex and the personal
property used by Landlord in the operation of the Complex (the "Personal
Property") are herein collectively called the "Project." Landlord shall pay the
cost of "Suite Improvements" (as such term is defined in the work letter
attached hereto as Exhibit B, the "Work Letter") to the Premises up to a maximum
amount of FIVE HUNDRED SEVENTY-SEVEN THOUSAND SEVEN HUNDRED SEVENTY-THREE AND
NO/100 DOLLARS ($577,773.00 or $27.00 per usable square foot of the Premises),
with any cost in excess of this amount to be paid by Tenant. Tenant shall
promptly pay any excess in progress payments which shall be due and payable
fifty percent (50%) of the total excess prior to the commencement of
construction, forty percent (40%) prior to occupancy, and the balance (ten
percent (10%)) due upon
Please
Initial
Tenant ( )
Landlord ( )
1
<PAGE>
completion of the punch list as described in Section 1.2 of Exhibit B attached
hereto.
1.1 Measurement of Premises. Within seven (7) days from
-----------------------
Landlord's receipt of Tenant's Space Plans, Landlord will provide Tenant with
its measurement of the Premises, and Landlord and Tenant hereby agree that the
square footage and Suite Improvement Allowance as stated in this Section 1, Base
Rent as stated in Section 3, and Tenant's Share as stated in Paragraph 5.2, and
any other amounts and/or percentages referred to in this Lease will be
appropriately adjusted to reflect the final agreed upon square footage as
evidenced by Landlord and Tenant's execution of Exhibit "H" attached hereto. As
of the Commencement Date the square footage of the Premises as reflected in
Exhibit H shall be final and binding and Tenant shall have no further rights to
contest said measurement.
2. TERM
----
2.1 Term. The term of this Lease shall commence on the
----
"Commencement Date" hereinafter defined to be the earlier of the date Landlord
delivers possession of the Premises to Tenant with all of the Suite Improvements
Substantially Completed, as defined in Exhibit B, or the date Landlord would
have completed the Premises and tendered the Premises to Tenant if Substantial
Completion had not been delayed by the number of days specified in any and all
Tenant Delay Notices given by Landlord as described in Exhibit B. The term of
this Lease shall end Five (5) years and one (1) month thereafter (the
"Expiration Date"), unless sooner terminated pursuant to this Lease.
Notwithstanding the foregoing, the Commencement Date shall in no event occur
prior to December 1, 1999.
2.2 Delay In Commencement. The Commencement Date is scheduled to
---------------------
occur on December 1, 1999 (the "Scheduled Commencement Date"), but if there are
"Scheduled Commencement Adjustment Days" (referred to in Section 25.9 of this
Lease and Exhibit B), then the Scheduled Commencement Date shall be that Date
which is the same number of days after December 1, 1999 as the sum of the
Scheduled Commencement Adjustment Days. If for any reason the Commencement
Date does not occur by the Scheduled Commencement Date, Landlord
Please
Initial
Tenant ( )
Landlord ( )
2
<PAGE>
shall not be liable for any damage thereby nor shall such inability affect the
validity of this Lease or the obligations of Tenant hereunder. If the
Commencement Date has not occurred within sixty (60) days after the Scheduled
Commencement Date, Tenant at its option, to be exercised by giving Landlord
written notice within thirty (30) days after the end of such sixty (60) day
period, may terminate this Lease and, upon Landlord's return of any monies
previously deposited by Tenant, the parties shall have no further rights or
liabilities toward each other.
2.3 Prior Occupancy. See Section 3. Access to Premises referenced
--------------- -----------------------------
in Exhibit B.
2.4 Acknowledgment Of Commencement Date. Upon determination of
-----------------------------------
the Commencement Date, Landlord and Tenant shall execute a written
acknowledgment of the Commencement Date and Expiration Date in the form attached
hereto as Exhibit G.
3. RENT
----
3.1 Base Rent. Tenant shall pay to Landlord monthly as base rent
---------
("Base Rent") for the Premises in advance on the Commencement Date and on the
first day of each calendar month thereafter during the term of this Lease
without deduction, offset, prior notice or demand, in lawful money of the United
States of America, the sum of FORTY-FIVE THOUSAND ONE HUNDRED FIFTY-TWO AND
NO/100 DOLLARS ($45,152.00). For any prorations of Base Rent due to changes in
the Premises on a day other than the first or last day of the month, the portion
of Base Rent associated with the change in the Premises shall be calculated by
multiplying the number of days that the space was part of the Premises by the
daily Base Rent defined to be the monthly Base Rent for said space divided by
30.
Concurrently with Tenant's execution of this Lease, Tenant
shall pay to Landlord the sum of FORTY-FIVE THOUSAND ONE HUNDRED FIFTY-TWO AND
NO/100 DOLLARS ($45,152.00 or $24.00 per rentable square foot per annum) to be
applied against Base Rent when it becomes due. Notwithstanding the foregoing,
the Base Rent for the initial full calendar month of the Lease Term shall be
abated.
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3.2 Adjustments To Base Rent. Effective on the first (1st) day
------------------------
of the THIRTY-EIGHTH (38th) month of the Term of this Lease, the Base Annual
Rental Rate shall be adjusted from TWENTY-FOUR AND NO/100 DOLLARS ($24.00) per
rentable square foot per annum to TWENTY-FIVE AND NO/100 DOLLARS ($25.00) per
rentable square foot per annum.
3.3 Amounts Constituting Rent. All amounts payable or
-------------------------
reimbursable by Tenant under this Lease, including late charges and interest,
"Operating Cost Payments" (as defined in Paragraph 5), and amounts payable or
reimbursable under the Work Letter and the other Exhibits hereto, shall
constitute "Rent" and be payable and recoverable as such. Base Rent is due and
payable as provided in Paragraph 3.1 - "Base Rent", Operating Cost Payments are
due and payable as provided in Paragraph 5.3 - "Notice and Payment", and all
other Rent payable to Landlord on demand under the terms of this Lease, unless
otherwise set forth herein, shall be payable within thirty (30) days after
written notice from Landlord of the amounts due. All Rent shall be paid to
Landlord without deduction or offset in lawful money of the United States of
America at the address for notices or at such other place as Landlord may from
time to time designate in writing.
4. SECURITY DEPOSIT
----------------
(Intentionally Deleted)
5. TAX AND BUILDING OPERATING COST INCREASES
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5.1 Definitions. For purposes of this paragraph, the following
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terms are herein defined:
(a) Base Year: The calendar year in which this Lease
---------
commences.
(b) Operating Costs: Operating Costs shall include all
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costs and expenses of ownership, operation, repair and maintenance of the
Project (excluding depreciation of the improvements in the Project and all
amounts paid on loans of Landlord) computed in accordance with accounting
principles adopted
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by Landlord consistently applied, including by way of illustration but not
limited to: real property taxes, taxes assessed on the Personal Property, any
other governmental impositions imposed on or by reason of the ownership,
operation or use of the Project, and any tax in addition to or in lieu thereof,
other than taxes covered by Paragraph 5.4, whether assessed against Landlord or
Tenant or collected by Landlord or both; parts; equipment; supplies; insurance
premiums; license, permit and inspection fees; cost of services and materials
(including property management fees and costs); cost of compensation (including
employment taxes and fringe benefits) of all persons who perform duties
connected with the operation, maintenance and repair of the Project; costs of
providing utilities and services, including water, gas, electricity, sewage
disposal, rubbish removal, janitorial, gardening, security, parking, window
washing, supplies and materials, and signing (but excluding services not
uniformly available to substantially all of the Project tenants); costs of
capital improvements (i) required to cause the Project to comply with all laws,
statutes, ordinances, regulations, rules and requirements of any governmental or
public authority, including, without limitation, the Americans with Disabilities
Act of 1990 (the "ADA") (collectively, "Legal Requirements"), except for costs,
if any, of correcting any failure of the Project to comply, as of the
Commencement Date, with any Legal Requirement as enacted as of the Commencement
Date, or (ii) which reduce Operating Costs, such costs, together with interest
on the unamortized balance at the rate of twelve percent (12%) per annum, to be
amortized over such reasonable periods as Landlord shall determine; costs of
maintenance and replacement of landscaping; legal, accounting and other
professional services incurred in connection with the operation of the Project
and the calculation of Operating Costs; and rental expense or a reasonable
allowance for depreciation of personal property used in the maintenance,
operation and repair of the Project. If the Project is not fully occupied for
any calendar year during the term of this Lease, Operating Costs shall be
adjusted to the amount which would have been incurred if the Project had been
fully occupied for the year.
(c) Notwithstanding the foregoing, Operating Costs shall not
include the following:
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(1) Brokers' or other leasing commissions and costs incurred in
connection with entering into new leases or disputes under existing leases;
(2) costs incurred in space design or capital improvements (except
those which reduce or maintain Operating Costs or which benefit all tenants of
the Building) of space for other tenants of the Building;
(3) repairs or other work occasioned by fire, windstorm, or other
casualty to the extent covered by insurance proceeds or the insurance proceeds
which would have been received if insurance had been maintained by Landlord as
required in this Lease;
(4) costs associated with bad debt losses;
(5) Landlord's costs of electricity and other services for which
Landlord is reimbursed by tenants of the Project as an additional charge or
rental over and above the basic rent payable under their leases, and additional
costs associated with extraordinary services rendered to other tenants of the
Project;
(6) Landlord's general partnership overhead;
(7) Landlord's executive salaries and other overhead (except for
management fees) and other amounts paid to Landlord or its affiliates or others
that exceed fees which would be charged by an unaffiliated company; salaries of
employees above the grade of building superintendent, building manager and
managing supervisor;
(8) legal fees and expenses (including damages) incurred in
connection with the enforcement of any leases, disputes or defense of Landlord's
title to or interest in the Project, and its or others' litigation related to
the Project (except where such legal fees cause a reduction in Operating
Expenses);
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(9) costs to bring the Project into compliance with legal
requirements existing as of the Commencement Date of this Lease;
(10) any costs, fines or penalties incurred due to violations by
Landlord of any legal requirement which may have been in effect as of the
Commencement Date of this Lease;
(11) unamortized costs and special assessments attributable to
the initial construction of the Project;
(12) costs for the removal or abatement of hazardous substances
or asbestos other than those placed or released by Tenant;
(13) costs of travel, advertising, entertainment and promotions;
(14) expenses for any item or service not provided to Tenant, but
provided exclusively to certain other tenants in the Building;
(15) depreciation and amortization on any mortgage;
(16) any ground lease or underlying lease payments; and
(17) cost of ADA compliance as of the Commencement
Date.
5.2 Tenant's Share. If Operating Costs during any calendar year
--------------
following the Base Year exceed the rentable square footage of the Complex
multiplied by $8.10 (the "Expense Stop"), Tenant shall pay to Landlord "Tenant's
Share" multiplied by such excess ("Operating Cost Payments"). "Tenant's Share"
means 15.46%, which is calculated by dividing the rentable square footage of the
Premises by the rentable square footage of the Complex as such
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rentable square footages are set forth in Paragraph 1, and multiplying such
number by 100.
5.3 Notice and Payment. As soon as reasonably practical after
------------------
the end of each calendar year following the Base Year, Landlord shall furnish
Tenant a written statement showing in reasonable detail the Operating Costs for
the preceding calendar year, and the amount of any payment due from Tenant to
Landlord or from Landlord to Tenant, taking into account prior Operating Cost
Payments made by Tenant for such preceding calendar year. Pursuant to Tenant's
Right to Audit Subsection 5.4, Tenant shall have one hundred eighty (180) days
after receipt of Landlord's statement to notify Landlord of any objections they
have to such statement, or of their intention to review supporting documentation
for such statement. If Tenant does not so notify Landlord, such statement shall
conclusively be deemed correct and Tenant shall have no right thereafter to
dispute or review support for such statement, any item therein, or the
computation of Operating Costs. If Tenant does so notify the Landlord within
the one hundred eighty (180) day period, Tenant shall have one (1) year from the
date of receipt of Landlord's statement to complete their review of the
supporting documentation and notify Landlord of all objections, if any, to such
statement. Landlord and Tenant hereby agree that Tenant will submit in writing
to Landlord on or before the end of said one (1) year period, all objections to
Landlord's statement, and Tenant's only rights after said one (1) year period
shall be nonreversible removals or reductions of the said objections submitted
to Landlord. Landlord and Tenant hereby agree that after said one (1) year
period, Tenant has no further rights to review any supporting documentation to
Landlord's statement. Any notifications to Landlord will be done in accordance
with Paragraph 25.14.
Coincidentally with the monthly Base Rent next due following Tenant's
receipt of such statement, Tenant shall pay to Landlord (in the case of an
underpayment) or Landlord shall credit against the next Base Rent due from
Tenant (in the case of an overpayment) the difference between (i) Tenant's Share
of any excess of Operating Costs for the preceding calendar year over the
Expense Stop (the "Prior Year's Increase"), and (ii) the Operating Cost Payments
made by Tenant for such preceding calendar year. In addition, Tenant shall pay
to Landlord coincidentally with such
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next due Base Rent an amount equal to (A) one-twelfth (1/12) of the Prior Year's
Increase, if any, multiplied by (B) the number of months or partial months
(including the then current month) then elapsed in the current calendar year,
less (C) the aggregate of any Operating Cost Payments made by Tenant for such
current calendar year. Monthly thereafter until adjustment is made the
following year pursuant to this paragraph, Tenant shall pay together with the
monthly Base Rent one-twelfth (1/12) of any such Prior Year's Increase. In no
event will Tenant be entitled to receive the benefit of a reduction in Operating
Costs below the Expense Stop.
For any partial calendar year at the termination of this Lease,
Tenant's Share of any increases in Operating Costs for such year over the
Expense Stop shall be prorated on the basis of a 365-day year by computing
Tenant's Share of the increases in Operating Costs for the entire year and then
prorating such amount for the number of days this Lease was in effect during
such year. Notwithstanding the termination of this Lease, and within ten (10)
days after Tenant's receipt of Landlord's statement regarding the determination
of increases in Operating Costs for the calendar year in which this Lease
terminates, Tenant shall pay to Landlord or Landlord shall pay to Tenant, as the
case may be, an amount equal to the difference between Tenant's Share of the
increases in Operating Costs for such year (as prorated) and the amount
previously paid by Tenant toward such increases.
5.4 Tenant's Right to Audit. In the event of any dispute or
-----------------------
uncertainty as to the amount of Operating Costs and Tenant's Share thereof,
Tenant may require clarification as to any disputed amount, including without
limitation, reviewing at Landlord's office legible copies of Landlord's invoices
and paid receipts, with respect to the disputed items, and pursuing an audit as
hereinafter specified, provided Tenant notifies Landlord in writing within one
hundred eighty (180) days of its receipt of Landlord's statement that Tenant
elects to inspect and/or audit such records pursuant to this Section. Should
Tenant elect to inspect and/or audit such records, Tenant's inspection and/or
audit shall be completed and the results thereof submitted to Landlord no later
than six (6) months after Tenant's receipt of Landlord's statement. If Landlord
and Tenant are unable to agree as to any disputed item, Tenant may, at its sole
cost and expense, audit on
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its own (or engage an independent certified public accounting firm to audit)
Landlord's records related to the disputed items, which audit shall be scheduled
promptly at the reasonable convenience of both Landlord and Tenant and with such
audit to take place in Landlord's offices. If the results of such audit by an
independent CPA indicate that the aggregate cost of the disputed items is
incorrect, then the Landlord shall refund the discrepancy, and if the amount of
the discrepancy is more than five percent (5%) of the Operating Costs, then
Landlord shall pay for the reasonable cost of the audit, (not to exceed
$2,500.00).
5.5 Additional Taxes. Tenant shall reimburse to Landlord, within
----------------
thirty (30) days after receipt of a demand therefor, Tenant's Share of any and
all taxes payable by Landlord (other than net income taxes or any taxes included
within Operating Costs), whether or not now customary or within the
contemplation of the parties hereto (i) upon, allocable to or measured by the
area of the Building, (ii) upon all or any portion of the Rent payable hereunder
and under other leases of space in the Building, including any gross receipts
tax or excise tax levied with respect to the receipt of such Rent, or (iii) upon
or with respect to the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy of the Building or any portion thereof.
Tenant shall not be required to reimburse Landlord for taxes under this
Paragraph 5.4 to the extent Tenant has paid Tenant's Share of such taxes through
Operating Cost Payments under Paragraph 5.2.
5.6 Tenant's Taxes. Tenant shall pay before delinquency (whether
--------------
levied on Landlord or Tenant), any and all taxes assessed upon or measured by
(i) Tenant's equipment, furniture, fixtures and other personal property located
in the Premises, (ii) any improvements or alterations made to the Premises prior
to or during the term of this Lease paid for by Tenant ("Above-Standard
Improvements"), or (iii) this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises. For
the purpose of determining said amounts, figures supplied by the County Assessor
as to the amount so assessed shall be conclusive. Tenant shall comply with the
provisions of any law, ordinance or rule of the
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taxing authorities which require Tenant to file a report of Tenant's property
located in the Premises.
