<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VIRTUAL MORTGAGE NETWORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 7374 88-0334342
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
4590 MACARTHUR BOULEVARD, SUITE 175, NEWPORT BEACH, CALIFORNIA 92660
(714) 252-0700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL A. BARRON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
VIRTUAL MORTGAGE NETWORK, INC.
4590 MACARTHUR BOULEVARD, SUITE 175, NEWPORT BEACH, CALIFORNIA 92660
(714) 252-0700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID A. KRINSKY, ESQ. BRUCE A. RICH, ESQ.
KEVIN BAKER, ESQ. JAMES T. SEERY, ESQ.
AIMEE S. WEISNER, ESQ. REID & PRIEST LLP
O'MELVENY & MYERS LLP 40 WEST 57TH STREET
610 NEWPORT CENTER DRIVE, SUITE 1700 NEW YORK, NEW YORK 10019
NEWPORT BEACH, CALIFORNIA 92660 (212) 603-2000
(714) 760-9600
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ---------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.005 par value(2).............................. $39,100,000 $11,849
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Common Stock, $.005 par value(3).............................. $7,820,731 $2,370
- ---------------------------------------------------------------------------------------------------
Common Stock, $.005 par value, underlying Representatives'
warrants(4).................................................. $4,301,000 $1,303
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Total......................................................... $52,838,635 $15,522
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 4,000,000 shares sold by the Company hereby and 600,000 shares
included in the Underwriters' over-allotment option.
(3) Includes 920,086 shares to be offered by certain stockholders.
(4) Pursuant to Rule 416, includes such indeterminate number of additional
shares of Common Stock as may be required for issuance on exercise of the
Representatives' warrants as a result of any adjustment in the number of
shares of Common Stock issuable on such exercise by reason of the formula
contained in the Representatives' Warrants.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
The form of Prospectus filed as part of this Registration Statement has two
cover pages, the first of which relates to an underwritten public offering of
4,000,000 shares of Common Stock by Virtual Mortgage Network, Inc. and the
second of which relates to an offering to be made exclusively by certain
stockholders. All Prospectuses distributed in the underwritten public offering
will bear the first form of cover page, appropriately completed after the
Registration Statement becomes effective. The form of Prospectus in the exact
form in which it is to be used after the effective date will be filed with the
Securities and Exchange Commission pursuant to Rule 424(b) of the General
Rules and Regulations under the Securities Act of 1933, as amended.
The second cover page pertains to the registration of resales of 920,086
shares of Common Stock to be sold at some point in the future by certain
stockholders (the "Registered Stockholders") independent of the underwritten
offering. It is anticipated that the Prospectus used by the Registered
Stockholders will bear the second form of cover page, appropriately completed
after the Registration Statement becomes effective. This form of Prospectus
will also include the additional information concerning the Registered
Stockholders and the plan of distribution disclosed under the captions
"Registered Stockholders" and "Plan of Distribution" included in this
Registration Statement, will include the section entitled "Principal
Stockholders," and will omit sections not applicable to such sales, including
"Underwriting" and "Legal Matters." The Registered Stockholders and Plan of
Distribution sections will not be included in the form of Prospectus
distributed in connection with the underwritten public offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, OCTOBER 21, 1997
PROSPECTUS
4,000,000 SHARES
[LOGO OF VIRTUAL MORTGAGE NETWORK]
COMMON STOCK
-----------
Virtual Mortgage Network, Inc. (the "Company" or "Virtual Mortgage") hereby
offers 4,000,000 shares (the "Shares") of common stock, par value $.005 per
share (the "Common Stock"), of the Company (the "Offering"). Prior to the
Offering, there has been no public market for the Common Stock, and there can
be no assurance such a market will develop or be sustained after the Offering.
It is currently estimated that the initial public offering price will be
between $6.50 and $8.50 per share. For information regarding the factors
considered in determining the initial public offering price of the Common
Stock, see "Underwriting." Application is being made to quote the Common Stock
on the Nasdaq National Market under the symbol "VMNI," subject to official
notice of issuance.
The Company also has registered on the registration statement of which this
Prospectus constitutes a part the offering and resale by certain stockholders
(the "Registered Stockholders") from time to time of up to 920,086 shares of
Common Stock. Subject to certain lock-up arrangements, the Registered
Stockholders may offer and sell such shares of Common Stock on the Nasdaq
National Market, in negotiated transactions or otherwise. No underwriting
arrangements have been entered into by the Registered Stockholders. The Company
will not receive any proceeds from the sale of Common Stock by the Registered
Stockholders. See "Shares Eligible for Future Sale."
THE SHARES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 AND "DILUTION."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS
PRICE TO COMMISSIONS TO THE
PUBLIC AND DISCOUNTS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
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Total(3).................................. $ $ $
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</TABLE>
(1) Excludes a non-accountable expense allowance payable to Barington Capital
Group, L.P. and Value Investing Partners, Inc., the representatives of the
Underwriters (the "Representatives"), in an amount equal to 3% of the gross
proceeds of the Offering (the "Representatives' Expense Allowance"), and
the value of warrants to purchase 400,000 shares of Common Stock at an
exercise price equal to 110% of the initial public offering price being
issued to the Representatives (the "Representatives' Warrants"). The
Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company, estimated at $750,000,
and the Representatives' Expense Allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an aggregate of 600,000 additional shares of Common Stock at the Price
to Public, less the Underwriting Commissions and Discounts, solely to cover
over-allotments, if any. If the Underwriters exercise the option in full,
the total Price to Public, Underwriting Commissions and Discounts and
Proceeds to the Company will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The Shares are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
the right to reject any order in whole or in part, and subject to certain other
conditions as set forth in the Underwriting Agreement between the Company and
the Underwriters. It is expected that the delivery of certificates representing
the Shares will be made against payment therefor at the offices of Barington
Capital Group, L.P., 888 Seventh Avenue, New York, New York 10019 or through
the facilities of The Depository Trust Company, on or about December , 1997.
-----------
BARINGTON CAPITAL GROUP VALUE INVESTING PARTNERS, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, OCTOBER 21, 1997
PROSPECTUS
920,086 SHARES
[LOGO OF VIRTUAL MORTGAGE NETWORK]
COMMON STOCK
------------
This Prospectus relates to 920,086 shares of Common Stock being sold by
certain Registered Stockholders. Subject to certain lock-up arrangements, the
Registered Stockholders may offer and sell the shares of Common Stock owned by
them on the Nasdaq National Market, in negotiated transactions or otherwise.
This Prospectus, which forms a part of the registration statement filed by the
Company, must be current at any time during which a Registered Stockholder
sells shares of Common Stock. See "Registered Stockholders," "Description of
Capital Stock" and "Shares Eligible for Future Sale."
This Prospectus (without certain information concerning the Registered
Stockholders) was also used in connection with an underwritten public offering
by the Company of 4,000,000 shares of Common Stock which became effective on
, 1997. In connection with the underwritten offering, the Company issued to
the managing underwriters (the "Representatives") warrants to purchase up to
400,000 shares of Common Stock (the "Representatives' Warrants") for $ per
share, and granted to the Representatives an option, exercisable at any time
prior to , 1998, to purchase up to 600,000 shares of Common Stock solely to
cover over-allotments (the "over-allotment option"). See "Prospectus Summary"
and "Capitalization." References in this Prospectus to the Offering, unless
otherwise noted, are to the underwritten offering. The Representatives will not
be involved in, nor will they receive any compensation in connection with, the
sale of securities by the Registered Stockholders.
------------
THE SHARES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 AND "DILUTION."
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[THE FOLD-OUT OF THE INSIDE COVER CONTAINS A MAP OF THE UNITED STATES OF
AMERICA DISPLAYING LOCATIONS OF VIRTUAL MORTGAGE NETWORK, INC. OFFICES AND
SIMULATED CONNECTIONS BETWEEN THOSE OFFICES TO THE COMPANY'S LOAN
COUNSELLING CENTER. THE FOLLOWING CAPTIONS APPEAR AT VARIOUS LOCATIONS ON
THE MAP: "LOCAL ACCOUNT EXECUTIVES," "CENTRALIZED LOAN COUNSELORS,"
"CENTRALIZED PROCESSING TEAMS," "MULTI-LENDER NETWORK WITH HUNDREDS OF LOAN
PRODUCTS," "POINT OF SALE HOME LOAN APPLICATION AND APPROVAL RIGHT IN THE
REAL ESTATE OFFICE" AND "CUSTOM MORTGAGE SOLUTIONS FOR LARGE MULTI-OFFICE
BUILDING REAL ESTATE FIRMS."]
[IMMEDIATE INSIDE COVER CONTAINS PICTURE OF THE
LOANMAKER SYSTEM; PICTURE APPEARS WITH THE
FOLLOWING CAPTION:
"THE LOANMAKER SYSTEM."]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE OR MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING." IN
CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ALSO ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION
M. SEE "UNDERWRITING."
This document has been approved by Value Investing Partners (U.K.) Ltd,
regulated by the SFA. The securities described in this document are not
available to persons other than market counterparties or non-private customers
as those terms are defined in the rules of the SFA.
Virtual Mortgage Network(TM) and The LoanMaker System(TM) are registered
trademarks of the Company. ProShare(TM) and Pentium(TM) are registered
trademarks of Intel Corporation. Trademarks of other companies are also used
in this Prospectus.
<PAGE>
Unless otherwise indicated, the information in this Prospectus (i) assumes an
initial public offering price of $7.50 per share of Common Stock, (ii) does not
give effect to the exercise of the over-allotment option granted to the
Underwriters as described in "Underwriting," (iii) gives effect to the 1 for
4.89 reverse stock split to be effected by the Company in November 1997,
subject to shareholder approval and (iv) assumes the completion of the
acquisition of Sutter Mortgage Corporation (excluding its subsidiaries) in
October 1997 at an adjusted purchase price of $4,488,000 (the "Acquisition"),
which includes the issuance of an estimated 65,000 shares of Common Stock. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed in "Risk Factors."
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information, including "Risk Factors" and Consolidated Financial
Statements and Notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
General
The Company's objective is to become the leading low-cost discount provider
of mortgage products to consumers in the $785 billion residential mortgage
industry. To achieve this goal, the Company has developed and begun deployment
of a video-conferencing mortgage transaction processing system, The LoanMaker
System(TM) (the "LoanMaker System"), which allows home buyers seeking mortgages
to receive a mortgage loan approval quickly at a cost to the home buyer that is
typically less than through the traditional mortgage broker and lender network.
LoanMaker Systems are strategically located in real-estate offices and provide
home buyers with the ability to select from over 1,000 loan products offered by
selected national, regional and local lenders as well as the ability, via
video-conferencing, to communicate face-to-face with the Company's loan
counselors. The Company operates both as an independent mortgage broker,
through the use of its LoanMaker System, and as a mortgage bank offering its
own loan products and the loan products of lenders for which the Company is a
delegated or correspondent underwriter which enables the Company to quickly
make an underwriting decision with respect to loans originated using the
LoanMaker System. Through the LoanMaker System, lenders are able to deliver
conventional and non-conforming loan products to borrowers with a large range
of credit profiles without the costs of establishing and maintaining its own
retail brokerage force. The Company believes it is the leading provider of
multi-lender video-conferencing mortgage loan origination services, and
approximately 106 LoanMaker Systems have been installed or are on order to be
installed in strategically selected real estate offices.
The Company believes the LoanMaker System's efficiencies benefit each of the
key parties to a mortgage loan transaction. Consumers may comparison shop from
over 1,000 loan products with the assistance of a qualified and objective loan
counselor and receive their loan approvals quickly. Lenders can gain access to
a more efficient distribution system than traditional mortgage origination at
no incremental cost. Real estate broker-owners can significantly increase their
mortgage related revenues while providing a value-added service to their
customers and, to the extent the system leads to more rapid closings,
increasing their office productivity. Real estate agents may increase the speed
of closing each transaction and enhance client satisfaction.
In order to control more of the underwriting decisions made with respect to
loans originated using the LoanMaker System and therefore expedite and enhance
the speed and capabilities of the LoanMaker System, the Company sought and
acquired in October 1997 Sutter Mortgage Corporation ("Sutter Mortgage"), a
residential mortgage bank based in Walnut Creek, California. As a mortgage bank
and delegated underwriter for 17 of the
3
<PAGE>
30 lenders presently represented on the LoanMaker System, Sutter Mortgage makes
many of the Company's underwriting decisions, which enables the Company to
increase the speed of the loan approval process and to increase the percentage
of loans that can be approved on-line within one to two hours.
Industry Overview
The aggregate one-to-four family residential mortgage volume in 1996 was
approximately $785 billion with the top 30 one-to-four family mortgage loan
originators accounting for only approximately 43% of the total origination,
according to Inside Mortgage Finance. Funding sources for residential mortgage
loans include banks, savings and loans institutions, mortgage banks and a
number of specialized financial institutions. National Mortgage News estimates
that mortgage brokers originated a majority of residential mortgage loans in
1996, an increase over the past several years. The principal sources of revenue
for mortgage brokers and bankers include loan origination fees, net interest
earned on mortgage loans prior to sale, proceeds from the sale of mortgage
loans, mortgage loan servicing fees and proceeds from the sale of mortgage
servicing rights. Traditionally, mortgage bankers have used three channels of
distribution: (i) Retail: principally through their branch networks and
telemarketing; (ii) Wholesale: principally through mortgage brokers; and
(iii) Correspondent: principally through pre-qualified financial institutions,
some of which may be granted delegated underwriting authority. While the
industry is attempting to incorporate technology to provide better service to
borrowers and maximize internal efficiency through methods of credit scoring,
automated underwriting systems and automated appraisal, the Company believes
that the loan application and approval process continues to frustrate home
buyers. This process has traditionally been a time-consuming and paperwork-
intensive process involving a long and costly search process, unclear pricing,
a scarcity of objective, professional advice and agents who are principally
motivated by the commissions they will generate. The Company believes its
LoanMaker System simplifies, hastens and improves the process by providing one-
stop access to multiple lenders and loan products presented on an objective
basis.
The LoanMaker System
The LoanMaker System is a proprietary, wide-area network that utilizes PC-
based video-conferencing technology, and allows a prospective home buyer
sitting in a real-estate office to (i) easily and quickly select from over
1,000 loan products based on the home buyers credit profile, loan payment
preferences and geographic location; (ii) compare loan fees, calculate payment
schedules, review historical and current interest rates, and run any customized
scenario; and (iii) complete and submit a mortgage loan application, all on a
real-time basis with the assistance of a loan counselor. Approval can be
obtained in as little as one to two hours or, as in most cases, within 72 hours
depending on the borrower's credit profile. The Company's latest generation
technology, known as "Paris," is an upgraded and enhanced version of the
LoanMaker System that allows immediate, on-line underwriting, does not require
a proprietary network and ISDN lines (i.e., allows the use of standard modems,
telephone lines, and/or Internet connections), and enables users to access the
system using laptop PCs. The Company intends to begin the roll-out of the
"Paris" technology in December 1997 and to begin the roll-out of the laptop PC
version by March 1998. There can be no assurance however that this schedule
will be met.
Marketing Strategy
The Company's marketing strategy is to deploy the LoanMaker System in the 200
largest real estate brokerage companies in the United States. This marketing
approach is expected to enable the Company to leverage the real estate
company's established local brand name identity while also gaining access to a
large pool of borrowers at the point of real estate sale. The Company believes
its marketing efforts toward these real estate firms are vital to its success,
given that the Company relies on the firms' consents to install the LoanMaker
System in their offices and on real estate agents to introduce their customers
to the LoanMaker System. The Company presently has LoanMaker Systems installed,
at its expense, in certain offices of three of the 200 largest real estate
brokerage companies in the U.S. and has signed non-binding letters of intent
with three additional such companies. In exchange for their marketing efforts
with respect to the LoanMaker System, real estate brokerage companies receive
compensation from the Company.
4
<PAGE>
As of September 30, 1997, the Company had installed the LoanMaker System in
59 real estate offices serving eleven metropolitan areas in Arizona,
California, Florida, Louisiana, New Jersey, Oregon and Texas, with 57 systems
on order that the Company has not yet installed, and is negotiating contracts
for an additional 128 systems. Several of the largest real estate firms in the
U.S. have installed the LoanMaker System in their offices, including: Realty
Executives of Phoenix (Arizona); Latter & Blum Realtors (Louisiana); Re/Max
South County (Orange County, California); Murphy Realty (New Jersey); and
Preferred Better Homes & Gardens (Portland, Oregon). In addition, the Company
has signed non-binding letters of intent to install LoanMaker Systems in the
offices of three other prominent real estate companies: O'Conor, Piper and
Flynn (Baltimore); Smythe/Cramer Realtors (Cleveland) and Fox/Roach Realtors
(Philadelphia).
Growth Strategy
The Company generates revenue from two sources. First, as a mortgage
transaction processor, the Company earns loan origination fees received upon
completion of loans, generally 1.0% to 1.5% of the face value of the loan. And
second, as a mortgage bank, the Company generates revenues from the gain on
sales of loans, processing fees, loan origination fees and interest on loans
held pending sale. The Company anticipates that a significant amount of its
mortgage banking operations' future growth will come from originating loans
using the LoanMaker System.
The Company's strategy is to exploit its proprietary LoanMaker System to
establish itself as a leading loan origination transaction processor serving
the $785 billion one-to-four family residential mortgage industry in the United
States. The Company's principal short-term focus is to expand its installed
base of LoanMaker Systems by focusing on high volume local real estate offices
and to work with real estate firms to increase the volume of mortgages
completed using the LoanMaker System.
In addition to the residential mortgage origination market, the Company has
identified three other potential growth opportunities: (i) adding complementary
services to the mortgage lending process such as title search, property
appraisals, relocation services and cash management; (ii) extending the
Company's LoanMaker System to other geographic areas such as Europe; and (iii)
eventually exploiting other markets such as home equity loans, life insurance
sales and personal financial planning. Although the Company currently has no
specific plans in these three areas, the Company intends to explore these
additional growth opportunities as part of its long-term strategic growth plan.
Company History
The Company was incorporated in Nevada in December 1992 and was inactive
until March 1995. Unless otherwise noted, references herein to "Virtual
Mortgage" or the "Company" refer to Virtual Mortgage Network, Inc. and its
wholly-owned subsidiaries, including Sutter Mortgage Corporation. The Company's
principal executive offices are located at 4590 MacArthur Boulevard, Suite 175,
Newport Beach, California 92660, and its telephone number at that location is
(714) 252-0700.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company................... 4,000,000 shares
Common Stock to be outstanding after the Offering(1).. 6,619,229 shares
Use of proceeds....................................... For repayment of
outstanding debt,
including debt relating
to the Acquisition,
computer purchases and
upgrades, new product
development and general
corporate purposes,
including working
capital and capital
expenditures.
Proposed Nasdaq National Market symbol................ "VMNI"
Risk Factors.......................................... The shares of Common
Stock offered hereby
involve a high degree of
risk. Before investing
in the Common Stock
offered hereby,
prospective investors
should carefully
consider the risks
relating to the
Company's limited
operating history and
anticipated losses and
the other risks
described in "Risk
Factors." See "Risk
Factors" for a
discussion of certain
material factors that
should be considered in
connection with an
investment in the Shares
offered hereby.
</TABLE>
- --------
(1) Includes 368,136 warrants which are deemed automatically exercised for
Common Stock upon completion of the Offering, 984,985 shares of Common
Stock issued in private placements subsequent to June 30, 1997 which
includes an estimated 65,000 shares to be issued in connection with the
Acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Sutter Mortgage Acquisition." Excludes (i) 2,250,000 shares of Series A
Convertible Preferred Stock which are presently convertible into 561,129 of
shares of Common Stock, (ii) 450,446 shares of the Company's Common Stock
reserved for issuance pursuant to warrants; (iii) an aggregate of 1,409,000
shares reserved for issuance under the Company's stock option plans, of
which 375,687 shares are subject to outstanding options and 552,800 shares
are subject to options that will be granted concurrently with the closing
of the Offering; (iv) an aggregate of 10,226 shares reserved for issuance
to certain of the Company's founders pursuant to options granted under
their respective employment agreements, of which 5,113 shares are currently
exercisable, and (v) 400,000 shares reserved for issuance pursuant to the
Representatives' Warrants.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth historical summary consolidated financial
information for Virtual Mortgage (prior to the Acquisition) and unaudited pro
forma combined information which represents the Consolidated Statement of
Operations data as if the Acquisition were completed on January 1, 1996 and
Combined Balance Sheet data as if the Acquisition were completed as of June 30,
1997. The summary financial information in the table is derived from the
financial statements of the Company, Sutter Mortgage and the unaudited pro
forma financial statements included elsewhere in this Prospectus. The data
should be read in conjunction with the financial statements, related notes and
other financial information included herein. The pro forma financial statements
may not be indicative of the results that may be obtained by the Company in any
future period.
<TABLE>
<CAPTION>
INCEPTION
(MARCH 2, SIX MONTHS
1995) TO ENDING SIX-MONTHS
DECEMBER 31, YEAR ENDED JUNE 30, ENDING
1995 DECEMBER 31, 1996 1996 JUNE 30, 1997
------------ ------------------- ---------- -------------------
VIRTUAL VIRTUAL PRO FORMA VIRTUAL VIRTUAL PRO FORMA
MORTGAGE MORTGAGE COMBINED MORTGAGE MORTGAGE COMBINED
------------ -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ 2 $ 123 $ 7,602 $ 8 $ 392 $ 4,873
Operating expenses...... 1,550 6,453 14,774 2,179 4,556 9,914
------- ------- ------- ------- ------- -------
Loss from operations.... (1,548) (6,330) (7,172) (2,171) (4,164) (5,041)
Net loss................ (1,544) (6,981) (7,825) (2,236) (5,042) (5,919)
Pro forma net loss per
common share (1)....... $ (4.89) $ (5.24) $ (1.81) $ (3.06) $ (3.45)
Pro forma weighted
average common shares
outstanding (1)........ 1,428 1,493 1,236 1,649 1,714
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ---------------------------------
PRO FORMA
VIRTUAL VIRTUAL PRO FORMA COMBINED AS
MORTGAGE MORTGAGE COMBINED(2) ADJUSTED(3)
----------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...... $ 40 $ 239 $ 4,889 $22,039
Mortgage loans held for
sale, current............ -- -- 21,128 21,128
Property and equipment,
net...................... 456 438 848 848
Total assets.............. 780 1,127 27,435 49,475
Lines of credit and
financing arrangements... -- -- 21,278 21,278
Notes payable............. 3,742 4,211 7,900 --
Redeemable Series A
Preferred Stock.......... 2,017 2,017 2,017 2,017
Total stockholders' equity
(deficit)................ (6,560) (7,342) (2,043) 23,397
</TABLE>
- --------
(1) Pro forma net loss per common share at December 31, 1996 uses shares
outstanding as of December 31, 1996 and 368,136 warrants that are deemed
automatically exercised for Common Stock upon completion of the Offering.
Pro forma net loss per common share at June 30, 1997 uses shares
outstanding as of June 30, 1997 and 368,136 warrants that are deemed
automatically exercised for Common Stock upon completion of the Offering.
Excludes (i) 450,446 shares of the Company's Common Stock reserved for
issuance pursuant to warrants; (ii) 2,250,000 shares of Series A Preferred
Stock which are presently convertible into 561,129 shares of Common Stock;
(iii) an aggregate of 1,409,000 shares reserved for issuance under the
Company's stock option plans, of which 375,687 shares are subject to
outstanding options at October 20, 1997 and 552,800 are subject to options
that will be granted concurrently with the closing of the Offering; and
(iv) an aggregate of 10,226 shares reserved for issuance to certain of the
Company's founders pursuant to employment agreements, of which 5,113 are
currently exercisable. See Notes 2 and 4 of Notes to Consolidated Financial
Statements of Virtual Mortgage Network, Inc. and Subsidiaries.
(2) Reflects adjustments related to the Acquisition, including amounts due in
connection with the Acquisition and 65,000 shares of Common Stock to be
issued in connection with such Acquisition. See "Sutter Mortgage
Acquisition." Also includes net proceeds of $4,811,000 from the sale of
919,985 shares of Common Stock issued subsequent to June 30, 1997 (of which
599,000 shares representing $3,100,000 of net proceeds are subscribed but
not paid for as of October 20, 1997), and the payment of $1.5 million of
such proceeds as partial payment of the Acquisition purchase price. See
"Use of Proceeds". Also reflects the issuance of additional bridge notes in
the aggregate principal amount of $1,189,000 subsequent to June 30, 1997.
(3) Adjusted to give effect to the sale of shares offered hereby by the Company
at an assumed initial public offering price of $7.50 per share and the
receipt and application of the estimated net proceeds therefrom including
the payment of $9.1 million of debt, which includes amounts due in
connection with the Acquisition.
7
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of certain of the risk factors set forth below and elsewhere in
this Prospectus. In addition to the other information contained in this
Prospectus, investors should carefully consider the following risk factors.
RISKS RELATED TO THE COMPANY
EXTREMELY LIMITED OPERATING HISTORY; ANTICIPATED LOSSES; FLUCTUATING RATES OF
REVENUE GROWTH
The Company has a very limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company was incorporated in
1992 and commenced operations in 1995, but did not generate revenues until
February 1996. The Company and its prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
the business of providing mortgage products and services. To address these
risks, the Company must, among other things: (i) continue to respond to
competitive developments; (ii) attract, retain and motivate qualified
personnel; (iii) successfully execute its marketing strategy; (iv) expand and
diversify its lender base and loan products; and (v) upgrade its technologies
and market products and services incorporating these technologies. There can
be no assurance that the Company will be successful in addressing these risks.
The Company has only experienced operating losses to date and as of June 30,
1997 had an accumulated deficit of $13,567,000. Prior to the Company's
acquisition of Sutter Mortgage, Sutter Mortgage had an accumulated deficit of
$4,036,000 as of June 30, 1997. Although the Company has experienced revenue
growth in recent periods, there can be no assurance that the revenues of the
Company will continue to increase. The extremely limited operating history of
the Company makes the prediction of future results of operations difficult
and, therefore, the recent revenue growth experienced by the Company should
not be taken as indicative of the rate of revenue growth, if any, that can be
expected in the future. The Company believes that period-to-period comparisons
of its operating results are not meaningful and that the results for any
period should not be relied upon as an indication of future performance. The
Company currently expects that for at least 12 months it will significantly
increase its operating expenses to expand its sales and marketing operations
and to fund greater levels of new product development. As a result of the
foregoing factors, the Company expects to continue to incur significant losses
at least through the second quarter of 1998, and there can be no assurance
that losses will not continue in subsequent periods. In addition, the Company
has a working capital deficit, net stockholders' deficit and has experienced
significant losses to date. These and certain other factors raise substantial
doubt about the ability of the Company to continue as a going concern. As a
result of these factors, the report of the Company's independent public
accountants on the Company's audited financial statements includes an
explanatory paragraph that states substantial doubt about the Company's
ability to continue as a going concern as described in Note 1 to the Company's
consolidated financial statements. In addition, Sutter Mortgage Corporation's
recurring losses from operations and its net capital deficiency raise
substantial doubt about Sutter Mortgage's ability to continue as a going
concern, and the report of its independent public accountants also includes an
explanatory paragraph that states substantial doubt about Sutter Mortgage's
ability to continue as a going concern, as described in Note 1 to Sutter
Mortgage's financial statements. See "Selected Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Note 1 of Notes to Consolidated Financial Statements of Virtual
Mortgage Network, Inc. and Subsidiaries and Note 1 of Notes to Financial
Statements of Sutter Mortgage Corporation.
UNDEVELOPED MARKET
The market for video-conference loan origination is relatively new,
undeveloped and uncertain. As is typical in the case of a new and evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk. Because the
market for the Company's LoanMaker
8
<PAGE>
System is new and evolving, it is difficult to predict the future growth rate,
if any, and size of this market. Marketing and sales techniques in this area
are not well established nor are the bases for competition. The Company
believes competition will be based principally on quality of service, speed,
price and convenience. There can be no assurance that a significant market for
video-conference loan origination will develop or that the Company's system
and loan products will be accepted in any expanded market. If the market fails
to develop or develops more slowly than expected, or if the Company's products
and services do not achieve significant market acceptance, the Company's
business, operating results and financial condition would be materially
adversely affected.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
As a result of the Company's extremely limited operating history, the
Company does not have historical financial data for a significant number of
periods on which to base planned operating expenses. A substantial portion of
the Company's operating expenses are related to personnel, facilities and
marketing programs. The level of spending for these expenses is based, in
significant part, on the Company's expectations of future revenues. If actual
revenue levels are below management's expectations, the Company's business,
operating results and financial condition are likely to be adversely affected.
Loan fee revenues in any quarter are substantially dependent on loans booked
and closed in that quarter, and revenues for any future quarter are not
predictable with any significant degree of accuracy. For these reasons, the
Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
The Company expects to experience significant fluctuations in future
quarterly operating results, which may be caused by many factors, including
the following: the delay in installation of ISDN telephone lines; seasonal
fluctuations in the mortgage origination business; software bugs or other
product quality problems; competition in the mortgage loan origination
business; loan product pricing competition; reduction in demand for
residential mortgages; changes in operating expenses; borrower cancellations
of loans in progress; and general economic conditions. Due to the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and
investors. In that event, the price of the Company's Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON PRINCIPAL PRODUCT AND MORTGAGE LENDING INDUSTRY
The Company's growth is dependent on the success of the LoanMaker System. As
a result, any factors adversely affecting residential real estate sales in any
geographic area where the Company has placed equipment, a downturn in the
economy as a whole, a sharp rise in interest rates or other developments in
the mortgage industry could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, members of
Congress and other government officials from time to time have suggested the
elimination of the mortgage interest deduction for federal income tax
purposes, either entirely or in part, based on the borrower's income, type of
loan or principal amount. Any legislation reducing the benefit of the mortgage
interest deduction could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
financial performance will depend in significant part on its ability to
develop and introduce its loan origination system into point-of-sale locations
such as real estate offices, as well as its ability to enhance and accelerate
borrower acceptance of its products and services. There can be no assurance
that the Company's video-conferencing method will achieve wide acceptance from
borrowers or real estate professionals. See "Business--Products" and "--
Competition."
RELIANCE ON THIRD PARTIES
The success of the Company and its business are dependent on, among other
things, its agreements and relationships with third parties. In particular,
the Company relies on the participation of real estate broker-owners and the
lenders on the LoanMaker System. The withdrawal of all or substantially all of
the real estate broker-
9
<PAGE>
owners or the lenders on the LoanMaker System would have a material adverse
effect on the Company's business, operating results and financial condition.
The Company is also dependent on the marketing efforts of Interealty Corp.
("Interealty") and the technical services of Data General Corporation ("Data
General"). The failure of either company to fully perform its contractual
obligations to the Company or to terminate their agreements with the Company
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Strategic Relationships." As
of September 30, 1997, the Company was past due on lease payments to Data
General of approximately $1,231,000. While the Company and Data General are
negotiating a repayment plan, Data General continues to provide support
services but will not lease additional LoanMaker Systems to the Company at
this time. The Company had 57 LoanMaker Systems on hand on September 30, 1997.
There can be no assurance, however, that the Company and Data General will be
able to successfully negotiate a repayment plan, that Data General will
continue to provide services to the Company while lease payments are past due
or that the number of LoanMaker Systems available to the Company will be
sufficient to meet the Company's installation needs. The Company's mortgage
bank depends on independent mortgage brokers in its net branch system for a
portion of its loan originations. The net branch operators may terminate their
relationship with the Company at any time. The withdrawal of a significant
number of net branch operations could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Mortgage Banking Operations."
INTEGRATION OF THE BUSINESSES
In October 1997, the Company acquired Sutter Mortgage. No assurance can be
given that difficulties will not be encountered in the integration of Sutter
Mortgage's business with that of the Company. Any delays or unexpected costs
in connection with such integration could have a material adverse effect on
the Company's business, operating results and financial condition. The
transition to a combined company involving Virtual Mortgage and Sutter
Mortgage will require integration of the companies' management and
coordination of the companies' new product development and sales and marketing
efforts. The difficulties of such assimilation may be increased by the
necessity of coordinating geographically separated organizations, integrating
personnel with disparate business backgrounds and combining different
corporate cultures. In addition, the process of integrating Virtual Mortgage
and Sutter Mortgage will require substantial attention from management and
could cause an interruption in the business activities of Virtual Mortgage and
Sutter Mortgage, which could have an adverse effect on their combined
operations. See "Sutter Mortgage Acquisition" and "Pro Forma Combined
Financial Data for the Company."
CONCENTRATION OF MORTGAGE BANKING OPERATIONS IN CALIFORNIA
A majority of the dollar volume of loans originated by the Company
(including Sutter Mortgage) during 1996 were secured by properties located in
California. No other state contained properties securing more than 10% of the
dollar volume of loans originated by the Company during 1996. Although the
Company has deployed the LoanMaker System in several states outside of
California, the Company is likely to continue to have a significant amount of
its loan originations in California for the foreseeable future. Consequently,
the Company's business, operating results and financial condition are
dependent on general trends in the California economy and its residential real
estate market. Residential real estate market declines may adversely affect
the value of the properties securing loans. Reduced collateral value will
adversely affect the volume of the Company's loans as well as the pricing of
the Company's loans and the Company's ability to sell its loans.
RISKS RELATED TO LOAN SALES AND MORTGAGE BANKING PRODUCTS
The Company, through Sutter Mortgage, engages in loan sales pursuant to
agreements that generally require the Company to repurchase or substitute
loans in the event of a breach of a representation or warranty made by the
Company to the loan purchaser, any misrepresentation during the mortgage loan
origination process or, in some cases, upon any fraud or first payment default
on such mortgage loans. In some cases, the remedies available to a purchaser
of loans from the Company may be broader than those available to the Company
against the originators of such loans, and, even where this is not the case,
should a purchaser enforce its remedies against the Company, the Company may
not always be able to enforce its remedies against the related originators.
Any claims asserted against the Company in the future by one of its loan
purchasers may result in liabilities or legal expenses that could have a
material adverse effect on the Company's business, operating results and
financial condition.
10
<PAGE>
Although the Company, through Sutter Mortgage, sells substantially all of
the mortgage loans it originates or purchases, the Company retains some degree
of credit risk on substantially all of the loans it sells. During the period
of time that the loans are held for sale, the Company is subject to the
various business risks associated with the lending business, including
borrower default, foreclosure and the risk that a rapid increase in interest
rates would result in a decline of the value of loans held for sale to
potential purchasers.