6. USE
---
6.1 Use. The Premises shall be used and occupied by Tenant for
---
general office purposes and for no other purpose without the prior written
consent of Landlord.
6.2 Suitability. Tenant acknowledges that neither Landlord nor
-----------
any agent of Landlord has made any representation or warranty with respect to
the Premises or the Building or with respect to the suitability of either for
the conduct of Tenant's business, nor has Landlord agreed to undertake any
modification, alteration or improvement to the Premises except as provided in
the Work Letter. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the Building were at such time in
satisfactory condition unless within ten (10) days after such date Tenant shall
give Landlord written notice specifying in reasonable detail the respects in
which the Premises or the Building were not in satisfactory condition.
6.3 Uses Prohibited.
---------------
(a) Tenant shall not do nor permit anything to be done in or
about the Premises nor bring or keep anything therein which will in any way
increase the existing rate or affect any fire or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance policy
covering said Building or any part thereof or any of its contents, nor shall
Tenant sell or permit to be kept, used or sold in or about said Premises any
articles which may be prohibited by a standard form policy of fire insurance.
(b) Tenant shall not do or permit anything to be done in or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Building, or injure or annoy them, or use
or allow the Premises to be used for any unlawful or objectionable purpose, nor
shall Tenant cause, maintain or permit any nuisance in or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or
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upon the Premises. Tenant shall not bring onto the Premises any apparatus,
equipment or supplies that may overload the Premises or the Building or any
utility or elevator systems or jeopardize the structural integrity of the
Building or any part thereof.
(c) Tenant shall not use the Premises or permit anything to be
done in or about the Premises which will in any way conflict with, and at its
sole cost and expense shall promptly comply with, any Legal Requirement now in
force or which may hereafter be enacted or promulgated relating to the
condition, use or occupancy of the Premises, excluding structural changes not
relating to or affecting the condition, use or occupancy of the Premises or
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any Legal
Requirement, shall be conclusive of the fact as between Landlord and Tenant.
7. SERVICE AND UTILITIES
---------------------
7.1 Landlord's Obligations. Provided Tenant is not in default
----------------------
hereunder, Landlord shall furnish to the Premises during reasonable hours of
generally recognized business days, to be determined by Landlord, and subject to
the rules and regulations of the Building, water, gas and electricity suitable
for the intended use of the Premises, heat and air conditioning required in
Landlord's reasonable judgment for the comfortable use and occupancy of the
Premises, scavenger, janitorial services as described in Exhibit E attached
hereto, window washing service and elevator service customary in similar
buildings in the competing geographical areas. Landlord shall also maintain and
keep lighted the common lobbies, hallways, stairs and toilet rooms in the
Building.
7.2 Tenant's Obligation. Tenant shall pay for, prior to
-------------------
delinquency, all telephone and all other materials and services, not expressly
required to be paid by Landlord, which may be furnished to or used in, on or
about the Premises during the term of this Lease.
7.3 Tenant's Additional Requirements
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(a) Tenant shall pay for heat and air-conditioning furnished at
Tenant's request during non-business hours and/or on non-business days on an
hourly basis at a reasonable rate established by Landlord. Tenant shall not use
in excess of Building Standard amounts (as reasonably determined by Landlord) of
electricity, water or any other utility without Landlord's prior written
consent, which consent Landlord shall not unreasonably refuse. Landlord may
cause a water meter or electric current meter to be installed in the Premises so
as to measure the amount of water and electric current consumed for any such
excess use. The cost of such meters and of installation, maintenance and repair
thereof shall be paid by Tenant and Tenant agrees to pay Landlord promptly upon
demand by Landlord for all such water and electric current consumed as shown by
said meters, at the rates charged for such services by the city in which the
Building is located or by the local public utility furnishing the same, plus any
additional expense incurred in keeping account of the water and electric current
so consumed. If a separate meter is not installed to measure any such excess
use, Landlord shall have the right to estimate the amount of such use through
qualified personnel. In addition, Landlord may impose a reasonable charge for
the use of any additional or unusual janitorial services required by Tenant
because of any Suite Improvements different from or above Building Standard,
carelessness of Tenant or the nature of Tenant's business (including hours of
operation). Notwithstanding the foregoing, Landlord hereby agrees that prior to
enacting the conditions set forth in this Subparagraph 7.3(a), that Landlord
will provide Tenant with prior written notice that Tenant is in violation
hereunder and Tenant shall have three (3) days to cure such violation or
Landlord may immediately enact the conditions stipulated hereunder.
(b) Landlord's current hours of operation in Bishop Ranch
(hereinafter "Hours of Operation") are 7 a.m. to 7 p.m., Monday through Friday,
excepting holidays (New Year's Day, President's Day, Memorial Day, July 4th,
Labor Day, Thanksgiving, and Christmas Day). The building and its services are
available to Tenant 24 hours a day, seven (7) days a week, 365 days a year. The
after hours rate for air conditioning and heating service after Landlord's hours
of operation, as defined in Paragraph 7.1 above,
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is $25.00 per hour per zone. This rate is subject to adjustment based upon the
decrease or increase in utilities as charged by Landlord's utility provider.
(c) If any lights other than Building Standard or equipment are
used in the Premises which affect the temperature otherwise maintained by the
air conditioning system, Landlord may, upon written notification to Tenant which
provides Tenant with three (3) days to cure, and in the event Tenant fails to
cure then Landlord may install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation, operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord. In addition, if any lights other than Building Standard are used in
the Premises, Tenant shall pay the cost to replace any worn or dead bulbs or
tubes.
(d) In no event shall Tenant (i) connect any apparatus, machine or
device through electrical outlets except in the manner for which such outlets
are designed and without the use of any device intended to increase the plug
capacity of any electrical outlet or (ii) maintain at any time an electrical
demand load in excess of four (4) watts per square foot of usable area of the
Premises.
7.4 Nonliability. Landlord shall not be liable for, and Tenant
------------
shall not be entitled to any abatement or reduction of Rent, by reason of
Landlord's failure to furnish any of the foregoing when due to "Force Majeure
Events" (as defined in Paragraph 25.9). If failure to furnish the foregoing is
within Landlord's reasonable control and Tenant is unable to occupy the Premises
due to such failure, Tenant shall be entitled to an abatement of Base Rent
commencing with the fifteenth consecutive day of such failure unless prior
thereto Landlord commences to cure such failure and thereafter diligently
proceeds with such cure. Any failure to furnish any of the foregoing shall not
constitute an eviction of Tenant, constructive or otherwise and, notwithstanding
any law to the contrary that may now or hereafter exist, Tenant shall not be
entitled to terminate this Lease on account of such failure. Landlord shall not
be liable under any circumstances for
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loss of or injury to property or business or consequential damages, however
occurring, through or in connection with failure to furnish any of the
foregoing.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
--------------------------------------------------
8.1 Maintenance And Repairs
-----------------------
(a) Landlord's Obligations. Landlord shall maintain in good
----------------------
order, condition and repair the structural and common areas of the Building, and
the basic heating, ventilating, air conditioning, electrical, plumbing, fire
protection, life safety, security and mechanical systems of the Building (the
"Building Systems"), and the telephone cabling and wiring in and to the Premises
to the extent required by law, and shall cause the common areas of the Building
to comply with all Legal Requirements (including, without limitation, the ADA),
provided that any maintenance and repair caused by the acts or omissions of
Tenant or Tenant's agents, employees, invitees, visitors (collectively "Tenant's
Representatives") shall be paid for by Tenant. Notwithstanding any law to the
contrary that may now or hereafter exist, Tenant shall not have the right to
make repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the foregoing in good order, condition and repair,
nor shall Landlord be liable under any circumstances for any consequential
damages or loss of business, however occurring, through or in connection with
any such failure.
(b) Tenant's Obligations
--------------------
(1) Tenant, at Tenant's sole cost and expense, except for
services furnished by Landlord pursuant to Paragraph 7 hereof, shall maintain
the Premises in good order, condition and repair including the interior surfaces
of the ceilings, walls and floors, all doors, interior windows, and all plumbing
pipes, electrical wiring, switches, fixtures, nonbuilding standard lights, and
equipment installed for the use of the Premises, and shall cause the Premises to
comply with all Legal Requirements (including, without limitation, the ADA).
Notwithstanding any law to the contrary that may now or hereafter exist, Tenant
shall not have the right to make repairs at
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Landlord's expense or to terminate this Lease because of Landlord's failure to
keep the Premises in good order, condition and repair.
(2) In the event Tenant fails to maintain the Premises in good
order, condition and repair, Landlord shall give Tenant notice to do such acts
as are reasonably required to so maintain the Premises. In the event Tenant
fails to promptly commence such work and diligently prosecute it to completion,
Landlord shall have the right to do such acts and expend such funds at the
expense of Tenant as are reasonably required to perform such work. Any amount so
expended by Landlord shall be paid by Tenant promptly after demand with interest
from the date expended by Landlord until paid by Tenant at the "Default Rate,"
as defined below. Landlord shall have no liability to Tenant for any damage,
inconvenience or interference with the use of the Premises by Tenant as a result
of performing any such work. As used in this Lease, "Default Rate" shall mean
the lesser of twelve percent per annum (12%) or the maximum rate permitted by
law.
(c) Compliance With Law. Landlord and Tenant shall each do all acts
-------------------
required to comply with all applicable Legal Requirements relating to their
respective maintenance and repair obligations as set forth herein.
8.2 Alterations And Additions
-------------------------
(a) Tenant shall make no alterations, additions or improvements to
the Premises or any part thereof without obtaining the prior written consent of
Landlord.
(b) Landlord may impose as a condition to the aforesaid consent such
requirements as Landlord may deem necessary in its sole discretion, including
without limitation thereto, performing the work itself, specifying the manner in
which the work is done, and selecting the contractor by whom the work is to be
performed and the times during which it is to be accomplished. Tenant shall pay
to Landlord upon demand an amount equal to the reasonable costs and expenses for
time spent by Landlord's employees or contractors in supervising, approving and
administering such alterations.
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(c) All such alterations, additions or improvements, all other
Above-Standard Improvements, and all work performed under the Work Letter shall
be the property of Landlord and shall remain upon and be surrendered with the
Premises, unless Landlord upon or prior to the termination or expiration of the
Lease requests in writing that Tenant remove all or any part of same. At the
time Landlord consents to any alteration, addition, or improvement, Landlord
shall specify in writing to Tenant whether the same shall be surrendered with
the Premises, or whether at Landlord's request they shall be removed by Tenant.
(d) All articles of personal property and all business and trade
fixtures, machinery and equipment, cabinetwork, furniture and movable partitions
owned by Tenant or installed by Tenant at its expense in the Premises shall be
and remain the property of Tenant and may be removed by Tenant at any time
during the Lease term when Tenant is not in default hereunder.
9. ENTRY BY LANDLORD
-----------------
Landlord and Landlord's agents shall at any and all times have the
right to enter the Premises to inspect the same, to supply janitorial service
and any other service to be provided by Landlord to Tenant hereunder, to show
the Premises to prospective purchasers or tenants, to post notices of non-
responsibility and "for lease" signs, and to alter, improve or repair the
Premises and any portion of the Building, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing the entrance to the
Premises shall not be blocked thereby. Landlord shall conduct its activities
under this Paragraph 9 in a manner that will minimize inconvenience to Tenant
without incurring additional expense to Landlord. 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, upon and about the Premises, excluding Tenant's vaults and
safes, and Landlord and Landlord's agents shall have the right to use any and
all means which Landlord may deem proper to open said doors in an emergency, in
order to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord or Landlord's agents by any of said means, or otherwise, shall not
under any circumstances be construed
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or deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction of Tenant from the Premises or any portion thereof.
Tenant shall not be released from its obligations under this Lease nor be
entitled to any abatement of Rent on account of Landlord's entry under this
Paragraph, and Tenant hereby 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.
10. LIENS
-----
Tenant shall keep the Premises and the Building free from any liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant and shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed, materials furnished or
obligations incurred by or at the direction of Tenant. In the event that Tenant
shall not, within twenty (20) days following the imposition of any such lien,
cause such lien 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 no obligation, to cause the same to be released by such
means as it shall deem proper, including payment of the claim giving rise to
such lien. All such sums paid by Landlord and all expenses incurred by it in
connection therewith, including attorneys' fees and costs, shall be payable to
Landlord by Tenant on demand with interest at the Default Rate until paid.
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 and the Premises, and any other party
having an interest therein, from mechanics' and materialmen's liens, and Tenant
shall give to Landlord at least three (3) business days prior written notice of
the expected date of commencement of any work relating to alterations or
additions to the Premises.
11. INDEMNITY
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11.1 Indemnity. Tenant shall indemnify and hold Landlord harmless
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from and defend Landlord against any and all claims of liability for any injury
or damage to any person or
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property whatsoever (i) occurring in, on or about the Premises or any part
thereof; and (ii) occurring in, on or about any facilities (including, without
limiting the generality of the term "facilities," elevators, stairways,
passageways, hallways and parking areas), the use of which Tenant may have in
conjunction with other tenants of the Building, to the extent such injury or
damage is caused by the act, negligence, fault or omission of any duty with
respect to the same by Tenant or Tenant's invitees and Representatives. Tenant
shall further indemnify and hold Landlord harmless from and against any and all
claims arising from any breach or default in the performance of any obligation
on Tenant's part to be performed under the terms of this Lease, or arising from
any act or negligence of Tenant or Tenant's Representatives and from and against
reasonable attorneys' fees, costs, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon. If any
action or proceeding is brought against Landlord by reason of any such claim,
Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord; provided, however, that Tenant
shall not be liable for damage or injury occasioned by the negligence or
intentional acts of Landlord and its designated agents or employees unless
covered by insurance Tenant is required to provide. Except if caused by
Landlord's gross negligence or willful misconduct, Tenant, as a material part of
the consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons in, upon or about the Premises from any cause and Tenant
hereby waives all claims in respect thereof against Landlord.
11.2 Exemption of Landlord From Liability. Landlord shall not be
------------------------------------
liable for injury or damage which may be sustained by the person or property of
Tenant, its employees, invitees or customers, or any other person in or about
the Premises caused by or resulting from fire, steam, 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, telephone
cabling or wiring, or lighting fixtures of the same, whether the damage or
injury results from conditions arising upon the Premises or upon other portions
of the Building of which the Premises are a part, or from other sources.
Landlord shall not be
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liable for any damages arising from any act or neglect of any other tenant of
the Building.
12. INSURANCE
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12.1 Coverage. Tenant shall, at all times during the term of this
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Lease, and at its own cost and expense, procure and continue in force the
following insurance coverage:
(a) Commercial General Liability Insurance with a combined
single limit for personal or bodily injury and property damage of not less than
$3,000,000.
(b) Fire and Extended Coverage Insurance, including vandalism
and malicious mischief coverage, covering and in an amount equal to the full
replacement value of all fixtures, furniture and improvements installed in the
Premises by or at the expense of Tenant.
12.2 Insurance Policies. The aforementioned minimum limits of
------------------
policies shall in no event limit the liability of Tenant hereunder. The
aforesaid insurance shall name Landlord and its partners, property manager, and
mortgagees as an additional insured. Said insurance shall be with companies
having a rating of not less than A+, XI in "Best's Insurance Guide". Tenant
shall furnish from the insurance companies or cause the insurance companies to
furnish certificates of coverage. No such policy shall be cancelable or subject
to reduction of coverage or other modification or cancellation except after
thirty (30) days prior written notice to Landlord by the insurer. All such
policies shall be written as primary policies, not contributing with and not in
excess of the coverage which Landlord may carry. Tenant shall, at least twenty
(20) days prior to the expiration of such policies, furnish Landlord with
evidence of renewals or binders. Tenant agrees that if Tenant does not take out
and maintain such insurance, Landlord may (but shall not be required to) procure
said insurance on Tenant's behalf and charge Tenant the premiums together with a
reasonable handling charge and Default Interest from the date paid by Landlord,
payable upon demand. Tenant shall have the right to provide such insurance
coverage pursuant to blanket policies obtained by Tenant, provided such blanket
policies
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expressly afford coverage to the Premises and to Tenant as required by this
Lease.
12.3 Landlord's Insurance. During the term of this Lease Landlord
--------------------
shall maintain in effect insurance on the Building against fire, extended
coverage perils and vandalism and malicious mischief (to the extent such
coverages are available), with responsible insurers licensed to do business in
California, insuring the Building in an amount equal to at least ninety-five
percent (95%) of the replacement cost thereof, excluding foundations, footings
and underground installations. Landlord may, but shall not be obligated to,
carry insurance against additional perils and/or in greater amounts.