RISKS RELATED TO DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its senior management and key technical personnel, including Michael Barron,
Chairman of the Board and Chief Executive Officer, John Murray, President,
Chief Financial Officer and Chief Operating Officer, Robert Gottesman, Vice
President, Information Technology and Ronald Morck, Vice President--Mortgage
Operations and President of Sutter Mortgage. In particular, the Company's
success depends substantially on the continued efforts of its senior
management team, which currently is composed of a small number of individuals.
The Company does not carry key person life insurance on any of its senior
management personnel. The loss of the services of any of these persons could
have a material adverse effect on the business, operating results and
financial condition of the Company.
The Company's future success also depends on its continuing ability to
attract and retain highly qualified technical and managerial personnel.
Competition for personnel is intense and there can be no assurance that the
Company will be able to retain its key managerial and technical employees or
that it will be able to attract and retain additional highly qualified
technical and managerial personnel in the future. The inability to attract and
retain the necessary technical and managerial personnel could have a material
and adverse effect upon the Company's business, operating results and
financial condition. See "Management."
Michael Barron was the Chairman and Chief Executive Officer of Sold
Corporation ("Sold"), a private software company, from November 1982 to August
1988 and again from March 1989 to September 1989. Sold experienced substantial
financial difficulties and ceased doing business in September 1989. During the
period when Mr. Barron was not Chief Executive Officer, Sold failed to meet a
portion of its federal payroll tax obligations, and in 1989 Mr. Barron, among
others, was personally assessed, pursuant to Internal Revenue Code Section
6672, a Trust Fund Recovery Penalty by the Internal Revenue Service ("IRS"),
for these taxes in the aggregate amount of approximately $500,000. In
addition, Mr. Barron was the subject of a number of judgment liens of Sold's
creditors in connection with personal guarantees from Mr. Barron. These liens
totaled in the aggregate approximately $215,000. A settlement was reached
between Mr. Barron and the lienholders, and all of the liens have been removed
as of October 1997. Mr. Barron is presently negotiating with the IRS with
respect to the tax assessment against him and expects to reach a settlement no
later than early December 1997. To finance the settlement, Mr. Barron intends
to borrow against certain of his shares of Common Stock of the Company, which
are expected to be pledged as collateral to secure the loan. The pledgee of
such shares will be required to agree to the 24-month Provisional Lock-up
Agreement with Barington Capital Group L.P. ("Barington"). See "Shares
Eligible for Future Sales." Following the release of such shares by the
pledgee, all of Mr. Barron's shares of Common Stock will be pledged to secure
certain indemnification obligations to the Company relating to a threatened
lawsuit involving the Company. See "Business--Legal Proceedings."
ACCESS TO FUNDING SOURCES
Sutter Mortgage requires access to warehouse credit facilities in order to
fund loan originations pending the sale of such loans. Sutter Mortgage
currently has the following warehouse lines of credit: (i) a $30,000,000
warehouse line of credit with Paine Webber Real Estate Securities, Inc.
secured by mortgage loans that has no stated maturity date with a balance of
$14,781,120 at June 30, 1997; (ii) a $10,000,000 warehouse line of credit with
Imperial Bank maturing on November 29, 1997 with a balance of $862,529 at June
30, 1997; (iii) a $5,000,000 warehouse line of credit with First Collateral
Services, Inc. maturing on December 31, 1997 with a balance of $3,445,762 at
June 30, 1997; and (iv) a $5,000,000 warehouse line of credit with Prudential
Securities Realty Funding Corporation that has no stated maturity date with a
balance of $2,038,392 at June 30, 1997. All warehouse lines of credit are paid
down upon sale of the loans. The Company also maintains a $150,000 line of
credit with Imperial Bank that matures in November 1997 and had a balance of
$150,000 at June 30, 1997. The Company will need to add new credit facilities,
as well as renew and expand its existing credit facilities in order to finance
its growing level of loan production.
11
<PAGE>
Although the Company expects to be able to maintain and expand Sutter
Mortgage's existing warehouse lines of credit, or to obtain replacement or
additional financing as the current arrangements expire or become fully
utilized, there can be no assurance that such financing will be available on
favorable terms, if at all. In addition, there can be no assurance that Sutter
Mortgage will be able to continue to sell its loans on favorable terms, if at
all. To the extent that the Company is unable to access adequate capital to
fund Sutter Mortgage's loan production, Sutter Mortgage may have to curtail
its loan origination activities, which could have a material adverse effect on
the Company's ability to execute its growth and operating strategies and could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Liquidity and Capital Resources."
FUTURE CAPITAL REQUIREMENTS
The Company's business plan will require significant amounts of working
capital. The Company's mortgage banking business requires substantial cash to
support its operating activities and growth plans. In order to support its
loan originations, the Company is required to make a significant cash
investment that includes the funding of: (i) fees paid to brokers in
connection with generating loans through wholesale and net branch lending
activities, (ii) commissions paid to sales employees to originate loans, and
(iii) the difference between the amount funded per loan and the amount
advanced under warehouse facilities. The Company's mortgage banking business
also requires cash to fund ongoing operating and administrative expenses,
including capital expenditures and debt service. The Company has principally
funded its growth historically through equity and debt financing, and through
revenues from operations, to a lesser extent. There can be no assurance that
the proceeds of the Offering, together with available cash, bank lines of
credit and cash from operations, will be sufficient to satisfy the Company's
business plan. If additional funds are not available, the Company's plans
could be significantly curtailed, or the Company could be forced to obtain
financing on terms that cause the Company's operating results to be adversely
affected.
The Company may expand its product line through the acquisition of
complementary businesses, products and technologies. However, the Company has
no present plans, agreements or commitments to make any acquisitions.
Acquisitions involve numerous risks, including difficulties in the
assimilation of operations and products, the ability to manage geographically
remote units, the diversion of management's attention from other business
concerns, the risks of entering markets in which the Company has little or no
experience or expertise and the potential loss of key employees of any
acquired companies. In addition, acquisitions may involve the expenditure of
significant funds. There can be no assurance that an acquisition would result
in long-term benefits to the Company or that management would be able to
manage effectively the resulting business. See "Use of Proceeds,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
MANAGEMENT OF GROWTH
The Company is experiencing an increase in the demand for the LoanMaker
System and in the number of its customers and employees. This growth has
placed, and will continue to place, strains on the Company's management,
operations and systems. The Company's ability to compete effectively will
depend, in part, upon its ability to expand, improve and effectively use its
operational, management, marketing, sales and financial systems as
necessitated by changes in the Company's business. Any failure by the
Company's management to effectively anticipate, implement and manage the
changes required to sustain the Company's growth could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company will be able to manage effectively
this change.
RISKS RELATED TO THE INDUSTRY
COMPETITION
The Company's primary competition comes from traditional mortgage brokers,
mortgage banks, savings and loan institutions and commercial banks. According
to the National Mortgage News, in 1996 third party
12
<PAGE>
mortgage brokers originated approximately 53% of all residential mortgages,
and retail divisions of mortgage banks originated the remaining 47%. The
residential mortgage brokerage business is highly fragmented with
approximately 24,000 individuals operating as independent mortgage brokers,
according to National Mortgage News. Since the Company's primary marketing
strategy is to distribute its LoanMaker System through major real estate
brokers' offices, the Company's most intense direct competition is from the
local independent mortgage brokers in each community in which the Company
operates.
The market for on-line, video-conferencing transaction processing in the
mortgage lending market is new and at present there are relatively few
competitors. Competitors in the video-conferencing mortgage loan origination
market include FlagStar Bank, Shelter Mortgage and EMB Financial Corp., all
mortgage banks that presently use video-conferencing technology to deliver
only their own mortgage lending products and do not provide a multi-lender
system offering the products of other lenders. AmeriNet Financial Systems,
Inc. currently represents the only provider of a multi-lender video-
conferencing service similar in some respects to the Company's service. In
addition, Alltel Corporation, a telecommunications and information services
company which provides mortgage payment processing and communications services
for a number of major mortgage lenders, has indicated that it may in the
future offer a video-conferencing capability.
The Company also faces competition from mortgage lenders using the Internet.
Most mortgage lenders have websites on the Internet which enable Internet
users to complete a mortgage loan application and search among the particular
lender's products. The Company believes the website serves primarily as a lead
generation tool and each loan application is later followed up by a call from
a loan officer who proceeds to approve and process the mortgage loan in the
traditional manner. In addition, certain information providers such as HSH
Associates quote on the Internet lending rates and other information from a
multitude of lenders. As a result, borrowers currently can use the Internet
either to obtain information about mortgage loans broadly or to gain access to
a single lender's products.
Most of the Company's current and potential competitors are substantially
larger, have greater name recognition, and have more capital and resources
than the Company. The Company expects more competition in the future from
existing and new competitors producing video-conference loan origination
systems and other alternatives to traditional mortgage lending methods, such
as the sale of mortgages over the Internet or at retail shopping
establishments. The ability of the LoanMaker System to compete effectively
will be dependent in part on consumer acceptance of video-conference loan
origination in general and industry acceptance of the Company's products and
services in particular. There can be no assurance that the Company's current
and potential competitors will not develop software or other business
practices that are more effective or achieve greater market acceptance than
the Company's current or future products or that the Company's technologies
and products would not be rendered obsolete by these developments or that
competitive pressures resulting from these competitors will not otherwise have
a material adverse effect on the Company's business, operating results and
financial condition. An increase in competition could reduce the fees the
Company is able to collect for its services, thereby lowering the Company's
revenues and margins, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Competition."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; LIMITED PROTECTION OF TECHNOLOGY
The Company's success and ability to compete depends in part upon its
proprietary technology. The Company regards certain of its technology as
critical to its business and attempts to protect this technology under
trademark, copyright and trade secret laws and through the use of employee,
consultant and vendor confidentiality agreements. The source code for the
Company's proprietary software is protected both as a trade secret and as a
copyrighted work. These measures, however, afford only limited protection, and
the Company may not be able to maintain the confidentiality of its technology.
There can be no assurance that others will not develop technologies that are
similar or superior to the Company's technology. It may be possible for a
third party to copy or otherwise obtain and use the Company's technology
without authorization, or to develop similar technology independently. In
addition, effective copyright and trade secret protection may be unavailable
or limited in certain foreign countries. Policing unauthorized use of the
Company's technology is
13
<PAGE>
difficult. While the Company seeks to protect its technology, there can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that these confidentiality agreements will be enforceable.
In addition, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement or invalidity. The computer
software market is characterized by frequent and substantial intellectual
property litigation. Litigation of that sort could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company also relies on certain technology that it licenses from third
parties, including software that is integrated with internally developed
software and used with the Company's technology to perform key functions.
There can be no assurance that these third party technology licenses will
continue to be available to the Company on commercially reasonable terms. The
loss of or inability to maintain any of these technology licenses could result
in delays or reductions in installations of LoanMaker Systems until equivalent
technology could be identified, licensed and integrated. Any delays or
reductions in installations of LoanMaker Systems could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Technology."
RISK OF PRODUCT DEFECTS AND SYSTEM FAILURES; RESPONSES TO TECHNOLOGICAL
CHANGES
Although the Company has not experienced material adverse effects resulting
from undetected software errors or hardware failures in the past, there can be
no assurance that these failures will not happen in the future. Any system
failures could harm the Company's reputation for providing high-quality
service and timely closure of loans, making it more difficult for the Company
to deploy the system at new locations in the future, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
The Company's operations are dependent in part upon its ability to protect
its operating systems against physical damage from fire, floods, earthquakes,
power loss, telecommunications failures, break-ins and similar events. The
Company does not presently have redundant, multiple-site capacity. Despite the
implementation of network security measures by the Company, its servers are
also vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with the Company's computer systems. The occurrence of
any of these events could result in interruptions, delays or cessations in
service to users of the LoanMaker System, which could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Facilities."
To remain competitive, the Company must continue to enhance and improve its
existing proprietary software system and integrate it with updated versions of
new video-conferencing hardware and software products. The Company must be
able to expand rapidly its network of video-conferencing customers and provide
high-quality customer service to a wide, divergent geographical customer base.
If the Company is unable to maintain the integrity of its computer network
because of telephone lines or computer failures or is unable to introduce new
software or hardware changes and respond to industry changes on a timely
basis, its business, operating results and financial condition could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--The LoanMaker
System Solution," "Business--Technology" and "Business--Competition."
GOVERNMENT REGULATION AND UNCERTAINTIES OF FUTURE REGULATION
The mortgage banking and mortgage brokerage industries are highly regulated
industries. The mortgage banking operations of the Company are subject to the
rules and regulations of, and examinations by, the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Department of Housing and Urban Development ("HUD"), the Veterans
Administration ("VA"), the Rural Housing Service and state regulatory
authorities with respect to originating, underwriting, making, selling,
securitizing and servicing residential mortgage loans. In addition, there are
other federal and state statutes and regulations affecting such activities.
These rules and regulations, among other things, impose licensing
14
<PAGE>
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspection and appraisals of properties,
require credit reports on prospective borrowers, regulate payment features,
establish collection, foreclosure and claims handling procedures and, in some
cases, fix maximum interest rates, fees and loan amounts. HUD lenders such as
Sutter Mortgage are required annually to submit to the Federal Housing
Commissioner audited financial statements. Sutter Mortgage's affairs are also
subject to examination by the Federal Housing Commissioner at all times to
assure compliance with HUD regulations, policies and procedures.
Mortgage origination and processing activities are subject to the Equal
Credit Opportunity Act, the Federal Truth-In-Lending Act, the Real Estate
Settlement Procedures Act, the Fair Credit Reporting Act, the Home Mortgage
Disclosure Act, the Right to Financial Privacy Act, among other laws, and the
regulations promulgated thereunder, which prohibit discrimination, require the
disclosure of certain information to borrowers concerning credit and
settlement costs, regulate the access to and use of credit records maintained
by credit bureaus, require the disclosure of loan origination information to
public officials and citizens of the United States and protect the borrower's
privacy of financial information, among other duties and obligations. Failure
to comply with regulatory requirements can lead to loss of approved status,
termination of servicing contracts without compensation to the servicer,
demands for indemnification or loan repurchases, class action lawsuits,
administrative enforcement actions and criminal prosecution.
Virtual Mortgage is currently licensed as a mortgage broker in California,
Connecticut, Louisiana, Maryland, Oregon, Utah and Washington and is in the
process of applying for a broker license in Florida. The Company believes
Virtual Mortgage is exempt from the broker license requirements in Alaska,
Colorado, New Mexico, Texas and Wyoming. Sutter Mortgage is currently licensed
as a lender in Arizona, California, Florida, Idaho, New Jersey and Utah and
has applied for a lender's license in Illinois and Virginia. The Company
believes that Sutter Mortgage is exempt from the lender license requirements
in Alaska, Oregon, Colorado, Minnesota, Nevada, New Mexico and Texas.
Any person who acquires more than 10% of the Company's voting stock may
become subject to certain state licensing regulations requiring such person
periodically to file certain financial and other information. If any person
holding more than 10% of the Company's stock refuses to adhere to such filing
requirements, the Company's existing licensing arrangements could be
jeopardized. The loss of required licenses could have a material adverse
effect on the Company's business, operating results and financial condition.
RISKS RELATED TO THE OFFERING
NO PRIOR MARKET FOR THE COMMON STOCK; POTENTIAL LIMITED TRADING MARKET;
VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Application is being made to have the Common Stock approved for quotation on
The Nasdaq National Market. However, there can be no assurance that an active
trading market for the Common Stock will develop or be sustained or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined through
negotiations between the Company and the Representatives of the Underwriters
and may not be indicative of prices that will prevail in the trading market.
See "Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. The trading price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to the
Company and other events or factors. In addition, the stock market in general
has experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the trading price of the Company's Common
Stock, regardless of the Company's operating performance.
15
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE; NO PRIOR TRADING MARKET; REGISTRATION RIGHTS
Sales of a substantial number of shares of the Company's Common Stock could
have the effect of depressing the prevailing market price of its Common Stock.
Upon completion of the Offering, the Company will have outstanding 6,619,229
shares of Common Stock (assuming no exercise of outstanding options or
warrants after September 30, 1997, other than warrants which are deemed
automatically exercised for shares of Common Stock upon completion of the
Offering) and 2,250,000 shares of Series A Preferred Stock (which are
convertible into 561,129 shares of Common Stock as of October 15, 1997). Of
these shares, the 4,000,000 shares of Common Stock sold in the Offering
(4,600,000 if the Underwriters' over-allotment option is exercised in full)
will be freely transferable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144
of the Securities Act (an "Affiliate"), which shares will be subject to the
resale limitations of Rule 144 adopted under the Securities Act. Officers,
directors and stockholders of the Company holding all of the remaining
2,619,229 outstanding shares of Common Stock prior to the Offering and all
holders of the Company's Series A Preferred Stock and of warrants and options
to acquire Common Stock have agreed (the "24-Month Provisional Lock-up
Agreement") not to sell such Common Stock and such related securities for 24
months following the effective date of the Offering, without the consent of
Barington, except that (i) such 24-month period shall be reduced to 12 months,
if the closing sale price of the Common Stock on the Nasdaq National Market
has been at least 200% of the initial public offering price per share of
Common Stock for a period of 20 consecutive trading days ending within five
days of the date of such sale, and such sale is completed at a price in excess
of 200% of the initial public offering price per share of Common Stock (the
"Stock Price Out") and (ii) each such holder may sell up to 50% of such
holder's shares of Common Stock commencing 18 months following the effective
date of the Offering, without regard to the market price of the Common Stock.
In addition, the Company has agreed, subject to limitations, not to sell any
shares of Common Stock for 24 months following the effective date of the
Offering, without the consent of Barington, except as permitted under the
Stock Price Out to the 24-Month Provisional Lock-up Agreement. The Company has
been advised by Barington that it has no general policy with respect to
granting releases from such lock-up agreements. Barington may, in its
discretion and without notice to the public, waive the lock-up and permit
sales prior to the expiration of the lock-up period. See "Shares Eligible for
Future Sale" and "Underwriting."
Concurrent with the Offering and under the registration statement of which
this Prospectus forms a part, the Company has also registered for resale
855,086 shares held by certain stockholders of the Company who participated in
certain debt and equity financings of the Company and 65,000 shares of Common
Stock issued in connection with the Acquisition, which would under certain
circumstances permit the holders to resell shares without complying with Rule
144. See "Sutter Mortgage Acquisition," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Shares Eligible for Future Sale." The holders of all 920,086
of such registered shares have agreed to the 24-Month Provisional Lock-up
Agreement.
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the trading price of the Common Stock. Nevertheless, sales of substantial
amounts of these shares of Common Stock in the public market, or the
perception that these sales could occur, could adversely affect the trading
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities. Sales of
substantial amounts of Common Stock under Rule 144, Regulation S or otherwise,
or even the potential for such sales, could depress the market price of the
Common Stock, and could impair the Company's ability to raise capital through
the sale of its equity securities. See "Shares Eligible for Future Sale,"
"Underwriting" and "Description of Capital Stock."
BROAD MANAGEMENT DISCRETION IN ALLOCATION OF PROCEEDS
Of the $26,250,000 estimated net proceeds of the Offering, the Company
expects to devote approximately $16,325,000 to purposes specifically
identified by the Company. See "Use of Proceeds." The remaining $9,925,000 of
the net proceeds the Company intends to devote to new product development and
general
16
<PAGE>
corporate purposes, including working capital and capital expenditures, but
has not yet identified specific uses for this portion of the proceeds. The
Company's management will retain broad discretion as to the allocation of the
proceeds of the Offering. The failure of management to apply the funds
effectively could have a material adverse effect on the Company's business,
operating results and financial condition. See "Use of Proceeds."
DILUTION
The initial public offering price is expected to be substantially higher
than the deficit net tangible book value per share of the currently
outstanding Common Stock. Investors purchasing shares of Common Stock in the
Offering will therefore suffer immediate and substantial dilution. Additional
dilution will occur upon exercise of outstanding options and warrants granted
by the Company and upon the conversion of the Company's outstanding Preferred
Stock to Common Stock. See "Dilution" and "Description of Capital Stock--
Preferred Stock."
CERTAIN ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
The Company's Articles of Incorporation enable the Company's Board of
Directors to issue up to 10,000,000 shares of Preferred Stock and to determine
the rights, preferences, privileges and restrictions, including voting rights
of those shares, without any further vote or action by the stockholders. As of
September 30, 1997, 2,250,000 shares of Series A Preferred Stock were
outstanding. Each share of Series A Preferred Stock, as of October 15, 1997,
is convertible at the option of the holder into .249 shares of Common Stock,
which number is subject to upward adjustment if the Company issues certain
equity securities in the future for less than $4.01 per share. Holders of
Series A Preferred Stock (i) are entitled to receive dividends before any
dividends are paid on the Company's Common Stock, (ii) hold a liquidation
preference in the amount of $1.00 for each share of Series A Preferred Stock
and (iii) hold the right to vote with the Common Stock on all matters
submitted to the stockholders, with each holder having, as of October 15,
1997, .249 votes per share of Series A Preferred Stock. After June 1, 1998,
holders of a majority of the Series A Preferred Stock may require the Company
to redeem the Series A Preferred Stock, if lawfully permitted to do so, at
$1.10 per share. Holders of a majority of the outstanding Series A Preferred
Stock also have the right to approve certain Company actions, including the
sale or merger of the Company, certain amendments to the Company's Articles of
Incorporation and the declaration of dividends on the Company's Common Stock.
Such voting and approval rights could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, the conversion of the Series A Preferred
Stock into Common Stock, and the sale of such Common Stock into the market,
could have a material adverse effect on the market value of the Common Stock.
The rights of the holders of Common Stock will be subject to and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. While the Company has no present intention to
issue additional shares of Preferred Stock, the issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. See "Description of Capital Stock--Preferred Stock."
The Articles of Incorporation provide that the liability of the directors of
the Company for monetary damages to the Company or its stockholders are
eliminated to the fullest extent permissible under Nevada law. The Articles of
Incorporation contain provisions authorizing the Company to indemnify its
directors and officers to the fullest extent permitted by the laws of Nevada.
While the Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors, they
could also serve to insulate directors of the Company against liability for
actions that damage the Company or its stockholders. See "Description of
Capital Stock--Limitation of Liability of Directors."
17
<PAGE>
The Company's Articles of Incorporation and Bylaws also provide for (i) a
classified board of directors with staggered three year terms, (ii) advance
notice requirements for stockholder proposals and director nominations, (iii)
a prohibition on stockholder action by written consent and (iv) limitations on
calling stockholder meetings. These provisions, along with certain provisions
of the Nevada General Corporation Law applicable to the Company, could have
the effect of discouraging certain attempts to acquire the Company which could
deprive the Company's stockholders of the opportunity to sell their shares of
Common Stock at prices higher than prevailing market prices.
ABSENCE OF DIVIDENDS
The Company has never declared or paid dividends on its Common Stock or
Preferred Stock and does not anticipate declaring or paying any cash dividends
in the foreseeable future. In addition, the Company's Articles of
Incorporation preclude the payment of dividends to holders of Common Stock
until quarterly non-cumulative dividends have been paid to the holders of the
Company's Preferred Stock at the minimum rate of 10% per annum, when and if
declared by the Company's Board of Directors. See "Dividend Policy" and
"Description of Capital Stock--Preferred Stock."
SUTTER MORTGAGE ACQUISITION
In October 1997, the Company acquired Sutter Mortgage Corporation, a
residential mortgage bank and now wholly-owned subsidiary of the Company. The
adjusted purchase price for Sutter Mortgage was approximately $4,488,000,
subject to further adjustment. Of the purchase price, $1,500,000 was paid at
the closing of the Acquisition and, concurrent with the closing of the
Offering, an additional $1,000,000 will be paid to the former shareholder of
Sutter Mortgage, $1,500,000 will be funded into an escrow account and Common
Stock of the Company valued at approximately $488,000 (based on the initial
public offering price), subject to further adjustment, will be issued to the
former shareholder. The $1,500,000 held in escrow will be available to satisfy
any claims the Company may have against the former shareholder with respect to
the Acquisition. The escrow will terminate on the later of one year or the
resolution of all outstanding claims. The shares of Common Stock issued to the
former shareholder are required to be registered for resale with the Offering
or pursuant to a similar registration statement declared effective at or about
the same time as the Offering. Such shares are subject to a 24-Month
Provisional Lock-up Agreement entered into between the former shareholder and
the Representatives. See "Use of Proceeds," "Selected Financial Information,"
"Pro Forma Combined Financial Information," "Management's Discussion and
Analysis of Financial Conditions and Results of Operations," "Business--
Mortgage Banking Operations" and "Shares Eligible for Future Sale."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 4,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $7.50 per share, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be $26,250,000
($30,300,000 if the Underwriters' over-allotment option is exercised in full).
The Company intends to use approximately $6,600,000 of the proceeds to repay
outstanding principal and interest under (i) a $200,000 note that presently
bears interest at 15% per annum and matured in March 1997; (ii) a $50,000 note
that bears interest at 5% and matured in March 1995 and (iii) $5,400,000
Phase I and Phase II Bridge Notes (as defined and discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources"). The Phase I and Phase II Bridge Notes
mature on the earlier of the consummation of the Offering or January 6, 1998,
and presently accrue interest at the rate of 15% per annum.
The Company plans to use $1,000,000 of the proceeds to fund a deferred
portion of the purchase price of the Acquisition, with up to an additional
$1,500,000 to be funded into an escrow account at the closing of the Offering.
See "Sutter Mortgage Acquisition."
In addition, the Company intends to use approximately $3,150,000 to purchase
capital assets, primarily new LoanMaker Systems as current leases expire (at a
cost of approximately $2,700,000), facility improvements required to expand
the Company's video-conferencing centers (at a cost of approximately $250,000)
and an upgraded communication system to enhance the operation of the Company's
video-conferencing centers (at a cost of approximately $200,000). The Company
also expects to utilize approximately $3,600,000 to increase staffing
primarily in sales and video-conferencing center personnel and to use
approximately $475,000 for advertising and marketing expenses.
The foregoing represents the Company's best estimate of its allocation of
the estimated net proceeds of the Offering. Pending such uses, the Company
intends to invest the Offering proceeds in short-term investment grade
interest-bearing obligations. Approximately $9,925,000 of anticipated proceeds
will be used for new product development and general corporate purposes,
including working capital, capital expenditures and the payment of past due
lease payments to Data General Corporation. Such amounts are subject to
reapportionment among the other categories listed above or among additional
categories in response to, among other things, changes in the Company's plans,
regulations and economic and industry conditions.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business
and does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's Articles of Incorporation
preclude the payment of dividends to holders of Common Stock until dividends
have been paid to the holders of the Company's Redeemable Series A Preferred
Stock at the minimum rate of 10% per annum, when and if declared by the
Company's Board of Directors. The Preferred Stock is presently convertible
into Common Stock at the option of the holder. See "Description of Capital
Stock--Preferred Stock."
19
<PAGE>
DILUTION
As of June 30, 1997, after giving effect to the Acquisition and the net
proceeds of $4,811,000 from the sale of 919,985 shares of Common Stock
subsequent to June 30, 1997 (599,000 shares of which have been subscribed but
not paid for as of October 20, 1997), the Company had a pro forma net tangible
book value of $(6,523,000), or $(2.49) per share of the number of pro forma
shares of Common Stock outstanding. Pro forma net tangible book value per
share is determined by dividing the pro forma net tangible book value of the
Company (total tangible assets less total liabilities less Series A Preferred
Stock) by the number of pro forma shares of Common Stock outstanding as of
June 30, 1997. Pro forma shares of Common Stock outstanding at June 30, 1997
was 2,619,229 (including 368,136 warrants which are deemed automatically
exercised upon the closing of the Offering, and 984,985 common shares issued
subsequent to June 30, 1997, which includes an estimated 65,000 shares to be
issued in connection with the Acquisition). The pro forma shares do not
include 2,250,000 Series A Preferred Stock which are convertible into 561,129
common shares at the discretion of the preferred stockholders. After giving
effect to the sale by the Company of the 4,000,000 Shares of Common Stock
offered by the Company hereby at an assumed initial public offering price per
share of $7.50, the Company's pro forma net tangible book value (after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company) would have been $19,727,000 or $2.98 per
share of pro forma Common Stock. This represents an immediate increase in net
tangible book value of $5.47 per share to existing stockholders and an
immediate dilution of $4.52 per share to new investors purchasing shares in
the Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $7.50
-----
Pro forma net tangible book value per share before the
Offering................................................... $(2.49)
Increase per share attributable to new investors............ $ 5.47
------
Pro forma net tangible book value per share after the
Offering..................................................... $2.98
-----
Dilution per share to new investors........................... $4.52
=====
</TABLE>
The following table sets forth the relative investments of all existing
stockholders and new investors purchasing shares of Common Stock from the
Company in the Offering. The calculations are based on an assumed initial
public offering price of $7.50 per share (before deducting underwriting
discounts and offering expenses).
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 2,619,229 39.6% $10,070,492 25.1% $3.84
New investors............... 4,000,000 60.4% 30,000,000 74.9% $7.50
--------- ----- ----------- -----
Total..................... 6,619,229 100.0% $40,070,492 100.0%
========= ===== =========== =====
</TABLE>
As of the date hereof, there were 826,133 shares of Common Stock issuable
upon the exercise of options and warrants outstanding at a weighted average
exercise price of $6.65 per share excluding the warrants that will be deemed
to be automatically exercised at the closing of the Offering. The issuance of
shares upon exercise of these options and warrants is not reflected in the
preceding tables. If all of the outstanding options and warrants were
exercised in full, the dilution per share to new investors would be $4.11.
These exercises would increase the number of shares held by existing
stockholders to 3,445,362 shares, or 46.3% of the total number of shares of
Common Stock to be outstanding after the Offering, and would (i) decrease the
number of shares held by the new investors to 53.7% of the total number of
shares of Common Stock to be outstanding after the Offering, (ii) increase the
total consideration paid to the Company by existing stockholders to
$15,565,614, or 34.2% of the total consideration paid to the Company, and
(iii) increase the average price per share paid by existing stockholders to
$4.52. See "Management--Director Compensation" and "Stock Option Plans."
20
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of June 30, 1997; (ii) the capitalization of the Company after giving
effect to the Acquisition, including the issuance of an estimated 65,000
shares of Common Stock and notes payable of $2.5 million (of which $1.5
million is to be placed into escrow) which reflects the balance of the
purchase price for the Acquisition; net proceeds totaling $4,811,000 from the
sale of 919,985 shares of Common Stock issued subsequent to June 30, 1997
(599,000 shares of which have been subscribed but not paid for as of October
20, 1997) of which $1,500,000 is being used to fund a portion of the
Acquisition purchase price; and the issuance of $1,189,000 aggregate principal
amount of additional bridge notes subsequent to June 30, 1997; and (iii) the
capitalization of the combined companies as adjusted for the net proceeds from
the sale of 4,000,000 Shares of Common Stock offered hereby by the Company at
an assumed offering price of $7.50 per share, and the application of the net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
PRO FORMA PRO FORMA AS
ACTUAL COMBINED(1) ADJUSTED(2)(3)
-------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable-current.................. $ 4,211 $ 7,900 $ -- (3)
Lines of credit and financing
arrangements.......................... -- 21,278 21,278
======== ======== ========
Redeemable Series A Preferred Stock,
$.001 par value; 2,250,000 shares
issued and outstanding ............... $ 2,017 $ 2,017 $ 2,017
Common stock, $.005 par value;
25,000,000 shares authorized,
1,266,108 shares issued and
outstanding, actual; 6,619,229 shares
issued and outstanding, as
adjusted(4)........................... 6 6 26
Additional paid-in capital............. 4,766 10,065 36,026
Warrants............................... 1,423 1,423 1,423
Deferred compensation.................. 30 30 30
Accumulated deficit.................... (13,567) (13,567) (14,108)
-------- -------- --------
Total stockholders' (deficit) equity... (7,342) (2,043) 23,397
-------- -------- --------
Total capitalization................... $ (5,325) $ (26) $ 25,414
======== ======== ========
</TABLE>
- --------
(1) Reflects adjustments related to the Acquisition, including $1,500,000 due
upon closing of the Acquisition which is reflected as having been paid but
which is being funded from the sale of stock by the Company as noted
below, $1,000,000 due in the form of a note payable and $1,500,000 due to
be paid into an escrow account upon the closing of the Offering, and
$488,000 to give effect to an estimated 65,000 shares of Common Stock
issued in conjunction with the Acquisition. See "Sutter Mortgage
Acquisition." Also reflects adjustments related to the sale of 919,985
shares of Common Stock issued subsequent to June 30, 1997 for net proceeds
of $4,811,000 (of which 599,000 shares are subscribed but not paid for as
of October 20, 1997) of which $1,500,000 is being used to fund a portion
of the Acquistion purchase price.
(2) Includes $26,250,000 to give effect to the net proceeds from the sale of
4,000,000 shares of Common Stock offered hereby, less $269,000 of deferred
offering costs.
(3) Reflects repayment of Bridge Notes totaling $5,400,000. Also reflects
payments of $2,500,000 of remaining amounts due with respect to the
Acquisition, as noted above.
(4) Excludes 826,133 shares of Common Stock issuable upon exercise of stock
options and warrants at a weighted average price of $6.65 per share and
561,129 shares issuable upon the conversion of the Preferred Stock.
21
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information is derived from the consolidated
financial statements of the Company and the financial statements of Sutter
Mortgage, which financial statements have been audited for the period ending
December 31, 1995 and for the year ended December 31, 1996 by Arthur Andersen
LLP, independent public accountants. Reference is made to the respective
Reports of Independent Public Accountants, which includes explanatory
paragraphs that state substantial doubt about each entity's respective ability
to continue as a going concern, as described in Note 1 to the respective
entity's financial statements. The information set forth below should be read
in conjunction with the consolidated financial statements of the Company, and
the financial statements of Sutter Mortgage including the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The consolidated financial information
for the Company for the six-months ended June 30, 1996 and June 30, 1997 are
derived from the unaudited consolidated financial statements of the Company.
The financial information for Sutter Mortgage for the six-months ended June
30, 1996 and June 30, 1997 are derived from the unaudited financial statements
of Sutter Mortgage. All of the unaudited financial statement information
referred to above has been prepared on the same basis as the audited financial
statements of the Company and Sutter Mortgage included elsewhere herein, and
in the opinion of the Company's management, include adjustments consisting
only of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations. The operating results for
the six-months ended June 30, 1996 and 1997 are not necessarily indicative of
the operating results for a full year.