12.4 Waiver of Subrogation. To the extent permitted by their
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respective policies of insurance, Landlord and Tenant each hereby waive any
right of recovery against the other and the authorized representatives of the
other for any loss or damage that is covered by any policy of insurance
maintained by either party with respect to the Premises or the Project or any
operation therein. If any policy of insurance relating to this Lease, the
Premises or the Project does not permit the foregoing waiver or if the coverage
under any such policy would be invalidated as a result of such waiver, the party
maintaining such policy shall, if possible, using commercially reasonable
efforts obtain from the insurer under such policy a waiver of all right of
recovery by way of subrogation against either party in connection with any
claim, loss or damage covered by such policy.
13. DAMAGE OR DESTRUCTION.
---------------------
13.1 Landlord's Duty to Repair. If all or a substantial part of
-------------------------
the Premises are rendered untenantable or inaccessible by damage to all or any
part of the Project from fire or other casualty then, unless either party elects
to terminate this Lease pursuant to Paragraphs 13.2 or 13.3, Landlord shall, at
its expense, repair and restore the Premises and/or access thereto, as the case
may be, to substantially their former condition to the extent permitted by the
then applicable codes, laws and regulations; provided, however, that Tenant
rather than Landlord shall be obligated at Tenant's expense to repair or replace
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Tenant's personal property, trade fixtures and any items or improvements that
are required to be covered by Tenant's insurance under Paragraph 12.1(b).
If Landlord is required or elects to repair damage to the
Premises and/or access thereto, this Lease shall continue in effect but Tenant's
Base Rent and Operating Cost Payments from the date of the casualty through the
date of substantial completion of the repair shall be abated by a proportionate
amount based on the portion of the Premises that Tenant is prevented from using
by reason of such damage or its repair; provided, however, that if the casualty
is the result of the willful misconduct or negligence of Tenant or Tenant's
Representatives, there will be no such rental abatement. In no event shall
Landlord be liable to Tenant by reason of any injury to or interference with
Tenant's business or property arising from fire or other casualty or by reason
of any repairs to any part of the Project made necessary by such casualty.
13.2 Landlord's Right to Terminate. Landlord may elect to terminate
-----------------------------
this Lease, sixty (60) days following the date such election is noticed to
Tenant, under the following circumstances:
(a) Where, in the reasonable judgment of Landlord, the damage
cannot be substantially repaired and restored under applicable laws and
governmental regulations within One Hundred Eighty (180) days after the date of
the casualty;
(b) Where, in the reasonable judgment of Landlord, adequate
proceeds are not, for any reason, made available to Landlord from Landlord's
insurance policies to make the required repairs;
(c) Where the Project is damaged or destroyed to the extent that
the cost to repair and restore the Project exceeds twenty-five percent (25%) of
the full replacement cost of the Project, whether or not the Premises are
damaged or destroyed; or
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(d) Where the damage occurs within the last twelve (12)
months of the term of the Lease.
If any of the circumstances described in this Paragraph
13.2 arise, Landlord must notify Tenant in writing of that fact within one
hundred and twenty (120) days after such circumstances arise and in such notice
Landlord must also advise Tenant whether Landlord has elected to terminate the
Lease.
13.3 Tenant's Right to Terminate. Tenant shall have the right to
---------------------------
terminate this Lease if all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Project from
fire or other casualty, provided that such casualty is not the result of the
willful misconduct or negligence of Tenant or Tenant's Representatives, but only
under the following circumstances:
(a) Tenant may elect to terminate this Lease if Landlord had
the right under Paragraph 13.2 to terminate this Lease but did not elect to so
terminate and Landlord failed to commence the required repair within sixty (60)
days after the date it received proceeds to commence such repair. In such event,
Tenant may terminate this Lease as of the date of the casualty by notice to
Landlord given before the earlier of the date on which Landlord commences such
repair or ten (10) days after the expiration of such sixty (60)-day period; or
(b) Tenant may elect to terminate this Lease in the
circumstance described in Subparagraph 13.2(a). In such event, Tenant may
terminate this Lease as of the date of the casualty by notice to Landlord given
within thirty (30) days after Landlord's notice to Tenant pursuant to Paragraph
13.2.
13.4 Exclusive Rights. Landlord and Tenant each hereby agree
----------------
that, notwithstanding any law to the contrary that may now or hereafter exist,
neither party shall have any right to terminate this Lease in the event of any
damage or destruction under any circumstances other than as provided in
Paragraphs 13.2 and 13.3.
14. CONDEMNATION
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If all or a material portion of the Premises shall be taken or
appropriated for public or quasi-public use by right of eminent domain with or
without litigation or transferred by agreement in connection with such public or
quasi-public use, either party hereto shall have the right at its option,
exercisable within thirty (30) days of receipt of notice of such taking, to
terminate this Lease as of the date possession is taken by the condemning
authority, provided, however, that before Tenant may terminate this Lease by
reason of taking or appropriation as provided hereinabove, such taking or
appropriation shall be of such an extent and nature as to substantially
handicap, impede or impair Tenant's use of the Premises. If any part of the
Building other than the Premises shall be so taken or appropriated, Landlord
shall have the right at its option to terminate this Lease. No award for any
partial or entire taking shall be apportioned, and Tenant hereby assigns to
Landlord any award which may be made in such taking or condemnation, together
with any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof; provided, however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant for the taking of personal property and
fixtures belonging to Tenant and/or for Tenant's unamortized cost of leasehold
improvements, so long as such award to Tenant does not decrease the value of the
award that would otherwise be made to Landlord in such taking or condemnation.
In the event of a partial taking which does not result in a termination of this
Lease, rent shall be abated in the proportion which the part of Premises so made
unusable bears to the rented area of the Premises immediately prior to the
taking, and Landlord, at Landlord's cost, shall restore the Premises remaining
to an architectural whole with the Base Rent reduced in proportion to what the
area taken bears to the Premises prior to the taking. No temporary taking of
the Premises and/or of Tenant's rights therein or under this Lease shall give
Tenant the right to terminate this Lease or to any abatement of Rent thereunder.
Any award made to Tenant by reason of any such temporary taking where Landlord
does not terminate this Lease shall belong entirely to Tenant so long as said
award does not diminish Landlord's award.
15. ASSIGNMENT AND SUBLETTING
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15.1 Landlord's Consent Required. Except as otherwise expressly
---------------------------
provided in this Lease, Tenant shall not assign, transfer, mortgage, pledge,
hypothecate or encumber this Lease or any interest therein (each a "Transfer"),
and shall not sublet the Premises or any part thereof, without the prior written
consent of Landlord and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
Lease.
15.2 Reasonable Consent.
------------------
(a) If Tenant complies with the following conditions,
Landlord shall not unreasonably withhold its consent to the subletting of the
Premises or any portion thereof or the assignment of this Lease. Tenant shall
submit in writing to Landlord (i) the name and legal composition of the proposed
subtenant or assignee; (ii) the nature of the business proposed to be carried on
in the Premises; (iii) the terms and provisions of the proposed sublease; (iv)
such reasonable financial information as Landlord may request concerning the
proposed subtenant or assignee; and (v) the form of the proposed sublease or
assignment. Within five (5) business days after Landlord receives all such
information it shall notify Tenant whether it approves such assignment or
subletting or if it elects to proceed under Paragraph 15.8 below.
(b) The parties hereto agree and acknowledge that, among
other circumstances for which Landlord could reasonably withhold its consent to
a sublease or assignment, it shall be reasonable for Landlord to withhold its
consent where (i) the assignee or subtenant (a "Transferee") does not itself
occupy the entire portion of the Premises assigned or sublet, (ii) Landlord
reasonably disapproves of the Transferee's reputation or creditworthiness or the
character of the business to be conducted by the Transferee at the Premises,
(iii) the assignment or subletting would increase the burden on the Building
services or the number of people occupying the Premises, or (iv) Landlord
otherwise determines that the assignment or sublease would have the effect of
decreasing the value of the Project or increasing the expenses associated with
operating the Project. In no event may
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Tenant publicly advertise all or any portion of the Premises for assignment or
sublease at a rental less than that then sought by Landlord for comparable space
in the Project.
15.3 Excess Consideration. If Landlord consents to the assignment
--------------------
or sublease, Landlord shall be entitled to receive as additional Rent hereunder
50% of any consideration paid by the Transferee for the assignment or sublease
and, in the case of a sublease, 50% of the excess of the rent and other
consideration payable by the subtenant over the amount of Base Rent and
Operating Cost Payments payable hereunder applicable to the subleased space.
15.4 No Release Of Tenant. No consent by Landlord to any
--------------------
assignment or subletting by Tenant shall relieve Tenant of any obligation to be
performed by Tenant under this Lease, whether occurring before or after such
consent, assignment or subletting, and the Transferee shall be jointly and
severally liable with Tenant for the payment of Rent (or that portion applicable
to the subleased space in the case of a sublease) and for the performance of all
other terms and provisions of the Lease. The consent by Landlord to any
assignment or subletting shall not relieve Tenant and any such Transferee from
the obligation to obtain Landlord's express written consent to any subsequent
assignment or subletting. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision of this
Lease or to be a consent to any assignment, subletting or other transfer.
Consent to one assignment, subletting or other transfer shall not be deemed to
constitute consent to any subsequent assignment, subletting or other transfer.
15.5 Attorneys' Fees. Tenant shall pay Landlord's reasonable
---------------
attorneys' fees (not to exceed $300.00) incurred in connection with reviewing
any proposed assignment or sublease.
15.6 Transfer Of Ownership Interest. If Tenant is a business
------------------------------
entity, any direct or indirect transfer of 50 percent or more of the ownership
interest of the entity (whether all at one time or over the term of the Lease)
shall be deemed a Transfer.
15.7 Effectiveness of Transfer. No permitted assignment by Tenant
-------------------------
shall be effective until Landlord has received
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a counterpart of the assignment and an instrument in which the assignee assumes
all of Tenant's obligations under this Lease arising on or after the date of
assignment. The voluntary, involuntary or other surrender of this Lease by
Tenant, or a mutual cancellation by Landlord and Tenant, shall not work a
merger, and any such surrender or cancellation shall, at the option of Landlord,
either terminate all or any existing subleases or operate as an assignment to
Landlord of any or all of such subleases.
15.8 Landlord's Right to Space. Notwithstanding any of the above
-------------------------
provisions of this Paragraph 15 to the contrary, if Tenant notifies Landlord
that it desires to assign this Lease or sublet all or any part of the Premises,
Landlord, in lieu of consenting to such assignment or sublease, may elect to
terminate this Lease (in the case of an assignment or a sublease of the entire
Premises), or to terminate this Lease as it relates to the space proposed to be
subleased by Tenant (in the case of a sublease of less than the entire
Premises). In such event, this Lease (or portion thereof) will terminate on the
date the assignment or sublease was to be effective, and Landlord may lease such
space to any party, including the prospective Transferee identified by Tenant.
15.9 Permitted Assignment or Sublease. Notwithstanding any
--------------------------------
provision to the contrary in Section 15, Tenant shall not be required to obtain
Landlord's consent to an assignment or sublease of the Premises to an entity
which controls, is controlled by or is under common control with Tenant or which
succeeds to substantially all of Tenant's assets and business by merger,
reorganization or purchase. All other such subsections of Section 15 shall apply
to this Paragraph 15.9 and shall remain in effect.
15.10 No Net Profits Leases. Anything contained in the foregoing
---------------------
provisions of this Paragraph 15 to the contrary notwithstanding, neither Tenant,
nor any other person having an interest in the possession, use, occupancy or
utilization of the Premises, shall enter into any lease, sublease, license,
concession or other agreement for the use, occupancy or utilization of space in
the Premises which provides for rental or other payment for such use, occupancy
or utilization based in whole or in part on the net
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income or profits derived by any person from the premises leased, used, occupied
or utilized (other than an amount based on a fixed percentage or percentages of
receipts or sales), and any such purported lease, sublease, license, concession
or other agreement shall be void and ineffective as a conveyance of any right or
interest in the possession, use, occupancy or utilization of any part of the
Premises.
16. SUBORDINATION
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16.1 Subordination. Tenant agrees that upon delivery to it by any
-------------
mortgagee, any holder of any deed of trust or any ground lessor of the Building
of a non-disturbance agreement which satisfies the requirements set forth in
Paragraph 16.4 below, this Lease, at Landlord's option, shall be subject and
subordinate to such ground or underlying leases which now exist or may hereafter
be executed affecting all or any part of the Project, and to the lien of such
first mortgages or first deeds of trust (each a "First Mortgage") in any amount
or amounts whatsoever now or hereafter placed on or against the Land or
Building, Landlord's interest or estate therein, or any ground or underlying
lease, without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination. If any
mortgagee or trustee of a First Mortgage or ground lessor shall elect to have
this Lease prior to the lien of its First Mortgage or ground lease, and shall
give written notice thereof to Tenant, this Lease shall be deemed prior to such
First Mortgage or ground lease, whether this Lease is dated prior to or
subsequent to the date of said First Mortgage or ground lease or the date of the
recording thereof.
16.2 Junior Liens. Tenant hereby agrees that this Lease shall be
------------
superior to the lien of any present or future mortgages or deeds of trust that
are junior to any First Mortgage unless subordinated as of the date hereof or
pursuant to Section 16.1.
16.3 Subordination Agreements. Subject to the requirements of
------------------------
Section 16.1, Tenant will execute and deliver within fifteen (15) business days
of demand without charge therefor, such further instruments evidencing the
subordination of
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this Lease to any First Mortgage or ground lease, or the subordination of any
First Mortgage or ground lease to such Lease, pursuant to Section 16.1, as the
case may be, as may be required by Landlord. Tenant's failure to comply with
its obligations under this Paragraph 16.3 within fifteen (15) days of demand
shall constitute an Event of Default and Landlord shall have the right, in such
event, to impose upon Tenant a monetary penalty of $1,000.00 for such non-
compliance, in addition to all other remedies available to Landlord under this
Lease and by law.
16.4 Attornment. If this Project is transferred to any purchaser
----------
pursuant to or in lieu of proceedings to enforce any mortgage, deed of trust or
ground lease (collectively, "Encumbrance"), this Lease will not be barred,
terminated, cut off or foreclosed nor will the rights and possession of Tenant
hereunder be disturbed if Tenant is not in default beyond applicable cure
periods under the terms of the Lease. Tenant shall attorn to such purchaser as
the Landlord under the Lease so long as the rights of Tenant hereunder shall not
be disturbed, diminished, or interfered with, but shall continue in full force
and effect so long as Tenant shall not be in default hereunder.
17. QUIET ENJOYMENT
---------------
Landlord covenants and agrees with Tenant that upon Tenant paying the
Rent and performing its other covenants and conditions under this Lease, Tenant
shall have the quiet possession of the Premises for the term of this Lease as
against any persons or entities lawfully claiming by, through or under Landlord,
subject, however, to the terms of this Lease and of any Encumbrance.
18. DEFAULT; REMEDIES
-----------------
18.1 Default. The occurrence of any of the following shall
-------
constitute an "Event of Default" by Tenant:
(a) Tenant fails to pay Rent when due and such failure
continues for five (5) days after written notice thereof to Tenant;
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(b) Tenant fails to deliver any subordination agreement requested
by Landlord within the period described in Paragraph 16;
(c) Tenant fails to deliver any estoppel certificate requested by
Landlord within the period described in Paragraph 22;
(d) Tenant Transfers or attempts to Transfer this Lease
without complying with the provisions of Paragraph 15;
(e) Tenant fails to observe and perform any other provision of this
Lease to be observed or performed by Tenant, where such failure continues for
twenty (20) days after written notice thereof by Landlord to Tenant; provided,
however, that if the nature of the default is such that the same cannot
reasonably be cured within said twenty (20) day period, Tenant shall not be
deemed to be in default if Tenant shall within such period commence such cure
and thereafter diligently prosecute the same to completion;
(f) Tenant abandons the Premises; or
(g) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition seeking relief under any law relating to bankruptcy (unless, in the
case of a petition filed against Tenant, the same is dismissed within sixty (60)
days); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
18.2 Remedies. Upon the occurrence of an Event of Default,
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Landlord may, at any time thereafter exercise the following remedies, which
shall be in addition to any other rights or remedies now or hereafter available
to Landlord at law or in equity:
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(a) Maintain this Lease in full force and effect and recover Rent as
it becomes due, without terminating Tenant's right to possession irrespective of
whether Tenant shall have abandoned the Premises. In the event Landlord elects
not to terminate the Lease, Landlord shall have the right to attempt to relet
the Premises at such rent and upon such conditions and for such a term, and to
do all acts necessary to maintain or preserve the Premises as Landlord deems
reasonable and necessary without being deemed to have elected to terminate the
Lease, including removal of all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. In the event any such reletting occurs,
rents received by Landlord from such subletting shall be applied (i) first, to
the payment of the costs of maintaining, preserving, altering and preparing the
Premises for subletting and other costs of subletting, including but not limited
to brokers' commissions, attorneys' fees and expenses of removal of Tenant's
personal property, trade fixtures, alterations and leasehold improvements; (ii)
second, to the payment of Rent then due and payable; (iii) third, to the payment
of future Rent as the same may become due and payable hereunder; and (iv)
fourth, the balance, if any, shall be paid to Tenant upon (but not before)
expiration of the term of this Lease. If the rents received by Landlord from
such subletting, after application as provided above, are insufficient in any
month to pay the Rent due and payable hereunder for such month, Tenant shall pay
such deficiency to Landlord monthly upon demand. Notwithstanding any such
subletting for Tenant's account without termination, Landlord may at any time
thereafter, by written notice to Tenant, elect to terminate this Lease by virtue
of a previous Event of Default. During the continuance of an Event of Default,
for so long as Landlord does not terminate Tenant's right to possession of the
Premises, Landlord shall not unreasonably withhold its consent to an assignment
of this Lease or a sublease of the Premises as set forth in Paragraph 15.2 -
"Reasonable Consent".