THE COMPANY
<TABLE>
<CAPTION>
SIX-MONTHS
ENDED JUNE 30,
----------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1996 1997
------------ ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues......................... $ 3 $ 123 $ 8 $ 392
Loan production costs............ -- 909 286 837
Technology development........... 169 532 234 428
Sales and marketing.............. 387 1,667 433 941
General and administrative....... 994 3,345 1,226 2,350
------- ------- ------- -------
Total operating expenses......... 1,550 6,453 2,179 4,556
------- ------- ------- -------
Loss from operations............. (1,547) (6,330) (2,171) (4,164)
Interest expense (income)........ (5) 696 60 865
Other expense (income)........... 2 (45) 5 13
------- ------- ------- -------
Net loss......................... $(1,544) $(6,981) $(2,236) $(5,042)
Pro forma net loss per share..... (4.89) (1.81) (3.06)
Pro forma weighted average number
of shares outstanding........... 1,428 1,236 1,649
======= ======= =======
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit)........ $(5,015) $(5,782)
Total assets..................... 780 1,127
Notes payable.................... 3,742 4,212
Redeemable Series A Preferred
Stock........................... 2,017 2,017
Stockholders' deficit............ (6,560) (7,342)
</TABLE>
SUTTER MORTGAGE
<TABLE>
<CAPTION>
YEARS ENDED SIX-MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------- --------------
1995 1996 1996 1997
------ ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $4,898 $ 7,479 $3,762 $ 4,481
Personnel expense........................... 2,547 3,925 1,772 3,125
General and administrative.................. 1,735 2,492 950 1,368
Interest expense............................ 1,005 1,583 917 700
------ ------- ------ -------
Total operating expenses.................... 5,287 8,000 3,639 5,193
------ ------- ------ -------
Income (loss) from operations............... (389) (521) 123 (712)
Income tax expense.......................... 3 2 3 --
------ ------- ------ -------
Net income (loss)........................... $ (392) $ (523) $ 120 $ (712)
====== ======= ====== =======
BALANCE SHEET DATA (END OF PERIOD):
Cash........................................ $ 266 $ 150
Mortgage loans held for sale................ 23,642 21,128
Total assets................................ 24,568 21,902
Lines of credit and financing arrangements.. 23,945 21,278
Stockholder's deficit....................... (266) (587)
</TABLE>
22
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information reflects
the Acquisition by the Company as if the Acquisition occurred on January 1,
1996. The pro forma statement of operations for the six-months ended June 30,
1997 and the year-ended December 31, 1996 assumes that the transaction
occurred January 1, 1996.
The historical financial information of the Company for the six-months ended
June 30, 1997 (unaudited) and the year-ended December 31, 1996 has been
derived from the consolidated financial statements included elsewhere in this
Prospectus. The financial information of Sutter Mortgage for the year ended
December 31, 1996 has been derived from the financial statements included
elsewhere in this Prospectus. The pro forma financial information should be
read in conjunction with the accompanying notes thereto and with the financial
statements of the Company and Sutter Mortgage. The pro forma combined
financial information does not purport to be indicative of operating results
which would have been achieved had the Acquisition occurred as of the dates
indicated and should not be construed as representative of future operating
results. In the opinion of the Company's management, all adjustments have been
made to reflect the effects of the acquisition.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
HISTORICAL PRO FORMA SIX-MONTHS SIX-MONTHS
YEAR-ENDED YEAR-ENDED ENDED ENDED
DECEMBER 31, SUTTER PRO FORMA DECEMBER 31, JUNE 30, SUTTER PRO FORMA JUNE 30,
1996 MORTGAGE ADJUSTMENTS 1996 1997 MORTGAGE ADJUSTMENTS 1997
------------ -------- ----------- ------------ ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 123 $7,479 $ -- $ 7,602 $ 392 $4,481 $ -- $ 4,873
Operating expenses...... 6,453 8,000 321 (1) 14,774 4,556 5,193 165 (1) 9,914
------- ------ ----- ------- ------- ------ ----- -------
Loss from operations.... (6,330) (521) (321) (7,172) (4,164) (712) (165) (5,041)
Interest expense........ 696 -- -- 696 865 -- -- 865
Other expense (income).. (45) -- -- (45) 13 -- -- 13
------- ------ ----- ------- ------- ------ ----- -------
Loss before taxes...... (6,981) (521) (321) (7,823) (5,042) (712) (165) (5,919)
Provision for taxes(2).. -- 2 -- 2 -- -- -- --
------- ------ ----- ------- ------- ------ ----- -------
Net loss............... $(6,981) $ (523) $(321) $(7,825) $(5,042) $ (712) $(165) $(5,919)
======= ====== ===== ======= ======= ====== ===== =======
Pro forma net loss per
share(3)............... $ (4.89) $ (5.24) $ (3.06) $ (3.45)
======= ======= ======= =======
Pro forma weighted
average shares
outstanding............ 1,428 (3) 65 (4) 1,493 1,649 (3) 65 (4) 1,714
======= ===== ======= ======= ===== =======
</TABLE>
- --------
(1) Reflects amortization of goodwill, totaling $518,000 for the year ended
December 31, 1996 and $257,000 for the six months ended June 30, 1997,
less adjustment to reflect the reduction of compensation of the prior
owner of Sutter Mortgage to a normalized ongoing amount, totaling $197,000
for the year ended December 31, 1996 and $92,000 for the six months ended
June 30, 1997.
(2) No income tax benefit has been provided for the results of the operations
of the Company and Sutter Mortgage as a full valuation allowance has been
placed on all deferred tax assets.
(3) Loss per share for the periods presented above has been computed on a pro
forma basis giving effect to the automatic exercise of warrants issued to
certain note holders upon the closing of the Offering. Historical earnings
per share is not presented as such amounts are not meaningful in light of
the exercise of the warrants. See Notes 2 and 9 to the Company's
Consolidated Financial Statements.
(4) Reflects estimated additional common shares to be issued in the
Acquisition.
23
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
FORMA
VIRTUAL SUTTER PRO FORMA JUNE 30,
MORTGAGE MORTGAGE ADJUSTMENTS 1997
Current assets: -------- -------- ----------- --------
<S> <C> <C> <C> <C>
Cash......................... $ 239 $ 150 $ -- $ 389
Prepaid expenses and other
current assets.............. 89 110 -- 199
Mortgage loans held for
sale........................ -- 21,128 -- 21,128
Deferred offering costs...... 269 -- -- 269
Deferred acquisition costs... 74 -- (74)(1) --
-------- ------- ------ --------
Total current assets....... 671 21,388 (74) 21,985
Property and equipment, net.... 437 411 -- 848
Goodwill....................... -- -- 4,480 (1) 4,480
Other assets................... 19 103 -- 122
-------- ------- ------ --------
Total assets............... $ 1,127 $21,902 $4,406 $ 27,435
======== ======= ====== ========
Current Liabilities:
Notes payable................ $ 4,211 $ -- $4,000 (2) $ 8,211
Funding line payable......... -- 21,278 -- 21,278
Accounts payable............. 1,188 285 -- 1,473
Accrued liabilities.......... 1,053 926 (669)(1) 1,310
-------- ------- ------ --------
Total current liabilities.. 6,542 22,489 3,331 32,272
-------- ------- ------ --------
Redeemable Series A Preferred
Stock......................... 2,017 -- -- 2,017
Stockholders' Deficit
Common stock................. 6 295 (295)(3) 6
Additional paid in capital... 4,766 3,907 (3,419)(3)(4) 5,254
Additional paid in capital,
warrants.................... 1,423 -- -- 1,423
Deferred compensation........ 30 -- -- 30
Intercompany receivables..... -- (753) 753 (3) --
Accumulated deficit.......... (13,567) (4,036) 4,036 (3) (13,567)
-------- ------- ------ --------
Total stockholders'
deficit................... (7,342) (587) 1,075 (6,854)
-------- ------- ------ --------
Total liabilities and
stockholders' deficit......... $ 1,127 $21,902 $4,406 $ 27,435
======== ======= ====== ========
</TABLE>
- --------
(1) To record goodwill arising from the Acquisition, based on an adjusted
purchase price of $4,488,000, as described elsewhere in this Prospectus,
and acquisition costs of approximately $100,000 which include deferred
acquisition costs of $74,000 at June 30, 1997 and a $695,000 reduction in
reserves for possible loan losses at Sutter Mortgage, resulting from
indemnification by the former shareholder of Sutter Mortgage for such
losses.
(2) To record amounts due to the shareholder of Sutter Mortgage, including
$1,500,000 due upon the closing of the Acquisition (which is being paid
from the proceeds of the sale of stock by the Company subsequent to June
30, 1997), $1,500,000 due upon the closing of the Offering payable into an
escrow account, and a note payable for $1,000,000, due in full upon the
closing of the Offering.
(3) To eliminate shareholder's equity accounts of Sutter Mortgage.
(4) Includes the estimated value of $488,000 for shares to be issued to the
shareholder of Sutter Mortgage pursuant to the terms of the Acquisition
agreement.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
The Company has developed and begun deployment of its core technology, The
LoanMaker System, a proprietary, wide-area network that utilizes PC-based
video-teleconferencing technology to allow the Company's loan counselors to
communicate face-to-face with home buyers seeking a mortgage. The Company
deploys the LoanMaker System in real estate offices at the point-of-sale for
real estate. By utilizing the technological advantages and efficiencies of an
electronic network, the Company believes that it will be able to generate loan
origination fees at a cost that is typically lower than through traditional
loan origination methods.
The Company began field testing a Beta test version of the LoanMaker System
in November 1995 and in May 1996 began its marketing test phase deployment of
the LoanMaker System. The Beta test phase deployed 30 systems at real estate
office, lender and Company locations and during the marketing phase, the
Company installed over 160 systems at real estate offices. The Company
concluded its marketing tests in late 1996 and, during the period from
November 1996 to August 1997, removed approximately 130 marketing sites and
began moving installations to larger real estate firms. The first major
customer, Latter & Blum of Louisiana, was signed in November 1996 and
installations in 15 of Latter & Blum's offices were completed during the
period from December 1996 to February 1997. The Company had 59 LoanMaker
System installations as of September 30, 1997 and has signed contracts to
install an additional 57 locations. In addition, the Company has non-binding
letters of intent to finalize contracts during the fourth quarter of 1997 for
up to an additional 128 installations. Limited revenues from the LoanMaker
System were recorded in 1996 amounting to $123,000 and during the six months
ended June 30, 1997, the Company recorded revenues of $392,000. The Company
had an accumulated deficit during the development stage of approximately
$13,567,000 as of June 30, 1997.
In October 1997, the Company acquired Sutter Mortgage for approximately
$4,500,000 in cash, promissory notes and Common Stock, subject to adjustment.
Sutter Mortgage is a delegated underwriter for 17 of the 30 lenders presently
on the LoanMaker System, which enables Sutter Mortgage's underwriters, via
video-conferencing, to increase the speed of many of the underwriting
decisions during the loan approval process and to increase the percentage of
loans that can be approved on-line within one or two hours. Sutter Mortgage
was established in 1985, and during its fiscal year ended December 31, 1996,
Sutter Mortgage reported aggregate revenues from loan origination and related
fees, interest earned on mortgage loans held pending their sale and net gains
on the sale of mortgage loans of approximately $7,479,000 and reported a loss
from operations of $523,000. During the six months ended June 30, 1997, Sutter
Mortgage recorded aggregate revenue of $4,481,000 with a loss from operations
of $712,000. Sutter Mortgage had an accumulated deficit of $4,036,000 at June
30, 1997.
Sutter Mortgage originates and sells residential home mortgage loans and is
a full service mortgage banking company. Sutter Mortgage primarily originates
loans indirectly through licensed real estate loan brokers ("wholesale") and
directly through loan offices through its "net branch" agreements. Sutter
Mortgage's recent losses have been primarily attributable to adding personnel
to expand its net branch network. The Company believes that the net branch
expansion, although generating slightly less gross margin than wholesale
loans, requires significantly less infrastructure costs than Sutter Mortgage's
historical reliance on people intensive retail sales programs.
During the next four or five months, the Company will be integrating a
portion of its Southern California operations with those of Sutter Mortgage.
In order to accomplish the integration, Virtual Mortgage will be
25
<PAGE>
reducing its office space requirements in Southern California (a portion of
its current lease expires in December 1997) and Sutter Mortgage will expand
its office space in Walnut Creek to facilitate the integration. The functions
to be integrated include establishing and coordinating a second video-
conferencing center at Sutter Mortgage to accommodate expected increases in
transaction volume and to provide a redundant location of the Company's
Newport Beach location. Certain personnel from Newport Beach will relocate to
Walnut Creek. In addition, the Company will be upgrading its internal phone
systems and expanding its Information Technology Department with the addition
of personnel at Walnut Creek.
The Company generates loan origination revenues equal to 1.0% to 1.5% of the
face value of the loans closed from its LoanMaker System network and pays the
real estate broker approximately .25% of the face value of each closed loan
for marketing services provided that the broker is a licensed mortgage broker
in the state in which the broker does business. The Company's mortgage bank
generates revenues from mortgage loan originations and related fees, interest
earned on mortgage loans that are held by the Company pending their sale and
net gains on the sale of mortgage loans. Factors that impact LoanMaker System
revenue expectations are the number of installations, the number of loans per
month per installation, the percentage of loan applications that close and the
average loan size achieved. For the mortgage banking operation, revenue
factors are centered around competitive pricing, number of net branch
operations and, to a lesser degree, number of retail sales personnel.
The Company's deployment plan for new installations in 1998 is to slightly
exceed the total installations and backlog it has achieved as of September 30,
1997. In connection with pursuing these installation objectives, the Company
plans to add field sales personnel at the rate of approximately one person per
every three to six real estate offices using the LoanMaker System, depending
on office sizes. In addition, the Company expects to expand its loan
counselors in its video-conferencing centers at a rate of three counselors for
every eight real estate offices using the LoanMaker System. There can be no
assurance, however, that the Company can achieve these objectives or that
additional personnel will not need to be added.
During the course of the next twelve months, the Company expects to add
approximately 40 people overall, with approximately 25 in production and the
remainder primarily in sales. Also, the Company has been leasing computer
equipment for its LoanMaker Systems deployed in the field from Data General
Corporation, however, the Company has not been able to lease further equipment
from Data General because of the Company's past due lease payments owed to
Data General. See "Risk Factors--Reliance on Third Parties." The Company
anticipates buying LoanMaker System equipment as these leases expire and to
accommodate future installations. The Company believes it can lower the
effective costs of deploying the LoanMaker Systems by purchasing rather than
leasing them.
The Company and its prospects must be considered in light of the Company's
extremely limited operating history and the risks, expenses and difficulties
frequently encountered by companies in new and rapidly evolving markets. To
address these risks, the Company must, among other things, continue to respond
to competitive developments, attract, retain and motivate qualified personnel,
implement and successfully execute its sales strategy and upgrade its
technologies. There can be no assurance that the Company will be successful in
addressing these risks. The extremely limited operating history of the Company
makes the prediction of future results of operations difficult and, therefore,
revenue growth experienced by the Company in any particular period should not
be taken as indicative of the amount of revenue, if any, that can be expected
in the future. To date the Company has not generated substantial revenues from
the use of its LoanMaker System. The Company's ability to increase these
revenues is dependent on several factors, including developing relationships
with real estate firms, consumer acceptance of the LoanMaker System and the
volume of its use. As a result, there can be no assurance that the Company
will sustain revenue growth, become profitable on a quarterly basis or achieve
profitability on an annual basis.
RESULTS OF OPERATIONS--VIRTUAL MORTGAGE NETWORK, INC.
Six-Month Period Ended June 30, 1997 Compared To Six-Month Period Ended June
30, 1996
Revenues. Revenues consist primarily of loan origination fees and processing
fees earned on closed loans. Revenue increased to $392,000 for the six-month
period ended June 30, 1997, from $8,000 for the comparable period in 1996.
26
<PAGE>
Loan Production Costs. Loan production costs consist primarily of wages,
benefits, leased computer costs and telephone expenses for ISDN lines. Loan
production costs increased to $837,000 for the six-month period ended June 30,
1997, from $286,000 for the comparable period in 1996. The increase of
$551,000 resulted primarily from increases in wages and benefits of $238,000
to expand the Company's loan center, increased leased computer costs of
$165,000 and increased telephone expenses of $128,000.
Technology Development. Technology development costs increased $194,000 or
82.9% from $234,000 for the six-month period ended June 30, 1996 to $428,000
for the comparable period ended June 30, 1997. The increase was primarily
attributable to additional personnel resulting in an increase in salary and
benefits costs of $167,000.
Sales and Marketing. Sales and marketing expenses increased to $941,000 for
the six-month period ended June 30, 1997 from $433,000 for the comparable
period ended June 30, 1996, an increase of $508,000 or 117%. The increase was
primarily attributable to installations of LoanMaker Systems and the addition
of personnel to expand production on the installed systems. Salaries and
related taxes and benefits increased by $415,000 and leased LoanMaker Systems
expenses increased by $81,000.
General and Administrative. General and administrative expenses consist
principally of employment-related costs for administrative personnel,
professional fees, consulting fees, system support costs and other general
corporate purposes. General and administrative expenses increased to
$2,350,000 for the six-month period ended June 30, 1997 from $1,226,000 for
the comparable period ended June 30, 1996. The increase was primarily due to
increased leased computer costs of $228,000, termination of a consulting
arrangement of $149,000, salary and benefits costs of $123,000, increased rent
expenses of $60,000 and telephone expenses of $57,000.
Interest Expense Net. Interest expense increased to $ 865,000 for the six-
month period ended June 30, 1997 from $60,000 for the comparable period ended
June 30, 1996. During 1996, the Company incurred $4,703,000 in debt to finance
the Company's growth. For the year ending December 31, 1997, the Company will
incur a one-time interest expense of $541,000 in connection with the issuance
of certain warrants related to the bridge financing. See Note 3 to Notes to
Consolidated Financial Statements of Virtual Mortgage Network, Inc.
Twelve Month Period Ended December 31, 1996 Compared to Ten-Month Period From
Inception, March 2, 1995 Through December 31, 1995
Revenues. Revenue increased to $123,000 for the twelve-month period ended
December 31, 1996 from $2,000 in 1995, an increase of $121,000. The Company
began generating revenue from operations subsequent to the conclusion of the
beta test period on March 31, 1996. Revenues consist primarily of loan
origination fees and processing fees earned on closed loans.
Loan Production Costs. Loan production costs of $909,000 were incurred as
the Company installed its LoanMaker Systems and began operations of its loan
center.
Technology Development. Technology development costs increased to $532,000
for the year ended December 31, 1996 from $169,000 for the 10-month period
ended December 31, 1995, an increase of $363,000 or 215%. The increase was
primarily attributable to additional personnel resulting in an increase in
salary and benefits costs of $357,000.
Sales and Marketing. Sales and Marketing expenses increased to $1,667,000
for the twelve-month period ended December 31, 1996 from $387,000 for the ten-
month period ended December 31, 1995, an increase of $1,280,000. The increase
is primarily attributable to salary and wages of $388,000, advertising of
$239,000, $117,000 in travel expenses, $67,000 in promotional expenses,
$381,000 in leased computers and $233,000 in telephone expenses. These
increases were incurred primarily to launch the Company's LoanMaker System.
General and Administrative. General and administrative expenses increased to
$3,345,000 for the twelve-month period ended December 31, 1996 from $994,000
for the ten-month period ended December 31, 1995, an increase of $2,351,000.
The increases in the general and administrative expenses were primarily
attributable to
27
<PAGE>
increases in salaries expense of $487,000 due to expanding the Company's
administrative staff. In addition, leased computer systems cost increased
$129,000. Other major expense categories that increased in 1996 versus 1995
were communication expenses of approximately $108,000, legal and accounting
expenses of approximately $662,000 associated primarily with the Company's
financing activities, depreciation expense of approximately $140,000, facility
rents of approximately $92,000 and other accrued expenses of approximately
$255,000.
Interest Expense (Income) Net. Interest expense increased to $696,000 for
the twelve months ended December 31, 1996 from $(5,000) in 1995. During 1996,
the Company incurred $4,703,000 in debt to finance the Company's growth.
Interest and expenses related to this debt were partially offset by interest
income of $45,000 generated from the investment of excess funds in money
market accounts.
RESULTS OF OPERATIONS--SUTTER MORTGAGE
Six-Month Period Ended June 30, 1997 Compared To Six-Month Period Ended June
30, 1996
Revenues. Revenues consist primarily of revenues from the gain on sale of
mortgage loans, processing fees, underwriting fees, document preparation fees,
loan origination fees, and interest earned on loans held pending sale in
warehouse lines of credit. Revenues increased to $4,481,000 for the six-months
ended June 30, 1997, from $3,762,000 for the comparable period in 1996 an
increase of $719,000 or 19.1%. The increase in revenue resulted from an
increase of $914,000 of loan fees collected on behalf of net branches (see
"Business--Mortgage Banking Operations"), an increase of $173,000 of interest
income on loans held for sale, an increase of $50,000 in other income and a
decrease of $418,000 on the gain on sale of loans. Closed loans increased to
1,177 for the six-months ended June 30, 1997, from 1,077 for the comparable
period in 1996, an increase of 100 or 9.3%. The average loan size increased to
$178,000 from $168,000 for the six-months ended June 30, 1997 and June 30,
1996, respectively.
Personnel Expense. Personnel expenses consist principally of office salaries
and commissions and related payroll expenses. For the six-month periods ended
June 30, 1997 and 1996, such expenses amounted to $3,125,000 and $1,772,000
respectively. The increase of $1,353,000 was caused by an increase in office
salaries and commissions of $279,000 and $237,000, respectively. In addition,
salaries and commissions from net branches was $690,000 for the six-months
ended June 30, 1997.
General and Administrative. General and administrative expenses consist
principally of professional fees, underwriting costs, advertising, rent and
office supplies as well as other general and administrative expenses. For the
six-month period ended June 30, 1997, general and administrative expenses
amounted to $1,368,000 compared to $950,000 for the comparable 1996 period.
The increase was caused primarily by net branch expenses of approximately
$200,000. The remaining increase in general and administrative expenses is
consistent with the percentage increase in revenues for the same period.
Interest Expense. Interest expense decreased to $700,000 for the six months
ended June 30, 1997 from $917,000 for the comparable period in 1996, a
decrease of $217,000 or 23.7%, resulting from more favorable warehouse
interest rates and a reduction in the time between funding loans and the
subsequent sale of loans to investors.
Twelve Months Ended December 31, 1996 Compared to Twelve Months ended December
31, 1995.
Revenues. Revenue increased to $7,479,000 for the twelve-months ended
December 31, 1996 from $4,898,000 in 1995, an increase of $2,581,000 or 52.7%.
The increase in revenue resulted from increased loan volume resulting in an
increase of $906,000 on the gain on sale of mortgage loans and origination
fees on $85 million of increased loan volume, an increase of $639,000 in
interest income on loans held for sale, and $348,000 of loan fees collected on
behalf of net branches.
Personnel Expense. Personnel expenses increased from $2,547,000 for the year
ended December 31, 1995 to $3,925,000 for the year ended December 31, 1996, an
increase of $1,378,000 or 54.1%. The increase was attributable primarily to an
increase in funded loans of $84,842,000 resulting in an increase in commission
payments of $637,000 and an increase of $407,000 of expenses collected and
paid on behalf of net branches.
28
<PAGE>
General and Administrative. General and administrative expenses increased
from $1,735,000 for the year ended December 31, 1995 to $2,492,000 for the
year ended December 31, 1996, an increase of $757,000 or 43.6%. The increase
was caused primarily by increased salaries and payroll taxes of approximately
$536,000, an increase of $295,000 in the provision for loan losses and a
decrease in depreciation and amortization expense of $53,000.
Interest Expense. Interest expense increased to $1,583,000 for the twelve
months ended December 31, 1996 resulting from an increase in lending volume.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of debt and equity. The total proceeds, since inception, from
sales of preferred stock, warrants, promissory notes and Common Stock through
June 30, 1997 were approximately $12,000,000.
Since inception to June 30, 1997, the Company has accumulated a deficit of
approximately $13,567,000 which it has financed with the aforementioned
$12,000,000 and through increases in trade payables of approximately
$1,188,000 and accrued liabilities of approximately $1,007,000. In addition,
the Company has acquired approximately $719,000 of property and equipment.
Lines of Credit
Sutter Mortgage requires access to warehouse credit facilities in order to
fund loan originations pending the sale of such loans. Sutter Mortgage
currently has the following warehouse lines of credit: (i) a $30,000,000
warehouse line of credit with Paine Webber Real Estate Securities, Inc.
secured by mortgage loans that has no stated maturity date with a balance of
$14,781,120 at June 30, 1997; (ii) a $10,000,000 warehouse line of credit with
Imperial Bank with a maturity date of November 29, 1997 with a balance of
$862,529 at June 30, 1997; (iii) a $5,000,000 warehouse line of credit with
First Collateral Services, Inc. maturing on December 31, 1997 with a balance
of $3,445,762 at June 30, 1997; and (iv) a $5,000,000 warehouse line of credit
with Prudential Securities Realty Funding Corporation that has no stated
maturity date with a balance of $2,038,392 at June 30, 1997. All warehouse
lines of credit are paid down upon sale of the loans. The Company also
maintains a $150,000 line of credit with Imperial Bank that matures in
November 1997 and had a balance of $150,000 at June 30, 1997. The Company will
need to add new credit facilities, as well as renew and expand its existing
credit facilities in order to finance any growth in loan production.
The Company's mortgage banking business requires substantial cash to support
its operating activities and growth plans. In order to support Sutter
Mortgage's loan originations, the Company is required to make a significant
cash investment that includes the funding of: (i) fees paid to brokers in
connection with generating loans through wholesale and net branch lending
activities, (ii) commissions paid to sales employees to originate loans, and
(iii) the difference between the amount funded per loan and the amount
advanced under warehouse facilities. The Company's mortgage banking business
also requires cash to fund ongoing operating and administrative expenses,
including capital expenditures and debt service.
The availability of funds under certain of Sutter Mortgage's credit
facilities is subject to the Company's continued compliance with certain
operating and financial covenants, including (i) leverage covenants based on
the ratio of outstanding borrowings to net worth, (ii) restrictions on changes
in the Company's business, (iii) restrictions on selling assets other than in
the ordinary course of business and (iv) restrictions on guaranteeing the debt
obligation of any other entity without prior approval. Sutter Mortgage is in
compliance with its covenants as of June 30, 1997.
Bridge Financings
Between June 1996 and July 1997, the Company entered into Bridge Loan and
Security Agreements with 17 accredited investors (the "Phase I Investors"),
pursuant to which the Company executed promissory notes (the "Phase I Bridge
Notes") in the aggregate principal amount of $5,005,000 and issued 255,892
Common
29
<PAGE>
Stock Purchase Warrants, exercisable at $.005 per share (the "Phase I Bridge
Warrants"), for shares of the Company's Common Stock. The Phase I Bridge Notes
are secured by the assets of the Company and had an initial maturity date of
March 6, 1997, but each Phase I Investor agreed to extend the maturity date to
the earlier of the consummation of the Offering or January 6, 1998. The Phase
I Bridge Notes accrued interest at the rate of 12% per annum from the date of
execution until March 6, 1997, at which time the interest rate increased to
15% per annum. The aggregate amount of accrued interest on the Phase I Bridge
Notes was $548,000 at June 30, 1997. As an incentive for the Phase I Investors
to extend the maturity date of the Phase I Bridge Notes to the earlier of the
consummation of the Offering or January 6, 1998, an additional 76,785 Common
Stock Purchase Warrants, in the aggregate, exercisable at $.005 per share,
were issued to the Phase I Investors.
In September 1997, the Company entered into Bridge Loan and Security
Agreements with 20 accredited investors (the "Phase II Investors") pursuant to
which the Company executed promissory notes (the "Phase II Bridge Notes") in
the aggregate principal amount of $895,000 and issued 61,022 Common Stock
Purchase Warrants, exercisable at $.005 per share (the "Phase II Bridge
Warrants"), for shares of the Company's Common Stock. Of the above amounts,
however, $500,000 in Phase II Bridge Notes and 25,553 Phase II Bridge Warrants
were issued to enable the Company to repurchase equal amounts of Phase I
Bridge Notes and Phase I Bridge Warrants, respectively. As a result, the
aggregate principal amount of Phase I and Phase II Bridge Notes outstanding as
of September 30, 1997 was $5,400,000. The Phase II Bridge Notes are secured by
the assets of the Company, mature on the earlier of the consummation of the
Offering or January 6, 1998 and accrue interest at 15% per annum.
The Phase I and Phase II Bridge Warrant agreements provide for the automatic
exercise of the warrants on the effectiveness of the registration statement
relating to the Offering and require the Company to register for resale under
the registration statement of which this Prospectus forms a part the shares of
the Common Stock issuable upon the automatic exercise of the warrants (the
"Bridge Shares"). The Bridge Shares are subject to a 24-Month Provisional
Lock-up Agreement entered into between the Phase I and Phase II Investors and
the Representatives. See "Shares Eligible for Future Sale." All of the Phase I
and Phase II Investors have entered into an Intercreditor Agreement, which
requires notice to each holder of a promissory note before demand payments can
be made to the Company for the amounts owed under the Phase I and Phase II
Bridge Notes. The proceeds of the Phase I and Phase II Bridge Notes were used
to fund the Company's operations and working capital requirements.
Private Placements of Equity
The Company entered into agreements, dated as of February 24, 1997, to sell
an aggregate of 486,950 shares (the "Purchased Shares") of Common Stock to
certain accredited investors (the "Purchasers") for an aggregate purchase
price of $3,790,000. Each agreement required the issuance of warrants, with an
exercise price of $7.34 per share, if an initial public offering occurred
after August 15, 1997. On August 15, 1997, the Company issued 266,106 warrants
to the Purchasers in compliance with the terms of the agreements. The
agreements also require the Company to register the Purchased Shares for
resale under the registration statement of which this Prospectus forms a part.
The Purchased Shares are subject to a 24-Month Provisional Lock-up Agreement
entered into between the Purchasers and the Representatives. See "Shares
Eligible for Future Sale."
From June 19, 1997 to June 30, 1997 and from July 1, 1997 to October 16,
1997, the Company completed private placements of 23,358 shares and 919,985
shares, respectively, of its Common Stock to certain accredited investors (the
"Accredited Investors") at prices ranging from $5.63 to $7.78 per share. There
were no registration rights or other rights granted to the Accredited
Investors in connection with the private placement. The private placement was
completed to enable the Company to close the Acquisition and commence the
integration of the operations of Sutter Mortgage and the Company prior to the
completion of the Offering. The proceeds of the private placement were also
used to fund the completion and testing of the Company's Paris technology, to
pay certain outstanding debt to Data General, the Company's equipment
supplier, and to fund the Company's working capital needs prior to the
completion of the Offering.
The Company intends to use approximately $6,600,000 of the proceeds of the
Offering to repay outstanding principal and interest on its notes payable,
including the Phase I and Phase II Bridge Notes.
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<PAGE>
Sutter Mortgage Acquisition
In October 1997, the Company acquired Sutter Mortgage Corporation. The
adjusted purchase price for Sutter Mortgage was approximately $4,488,000,
subject to further adjustment. Of the purchase price, $1,500,000 was paid at
the closing of the Acquisition and, concurrent with the closing of the
Offering, $1,000,000 of the proceeds of the Offering will be paid to the
former shareholder of Sutter Mortgage, $1,500,000 of the proceeds of the
Offering will be funded into an escrow account and Common Stock of the Company
valued at approximately $488,000 (based on the initial public offering price),
subject to adjustment, will be issued to the former shareholder. The
$1,500,000, which will be held in escrow, will be available to satisfy any
claims the Company may have against the former shareholder with respect to the
Acquisition. The escrow will terminate on the later of one year or the
resolution of all outstanding claims. The shares of Common Stock issued to the
former shareholder (the "Sutter Shares") are required to be registered for
resale under the registration statement of which this Prospectus forms a part.
The Sutter Shares are subject to a 24-Month Provisional Lock-up Agreement
entered into between the former shareholder and the Representatives. See
"Sutter Mortgage Acquisition" and "Shares Eligible for Future Sale."
Other Uses of Proceeds
The Company intends to use approximately $3,150,000 of the Offering proceeds
to purchase capital assets, primarily new LoanMaker Systems as current leases
expire (at a cost of approximately $2,700,000), facility improvements required
to expand the Company's video-conferencing centers (at a cost of approximately
$250,000) and an upgraded communication system to enhance the operation of the
Company's video- conferencing centers (at a cost of approximately $200,000).
The Company also expects to utilize approximately $3,600,000 to increase
staffing primarily in sales and video-conferencing center personnel and to use
approximately $475,000 for advertising and marketing expenses. The foregoing
represents an estimate of the Company's allocation of the estimated net
proceeds of this Offering. Pending such uses, the Company intends to invest
the Offering proceeds in short-term investment grade interest-bearing
obligations. Approximately $9,925,000 of anticipated proceeds will be used for
new product development and general corporate purposes, including working
capital and capital expenditures (including the payment of past due lease
payments to Data General Corporation). See "Risk Factors--Reliance on Third
Parties."
The Company believes that the remaining proceeds from the Offering, after
repayment of its notes and the payments relating to the Acquisition, together
with funds available under Sutter Mortgage's credit facilities, will be
sufficient to finance operations for the next 12 months. Nonetheless, the
Company may seek additional sources of capital as necessary or appropriate to
finance the Company's operations and growth plans. There can be no assurance,
however, that such funds, if needed, will be available.
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<PAGE>
BUSINESS
OVERVIEW
The Company's objective is to become the leading low-cost discount provider
of mortgage products to consumers in the $785 billion residential mortgage
industry. To achieve this goal, the Company has developed and begun deployment
of a video-conferencing mortgage transaction processing system, The LoanMaker
System, which allows home buyers seeking mortgages to receive a mortgage loan
approval quickly at a cost to the home buyer that is typically less than
through the traditional mortgage broker and lender network. LoanMaker Systems
are strategically located in real-estate offices and provide home buyers with
the ability to select from over 1,000 loan products offered by selected
national, regional and local lenders as well as the ability, via video-
conferencing, to communicate face-to-face with the Company's loan counselors.
The Company operates both as an independent mortgage broker, through the use
of its LoanMaker System, and as a mortgage bank offering its own loan products
and the loan products of lenders for which the Company is a delegated or
correspondent underwriter which enables the Company to quickly make an
underwriting decision with respect to loans originated using the LoanMaker
System. Through the LoanMaker System, lenders are able to deliver conventional
and non-conforming loan products to borrowers with a large range of credit
profiles without the costs of establishing and maintaining its own retail
brokerage force. The Company believes it is the leading provider of multi-
lender video-conferencing mortgage loan origination services, and
approximately 106 LoanMaker Systems have been installed or are on order to be
installed in strategically selected real estate offices, including in certain
offices of six of the 200 largest real estate brokerage companies in the
United States.