(b) Terminate Tenant's right to possession of the Premises at any
time by written notice to Tenant, in which case Tenant shall immediately
surrender possession of the Premises to Landlord. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord,
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including, but not limited to, its re-entry into the Premises, its efforts to
relet the Premises, its reletting of the Premises for Tenant's account, its
storage of Tenant's personal property and trade fixtures, its acceptance of keys
to the Premises from Tenant or its exercise of any other rights and remedies
under this Paragraph 18.2, shall constitute an acceptance of Tenant's surrender
of the Premises or constitute a termination of this Lease or of Tenant's right
to possession of the Premises. If Landlord terminates Tenant's right to
possession in writing, Landlord shall be entitled to recover from Tenant all
damages as provided in California Civil Code Section 1951.2 or any other
applicable existing or future law, ordinance or regulation providing for
recovery of damages for such breach, including but not limited to the following:
(1) The reasonable cost of recovering the Premises; plus
(2) The reasonable cost of removing Tenant's alterations,
trade fixtures and Above-Standard Improvements; plus
(3) All unpaid Rent due or earned hereunder prior to the
date of termination, less the proceeds of any reletting or any rental received
from subtenants prior to the date of termination applied as provided in
subsection (a) above, together with interest at the Default Rate, on such sums
from the date such Rent is due and payable until the date of the award of
damages; plus
(4) The amount by which the Rent which would be payable by
Tenant hereunder, including Operating Cost Payments as reasonably estimated by
Landlord, from the date of termination until the date of the award of damages
exceeds the amount of such rental loss Tenant proves could have been reasonably
avoided, together with interest at the Default Rate on such sums from the date
such Rent is due and payable until the date of the award of damages; plus
(5) The amount by which the Rent which would be payable by
Tenant hereunder, including Operating Cost
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Payments, as reasonably estimated by Landlord, for the remainder of the then
term, after the date of the award of damages exceeds the amount of such rental
loss as Tenant proves could have been reasonably avoided, discounted at the
discount rate published by the Federal Reserve Bank of San Francisco for member
banks at the time of the award plus one percent (1%); plus
(6) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
(c) During the continuance of an Event of Default, Landlord may
enter the Premises without terminating this Lease and remove all Tenant's
personal property, and trade fixtures from the Premises. If Landlord removes
such property from the Premises and stores it at Tenant's risk and expense, and
if Tenant fails to pay the cost of such removal and storage after written demand
therefor and/or to pay any Rent then due, after the property has been stored for
a period of thirty (30) days or more Landlord may sell such property at public
or private sale, in the manner and at such times and places as Landlord in its
sole discretion deems commercially reasonable following reasonable notice to
Tenant of the time and place of such sale. The proceeds of any such sale shall
be applied first to the payment of the expenses for removal and storage of the
property, preparation for and conducting such sale, and attorneys' fees and
other legal expenses incurred by Landlord in connection therewith, and the
balance shall be applied as provided in subsection (a) above.
Tenant hereby waives all claims for damages that may be
caused by Landlord's reentering and taking possession of the Premises or
removing and storing Tenant's personal property pursuant to this Paragraph, and
Tenant shall hold Landlord harmless from and against any loss, cost or damage
resulting from any such act. No reentry by Landlord shall constitute or be
construed as a forcible entry by Landlord.
(d) Landlord may cure the Event of Default at Tenant's expense.
If Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest
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at the Default Rate from the date the sum is paid or the expense is incurred
until Landlord is reimbursed by Tenant.
18.3 Late Charges. Tenant hereby acknowledges that late payment
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by Tenant to Landlord of Rent will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges. Accordingly, if any installment of Base Rent or
Operating Costs Payments is not received by Landlord or Landlord's designee
within ten (10) days of the date such amount shall be due, or if any installment
of other Rent is not received by Landlord or Landlord's designee on or before
the date such amount shall be due, Tenant shall pay to Landlord a late charge
equal to ten percent (10%) of such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of late payment by Tenant. Acceptance of such
late charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount nor prevent Landlord from exercising
any of the other rights and remedies granted hereunder.
18.4 Interest. In addition to the late charges referred to above
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which are intended to defray Landlord's costs resulting from late payments, any
late payment of Rent shall, at Landlord's option, bear interest from the due
date of any such payment to the date the same is paid at the Default Rate,
provided, however, that if Landlord imposes a late charge on any overdue
payment, such overdue payment shall not begin to bear interest under this
Paragraph 18.4 until thirty (30) days after the due date thereof.
18.5 Default By Landlord. Landlord shall not be in default unless
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Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event later than thirty (30) days after written notice by Tenant
to Landlord and to any mortgagee, trustee or ground lessor of the Project (each
a "Holder") whose name and address shall have theretofore been furnished to
Tenant in writing, specifying that Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days
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are required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
19. PARKING
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Tenant and Tenant's employees, invitees and customers shall have the
right to use the parking areas of the Building subject to such regulations and
charges as Landlord shall adopt from time to time, and subject to the right of
Landlord to restrict the use by Tenant and Tenant's Representatives when in the
sole judgment of Landlord such use is excessive for the parking area in
relationship to the reasonable use required by other Tenants. If Landlord
becomes obligated under applicable laws or regulations or any other directive of
any governmental or quasi-governmental authority to pay or assess fees or
charges for parking in the Building's parking area, Tenant shall pay such
amounts to Landlord as additional Rent. Parking is available in Bishop Ranch 11
on an unreserved basis at a ratio of 5.0 spaces per 1,000 square feet of leased
space.
20. RELOCATION OF PREMISES
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20.1 Conditions. For the purpose of maintaining an economical and
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proper distribution of Tenants throughout Bishop Ranch acceptable to Landlord,
Landlord shall have the right from time to time during the term of this Lease to
relocate the Premises within Bishop Ranch, subject to the following terms and
conditions:
(a) The rented and usable areas of the new Premises must be
of equal size to the existing Premises (subject to a variation of up to ten
percent (10%) provided the amount of Base Rent payable under this Lease is not
increased);
(b) Landlord shall pay the cost of providing tenant
improvements in the new Premises comparable to the tenant improvements in the
existing Premises;
(c) Landlord shall pay the expenses reasonably incurred by
Tenant in connection with such substitution of Premises, including but not
limited to costs of moving, door
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lettering, telephone relocation and reasonable quantities of new stationery;
20.2 Notice. Landlord shall deliver to Tenant written notice of
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Landlord's election to relocate the Premises, specifying the new location and
the amount of rent payable therefore at least sixty (60) days prior to the date
the relocation is to be effective. If the relocation of the Premises is not
acceptable to Tenant, Tenant for a period of ten (10) days after receipt of
Landlord's notice to relocate shall have the right (by delivering written notice
to Landlord) to terminate this Lease. If Tenant so notifies Landlord, Landlord
at its option may withdraw its relocation notice, in which event this Lease
shall continue and Tenant shall not be relocated, or accept Tenant's termination
notice, in which event this Lease shall terminate effective as of the date the
relocation was to be effective.
Notwithstanding the foregoing, this Section 20 shall not
apply to Tenant except in the event Tenant subleases or assigns all or part of
the Premises, then this Section 20 shall be in full force and effect and
applicable to Tenant and any subtenant or assignee.
21. MORTGAGEE PROTECTION.
--------------------
Tenant agrees to give any Holder, by registered mail, a copy of any
notice of default served upon the Landlord, provided that prior to such notice
Tenant has been notified in writing (by way of notice of assignment of rents and
leases, or otherwise) of the address of such Holder. If Landlord shall have
failed to cure such default within the time period set forth in Paragraph 18.5
the Holder shall have an additional thirty (30) days within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary to cure such default (including the time
necessary to foreclose or otherwise terminate its Encumbrance, if necessary to
effect such cure), and this Lease shall not be terminated so long as such
remedies are being diligently pursued.
22. ESTOPPEL CERTIFICATES.
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(a) Upon fifteen (15) days' notice from Landlord, Tenant shall
execute and deliver to Landlord, in form provided by or satisfactory to
Landlord, a certificate stating that this Lease is in full force and effect,
describing any amendments or modifications hereto, acknowledging that this Lease
is subordinate or prior, as the case may be, to any Encumbrance and stating any
other information Landlord may reasonably request, including the term of this
Lease, the monthly Base Rent, the estimated Operating Cost Payments, the date to
which Rent has been paid, the amount of any security deposit or prepaid Rent,
whether either party hereto is in default under the terms of the Lease, whether
Landlord has completed its construction obligations hereunder and any other
information reasonably requested by Landlord. Any person or entity purchasing,
acquiring an interest in or extending financing with respect to the Project
shall be entitled to rely upon any such certificate. Tenant shall be liable to
Landlord for any damages incurred by Landlord including any profits or other
benefits from any financing of the Project or any interest therein which are
lost or made unavailable as a result, directly or indirectly, of Tenant's
failure or refusal to timely execute or deliver such estoppel certificates.
(b) Tenant's failure to deliver such statement within such time
shall be conclusive upon Tenant:
(1) That this Lease is in full force and effect, without
modification except as may be represented by Landlord;
(2) That there are no uncured defaults in Landlord's
performance; and
(3) That not more than one month's Rent has been paid in
advance; and
(4) That Landlord has completed its construction obligations.
(c) If Landlord desires to finance or refinance the Building, or any
part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial statements of
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Tenant as may be reasonably required by such lender. Such statements shall
include the past three years financial statements of Tenant. All such financial
statements shall be received by Landlord in confidence and shall be used only
for the purposes herein set forth.
23. SURRENDER, HOLDING OVER.
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23.1 Surrender. Upon the expiration or termination of this
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Lease, Tenant shall surrender the Premises to Landlord in substantially the same
condition as received on the Commencement Date, except for reasonable wear and
tear and damage from casualty or condemnation; provided, however, that prior to
the expiration or termination of this Lease Tenant shall remove from the
Premises all Tenant's personal property, trade fixtures, alterations and other
Above-Standard Improvements that Tenant has the right or is required by Landlord
to remove under the provisions of this Lease. Tenant shall also be responsible
for removal of all telephone cables and wires, CRT, data and telephone equipment
(which equipment, wires or cables are not located above the ceiling or within
the cavities of the Building), and any other form of cabling that exists in
Tenant's space. If any of such removal is not completed at the expiration or
termination of this Lease, Landlord may remove the same at Tenant's expense.
Landlord, six (6) months prior to the expiration date of this Lease, shall
notify Tenant of its election to have Tenant remove the equipment, wires and/or
cabling. Any damage to the Premises or the Building caused by such removal
shall be repaired promptly by Tenant or, if Tenant fails to do so, Landlord may
do so at Tenant's expense, in which event Tenant shall immediately reimburse
Landlord for such expenses together with interest at the Default rate until so
paid. Tenant's obligations under this Paragraph shall survive the expiration or
termination of this Lease. Upon expiration or termination of this Lease or of
Tenant's possession, Tenant shall surrender all keys to the Premises or any
other part of the Building and shall make known to Landlord the combination of
locks on all safes, cabinets and vaults that may be located in the Premises.
23.2 Holding Over. If Tenant remains in possession of the
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Premises after the expiration or termination of this Lease, Tenant's continued
possession shall be on the basis of a tenancy at
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the sufferance of Landlord, and Tenant shall continue to comply with or perform
all the terms and obligations of the Tenant under this Lease, except that the
Base Rent during Tenant's holding over shall be one hundred fifty percent (150%)
of the monthly Base Rent payable in the last month prior to the termination or
expiration hereof. Tenant shall indemnify and hold Landlord harmless from and
against all claims, liability, damages, costs or expenses, including reasonable
attorneys fees and costs of defending the same, incurred by Landlord and arising
directly or indirectly from Tenant's failure to timely surrender the Premises,
including (i) any loss, cost, penalties, or damages, including lost profits,
claimed by any prospective tenant of the Premises, and (ii) Landlord's damages
as a result of such prospective tenant rescinding or refusing to enter into the
prospective lease of the Premises by reason of such failure to timely surrender
the Premises.
24. HAZARDOUS MATERIALS
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Tenant shall not (either with or without negligence) cause or permit
the escape, disposal or release of any biologically or chemically active or
other hazardous substances or materials. In connection with Tenant's use of the
Premises, Tenant shall not allow the storage or use of such substances or
materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the storage and use of such substances or
materials, nor allow to be brought into the Project any such materials or
substances except to use in the ordinary course of Tenant's business, and then
only after written notice is given to Landlord of the identity of such
substances or materials, provided no such notice shall be required for
janitorial or office supplies commonly used in an office setting. Without
limitation, hazardous substances and materials shall include those described in
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601 et seq., any applicable state or local laws
and the regulations adopted under these acts. If any lender or governmental
agency shall ever require testing to ascertain whether or not there has been any
release of hazardous materials by Tenant, then Tenant shall promptly notify
Landlord of the same, and the reasonable costs thereof shall be reimbursed by
Tenant to Landlord upon demand as additional charges if such
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requirement applies to the Premises. Landlord shall have the right, but not the
obligation, to enter the Premises at any reasonable time to perform any required
testing, to confirm Tenant's compliance with the provisions of this Paragraph,
and to perform Tenant's obligations under this Paragraph if Tenant has failed to
do so. In addition, Tenant shall execute affidavits, representations and the
like from time to time at Landlord's request concerning Tenant's best knowledge
and belief regarding the presence of hazardous substances or materials on the
Premises. In all events, Tenant shall indemnify Landlord in the manner elsewhere
provided in this Lease from any release of hazardous materials by Tenant on the
Premises occurring while Tenant is in possession, or elsewhere if caused by
Tenant or persons acting under Tenant. The within covenants shall survive the
expiration or earlier termination of the lease term.
25. MISCELLANEOUS
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25.1 Attornment. Upon any transfer by Landlord of Landlord's
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interest in the Premises or the Building (other than a transfer for security
purposes only), Tenant agrees to attorn to any transferee or assignee of
Landlord.
25.2 Captions; Attachments; Defined Terms
------------------------------------
(a) The captions of the paragraphs of this Lease are for
convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any paragraph of this Lease. The
provisions of this Lease shall be construed in accordance with the fair meaning
of the language used and shall not be strictly construed against either party.
When required by the contents of this Lease, the singular includes the plural.
Wherever the term "including" is used in this Lease, it shall be interpreted as
meaning "including, but not limited to," the matter or matters thereafter
enumerated.
(b) Exhibits attached hereto, and addenda and schedules
initialed by the parties, are deemed to constitute part of this Lease and are
incorporated herein.
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(c) The words "Landlord" and "Tenant" as used herein, shall
include the plural as well as the singular. Words used in neuter gender include
the masculine and feminine and words in the masculine or feminine gender include
the neuter. The obligations of this Lease as to a Tenant which consists of
husband and wife shall extend individually to their sole and separate property
as well as community property.
25.3 Entire Agreement. This Lease along with any exhibits and
----------------
attachments hereto constitutes the entire agreement between Landlord and Tenant
relative to the Premises, and this Lease and the exhibits and attachments may be
altered, amended or revoked only by instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents or
representatives relative to the leasing of the Premises are merged in or revoked
by this Lease.
25.4 Severability. If any term or provision of this Lease shall,
------------
to any extent, be determined by a court of competent jurisdiction to be invalid
or unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
25.5 Costs Of Suit
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(a) If Tenant or Landlord brings any action for the
enforcement or interpretation of this Lease, including any suit by Landlord for
the recovery of Rent or possession of the Premises, the losing party shall pay
to the prevailing party a reasonable sum for attorneys' fees. The "prevailing
party" will be determined by the court before whom the action was brought based
upon an assessment of which party's major arguments or positions taken in the
suit or proceeding could fairly be said to have prevailed over the other party's
major arguments or positions on major disputed issues in the court's decision.
(b) Should Landlord, without fault on Landlord's part, be
made a party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any
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person holding under or using the Premises by license of Tenant, or for the
foreclosure of any lien for labor or material furnished to or for Tenant or any
such other person or otherwise arising out of or resulting from any act or
transaction of Tenant or of any such other person, Tenant covenants to save and
hold Landlord harmless from any judgment rendered against Landlord or the
Premises or any part thereof, and all costs and expenses, including reasonable
attorneys' fees, incurred by Landlord in or in connection with such litigation.