The Company believes the LoanMaker System's efficiencies benefit each of the
key parties to a mortgage loan transaction. Consumers may comparison shop from
over 1,000 loan products with the assistance of a qualified and objective loan
counselor and receive their loan approvals quickly. Lenders can gain access to
a more efficient distribution system than traditional mortgage origination at
no incremental cost. Real estate broker-owners can significantly increase
their mortgage related revenues while providing a value-added service to their
customers and, to the extent the system leads to more rapid closings,
increasing their office productivity. Real estate agents may increase the
speed of closing each transaction and enhance client satisfaction.
In order to control more of the underwriting decisions made with respect to
loans originated using the LoanMaker System and therefore expedite and enhance
the speed and capabilities of the LoanMaker System, the Company sought and
acquired in October 1997 Sutter Mortgage Corporation ("Sutter Mortgage"), a
residential mortgage bank based in Walnut Creek, California. As a mortgage
bank and delegated underwriter for 17 of the 30 lenders presently represented
on the LoanMaker System, Sutter Mortgage makes many of the Company's
underwriting decisions, which enables the Company to increase the speed of the
loan approval process and to increase the percentage of loans that can be
approved on-line within one to two hours. See "Sutter Mortgage Acquisition,"
"Selected Financial Information," "Pro Forma Combined Information,"
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Sutter Mortgage" and "--Mortgage Banking Operations."
The Company's marketing strategy is to deploy the LoanMaker System in the
200 largest real estate brokerage companies in the United States. This
marketing approach is expected to enable the Company to leverage the real
estate company's established local brand name identity while also gaining
access to a large pool of borrowers at the point of real estate sale. The
Company believes its marketing efforts toward these real estate firms are
vital to its success, given that the Company relies on the firms' consents to
install the LoanMaker System in their offices and on real estate agents to
introduce their customers to the LoanMaker System. The Company presently has
LoanMaker Systems installed, at its expense, in certain offices of three of
the 200 largest real estate brokerage companies in the U.S. and has signed
non-binding letters of intent with three additional such companies. In
exchange for their marketing efforts with respect to the LoanMaker System,
real estate brokerage companies receive compensation from the Company.
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<PAGE>
As of September 30, 1997, the Company had installed the LoanMaker System in
59 real estate offices serving eleven metropolitan areas in Arizona,
California, Florida, Louisiana, New Jersey, Oregon and Texas, with 57 systems
on order that the Company has not yet installed, and is negotiating contracts
for an additional 128 systems. Several of the largest real estate firms in the
U.S. have installed the LoanMaker System in their offices, including: Realty
Executives of Phoenix (Arizona); Latter & Blum Realtors (Louisiana); Re/Max
South County (Orange County, California); Murphy Realty (New Jersey); and
Preferred Better Homes & Gardens (Portland, Oregon). In addition, the Company
has signed non-binding letters of intent to install LoanMaker Systems in the
offices of three other prominent real estate companies, O'Conor, Piper and
Flynn (Baltimore), Smythe/Cramer Realtors (Cleveland) and Fox/Roach Realtors
(Philadelphia).
GROWTH STRATEGY
The Company generates revenue from two sources. First, as a mortgage
transaction processor, the Company earns loan origination fees received upon
completion of loans, generally 1.0% to 1.5% of the face value of the loan.
Second, as a mortgage bank, the Company generates revenues from the gain on
sales of loans, processing fees, loan origination fees, and interest on loans
held pending sale. The Company anticipates that a significant amount of its
mortgage banking operations' future growth will come from originating loans
using the LoanMaker System.
The Company's objective is to exploit its proprietary LoanMaker System to
establish itself as a leading loan origination transaction processor serving
the $785 billion residential mortgage industry in the United States. The
Company's principal short-term focus is to expand its installed base of
LoanMaker Systems by focusing on high volume local real estate offices and to
work with real estate firms to increase the volume of mortgages completed
using the LoanMaker System.
The Company believes that the key benefits of the LoanMaker System for
borrowers (i.e., greater access to information, automated processing, and one-
stop shopping) and mortgage lenders (i.e., additional distribution at little
or no incremental cost) can be extended to other traditional services utilized
during the mortgage lending process such as title search, property appraisals,
and cash management. The Company also believes that the LoanMaker System
technology may be able to be applied to other geographic areas such as Europe
and to other markets such as home equity loans, life insurance sales and
personal financial planning. Although the Company currently has no specific
plans in these three areas, the Company intends to explore these additional
growth opportunities as part of its long-term strategic growth plan.
INDUSTRY OVERVIEW
Mortgage lending is a large, highly fragmented industry that presents
attractive opportunities for the Company. For instance, the aggregate one-to-
four family residential mortgage volume in 1996 was approximately $785 billion
with the top 30 one-to-four family mortgage loan originators accounting for
only approximately 43% of the total origination, according to Inside Mortgage
Finance. Funding sources for residential mortgage loans include banks, savings
and loans institutions, mortgage banks and a number of specialized financial
institutions. The principal sources of revenue for mortgage brokers and
bankers include loan origination fees, net interest earned on mortgage loans
prior to sale, proceeds from the sale of mortgage loans, mortgage loan
servicing fees, and proceeds from the sale of mortgage servicing rights.
Traditionally, mortgage bankers have used three channels of distribution: (i)
Retail: principally through their branch networks and telemarketing; (ii)
Wholesale: principally through mortgage brokers; and (iii) Correspondent:
principally through pre-qualified financial institutions, some of which may be
granted delegated underwriting authority.
National Mortgage News estimates that mortgage brokers originated
approximately 53% of residential mortgage loans in 1996, an increase over the
past several years. The industry is attempting to incorporate technology to
provide better service to borrowers and maximize internal efficiency through
methods of credit scoring, automated underwriting systems and automated
appraisal. Several mortgage banks use computerized loan systems on an internal
basis, and other lenders offer a centralized processing service to brokers,
which
33
<PAGE>
service typically includes only the products offered by that bank. These
advances in computer assisted loan origination and processing systems have
made in-house lending operations more efficient for many lenders and have
validated the basic capabilities of these systems and the advantage of point-
of-sale strategies. The Company believes that the loan application and
approval process, however, continues to frustrate home buyers since it is a
time-consuming and paperwork-intensive process involving a long and costly
search process, unclear pricing, a scarcity of objective, professional advice
and agents who are principally motivated by the commissions they will
generate.
THE LOANMAKER SYSTEM SOLUTION
The LoanMaker System is a proprietary, wide-area network that utilizes PC-
based video-conferencing technology, and allows a prospective home buyer
sitting in a real-estate office to easily and quickly select from over 1,000
loan products based on the home buyers credit profile, loan payment
preferences and geographic location; compare loan fees, calculate payment
schedules, review historical and current interest rates, and run any
customized scenario; and complete and submit a mortgage loan application, all
on a real-time basis with the assistance of a loan counselor. Approval can be
obtained in as little as one to two hours or, as in most cases, within 72
hours depending on the borrower's credit profile. The Company's mortgage
banking operations are key in obtaining approval quickly because they enable
the Company's mortgage banking subsidiary to make the loan underwriting
decisions with respect to loans originated using the LoanMaker System.
The Company's latest generation technology, known as "Paris," is an upgraded
and enhanced version of the LoanMaker System that allows immediate, on-line
underwriting, does not require a proprietary network and ISDN lines (i.e.,
allows the use of standard modems, telephone lines, and/or Internet
connections), and enables users to access the system using laptop PCs. The
Company intends to begin the roll-out of the "Paris" technology in December
1997 and to begin the roll-out of the laptop PC version by March 1998. There
can be no assurance however that this schedule will be met.
How the LoanMaker System Works
The LoanMaker System is located in a real estate broker's office with a
computer monitor and video-conferencing camera. The real estate agent
activates the system for the new or prospective home buyer simply by touching
an electronic pen to the signature pad, moving the on-screen arrow to the area
displaying "Connect to the Virtual Mortgage Network." The LoanMaker System
automatically connects to the Company's Conference Manager and, within
seconds, connects to the first available loan counselor at the Company's
central facility in California. The loan counselor appears on the top of the
screen alongside the Company's logo and a live picture of the borrower and the
agent in the agent's office. At this point, the real estate agent is free to
leave the room, if he or she chooses, and complete other work.
The loan counselor briefly introduces the borrower to the LoanMaker System
and the loan application process. By questioning the borrower, the loan
counselor collects credit information and mortgage structure preferences,
highlights loan programs that appear to satisfy the home buyer's needs, fills
out the loan application by typing while they speak, and electronically
retrieves the home buyer's credit history from credit reporting agencies. The
loan application and all other information is simultaneously displayed on the
bottom three-quarters of the screen. Historical interest rate data, the
variety of available loans, comparisons among loans, amortization schedules,
and any alternative scenarios, as well as other data, are also displayed real-
time on the computer screen. In a single call, the Company's loan counselor
reviews the borrower's credit profile and a Company underwriter can approve a
loan, either for the Company itself through its mortgage bank, Sutter
Mortgage, or as a delegated underwriter for the lenders it represents. As a
mortgage bank and delegated lender for 17 of the 30 lenders presently
represented on the LoanMaker System, Sutter Mortgage makes the Company's own
underwriting decisions which enables the Company to increase significantly the
speed of the loan approval process and to increase the percentage of loans
that can be approved on-line within one to two hours. See "Sutter Mortgage
Acquisition," "Selected Financial Information," "Pro Forma Combined Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "--Mortgage Banking Operations."
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<PAGE>
If the Company submits a loan to a lender for which the Company is not a
delegated underwriter, and the lender denies the application, the LoanMaker
System enables the Company to transfer the loan package to another lender for
approval on an expedited basis. The length of time required to obtain lender
approval of a loan varies depending upon the borrower's credit profile and the
lender. All loan transactions are subject to verification of the borrower's
financial information and appraisal of the subject property. If the
application is not approved, the loan counselor assists the borrower in
selecting alternative loan programs or lenders, and quickly submits the
borrower's application to this new lender.
The LoanMaker System was designed so that the real estate agent and borrower
need no prior computer experience. Borrowers only need to be able to talk,
listen, and see the display screen, and their only interaction with the
technology is an occasional need to sign their name on a pad using an
electronic pen. The loan counselor manages all video display and data entry
throughout the session. The process of choosing a loan and fully completing an
application may be completed in one to two hours.
After the loan has been approved, the Company orders a property appraisal
and initiates the other mechanics and paperwork of closing the loan. In this
regard, the Company has established relationships with Stewart Title and
Chicago Title for the electronic ordering of appraisal, title, flood and
credit information. The Company's operations support staff as well as account
executives in the field assist and expedite the completion of the paperwork
required to close the loan.
Greater Efficiency
By effectively applying technology through its LoanMaker System, the Company
has reengineered and streamlined the loan approval process to make it more
efficient. The key to the gains in efficiency is the specialization of tasks
underlying the loan approval and processing, essentially replacing the current
"Independent Contractor" model of commission-based loan officers and mortgage
brokers with a more efficient "Operations Flow" model. Under the Company's
"Operations Flow" paradigm, the loan approval process is broken into four
components, with the Company assigning one group of professionals (Account
Executives, Loan Counselors, Underwriters or Processing Teams) to specialize
in one of the four areas. Account Executives focus upon serving the real
estate brokers and their customers and processing transactions in the field
supported by the Company's central support staff. Loan Counselors focus
exclusively on providing the best, most objective advice possible and
assisting borrowers in choosing the loan best suited to their particular
needs. Underwriters make credit decisions over a network fed by clean
electronic data, and Processing Teams execute paperwork and close and fund
loans.
Each of the contributors to the Company's "Operations Flow" approach is a
salaried employee with any bonuses being based upon transaction volume and
throughput rather than obtaining the highest possible loan brokerage
commission from the customer. As a result, the "Operations Flow" paradigm is
able to provide more benefits to the borrower at less cost and puts the entire
operation in the service of the borrowers, lenders and real estate brokers
rather than creating potential conflicts between the loan originators and the
borrowers. In addition, the Company believes this approach simplifies the
training of its new employees and enables the Company to scale its operations
up or down more easily and at less cost.
As a result of the Company's "Operations Flow" approach, the Company also
believes its account executives and loan counselors can close a higher number
of loans each month than a typical loan officer or mortgage broker can
complete. The Company's management estimates that at peak operating capacity,
a typical account executive can manage six locations completing 24 to 36 loans
per month and that loan counselors can process four to eight loans per day.
LoanMaker System Benefits
The Company believes the LoanMaker System, through the application of
technology and the streamlining of the loan approval process, benefits the key
participants in the loan transaction: (i) borrowers, (ii) lenders, (iii) real
estate broker-owners and (iv) real estate agents.
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<PAGE>
Borrowers can obtain the following benefits:
. ability to comparison shop efficiently from over 1,000 mortgage loan
products;
.quick loan approvals, typically ranging from one to 72 hours;
.convenience and accessibility;
.objective loan advice;
.clear understanding of pricing and easier comparisons among products; and
.standardized, relatively low loan origination fees (i.e., 1.0% to 1.5% of
the face value of the loan).
In addition, and equally important, the LoanMaker System can reduce the
anxiety that can arise from the loan application and approval process.
Borrowers using the LoanMaker System have reported high levels of
satisfaction.
Lenders can obtain the following benefits:
.more efficient distribution system than traditional mortgage operations at
little or no incremental cost;
.cleaner, more error-free electronic submissions;
.access to a large population of borrowers;
.portfolio diversification by geography, credit risk and type of product;
and
.ability to customize and update lending terms on a real-time basis.
Real estate broker-owners can obtain the following benefits:
.opportunity to significantly increase the revenues generated by real
estate transactions;
.in-house mortgage lending capability at little or no incremental cost;
.the ability to offer other value-added services over time; and
.greater control over agents' customers.
Real estate agents can obtain the following benefits:
.more rapid customer loan approvals (e.g., no need to wait for the loan
officer to return a phone call);
.an additional value-added service for the customer;
.greater control over the loan transaction process;
. ability to obtain a pre-approval prior to, during, or after the search
for a home; and
. due to more rapid loan approvals and a more efficient process requiring
very little of the real estate agent's time, an opportunity to improve
significantly the agent's own productivity.
Support Services
The Company believes that providing high-quality support services is
critical to ensure success and satisfaction and, accordingly, supports the
LoanMaker System with training, consulting and technical support services. The
Company's field sales staff and loan counselors play important roles in the
success of the LoanMaker System, including providing market information to the
Company and developing relationships with real estate agents and their clients
in order to encourage use of the LoanMaker System. Most of the Company's
support systems are devoted to assisting the broker-owner in increasing the
volume of transactions in each office.
Training Programs. The Company offers in-office training programs to real
estate brokers, agents and their employees. The aim of these programs is not
only to instruct users on the mechanics of the system, but also to convey its
benefits and promote the use of its service. In addition, the Company offers
extensive training programs to its lender network and receives training from
the lenders regarding new product options.
Support Services. The Company believes that it must keep the LoanMaker
System available to achieve borrower satisfaction and loan production.
Accordingly, the Company provides a toll-free customer service telephone
number for immediate problem resolution, and this number is displayed on each
LoanMaker System. Support services include maintenance of the Company's
LoanMaker System and direct access to technical support representatives. The
Company's technical support services are managed and performed by the internal
support group and the field sales group of the Company, with the availability
of the extended services and field expertise of Data General.
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The Company's support services also reflect its commitment to providing up-
to-date product information to the end users of the LoanMaker System. The
participating lenders have agreed to provide timely data, and as information
is received from the lenders, it is updated on the LoanMaker network and is
independently cross-checked. All loan product information is tested to verify
accuracy. Following the completion of this quality control process, the new
rate information is downloaded to the loan counselor network. The Company also
works with the lenders to select a mix of loan products that accommodates the
needs of most borrowers within the different marketplaces served by the real
estate offices utilizing the LoanMaker System.
STRATEGIC RELATIONSHIPS
The Company has the benefit of several strategic relationships, including
major real estate firms, Interealty Corporation, Intel Corporation and Data
General Corporation.
Major Real Estate Firms
The real estate firms the Company serves represent its most critical
strategic alliances. In addition to being the Company's principal source of
access to borrowers, the Company leverages the local brand name identity of
the real estate firms to establish its presence in the marketplace. While the
real estate firms are not the end users of the LoanMaker System, the Company
believes the cooperation of real estate firms is vital to the Company's
success because the Company must obtain consent to install its LoanMaker
Systems in their offices, and the Company relies on real estate agents to
introduce their customers to the LoanMaker System. The consent of the real
estate firms to place the LoanMaker System in their offices can be withdrawn
at any time. As of September 30, 1997, the Company had installed the LoanMaker
System in 59 real estate offices serving eleven metropolitan areas in Arizona,
California, Florida, Louisiana, New Jersey, Oregon and Texas, with 57 systems
on order that the Company has not yet installed, and is negotiating contracts
for an additional 128 systems.