25.6 Time; Joint And Several Liability. Time is of the essence
---------------------------------
of this Lease and each and every provision hereof, except as to the conditions
relating to the delivery of possession of the Premises to Tenant. All the
terms, covenants and conditions contained in this Lease to be performed by
either party, if such party shall consist of more than one person or
organization, shall be deemed to be joint and several, and all rights and
remedies of the parties shall be cumulative and nonexclusive of any other remedy
at law or in equity.
25.7 Binding Effect; Choice Of Law. The parties hereto agree
-----------------------------
that all provisions hereof are to be construed as both covenants and conditions
as though the words imparting such covenants and conditions were used in each
separate paragraph hereof. Subject to any provisions hereof restricting
assignment or subletting by Tenant, all of the provisions hereof shall bind and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State of California.
25.8 Waiver. No covenant, term or condition or the breach
------
thereof shall be deemed waived, except by written consent of the party against
whom the waiver is claimed, and any waiver or breach of any covenant, term or
condition shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other covenant, term or condition. Acceptance by
Landlord of any performance by Tenant after the time the same shall have become
due shall not constitute a waiver by Landlord of the breach or default of any
covenant, term or condition unless otherwise expressly agreed to by Landlord in
writing.
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25.9 Force Majeure. In the event Landlord is delayed,
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interrupted or prevented from performing any of its obligations under this
Lease, including its obligations under the Work Letter, and such delay,
interruption or prevention is due to fire, act of God, governmental act, strike,
labor dispute, unavailability of materials or any other cause outside the
reasonable control of Landlord, then the time for performance of the affected
obligations of Landlord shall be extended for a period equivalent to the period
of such delay, interruption or prevention. Each day of delay under this
Subsection shall result in one (1) Scheduled Commencement Adjustment Day.
25.10 Landlord's Liability. The term "Landlord", as used in this
--------------------
Lease, shall mean only the owner or owners of the Project at the time in
question. Notwithstanding any other term or provision of this Lease, the
liability of Landlord for its obligations under this Lease is limited solely to
Landlord's interest in the Project as the same may from time to time be
encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's
stockholders, directors, officers or partners on account of any of Landlord's
obligations or actions under this Lease. In addition, in the event of any
conveyance of title to the Building or the Project, then from and after the date
of such conveyance, Landlord shall be relieved of all liability with respect to
Landlord's obligations to be performed under this Lease after the date of such
conveyance. Upon any conveyance of title to the Building or the Project, the
grantee or transferee, by accepting such conveyance, shall be deemed to have
assumed Landlord's obligations to be performed under this Lease from and after
the date of transfer, subject to the limitations on liability set forth above in
this Paragraph 25.10. In no event will Landlord be liable under this Lease for
consequential or indirect damages or loss of profits.
25.11 Consents and Approvals. Wherever the consent, approval,
----------------------
judgment or determination of Landlord is required or permitted under this Lease,
Landlord may exercise its good faith business judgment in granting or
withholding such consent or approval or in making such judgment or determination
without reference to any extrinsic standard of reasonableness, unless the
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provision providing for such consent, approval, judgment or determination
specifies that Landlord's consent or approval is not to be unreasonably
withheld, or that such judgment or determination is to be reasonable, or
otherwise specifies the standards under which Landlord may withhold its consent.
If it is determined that Landlord failed to give its consent where it was
required to do so under this Lease, Tenant shall be entitled to specific
performance but not to monetary damages for such failure, unless Landlord
withheld its consent maliciously and in bad faith.
The review and/or approval by Landlord of any item to be
reviewed or approved by Landlord under the terms of this Lease or any Exhibits
hereto shall not impose upon Landlord any liability for accuracy or sufficiency
of any such item or the quality or suitability of such item for its intended
use. Any such review or approval is for the sole purpose of protecting
Landlord's interest in the Project under this Lease, and no third parties,
including Tenant or Tenant's Representatives or any person or entity claiming
by, through or under Tenant, shall have any rights hereunder.
25.12 Signs. Tenant shall not place or permit to be placed in or
-----
upon the Premises where visible from outside the Premises or any part of the
Building, any signs, notices, drapes, shutters, blinds or displays of any type
without the prior consent of Landlord. Landlord shall include Tenant in the
Building directories located in the Building. Landlord reserves the right in
Landlord's sole discretion to place and locate on the roof, exterior of the
Building, and in any area of the Building not leased to Tenant such signs,
notices, displays and similar items as Landlord deems appropriate in the proper
operation of the Building.
25.13 Rules And Regulations. Tenant and Tenant's Representatives
---------------------
shall observe and comply fully and faithfully with all reasonable and
nondiscriminatory rules and regulations adopted by Landlord for the care,
protection, cleanliness and operation of the Building and its tenants including
those annexed to this Lease as Exhibit D and any modification or addition
thereto adopted by Landlord, provided Landlord shall give written notice thereof
to Tenant. Landlord shall not be responsible to Tenant for the
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nonperformance by any other tenant or occupant of the Building of any of said
rules and regulations.
25.14 Notices. All notices or demands of any kind required or
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desired to be given by Landlord or Tenant hereunder shall be in writing and
shall be personally delivered, sent by a nationally recognized overnight
courier, sent in the United States mail, certified or registered, postage
prepaid, or sent by private messenger, addressed to the Landlord or Tenant
respectively at the addresses set forth below:
Landlord: Tenant:
ANNABEL INVESTMENT COMPANY ATTN: Jeffrey Pullen, VP & CFO
One Annabel Lane, Suite 201 IMX, INC.
P. O. Box 640 2305 Camino Ramon, Suite 200
San Ramon, CA 94583 San Ramon, CA 94583
or such other address as shall be established by notice to the other pursuant to
this paragraph. Notices personally delivered or delivered by private messenger
shall be deemed delivered when received at the address for such party designated
pursuant to this paragraph. Notices sent by overnight courier service shall be
deemed delivered as of the date received or refused by the addressee. Notices
sent by mail shall be deemed delivered on the earlier of the third business day
following deposit thereof with the United States Postal Service or the delivery
date shown on the return receipt prepared in connection therewith.
Notwithstanding the foregoing, Landlord shall have the right, upon notice to
Tenant thereof, to eliminate personal delivery as an effective means of notice
hereunder.
25.15 Authority. If Tenant is a corporation or a partnership,
---------
each individual executing this Lease on behalf of Tenant represents and warrants
that Tenant is a duly organized and validly existing entity, the persons signing
on behalf of Tenant, are duly authorized to execute and deliver this Lease on
behalf of Tenant and this Lease is binding upon Tenant in accordance with its
terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a
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certified copy of a resolution of the board of directors of said corporation
authorizing or ratifying the execution of this Lease.
25.16 Lease Guaranty. (Intentionally Deleted)
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25.17 Brokers. Tenant warrants and represents to Landlord that in
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the negotiating or making of this Lease neither Tenant nor anyone acting on its
behalf has dealt with any real estate broker or finder who might be entitled to
a fee or commission for this Lease other than Cushman & Wakefield, whose
commission is to be paid by Landlord. Tenant agrees to indemnify and hold
Landlord harmless from any claim or claims, including costs, expenses and
attorney's fees incurred by Landlord asserted by any other broker or finder for
a fee or commission based upon any dealings with or statements made by Tenant or
its agents, employees or representatives.
25.18 Reserved Rights. Landlord retains and shall have the rights
---------------
set forth below, exercisable without notice and without liability to Tenant for
damage or injury to property, person or business and without effecting an
eviction, constructive or actual, or disturbance of Tenant's use or possession
of the Premises or giving rise to any claim for set-off or abatement of Rent, to
reduce, increase, enclose or otherwise change at any time and from time to time
the size, number, location, lay-out and nature of the common areas and
facilities and other tenancies and premises in the Project and to create
additional rentable areas through use or enclosure of common areas.
25.19 Right of First Refusal. Tenant shall be granted a Right of
----------------------
First Refusal on any space Tenant does not initially Lease on the second floor.
Tenant shall have seven (7) days in which to exercise its Right of First Refusal
from the date Landlord so notifies Tenant that another party has expressed
interest (e.g. a Request For Proposal) in Leasing the Right of First Refusal
premises. In the event Tenant exercises this Right of First Refusal during the
initial fourteen (14) months of the Term of this lease, and Landlord has not
improved the Right of First Refusal premises, the Rent and improvement allowance
shall be the same as that stipulated in this Lease. In the event the space has
been improved during the initial fourteen (14) months of the Term of this Lease,
the Rental Rate shall be the same as that stipulated in this Lease and there
shall be no improvement allowance granted to Tenant. In the event Tenant
exercises its Right of First Refusal subsequent to the initial fourteen (14)
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this Lease, the Rent and improvement allowance shall be the same as that offered
to a third party who has expressed its interest in leasing the Right of First
Refusal premises.
25.20 Letter of Credit.
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(a) On or before August 1, 1999, and on the next three (3)
annual anniversaries of such date, Tenant shall deliver to Landlord a stand-by,
at sight, irrevocable, non-documentary and unconditional Letter of Credit issued
by and drawable upon a money-center bank (a bank which accepts deposits,
maintains accounts, has a local San Francisco Bay Area office and which will
negotiate a letter of credit) (hereinafter referred to as the "Issuing Bank"),
which has combined capital, surplus and undivided profits of not less than FIVE
HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00), and said Letter of Credit
(i) shall name Landlord as beneficiary, (ii) be in the initial amount of FOUR
HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00), (iii) have a term of not less
than one (1) year, (iv) permit multiple drawings, be fully transferable by
Landlord without the payment of any fees or charges, (v) require that any draw
on the Letter of Credit be made only upon receipt by the issuing Bank of a
written letter from Landlord certifying that an Event of Default has occurred
and that Tenant has not posted an additional cash security with Landlord for the
damages likely to be caused by such Event of Default and (vi) provide that it is
governed by the uniform Customs and Practice for Documentary Credits (1993
revisions), and otherwise be in form and content reasonably satisfactory to
Landlord. If upon any transfer, any fees or charges shall be so imposed, then
such fees or charges shall be payable solely by Tenant with respect to the first
transfer of the Letter of Credit which occurs during such five-year period, and
the Letter Credit shall so specify. Any subsequent transfer fees shall be paid
by Landlord. The Letter of Credit shall provide that it shall be deemed
automatically renewed, without amendment, (except that the Letter of Credit
shall be reduced by an amount equal to ONE HUNDRED THOUSAND AND NO/100
($100,000.00) per year effective each year after the initial one (1) year
period), for consecutive periods of one (1) year each thereafter, unless the
Issuing Bank sends notice (the "Non-Renewal Notice") to Landlord by certified
mail, return receipt requested, not less than forty-five (45) days next
preceding the then expiration date of the Letter of Credit that it elects not to
have such Letter of Credit renewed. Landlord shall have the right, exercisable
within twenty (20) days of its receipt of the Non-Renewal Notice to draw the
full amount of the Letter of Credit, by sight draft on the Issuing Bank, and
shall hold the proceeds of the Letter of Credit pursuant to the terms of this
Section as cash
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security deposit, unless Tenant issues a replacement Letter of Credit within
such time period which complies with the requirement of this Subsection 25.20.
(b) If an Event of Default occurs in respect of any of the
terms, covenants or conditions of this Lease, including the payment of Rent,
Landlord may apply or retain the whole or any part of the cash security so
deposited or may notify the Issuing Bank and thereupon receive all or a portion
of the monies represented by the Letter of Credit and use or apply, or retain
the whole or any part of such proceeds, as the case may be, to the extent
required for the payment of any Monthly Base Rent or any other sum as to which
Tenant is in default including (a) any sum which Landlord may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants or conditions of this Lease, and/or (b) and damages or deficiency in
the reletting of the Premises, whether such damages or deficiency accrue or
accrues before or after summary proceedings or other reentry by Landlord.
Drawing upon the Letter of Credit shall be conditioned upon the presentation to
the Issuing Bank of a certified statement executed by the Manager of Sunset Land
Company, LLC, or Landlord's Chief Financial Officer, that Tenant is in default
under the Lease and Landlord is exercising its right to draw upon the Letter of
Credit. If it is necessary for Landlord to apply any part of the Letter of
Credit, Tenant, upon demand, shall deposit with Landlord the amount so applied
so that Landlord shall have the full FOUR HUNDRED THOUSAND AND NO/100 DOLLARS
($400,000.00) on hand (except as it may be reduced annually) at all times until
August 1, 2003. If Tenant shall fully and faithfully comply with all of the
material terms, covenants and conditions of this Lease, the Letter of Credit,
shall be returned to Tenant on August 1, 2003. In the event of a sale of the
real property or the Building or a master leasing of the Building, Landlord
shall have the right to transfer the Letter of Credit, and within five (5)
business days after notice of such sale or leasing, Tenant, at its sole cost,
shall arrange for the transfer of the Letter of Credit to the new landlord, as
designated by Landlord in the foregoing notice or have the Letter of Credit
reissued in the name of the new landlord and Landlord shall thereupon be
released by Tenant from all liability for the return of such security, provided
that the new landlord assumes thereupon in writing the obligations of
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Landlord hereunder. Tenant shall look solely to the new landlord for the return
of the Letter of Credit and the provisions hereof shall apply to every transfer
or assignment made of the security to a new landlord. Tenant further covenants
and agrees that it shall not assign or encumber or attempt to assign or encumber
the Letter of Credit designated herein as security and that neither Landlord nor
its successors or assignees shall be bound by any such agreement, encumbrance,
attempted assignment or attempted encumbrance.
(c) Notwithstanding the foregoing, Tenant shall be relieved
of its obligation to maintain this stand-by, at sight, irrevocable, non-
documentary and unconditional Letter of Credit at any time after the
commencement of the second (2nd) anniversary of the Term of this Lease, so long
as Tenant provides Landlord with audited financial statements showing evidence
that IMX EXCHANGE has for the last two (2) consecutive fiscal years shown
trailing net operating income of at least FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00) per fiscal year or that Tenant has gone public and has a market
cap exceeding FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00).
25.21 Option to Extend. Subject to the provisions of this
----------------
Subsection 25.21, Landlord hereby grants Tenant with one (1), five (5) year
Option to Extend the Term of this Lease. Tenant's notice of its election to
exercise the Option to Extend must be given to Landlord in writing at least ten
(10) months prior to the expiration date of the then current Term. Tenant must
exercise its Option to Extend for the entire Premises.
(a) Rent. Base Rent for the Option period shall be set at
----
Fair Market Value at the time Tenant exercises its Option to Extend. Fair Market
Value is described in (b) below.
(b) Fair Market Value. The Term "Fair Market Value" used
-----------------
in this Lease shall mean the annual rental rate being charged in the general
area of the buildings in the Bishop Ranch Project for space comparable to the
space for which Fair Market Value is to be determined, taking into consideration
use, location and floor level within the applicable building, the location, size
of tenancy, quality and age of the building, the definition of
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rentable area or net rentable area, as the case may be, with respect to which
such rental rates are computed for renewal tenants (but not less than $25.00 per
rentable square foot per year), leasehold improvements provided for renewal
tenants, rental concessions for renewal tenants, the date the particular rate
under consideration became effective, the term of the lease under consideration,
the extent of services provided thereunder, applicable distinctions between
"gross" leases and "net" leases, expense stop figures for escalation purposes,
and other adjustments to base rental, and any other relevant term or condition
in making such evaluation, including bona fide written offers made to Landlord
by third parties at arms length to lease the same or comparable space for which
the Fair Market Value is being determined; provided, however, that the Fair
Market Value shall not include any part of the value added by improvements to
the Premises made at Tenant's sole expense.
(c) Within thirty (30) days following Tenant's notice to
Landlord to extend the term of this Lease, Landlord shall notify Tenant in
writing of the proposed Fair Market Value. Tenant shall have thirty (30) days
following receipt of Landlord's notice in which to:
(1) accept such determination; or
(2) elect to have such determination made by
arbitration as described below; or
(3) withdraw its notice of exercise of Option to
Extend.
If Tenant fails to notify Landlord of its election
within said thirty (30) day period, Tenant shall be deemed conclusively to have
withdrawn its notice of exercise of Option to Extend the Lease and the Lease
shall terminate on the Term Expiration Date as if such notice was never given.
If Tenant elects to have such determination made by arbitration, then:
(i) Within ten (10) days after Landlord receives
Tenant's notice of its election to have such determination made by arbitration,
Landlord and Tenant shall each appoint and
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employ, at its cost, a real estate appraiser (who shall be licensed in the state
where the Demised Premises are located and be a member of the American Institute
of Real Estate Appraisers (MAI) with at least ten (10) years of full time
commercial appraisal and real estate marketing experience in the immediate area
where the Demised Premises are located) to appraise and establish the Fair
Market Value.
(ii) The two appraisers, thus appointed, shall meet
promptly and attempt to agree upon and designate a third appraiser meeting the
qualifications set forth above within ten (10) days after the date of
appointment of the last of the two appraisers.
(iii) If the two appraisers are unable to agree on the
third appraiser, either of the parties, after giving five (5) days' notice to
the other, shall request the American Arbitration Association in the county in
which the Premises are located to appoint such independent third appraiser who
shall be of similar affiliation or background of the appraisers aforementioned.
Each of the parties shall bear one-half of the cost of the appointment of the
third appraiser and of the third appraiser's fee.
(iv) Within thirty (30) days after the selection of the
third appraiser, a majority of the appraisers shall agree upon the Fair Market
Value. If a majority of the appraisers are unable to agree within the stipulated
time, then each appraiser shall render his/her separate appraisal within such
time, and the three appraisals shall be averaged in order to establish such
rate; provided, however, if the low appraisal and/or the high appraisal are more
than ten (10%) percent lower and/or higher than the middle appraisal, the low
appraisal and/or high appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two appraisals shall be averaged in order to
establish such Fair Market Value. If both the low appraisal and the high
appraisal are disregarded, the middle appraisal shall establish the Fair Market
Value. After the Fair Market Value has been established, the appraisers shall
immediately notify the parties in writing.
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(d) Notice. In the event Tenant does not provide Landlord
------
with written notice of its intent to exercise this Option to Extend within the
aforementioned time frame, Tenant shall be deemed to have waived its Option to
Extend.
(e) Option is Personal. Except as to a permitted
------------------
assignment under Paragraph 15.9 herein, the Option to Extend is Personal to the
Tenant executing this Lease and any transferee pursuant to a permitted transfer
and is otherwise not assignable or transferrable.
25.22 Right to Contract. Landlord hereby grants Tenant with a one
-----------------
(1) time Right to Contract the size of its Premises by up to 5,000 rentable
square feet effective on the last day of the 37th month of the Term of this
Lease. In order to exercise this Right to Contract, Tenant hereby agrees that
it must provide Landlord with written notice of its intent to contract on or
before the last day of the 31st month of the Term of this Lease. In the event
Tenant does not notify Landlord in the aforementioned time frame, Tenant shall
be deemed to have waived its Right to Contract and have no further rights as set
forth herein. In the event Tenant exercises its Right to Contract, Tenant shall
provide Landlord with a plan showing the location of the space to be contracted
and the contracted Premises shall be of a configuration that, in the reasonable
judgement of Landlord, is suitable for leasing to another tenant. Further,
should Tenant elect to exercise this Right to Contract, Tenant agrees to pay
Landlord a fee equal FIFTEEN AND NO/100 DOLLARS ($15.00) per rentable square
foot of the Premises contracted and such fee shall be due one-half upon delivery
of Tenant's notice to Landlord, and one-half thirty (30) days prior to the
effective date of the contraction.
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Landlord and Tenant have executed this Lease on the date and year set forth
at the beginning of this Lease.
Landlord: Tenant:
ANNABEL INVESTMENT COMPANY, IMX, INC.,
a California partnership a Delaware corporation
By: ____________________ By: ____________________
Title: ____________________ Title: ____________________
By: ____________________ By: ____________________
Title: ____________________ Title: ____________________
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EXHIBIT B
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF _______________, 1999
BETWEEN
ANNABEL INVESTMENT COMPANY, AS LANDLORD,
AND
IMX, INC., AS TENANT ("LEASE")
WORK LETTER
-----------
1. Suite Improvements. Landlord shall with reasonable diligence
------------------
construct and install in the Premises the improvements and fixtures provided for
in this Construction Rider ("Suite Improvements"). Improvements consisting of
the type and materials (or alternates approved by Landlord), which approval
shall not be unreasonably withheld, described on Schedule 1 attached to this
Construction Rider are referred to herein as "Building Standard Materials". All
Suite Improvements above "Building Shell" (as described in Schedule 1) that
utilize materials in addition to, substitution for or modification of the
Building Standard Materials are called herein "Above-Standard Suite
Improvements".
1.1. Plans.
-----
Tenant will submit to Landlord the following plans:
(a) On or before July 8, 1999, Tenant will submit to
Landlord a plan showing details and specifications sufficient to permit
Landlord's contractor and subcontractors to price the Suite Improvements.
Landlord has provided Tenant's architect, Interform, with a copy of Landlord's
Tenant Construction Manual describing the requirements for said plans. Such
plans shall hereinafter be referred to as the "Pricing Plans." Landlord, within
5 days from receipt of Tenant's Pricing Plans, will notify Tenant, in writing,
of any code violations or discrepancies and or its approval. In the event
Landlord notifies Tenant of any code violation or discrepancies, Tenant shall
amend said plans and
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return same to Landlord within ten (10) days from receipt of Landlord's notice.
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(b) Landlord will, within seven (7) business days from
receipt of Tenant's approved (or amended) Pricing Plans, provide Tenant with a
price to complete the scope of work shown on said plans in sufficient unit cost
breakdown of material and labor to enable Tenant to undertake value engineering.
Tenant shall have five (5) days to approve of said price or request changes to
the scope of work which may reduce or subsequently increase the price. In the
event Tenant does not approve the pricing within twenty (20) days from receipt
of Landlord's pricing, it shall be considered a Tenant Delay.
(c) Upon Tenant's approval of Landlord's pricing, Tenant
will provide Landlord with the "Construction Documents." The Construction
Documents shall be used by Landlord to complete the construction of Tenant's
Suite Improvements. In all events, except in the event such delay is caused by
Landlord, said Construction Documents must be approved by Tenant no later than
August 5, 1999. In the event Landlord has not received Tenant's approved
Construction Documents by August 5, 1999, (except in the event such delay is
caused by Landlord) such delay will be considered a Tenant Delay.
1.2. Construction. Upon Landlord's receipt of the Final
------------
Construction Documents, approved by Tenant, Landlord shall proceed with
reasonable diligence to cause the Suite Improvements to be Substantially
Completed on or prior to the Scheduled Commencement Date. The Suite Improvements
shall be deemed to be "Substantially Completed" when they have been completed in
accordance with the Final Construction Documents except for finishing details,
minor omissions, decorations and mechanical adjustments of the type normally
found on an architectural "punch list". (The definition of Substantially
Completed shall also define the terms "Substantial Completion" and
"Substantially Complete.") Punch list items shall be corrected by Landlord
within twenty (20) days of Tenant's occupancy.
1.3. General Contractor. Landlord's affiliate, Sunset Development
------------------
Company (the "General Contractor") shall be the General Contractor and be
responsible for completion of the Suite Improvements. The General Contractor's
fee, mark-up, profit and
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general conditions collectively shall not exceed twelve percent (12%) of the
actual labor and materials costs.
1.4. Tenant Delays.
-------------
Except in the event such delay has been caused by Landlord's
failure to perform its obligations under this Lease and this Exhibit B, Tenant
shall be responsible for, and shall pay to Landlord, any and all costs and
expenses incurred by Landlord in connection with any delay in the commencement
or completion of any Suite Improvements and any increase in the cost of Suite
Improvements (whether or not Above-Standard) caused by (i) Tenant's failure to
cause the Space Planner to deliver the items described above within the time
periods required above, (ii) the failure of Landlord to receive final
Construction Documents before August 5, 1999, (iii) Above-Standard Suite
Improvements requested by Tenant, (iv) any changes or modifications in the work
requested by Tenant following approval of the Final Construction Documents, or
(v) any other delay requested or caused by Tenant (collectively, "Tenant
Delays"). Notwithstanding the foregoing, no Tenant Delay shall be deemed to have
occurred unless and until Landlord gives written notice to Tenant specifying the
action, inaction or occurrence constituting the Tenant Delay and the number of
days of such Tenant Delay ("Tenant Delay Notice").
2. Commencement of Term. Upon Substantial Completion of the Suite
--------------------
improvements, Landlord shall deliver possession of the Premises to Tenant.
Notwithstanding anything to the contrary, each day of Tenant Delay may, at
Landlord's option, result in one (1) Scheduled Commencement Adjustment Day. The
Commencement Date will be the earlier of Substantial Completion of the Suite
Improvements or the date Landlord would have completed the Premises and tendered
the Premises to Tenant if Substantial Completion had not been delayed by the
number of days specified in any and all Tenant Delay Notices given by Landlord
as described in Paragraph 1.4.
3. Access to Premises. Landlord, at its reasonable discretion, shall
------------------
allow Tenant or Tenant's Representatives to enter the Premises thirty (30) days
prior to the Substantial Completion to permit Tenant to make the Premises ready
for its use and occupancy (e.g. the installation of Tenant's furniture, fixtures
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and equipment) (the "Prior Occupancy Period"); provided, however, that prior to
such entry of the Premises, Tenant shall provide a certificate of insurance
indicating to Landlord that Tenant's insurance, as described in Paragraph 12 of
the Lease, shall be in effect as of the time of such entry. Tenant agrees that
Landlord shall not be liable in any way for any injury, loss or damage which may
occur to any of Tenant's property placed upon or installed in the Premises prior
to the Commencement Date, the same being at Tenant's sole risk, and Tenant shall
be liable for all injury, loss or damage to persons or tangible property arising
as a result of such entry of the Premises by Tenant or its Representatives
except as caused by the negligence or willful misconduct of Landlord.
4. Ownership of Suite Improvements. All Suite Improvements, whether or
-------------------------------
not Above-Standard, and whether installed by Landlord or Tenant, shall become a
part of the Premises, shall be the Property of Landlord and, unless Landlord
elects otherwise as provided in the Lease, shall be surrendered by Tenant with
the Premises, without any compensation to Tenant, at the expiration or
termination of the Lease.
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SCHEDULE 1 TO EXHIBIT B
-----------------------
BUILDING SHELL
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* All core areas, elevator lobbies and restrooms complete.
* Main HVAC loop in place ready to receive mixing boxes for zoning.
* Main fire sprinkler risers and grid in place ready for drop down.
* After receipt of Tenant's approved Construction Documents, all perimeter
walls sheetrocked and ready for finish.
* Tenant side of core partitions are to be fire taped.
* Board over window heads to be finish taped.
* Column Furring at exterior columns is to be finish taped.
* Electrical service to closets on floor.
* Telephone sleeve to closets on floor.
BUILDING STANDARD MATERIALS
---------------------------
Electrical and Lighting
- -----------------------
* Bishop Ranch 11: Prismatic fixtures with dual switches.
* Indirect lighting is an alternate and must be approved by Landlord.
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HVAC -- (Typical installation per Tenant's Plan)
- ------------------------------------------------
* One zone per 800 usable square feet.
* Individual pneumatic thermostats per 800 usable square feet.
Fire Sprinklers -- (Typical installation per Tenant's Plan)
- -----------------------------------------------------------
* One 165 degree rate, semi-recessed sprinkler head per 144 usable square
feet.
Partitions and Doors
- --------------------
* 5/8-inch drywall on 2-1/2 inch steel studs with smooth finish.
* Solid core oak doors 36" x 96".
* Aluminum door jambs.
* Schlage "D" locks and latchsets.
Paint
- -----
* Kelly Moore or equal.
Ceiling Assembly
- ----------------
* USG: Aurora Reveal Tile.
Grid
- ----
* Donn DXL
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Carpet, Tile and Base
- ---------------------
* Carpet: 38 oz. Designweave.
* Armstrong Imperial Modern Excelon Tile or equal.
* 3/8 inch nylon composition pad.
* 4 inch rubber top set base or equal.
Window Covering
- ---------------
* Mini Blinds.
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EXHIBIT 10.10
AGREEMENT
This Agreement is entered into as of Sep 29/th/, 1999, by and between IMX,
Inc., a California corporation ("IMX"), and Contour Software, Incorporated, a
Calif corporation ("Contour").
Background
A. IMX owns and operates an internet based exchange (the "IMX Exchange")
which uses proprietary software and on which (i) mortgage loan brokers
("Brokers") post mortgage loan applications for specific loan transactions, and
(ii) mortgage loan lenders ("Lenders") review the posted loan applications and
submit loan pricing proposal terms to the Broker, and (iii) the Brokers select
which Lender's pricing proposal to accept, and (iv) the Lenders pay an "Exchange
Fee" to IMX for loans placed from use of the IMX Exchange.
B. Contour has developed and sells to Brokers a computer software package
which is used by Brokers to prepare mortgage loan applications (the "Contour
Mortgage Origination Software" or the "Contour Software").
C. IMX and Contour wish to enter into a strategic business alliance under
which all mortgage loans that are originated by Brokers using Contour Software
shall be automatically posted on the IMX Exchange.
Agreement
Now, Therefore, in consideration of the foregoing and the mutual covenants
contained herein, the Parties agree as follows:
1. Strategic Alliance.
------------------
1.1 Pursuant to the terms and conditions set forth in this Agreement,
IMX and Contour hereby agree to enter into a strategic alliance pursuant to
which all mortgage loans that are originated by Brokers using the Contour
Mortgage Origination Software, or its subsequent versions, shall be seemlessly
and automatically posted to the IMX Exchange. This seemless automatic posting
of loans will remain exclusive to IMX for the term of this Agreement. Contour
will assist IMX in marketing the IMX Exchange to its Broker users.
1.2 The "Seemless Automatic Posting" functionality referenced in
Section 1.1 means that (a) once a Broker user of the Contour Software has given
the Broker's one-time, up-front election decision to participate in the IMX
Exchange feature of the Contour Software, then (b) all subsequent loan
applications prepared by that Broker using the Contour Software will invisably,
seemlessly and automatically be posted to the IMX Exchange, without the Broker
having to "click" any feature or take any additional action.
[*]= CERTAIN INFORMATION ON THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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1.3 The "exclusive" nature referenced in Section 1.1 means that
Contour will not permit or facilitate the Seamless Automatic Posting of any of
the loan application information to any Competitor other than the IMX Exchange.
"Competitor" means any internet web site, exchange, electronic trading arena,
or the like, that is designed to facilitate communication or placement of
mortgage loans between individual brokers and multiple wholesale lenders.
Notwithstanding the above, Contour is permitted to facilitate placement of
individual loans with specific individual lenders as long as the auto post
feature is not used (i.e. requires a manual click per loan).
2. Consideration From IMX to Contour.
---------------------------------
2.1 IMX will grant to Contour a stock warrant to purchase [***]
shares of IMX Series D preferred stock, at an exercise price of $4.75 per share.
The warrant expires in ten years and provides for early exercise upon the sale
or merger of IMX or an IPO for IMX. The warrant includes an "anti-dilution"
provision specifying adjustment of the warrant price and number of shares in
certain customary circumstances. A copy of the form of Stock Warrant is
attached hereto.
2.2 IMX will pay to Contour a development fee of [***] half of which
will be paid upon the Parties signing this Agreement, with the other half to be
paid once the interface development referenced in Section 3.1 hereof is
completed and "goes live" between the Contour Software and the IMX Exchange.
[***]
3. Responsibilities.
----------------
3.1 IMX and Contour will jointly develop the necessary interface to
facilitate the seamless, invisible, and automatic export to the IMX Exchange of
the loan application data from the participating Brokers who use the Contour
Software. Both Parties agree to make this interface development the top
priority for their respective engineering teams. The software specifications
for such interface, and the splash screen presentation to the Broker user, and
all other wording, images and features of the interface shall be subject to the
mutual approval of both Parties. It is recognized that Contour will need to
take the primary responsibility for developing the modifications to the Contour
Software in order to facilitate the interface, and that IMX will need to be an
active co-participant in such development. It is recognized that IMX will need
to take the primary responsibility for developing the unique linkage
specifications for the automatic posting features of the interface (the "Unique
Linkage Specifications").
3.2 Contour will cooperate and assist IMX in marketing the IMX
Exchange to its Broker customers by providing access to customer contacts,
addresses, telephone numbers, etc. Both parties shall work together to develop
and prepare a joint co-marketing plan within the next sixty (60) days.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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3.3 IMX and Contour will each provide customary and appropriate
technical support and updates to its own software, in order to best facilitate
(a) the interface between the Contour Software and the IMX Exchange, and (b) the
Brokers' use of the same.
4. Term. The initial term of this strategic alliance shall be 48 months
----
from the "go live" introduction of the automatic posting of loans. The term
shall be automatically renewed for successive 12-month terms unless a Party
provides the other Party with a notice of non-renewal at least 180 calendar days
before the renewal date. The term of this strategic alliance may be earlier
terminated by a Party due to the material default of the other Party, if such
default is not cured within 30 days after written notice of the default is given
to the defaulting Party.
5. Confidentiality and Intellectual Property Rights.
------------------------------------------------
5.1 Each Party hereby agrees to maintain the confidentiality of the
other Party's confidential information and proprietary information, and each
Party hereby agrees to not use the other Party's confidential information and
proprietary information other than as is expressly contemplated by this
Agreement.
5.2 Without limiting the generality of the foregoing, each Party
hereby agrees that it will not attempt to decompile, decipher, disassemble,
reverse engineer or decrypt the source code or other proprietary features of the
other Party's software or other intellectual property.
5.3 Each Party shall retain full and sole ownership of its own
intellectual property rights, particularly including its own software and all
improvements and enhancements, and all copyrights and all trade secrets.
Excepting only for and to the extent necessary for implementing the transactions
and activities specified in this Agreement, no license rights are granted by
either Party to the other Party for use of any intellectual property rights.
5.4 With respect to the development by IMX of the Unique Linkage
Specifications, IMX shall retain sole ownership thereof; and Contour shall be
entitled to use the same only for the performance of this Agreement with IMX.
5.5 IMX hereby authorizes Contour to post the IMX trademarks on the
Contour Software for purposes of implementing this Agreement, all in accordance
with specifications to be mutually approved by both Parties. Similarly, Contour
hereby authorizes IMX to post the Contour trademarks on the IMX Exchange for
purposes of implementing this Agreement, all in accordance with specifications
to be mutually approved by both Parties.
5.6 Each Party shall be entitled to include on its internet web site
one or more links and/or icons to the other Party's internet web site, but in
each instance, subject to the prior review and reasonable approval as to the
specifications for such matters.
6. Press Release. The Parties will consult with each other with regard
-------------
to the terms and substance of and any and all press releases, announcements or
other public statements with respect to the transactions contemplated hereby.
The Parties further agree that no Party will
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release any such press release, announcement or other public statement without
the prior approval of the other Party, unless such release is required by law
and the Parties cannot approve a mutually acceptable form of release.
7. Expenses. Except as otherwise set forth in this Agreement, each Party
--------
shall bear its own costs and expenses associated with the transactions
contemplated.
8. Warranties and Limitations on Liability.
---------------------------------------
8.1 Each Party hereby represents and warrants that:
(a) All work to performed in connection with the development,
update, support, maintenance of its software, and other services performed under
this Agreement shall be performed in a prompt, professional and workmanlike
manner.
(b) Its software shall be free of defects in material and
workmanship.
(c) Each Party will be solely responsible for its own software
and its own operations, and the other Party shall not have any responsibilities
or liabilities therefor.
(d) Each Party has full power to enter into and perform this
Agreement, and the person signing this Agreement on its behalf has been duly
authorized and empowered to enter into this Agreement.
(e) This Agreement does not, and shall not, violate any other
agreement of such Party with a third party.
8.2 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY
MAKES ANY WARRANTIES IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT,
AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF NON-INFRINGEMENT
OF THIRD PARTY RIGHTS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
NEITHER PARTY WARRANTS THAT ITS SOFTWARE OR WEB SITE WILL OPERATE ERROR-FREE OR
WITHOUT INTERRUPTION.
8.3 EXCEPT FOR LIABILITY RESULTING FROM FRAUD, GROSS NEGLIGENCE,
INTENTIONAL MISCONDUCT, BREACH OF CONFIDENTIALITY, OR MISAPPROPRIATION OF
INTELLECTUAL PROPERTY RIGHTS, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER LIABILITY IS ASSERTED
IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, AND IRRESPECTIVE OF
WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR
DAMAGE.
4
<PAGE>
9. General.
-------
9.1 This Agreement is governed by California law without regard to
the conflicts of laws principles thereof.
9.2 In the event of invalidity of any provisions of this Agreement,
the Parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement.
9.3 This Agreement completely and exclusively states the agreement of
the Parties regarding the subject matter and it supersedes and its terms govern
all prior proposals and agreements, oral or written, regarding such subject
matter, with the exception of any nondisclosure and/or confidentiality
agreements currently in effect among the Parties.
9.4 This Agreement may be changed only by written agreement of
authorized representatives of the Parties.
9.5 The Parties hereto are independent contractors. Nothing
contained herein or done in pursuance of this Agreement shall constitute either
Party the agent of the other Party for any purpose or in any sense whatsoever,
or constitute the Parties as partners or joint ventures.
9.6 This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their respective successors and assigns. Neither Party
may assign any of its rights, obligations or privileges (by operation of law or
otherwise) hereunder without the prior written consent of the other Party, which
shall not be unreasonably withheld; provided, however, that either Party shall
have the right to assign its rights, obligations and privileges hereunder
without obtaining any consent to such assignment from the other Party in the
event of a merger, acquisition or sale of all or substantially all of that
Party's business or assets in which the acquiring Party agrees in writing to
assume all such rights, obligations and privileges hereunder.
9.7 Any notice required or permitted to be given by either Party
under this Agreement shall be in writing and shall be delivered personally, or
by telecopy confirmed by registered or certified letter, or by a nationally
recognized overnight delivery service, to the other Party at its address first
set forth above, or such new address as may from time to time be supplied
hereunder by the Parties hereto.
9.8 Except for the payment of money, no default, delay or failure to
perform on the part of either Party shall be considered a breach of this
Agreement if such default, delay or failure to perform is shown to be due to
causes beyond the reasonable control of the Party charged with a default,
including, but not limited to, causes such as riots, civil disturbances, actions
or inaction's of governmental authorities or suppliers, epidemics, war,
embargoes, severe weather, fire, earthquakes, acts of nature or the public
enemy, nuclear disasters, or default of a common carrier; provided, however,
that for the duration of such force majeure the Party charged with such default
must continue to use all reasonable efforts to overcome such force majeure.
5
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date set forth above.
IMX, Inc. Contour Software, Incorporated
By: /s/ Jeffrey A. Pullen By: /s/ Scott Cooley
-------------------------------- -------------------------------
Print Name: Jeffrey A. Pullen Print Name: Scott Cooley
------------------------ -----------------------
Title: CFO Title: President
----------------------------- ----------------------------
6
<PAGE>
Exhibit 10.11
AGREEMENT
This Agreement is entered into as of Oct 8, 1999, by and between IMX,
Inc., a California corporation ("IMX"), and Byte Enterprises, Incorporated, a
Washington Corporation ("Byte").
Background
A. IMX owns and operates an Internet-based exchange (the "IMX Exchange")
which uses proprietary software and on which (i) mortgage loan brokers
("Brokers") post mortgage loan applications for specific loan transactions, and
(ii) mortgage loan lenders ("Lenders") review the posted loan applications and
submit loan pricing proposal terms to the Broker, and (iii) the Brokers select
which Lender's pricing proposal to accept, and (iv) the Lenders pay an "Exchange
Fee" to IMX for loans placed from use of the IMX Exchange.
B. Byte has developed and sells to Brokers and Bankers a computer
software package which is used by Brokers and Bankers to prepare mortgage loan
applications (the "Byte Mortgage Origination Software" or the "Byte Software").
C. IMX and Byte wish to enter into a strategic business alliance under
which mortgage loans that are originated by Brokers using Byte Software can be
seamlessly posted on the IMX Exchange.
Agreement
Now, Therefore, in consideration of the foregoing and the mutual covenants
contained herein, the Parties agree as follows:
1. Strategic Alliance.
------------------
1.1 Pursuant to the terms and conditions set forth in this
Agreement, IMX and Byte hereby agree to enter into a strategic alliance pursuant
to which all mortgage loans that are originated by Brokers using the Byte
Mortgage Origination Software, or its subsequent versions, can be seamlessly
posted to the IMX Exchange. Byte will assist IMX in marketing the IMX Exchange
to its Broker users.
1.2 The "Seamless Posting" functionality referenced in Section
1.1 means that (a) once a Broker using the Byte Software has given the Broker's
one-time, up-front election to participate in the IMX Exchange feature of the
Byte Software, then (b) for all subsequent loan applications prepared by that
Broker using the Byte Software, the Broker will automatically receive a "pop up"
screen once the minimum data points (to be determined) for an IMX submission
have been completed in the file, and (c) the Broker must indicate "Yes" he wants
the loan submitted to IMX Exchange or "No" he does not want the loan submitted
to IMX Exchange.
[*]= CERTAIN INFORMATION ON THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
From that point, the Byte Software will automatically post the loan information
to IMX Exchange and the Broker will be able to view any bids and lock through
the Byte Software.
2. Consideration From IMX to Byte.
------------------------------
2.1 IMX will grant to Byte a stock warrant to purchase [***]
shares of IMX Series D preferred stock, at an exercise price of $4.75 per share.
The warrant expires in ten years and provides for early exercise upon the sale
or merger of IMX or an IPO for IMX. The warrant includes an "anti-dilution"
provision specifying adjustment of the warrant price and number of shares in
certain customary circumstances. A copy of the form of Stock Warrant is attached
hereto.
2.2 IMX will pay to Byte a development fee of [***], half of
which will be paid upon the Parties signing this Agreement, with the other half
to be paid once the interface development referenced in Section 3.1 hereof is
completed and "goes live" between the Byte Software and the IMX Exchange.
[***]
3. Responsibilities.
----------------
3.1 IMX and Byte will jointly develop the necessary interface to
facilitate the seamless, invisible export to the IMX Exchange of the loan
application data from the participating Brokers who use the Byte Software. Both
Parties agree to make this interface development the top priority for their
respective engineering teams. The software specifications for such interface,
and the splash screen presentation to the Broker user, and all other wording,
images and features of the interface shall be subject to the mutual approval of
both Parties. It is recognized that Byte will need to take the primary
responsibility for developing the modifications to the Byte Software in order to
facilitate the interface, and that IMX will need to be an active co-participant
in such development. It is recognized that IMX will need to take the primary
responsibility for developing the unique linkage specifications for the seemless
posting features of the interface (the "Unique Linkage Specifications").
3.2 Byte will cooperate and assist IMX in marketing the IMX
Exchange to its Broker customers by providing access to customer contacts,
addresses, telephone numbers, etc. Both parties shall work together to develop
and prepare a joint co-marketing plan within the next sixty (60) days.
3.3 IMX and Byte will each provide customary and appropriate
technical support and updates to its own software, in order to best facilitate
(a) the interface between the Byte Software and the IMX Exchange, and (b) the
Brokers' use of the same.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENTS HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2
<PAGE>
4. Term. The initial term of this strategic alliance shall be 24 months
----
from the "go live" introduction of the seamless posting of loans. The term
shall be automatically renewed for successive 12-month terms unless a Party
provides the other Party with a notice of non-renewal at least 90 calendar days
before the renewal date. The term of this strategic alliance may be earlier
terminated by a Party due to the material default of the other Party, if such
default is not cured within 30 days after written notice of the default is given
to the defaulting Party.
5. Confidentiality and Intellectual Property Rights.
------------------------------------------------
5.1 Each Party hereby agrees to maintain the confidentiality of
the other Party's confidential information and proprietary information, and each
Party hereby agrees to not use the other Party's confidential information and
proprietary information other than as is expressly contemplated by this
Agreement.
5.2 Without limiting the generality of the foregoing, each Party
hereby agrees that it will not attempt to decompile, decipher, disassemble,
reverse engineer or decrypt the source code or other proprietary features of the
other Party's software or other intellectual property.
5.3 Each Party shall retain full and sole ownership of its own
intellectual property rights, particularly including its own software and all
improvements and enhancements, and all copyrights and all trade secrets.
Excepting only for and to the extent necessary for implementing the transactions
and activities specified in this Agreement, no license rights are granted by
either Party to the other Party for use of any intellectual property rights.
5.4 With respect to the development by IMX of the Unique Linkage
Specifications, IMX shall retain sole ownership thereof; and Byte shall be
entitled to use the same only for the performance of this Agreement with IMX.
5.5 IMX hereby authorizes Byte to post the IMX trademarks on the
Byte Software for purposes of implementing this Agreement, all in accordance
with specifications to be mutually approved by both Parties. Similarly, Byte
hereby authorizes IMX to post the Byte trademarks on the IMX Exchange for
purposes of implementing this Agreement, all in accordance with specifications
to be mutually approved by both Parties.
5.6 Each Party shall be entitled to include on its internet web
site one or more links and/or icons to the other Party's internet web site, but
in each instance, subject to the prior review and reasonable approval as to the
specifications for such matters.
6. Press Release. The Parties will consult with each other with regard to
-------------
the terms and substance of and any and all press releases, announcements or
other public statements with respect to the transactions contemplated hereby.
The Parties further agree that no Party will release any such press release,
announcement or other public statement without the prior approval of the other
Party, unless such release is required by law and the Parties cannot approve a
mutually acceptable form of release.
3
<PAGE>
7. Expenses. Except as otherwise set forth in this Agreement, each Party
--------
shall bear its own costs and expenses associated with the transactions
contemplated.
8. Most Favored Client. Byte represents and warrants that, in the event
-------------------
Byte enters into an agreement with another party that offers automation or other
capabilities that are materially more advantageous to such other party than the
automation or capabilities described herein extended to IMX Exchange, Byte will
extend the same features or capabilities to IMX Exchange.
9. Warranties and Limitations on Liability.
---------------------------------------
9.1 Each Party hereby represents and warrants that:
(a) All work to performed in connection with the
development, update, support, maintenance of its software, and other services
performed under this Agreement shall be performed in a prompt, professional and
workmanlike manner.
(b) Its software shall be free of defects in material and
workmanship.
(c) Each Party will be solely responsible for its own
software and its own operations, and the other Party shall not have any
responsibilities or liabilities therefor.
(d) Each Party has full power to enter into and perform this
Agreement, and the person signing this Agreement on its behalf has been duly
authorized and empowered to enter into this Agreement.
(e) This Agreement does not, and shall not, violate any
other agreement of such Party with a third party.
9.2 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER
PARTY MAKES ANY WARRANTIES IN CONNECTION WITH THE SUBJECT MATTER OF THIS
AGREEMENT, AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF NON-
INFRINGEMENT OF THIRD PARTY RIGHTS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. NEITHER PARTY WARRANTS THAT ITS SOFTWARE OR WEB SITE WILL OPERATE
ERROR-FREE OR WITHOUT INTERRUPTION.
9.3 EXCEPT FOR LIABILITY RESULTING FROM FRAUD, GROSS
NEGLIGENCE, INTENTIONAL MISCONDUCT, BREACH OF CONFIDENTIALITY, OR
MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS, IN NO EVENT SHALL EITHER PARTY
BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER
LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, AND
IRRESPECTIVE OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY
SUCH LOSS OR DAMAGE.
4
<PAGE>
10. General.
-------
10.1 This Agreement is governed by California law without regard
to the conflicts of laws principles thereof.
10.2 In the event of invalidity of any provisions of this
Agreement, the Parties agree that such invalidity shall not affect the validity
of the remaining portions of this Agreement.
10.3 This Agreement completely and exclusively states the
agreement of the Parties regarding the subject matter and it supersedes and its
terms govern all prior proposals and agreements, oral or written, regarding such
subject matter, with the exception of any nondisclosure and/or confidentiality
agreements currently in effect among the Parties.
10.4 This Agreement may be changed only by written agreement of
authorized representatives of the Parties.
10.5 The Parties hereto are independent contractors. Nothing
contained herein or done in pursuance of this Agreement shall constitute either
Party the agent of the other Party for any purpose or in any sense whatsoever,
or constitute the Parties as partners or joint ventures.
10.6 This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective successors and assigns.
Neither Party may assign any of its rights, obligations or privileges (by
operation of law or otherwise) hereunder without the prior written consent of
the other Party, which shall not be unreasonably withheld; provided, however,
that either Party shall have the right to assign its rights, obligations and
privileges hereunder without obtaining any consent to such assignment from the
other Party in the event of a merger, acquisition or sale of all or
substantially all of that Party's business or assets in which the acquiring
Party agrees to assume all such rights, obligations and privileges hereunder.
10.7 Any notice required or permitted to be given by either
Party under this Agreement shall be in writing and shall be delivered
personally, or by telecopy confirmed by registered or certified letter, or by a
nationally recognized overnight delivery service, to the other Party at its
address first set forth above, or such new address as may from time to time be
supplied hereunder by the Parties hereto.
10.8 Except for the payment of money, no default, delay or
failure to perform on the part of either Party shall be considered a breach of
this Agreement if such default, delay or failure to perform is shown to be due
to causes beyond the reasonable control of the Party charged with a default,
including, but not limited to, causes such as riots, civil disturbances, actions
or inaction's of governmental authorities or suppliers, epidemics, war,
embargoes, severe weather, fire, earthquakes, acts of nature or the public
enemy, nuclear disasters, or default of a common carrier; provided, however,
that for the duration of such force majeure the Party charged with such default
must continue to use all reasonable efforts to overcome such force majeure.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date set forth above.
5
<PAGE>
IMX, Inc. Byte Enterprises, Incorporated
By: /s/ Jeffrey A. Pullen By: /s/ R.D. Eisenhart
--------------------------- -----------------------------
Print Name: Jeffrey A. Pullen Print Name: R.D. Eisenhart
-------------------- ----------------------
Title: CFO Title: President
-------------------------- -------------------------
6
<PAGE>
EXHIBIT 10.12
AGREEMENT
This Agreement is entered into as of January 27, 2000, by and between IMX,
Inc., a California corporation ("IMX"), and CALYX TECHNOLOGY, INC. doing
business as Calyx Software, Incorporated, a California Corporation ("Calyx").
IMX and Calyx are sometimes hereinafter referred to individually as a "Party,"
or collectively as the "Parties."
Background
A. IMX owns and operates an Internet-based exchange (the "IMX Exchange")
which uses proprietary software and on which (i) mortgage loan brokers
("Brokers") post mortgage loan applications for specific loan transactions, and
(ii) mortgage loan lenders ("Lenders") review the posted loan applications and
submit loan pricing proposal terms to the Broker, and (iii) the Brokers select
which Lender's pricing proposal to accept, and (iv) the Lenders pay an
"Exchange Fee" to IMX for loans placed from use of the IMX Exchange.
B. Calyx has developed and sells to Brokers and Lenders a computer
software titled Point(TM), which is used by Brokers and Lenders to prepare
mortgage loan applications (the "Calyx Mortgage Origination Software" or the
"Calyx Software").
C. IMX and Calyx wish to enter into this Agreement under which mortgage
loans that are originated by Brokers using Calyx Software can be seamlessly
posted on the IMX Exchange.
Agreement
Now, Therefore, in consideration of the foregoing and the mutual covenants
contained herein, the Parties agree as follows:
1. Strategic Alliance.
------------------
1.1 Pursuant to the terms and conditions set forth in this Agreement,
IMX and Calyx hereby agree to enter into a strategic alliance pursuant to which
all mortgage loans that are originated by Brokers using the Calyx Mortgage
Origination Software, or its subsequent versions, can be seamlessly posted to
the IMX Exchange. Calyx will assist IMX in marketing the IMX Exchange to the
Calyx Broker users.
1.2 The "Seamless Posting" functionality referenced in Section 1.1
means that (a) once a Broker using the Calyx Software has given the Broker's
one-time, up-front election to participate in the IMX Exchange feature of the
Calyx Software, then (b) for all subsequent loan applications prepared by that
Broker using the Calyx Software, the Broker will automatically resolve a "pop
up" screen when the Broker explicitly saves or closes a file if the minimum data
points (to be specified in Addendum A) for an IMX submission have been completed
for the first time or have been changed in the file, and (c) the Broker must
indicate "Yes" he wants the loan submitted to IMX Exchange or "No" he does not
want the loan submitted to IMX Exchange. From that point, the Calyx Software
will automatically post the loan information to IMX Exchange and the Broker will
be able to view any bids and lock loans through the Calyx Software. The methods
by which this is accomplished are described in Addendum A.
[*]= CERTAIN INFORMATION ON THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
2. Consideration From IMX to Calyx.
-------------------------------
2.1 IMX will grant to Calyx a stock warrant to purchase [***] shares
of IMX Series D or E preferred stock, at an exercise price of $4.75 per share.
The warrant expires in ten years, but is subject to earlier termination upon a
sale, merger or IPO of IMX to the extent that Calyx does not elect to exercise
the warrant at that time. The warrant includes an "anti-dilution" provision
specifying adjustment of the warrant price and number of shares in certain
customary circumstances. A copy of the form of Stock Warrant is attached hereto.
2.2 IMX will pay to Calyx a development fee of [***]. The first
installment of [***] will be paid upon signing of this Agreement. The second
installment of [***] will be paid when the interface described in 3.1 is
completed and released within the Calyx/Point software scheduled for March/April
of 2000.
2.3 IMX will pay to Calyx a bonus of [***] if and only if a total of
[***] Point Broker companies become IMX members and which total will include any
Point users which currently are IMX members), within 12 months from the release
of the interface in Calyx Software.
3. Responsibilities.
----------------
3.1 IMX and Calyx will jointly develop the necessary interface to
facilitate the seamless export to the IMX Exchange of the loan application data
from the participating Brokers who use the Calyx Software and elect to post
loans on the IMX Exchange. The interface specifications and programming
responsibilities of both parties are attached in Addendum A. Payment of the sums
set forth in Section 2.2 is not conditioned upon completion of components or
content by IMX. Calyx agrees to distribute the latest IMX components in
Calyx/POINT product releases according to standard manufacturing schedules.
3.2 Calyx will cooperate and assist IMX in marketing the IMX Exchange
to Calyx's Broker customers by providing access to customers through Calyx. Each
party shall provide copies of all marketing materials 15 days in advance of the
release thereof. The release of marketing materials requires approval of both
parties. Any objection to marketing materials must be made in writing to the
other party within 15 days of receipt and must set forth the reason for
rejecting the proposed marketing material. Failure to object within the 15 day
period shall be deemed as approval. The specific marketing plan is attached in
Addendum B.
3.3 IMX and Calyx will each provide customary and appropriate
technical support and updates to its own software, in order to best facilitate
(a) the interface between the Calyx Software and the IMX Exchange, and (b) the
Brokers' use of the same.
4. Term. The initial term of this strategic alliance shall be 24 months
----
from the signing of this Agreement. The "Seamless Posting" functionality and the
"Default Selection" in the vendor installation screen will be exclusive to IMX
Exchange for the period beginning with the signing of this Agreement through the
next major release (version 3.7/4.0), or September 1/st/, 2000 whichever comes
later. Therefore, if Calyx makes the "Default Selection" available in the future
to any vendor, IMX will have the right to pay the marketing fee to continue its
exclusive default setting or have a rolling default among other vendors if more
than one vendor wished to pay the marketing fee. The "Notification"
functionality and the "Rich Content" in the vendor installation screen will be
available only to IMX when they are first release within the
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENTS HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2
<PAGE>
Calyx/POINT software scheduled for March/April of 2000. Calyx agrees not to
openly market these enhancements until the next major release or September
/1st/, 2000, whichever comes later. The term shall be renewed for a successive
12-month term upon signature of a new agreement. The term of this strategic
alliance may be earlier terminated by a Party due to the material default of the
other Party, if such default is not cured within 30 days after written notice of
the default is given to the defaulting Party.
5. Confidentiality and Intellectual Property Rights.
------------------------------------------------
5.1 Each Party hereby agrees to maintain the confidentiality of the
other Party's confidential information and proprietary information, and each
Party hereby agrees to not use the other Party's confidential information and
proprietary information other than as is expressly contemplated by this
Agreement.
5.2 Each party agrees that all information communicated to the other
with respect to the proposed Software, including any confidential information
relating to the proposed Software gained by either party or their personnel,
whether or not that information was directly or intentionally communicated, is
confidential.
5.3 Each party promises and agrees that it shall not disclose any
confidential information to any other person unless specifically authorized in
writing to do so. If either party gives the other written authorization to make
any disclosures, it shall do so only within the limits and to the extent of that
authorization. The confidentiality, non-disclosure and non-use obligations of
this Section 5 shall not apply to information which the recipient demonstrates:
(a) is known to it prior to receipt from the other party,
provided the recipient promptly notifies the other party of such prior knowledge
and supplies the other party with written evidence to support such prior
knowledge; or
(b) is or becomes part of the public domain through no act by or
on behalf of recipient; or
(c) was lawfully received by the recipient from a third party
having a right to disclose it to the recipient; or
(d) was developed by or for the recipient totally independent of
the disclosure hereunder, and without any assistance from the disclosure
hereunder, as evidenced by recipient's written records.
5.4 Each party shall use its diligent efforts to prevent inadvertent
disclosure of any confidential information to any third party. Each party shall
instruct its personnel to keep that information confidential by using the same
care and discretion that they use with similar data designated as confidential.
5.5 Without limiting the generality of the foregoing, each Party
hereby agrees that it will not attempt to decompile, decipher, disassemble,
reverse engineer or decrypt the source code or other proprietary features of the
other Party's software or other intellectual property.
3
<PAGE>
5.6 Each Party shall retain full and sole ownership of its own
intellectual property rights, particularly including its own software and all
improvements and enhancements, and all copyrights and all trade secrets.
Excepting only for and to the extent necessary for implementing the transactions
and activities specified in this Agreement, no license rights are granted by
either Party to the other Party for use of any intellectual property rights.
5.7 With respect to the development by IMX of the Unique Linkage
Specifications, IMX shall retain sole ownership thereof; and Calyx shall be
entitled to use the same only for the performance of this Agreement with IMX.
IMX and Calyx agree that all original material, including all computer programs
and all related printed material comprising the Software originated and prepared
by Calyx pursuant to this Agreement, shall belong exclusively to Calyx and shall
constitute a trade secret owned by Calyx. IMX acknowledges and agrees that the
unauthorized use or disclosure of confidential information concerning the
Software is prohibited. Calyx shall have the exclusive right to protect the
Software by copyright or any other means. However, Calyx agrees that upon
payment in full pursuant to the terms of the agreement, Calyx will convey to IMX
an exclusive non-assignable (except as permitted by Section 10.7 hereof) license
for the use of the Software by IMX.
5.8 IMX hereby authorizes Calyx to post the IMX trademarks on the
Calyx Software for purposes of implementing this Agreement, all in accordance
with specifications to be mutually approved by both Parties. Similarly, Calyx
hereby authorizes IMX to post Calyx trademarks on the IMX Exchange for purposes
of implementing this Agreement, all in accordance with specifications to be
mutually approved by both Parties.
5.9 Each Party shall be entitled to include on its internet web site
one or more links and/or icons to the other Party's internet web site, but in
each instance, subject to the prior review and reasonable approval as to the
specifications for such matters.
6. Press Release. The Parties will consult with each other with regard to
-------------
the terms and substance of any and all press releases, announcements or other
public statements with respect to the transactions contemplated hereby. The
Parties further agree that no Party will release any such press release,
announcement or other public statement without the prior approval of the other
Party, unless such release is required by law and the Parties cannot approve a
mutually acceptable form of release.
7. Expenses. Except as otherwise set forth in this Agreement, each Party
--------
shall bear its own costs and expenses associated with the transactions
contemplated. IMX will produce all collateral material at its cost and Calyx
will pay for all distribution costs.
8. Most Favored Client. Pursuant to Section 4 hereof, during the
-------------------
Exclusive Period, Calyx is not to enter into other agreements with other parties
for automatic posting of mortgage loan applications. After the Exclusive Period,
in the event Calyx enters into an agreement with another party that offers
automatic posting generally as described in the specifications attached to this
Agreement, if such other agreement is materially more advantageous to such other
party than the automatic posting capabilities described herein extended to IMX
Exchange, Calyx will extend the same features or capabilities for the IMX
Exchange.
4
<PAGE>
9. Warranties and Limitations on Liability.
---------------------------------------
9.1 Each Party hereby represents and warrants that:
(a) All work to performed in connection with the development,
update, support and maintenance of its software, and other services performed
under this Agreement shall be performed in a prompt, professional and
workmanlike manner.
(b) Its software shall be free of defects in material and
workmanship.
(c) Each Party will be solely responsible for its own software
and its own operations, and the other Party shall not have any responsibilities
or liabilities therefor.
(d) Each Party has full power to enter into and perform this
Agreement, and the person signing this Agreement on its behalf has been duly
authorized and empowered to enter into this Agreement.
(e) This Agreement does not, and shall not, violate any other
agreement of such Party with a third party.
9.2 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY
MAKES ANY WARRANTIES IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT,
AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF NON-INFRINGEMENT
OF THIRD PARTY RIGHTS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
NEITHER PARTY WARRANTS THAT ITS SOFTWARE OR WEB SITE WILL OPERATE ERROR-FREE OR
WITHOUT INTERRUPTION.
9.3 EXCEPT FOR LIABILITY RESULTING FROM FRAUD, GROSS NEGLIGENCE,
INTENTIONAL MISCONDUCT, BREACH OF CONFIDENTIALITY, OR MISAPPROPRIATION OF
INTELLECTUAL PROPERTY RIGHTS, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER LIABILITY IS ASSERTED
IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, AND IRRESPECTIVE OF
WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR
DAMAGE.
10. General.
-------
10.1 IMX and Calyx agree that they shall perform their duties under
this Agreement as independent contractors. Personnel employed by IMX or Calyx
who perform duties related to this Agreement shall remain under the supervision,
management or contract of the company by who they are paid.
10.2 This Agreement is governed by California law without regard to
the conflicts of laws principles.
5
<PAGE>
10.3 In the event of invalidity of any provisions of this Agreement,
the Parties agree that such invalidity shall not affect the validity of the
remaining portions of this Agreement.
10.4 This Agreement completely and exclusively states the agreement
of the Parties regarding the subject matter, and this Agreement supersedes, and
its terms govern, all prior proposals and agreements, oral or written, regarding
such subject matter, with the exception of any nondisclosure and/or
confidentiality agreements currently in effect among the Parties.
10.5 This Agreement may be changed only by written agreement of
authorized representatives of the Parties.
10.6 The Parties hereto are independent contractors. Nothing
contained herein or done in pursuance of this Agreement shall constitute either
Party the agent of the other Party for any purpose or in any sense whatsoever,
or constitute the Parties as partners or joint ventures.
10.7 This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their respective successors and assigns. Neither Party
may assign any of its rights, obligations or privileges (by operation of law or
otherwise) hereunder without the prior written consent of the other Party, which
consent shall not be unreasonably withheld; provided, however, that either Party
shall have the right to assign its rights, obligations and privileges hereunder
without obtaining any consent to such assignment from the other Party in the
event of a merger, acquisition or sale of all or substantially all of that
Party's business or assets in which the acquiring Party agrees to assume all
such rights, obligations and privileges hereunder.
10.8 Any notice required or permitted to be given by either Party
under this Agreement shall be in writing and shall be delivered personally, or
by telecopy, or by U.S. mail, or by a nationally recognized overnight delivery
service, to the other Party at its address first set forth above, or such new
address as may from time to time be supplied hereunder by the Parties hereto.
10.9 Except for the payment of money, no default, delay or failure to
perform on the part of either Party shall be considered a breach of this
Agreement if such default, delay or failure to perform is shown to be due to
causes beyond the reasonable control of the Party charged with a default,
including, but not limited to, causes such as riots, civil disturbances, actions
or inaction's of governmental authorities or suppliers, epidemics, war,
embargoes, severe weather, fire, earthquakes, acts of nature or the public
enemy, nuclear disasters, or default of a common carrier; provided, however,
that for the duration of such force majeure the Party charged with such default
must continue to use all reasonable efforts to overcome such force majeure.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date set forth above.
IMX, Inc. Calyx Software, Incorporated
By: /s/ Richard Wilkes By: /s/ Dong Chang
------------------------------- -------------------------------
Print Name: Richard E Wilkes Print Name: Dong Chang
------------------------ ----------------------
Title: President Title: President
---------------------------- ---------------------------
<PAGE>
List of Subsidiaries
1. Investor Direct Funding, incorporated in Delaware.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 11, 2000, except as to Note 11 as to which
the date is March 7, 2000, in the Registration Statement (Form S-1 No. 33-
00000) and related Prospectus of IMX Exchange, Inc. for the registration of its
common stock.
/s/ Ernst & Young LLP
San Francisco, CA
March 7, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IMX EXCHANGE, INC. AS OF DECEMBER 31, 1998 AND 1999 AND
FOR THE YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 1,123,162<F1> 3,407,253<F1>
<SECURITIES> 0 4,375,168
<RECEIVABLES> 41,800 33,700
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,066,877 7,461,178
<PP&E> 1,832,863 3,466,306
<DEPRECIATION> (765,161) (1,438,947)
<TOTAL-ASSETS> 2,390,096 10,088,945
<CURRENT-LIABILITIES> 3,029,400 3,105,228
<BONDS> 0 0
18,386,096<F2> 39,089,737<F2>
0 0
<COMMON> 2,859 3,598
<OTHER-SE> 20,274,897 32,804,608
<TOTAL-LIABILITY-AND-EQUITY> 2,390,096 10,088,945
<SALES> 597,866 319,142
<TOTAL-REVENUES> 597,866 319,142
<CGS> 0 0
<TOTAL-COSTS> 8,836,794 13,924,316
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (186,579) (294,386)
<INCOME-PRETAX> (8,165,038) (13,223,548)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (8,165,038) (13,223,548)
<DISCONTINUED> (5,741,580) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,906,618) (13,223,548)
<EPS-BASIC> (5.31) (3.98)
<EPS-DILUTED> (5.31) (3.98)
<FN>
<F1> INCLUDES $200,000 OF RESTRICTED CASH RELATED TO LEASE COMMITMENTS AT
DECEMBER 31, 1998 AND $1,016,250 OF RESTRICTED CASH AT DECEMBER 31, 1999. THE
RESTRICTED CASH AT 12/31/99 INCLUDES $416,250 OF RESTRICTED CASH CURRENT AND
$600,000 OF RESTRICTED CASH RELATED TO LEASE COMMITMENTS.
<F2> REDEEMABLE CONVERTIBLE PREFERRED STOCK.
</FN>
</TABLE>