Several of the largest real estate firms in the U.S. have installed the
LoanMaker System in their offices, including:
<TABLE>
<CAPTION>
1996 SALES NATIONAL NO. OF
REAL ESTATE FIRM VOLUME RANK* OFFICES
---------------- -------------- -------- -------
<S> <C> <C> <C>
Realty Executives of Arizona.................... $2,757,617,000 14th 20
Latter & Blum Companies, LA..................... 1,025,743,000 54th 20
Re/Max South County, CA......................... 975,123,000 61st 8
</TABLE>
- --------
(*Source: 1997 Edition--Real Facts--Real Trends, Dallas, Texas)
In addition, the Company has signed non-binding letters of intent to install
LoanMaker Systems in the offices of the following three prominent real estate
firms:
<TABLE>
<CAPTION>
1996 SALES NATIONAL NO. OF
REAL ESTATE FIRM VOLUME RANK* OFFICES
---------------- -------------- -------- -------
<S> <C> <C> <C>
Fox/Roach Realtors-Trident Mortgage............. $2,802,395,000 12 48
O'Conor, Piper and Flynn........................ 2,436,577,000 17 48
Smythe/Cramer Realtors.......................... 1,853,463,000 23 32
</TABLE>
- --------
(*Source: 1997 Edition--Real Facts--Real Trends, Dallas, Texas)
Interealty Corporation
The Company has entered into a marketing agreement with Interealty
Corporation, a wholly-owned subsidiary of News Holding Corporation jointly
owned by Tribune Company, Cox Communications, Knight Ridder and Advanced
Publications. Interealty is the largest supplier of on-line and printed
multiple listing services in the United States, with approximately 45,000 real
estate offices on line and subscribing to services. Under the terms of an
agreement with the Company, Interealty acts as the exclusive third-party
marketer of the LoanMaker System in the United States and Canada. The Company
and Interealty have identified the largest,
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most profitable real estate offices in the states in which the Company
currently operates. Interealty's role is to establish contacts with those
offices, using a sales team dedicated solely to the Company, and to introduce
the Company to appropriate persons in those offices so that the Company may
capitalize on the contacts and ultimately obtain permission to install the
LoanMaker System. Compensation for Interealty's services under the agreement
is broken down into two categories. First, for the marketing, promotional and
sales services, Interealty receives the greater of either (i) $200,000 per
year or (ii) 2% of the Company's total gross revenues for each year. Payments
under this category are made on a quarterly basis. And second, for each
occasion the LoanMaker System and related computer software is installed in a
location approved by the Company, Interealty receives $900. Interealty is also
a stockholder in Virtual Mortgage.
Intel Corporation
In 1995, Intel selected the Company to assist it in introducing and
promoting Intel's ProShare video-conferencing technology. As a result of this
initiative, Intel also provided the Company with seed capital and remains a
current stockholder. The Company also participates as an early test location
for Intel's new generation video-conferencing and other related technologies
related to the Company's business.
The Company has granted certain rights to Intel which expire at the close of
the Offering. These rights include board visitation rights, rights of first
refusal on sales of certain securities (excluding sales pursuant to the
Offering) and a right to require the Company to repurchase the stock owned by
Intel if the Company uses a video-conferencing solution other than Intel's
ProShareTM. A restriction on Company stock option vesting would also cease at
that time.
Data General Corporation
The Company provides each real estate office with a Pentium-based computer,
monitor, video-conferencing unit, full duplex speaker system and electronic
signature pad and pen at no cost to the real estate broker-owner, with the
assistance of another key strategic partner Data General. The Company
currently leases from Data General all of the hardware required in each of the
real estate offices served by the Company under a master operating lease
agreement, and Data General provides all of the installation, moves and
changes, upgrades, maintenance and other support services required for the
LoanMaker Systems deployed in the field. Data General's services provide
critical logistical support in an efficient manner enabling the Company to
roll out its LoanMaker Systems throughout the country. In addition, Data
General helps to reduce the Company's capital expenditures and support staff
requirements. As of September 30, 1997, the Company was past due on lease
payments to Data General of approximately $1,231,000. While the Company and
Data General are negotiating a repayment plan, Data General continues to
provide support services but will not lease additional LoanMaker Systems to
the Company. The Company had 57 LoanMaker Systems in inventory on September
30, 1997. There can be no assurance, however, that the Company and Data
General will be able to successfully negotiate a repayment plan, that Data
General will continue to provide services to the Company while lease payments
are past due or that the number of LoanMaker Systems in the Company's
inventory will be sufficient to meet the Company's installation needs.
MARKETING STRATEGY
The LoanMaker System can be used for a variety of transactions, principally
(i) mortgages for the purchase of a home; (ii) mortgages that refinance
existing mortgages to improve rates or terms; and (iii) home equity loans. The
Company's plan is to deploy systems to serve primarily the first of these
three types of mortgages. For that reason, the Company has primarily targeted
its LoanMaker System to the point-of-sale for home purchases, which is
typically the real estate office. Within the real estate brokerage community,
the Company's primary target market is the 200 largest real estate brokers
with a large number of real estate offices executing a high volume of home
purchasing transactions. The Company believes this will provide an attractive
pool of potential mortgage loan originations. The Company believes its
marketing efforts toward these real estate firms are vital to its success,
given that the Company relies on the firms' consents to install the LoanMaker
System in their offices and on real estate agents to introduce their customers
to the LoanMaker System.
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The Company began to deploy the system free of charge in the real estate
offices of smaller real estate brokers in mid-1996, to begin to generate word-
of-mouth awareness and demand among borrowers and as demonstration sites for
larger real estate brokers. In addition, due to the reputations and contacts
of the Company's senior management and with the assistance of Interealty, the
Company was able to generate real estate industry press coverage and has
access to the owners of most of the top 200 real estate brokers in the U.S.
This combination of "grass roots" awareness and top-level industry visibility
has enabled the Company to deploy systems in several of the largest real
estate brokerage offices in the country. See "--Strategic Relationships." As
new, large brokers have signed installation agreements with the Company, the
Company has redeployed some of its LoanMaker Systems from initial, smaller
marketing sites to larger offices. Marketing sites are granted the right to
demonstrate that they can generate sufficient loan volume (i.e., approximately
six loan closings per month) in order to retain the LoanMaker System installed
at that site.
After the Company has installed one or more LoanMaker Systems on behalf of a
real estate company (and often during the installation phase), the Company
assigns local account executives to encourage and maximize the use of the
system by the real estate agents of the real estate company. The account
executive is compensated with a base salary and a fixed fee per loan closed.
By using the LoanMaker System and support staff, the account executive spends
less time dealing with paperwork, can work with a wider range of automated
loan products, and can spend more time generating mortgage loan business.
While the account executive's commission per loan is substantially less than
that of an independent loan officer, the Company's account executive has the
potential to generate a significantly higher volume of loans because, unlike
traditional loan officers, the Company's account executives do not complete
loan applications and are not primarily responsible for processing individual
loans. And unlike the "feast or famine" cycles of a mortgage broker or loan
officer, a Company account executive enjoys the greater predictability and
security of a base salary.
For real estate companies which already have their own mortgage brokerage
operations, the Company intends to offer its loan origination system as an
opportunity to outsource the loan application and selection process. Under
this scenario, the Company would tailor the LoanMaker System to the needs of
the particular firm, providing the capability, for example, to select only
among the loan programs of lenders chosen by the real estate firm. The
Company's loan counselor would work with the borrower to select a loan product
only among products chosen by the real estate firm and pass the loan
application to the real estate firm's mortgage bank for further processing.
The Company would charge the real estate firm for its services based upon the
type and extent of the services provided.
LENDER RELATIONS
Today's mortgage lenders are seeking bigger shares of the market at less
cost to them. The objective of the Company is to become the low-cost discount
provider of mortgage products to the consumer on behalf of its lenders.
Lenders periodically represented on the LoanMaker System include:
<TABLE>
<S> <C>
BankAmerica Mortgage Marine Midland Mortgage Corporation
Chase Manhattan Mortgage Corporation NationsBank Mortgage Corporation
Countrywide Beneficial Mortgage North American Mortgage Corporation
Federal Home Loan Mortgage Corporation Norwest Funding
Federal National Mortgage Association PHH U.S. Mortgage Corporation
First Nationwide Mortgage PNC Mortgage
G.E. Capital Mortgage Services, Inc. Saxon Mortgage
Homeside Lending, Inc. Temple Inland Mortgage Corporation
ICI Funding Corporation U.S. Federal Housing Administration
Interfirst, a division of Standard Federal Bank U.S. Veterans Administration
</TABLE>
Through the LoanMaker System, these lenders are able to deliver conventional
and non-conforming loan products to borrowers with a large range of credit
profiles without the costs and capital investment associated with traditional
loan origination operations. The Company currently operates both as an
independent mortgage broker and a mortgage bank, offering its own loan
products, the loan products of lenders for whom the Company is a
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delegated or correspondent underwriter, and loan products of other third-party
lenders. Presently, the bulk of the Company's loans are with the lenders for
whom the Company serves as a delegated or correspondent underwriter.
With respect to each lender for whom the Company is not a delegated or
correspondent underwriter, the Company has an agreement in place, but the
Company may remove a lender from the system at any time, and a lender may
withdraw its products at any time. The Company works with the lenders on its
network to provide a diverse mix of loan products to loan consumers. Loan
consumers may assess products from a cross-section of the loans available,
which is generally varied and competitive. The Company does not attempt to
provide on its system all loan products of each lender or all loans that are
available nationally.
The lenders on the LoanMaker System update the information on their various
loan programs as the market changes on a real-time basis. Lenders may also
customize their product offerings to particular markets or types of borrowers.
The LoanMaker System also allows borrowers to receive on-line information
about loan products that are available from its national database. Finally,
the LoanMaker System differs from traditional mortgage broker methods in that
the Company can provide information on a diverse mix of loans and introduce
the lender into the equation at the beginning of the process of selecting a
loan, rather than as the last step in the transaction.
COMPETITION
The market for on-line, video-conferencing transaction processing in the
mortgage lending market is new and at present there are relatively few
competitors. The Company believes it is currently the leading provider of
multi-lender video-conferencing mortgage loan origination services located in
real estate offices. Competitors in the video-conferencing mortgage loan
origination market include FlagStar Bank, Shelter Mortgage and EMB Financial
Corp., all mortgage banks that presently use video-conferencing technology to
deliver only their own mortgage lending products and do not provide a multi-
lender system offering the products of other lenders. The Company believes
that FlagStar has targeted mortgage brokers' offices, that Shelter Mortgage
has primarily targeted real estate brokers' offices and that EMB has primarily
targeted credit unions.
AmeriNet Financial Systems, Inc. currently represents the only provider of a
multi-lender video-conferencing service similar in some respects to the
Company's service. The Company believes, however, that AmeriNet acts only as a
mortgage broker, not a mortgage banker, and therefore cannot provide on-line
loan approvals as quickly as the Company can provide them. The Company also
believes that AmeriNet is seeking primarily to lower its customers' real
estate brokerage costs. As a result, AmeriNet's primary marketing strategy
appears to the Company to be to identify affinity groups, such as customers of
CostCo Companies Inc. in Washington State, and to market its real estate
brokerage services to such groups, thereby developing new distribution
channels for residential real estate sales and seeking to fundamentally change
the traditional relationship between the real estate broker and the homebuyer.
In addition, Alltel Corporation, a telecommunications and information services
company which provides mortgage payment processing and communications services
for a number of major mortgage lenders, has indicated that it may in the
future offer a video-conferencing capability. The Company is unsure of
Alltel's current plans.
The Company also faces competition from mortgage lenders using the Internet.
Most mortgage lenders, such as Citibank and Countrywide, have websites on the
Internet which enable Internet users to complete a mortgage loan application
and search among the particular lender's products. The Company believes the
website serves primarily as a lead generation tool and each loan application
is later followed up by a call from a loan officer who proceeds to approve and
process the mortgage loan in the traditional manner. In addition, certain
information providers such as HSH Associates quote on the Internet lending
rates and other information from a multitude of lenders. As a result,
borrowers currently can use the Internet either to obtain information about
mortgage loans broadly or to gain access to a single lender's products.
However, the Company does not believe that any of these services provides the
borrower with the ability to conduct a thorough search of multiple lenders and
then obtain a loan approval on-line for the particular loan chosen. In
addition, the Company believes that none of the Internet offerings has the
personal touch and objective advice offered by the Company's video-
conferencing technology and its loan counselors.
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The Company's primary competition comes from traditional mortgage brokers,
mortgage banks, savings and loan institutions and commercial banks. According
to the National Mortgage News, in 1996 third party mortgage brokers originated
approximately 53% of all residential mortgages, and retail divisions of
mortgage banks originated the remaining 47%. The residential mortgage
brokerage business is highly fragmented with approximately 24,000 individuals
operating as independent mortgage brokers, according to National Mortgage
News. The Company believes that many leading mortgage lenders have focused
increasingly upon aggregating and securitizing loans, and, in connection with
that focus, have also increasingly outsourced the distribution and brokerage
of mortgage loans. The Company believes that this has led to an increasing
share of the market being taken by independent mortgage brokers.
Since the Company's primary marketing strategy is to distribute its
LoanMaker System through major real estate brokers' offices, the Company's
most intense direct competition is from the local independent mortgage brokers
in each community in which the Company operates. In many cases, real estate
brokers have either acquired a mortgage broker or established a joint venture
relationship with a local mortgage broker. The Company believes, however, that
many of these mortgage brokerage operations of real estate companies have no
competitive advantage over other local mortgage brokers and are in many
instances too small to be price competitive with local mortgage banks. The
Company believes that the LoanMaker System provides the advantage of a multi-
lender platform and the ability to comparison shop from over 1,000 loan
products and obtain a loan approval in as little as one to two hours or, as in
most cases, within 72 hours depending on the borrower's credit profile. In
addition, it provides the real estate brokerage company with a full mortgage
banking capability at relatively little cost.
Most of the Company's current and potential competitors are substantially
larger, have greater name recognition, and have more capital and resources
than the Company. The Company expects more competition in the future from
existing and new competitors producing video-conference loan origination
systems and other alternatives to traditional mortgage lending methods, such
as the sale of mortgages over the Internet or at retail shopping
establishments. The ability of the LoanMaker System to compete effectively
will be dependent in part on consumer acceptance of video-conference loan
origination in general and industry acceptance of the Company's products and
services in particular. There can be no assurance that the Company's current
and potential competitors will not develop software or other business
practices that are more effective or achieve greater market acceptance than
the Company's current or future products or that the Company's technologies
and products would not be rendered obsolete by these developments or that
competitive pressures resulting from these competitors will not otherwise have
a material adverse effect on the Company's business, operating results and
financial condition. An increase in competition could reduce the fees the
Company is able to collect for its services, thereby lowering the Company's
revenues and margins, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Competition."
TECHNOLOGY
The LoanMaker System uses a combination of proprietary and off-the-shelf
software and Pentium-based computers. For instance, the Conference Manager was
developed by and is the proprietary technology of the Company. The Conference
Manager enables the system simultaneously to capture and route multiple voice,
video and data transmissions to a centralized team of loan counselors. The
Conference Manager is software driven and scalable and not bound by the
limitations of currently available hardware solutions. The Conference Manager
is a registered copyright of the Company. The Company licenses the remaining
software used by the LoanMaker System, including the loan and lender
applications. The underwriting filter, which matches borrower profiles with
applicable loans from multiple lenders, has been customized by the Company.
The LoanMaker System includes Intel's ProShare video-conferencing hardware and
software that are available on the market. The Company has, however, augmented
the ProShare technology with its own software to add scalability.
The Company has recently completed the development of a multi-platform
communications interface, the "Paris" technology, which is an upgraded and
enhanced version of the LoanMaker System that accepts user calls into the
Company's network from not only ISDN telephone lines but also from a variety
of other sources,
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such as standard telephone lines. The technology is more user-friendly than
the present LoanMaker System and allows users to get loan information and, for
those who choose, complete loan applications prior to connecting with a
Company loan counselor. If the Company is able to deploy this technology
commercially, users could access the LoanMaker System from laptop computers,
the Internet, home personal computers or network computers. This development
would enable the Company to deploy the LoanMaker System without the necessity
and cost of installing hardware and special ISDN communications telephone
lines in the field. The Company has begun beta testing of the "Paris"
technology and intends to begin the roll-out of the "Paris" technology in
December 1997 and to begin the roll-out of the laptop PC version by March
1998. There can be no assurance however that this schedule will be met.
The Company has made substantial investments in real estate and mortgage
industry marketing research, technical development, beta testing and quality
assurance. The Company's product development is conducted by employees and in-
house consultants in the Company's Information Technology Department. As
communications delivery technology techniques are rapidly changing, the
Information Technology Department's technological development concentration
has been and continues to be in voice, video and data communications including
Internet and intranet platforms, and application development, specific to
financial information delivery. The Information Technology Department is
invited regularly to participate in Intel's and Microsoft's software/platform
beta testing programs. The Company intends to devote substantial resources to
the tracking of these and other advances and to modifications of the LoanMaker
System to use and benefit from these developments. See "Risk Factors--Risk of
Product Defects and System Failures; Responses to Technological Changes."
The Company's success and ability to compete depends in part upon its
proprietary technology. The Company regards certain of its technology as
critical to its business and attempts to protect this technology under
trademark, copyright and trade secret laws and through the use of employee,
consultant and vendor confidentiality agreements. The source code for the
Company's proprietary software is protected both as a trade secret and as a
copyrighted work. These measures, however, afford only limited protection, and
the Company may not be able to maintain the confidentiality of its technology.
There can be no assurance that others will not develop technologies that are
similar or superior to the Company's technology. It may be possible for a
third party to copy or otherwise obtain and use the Company's technology
without authorization, or to develop similar technology independently. In
addition, effective copyright and trade secret protection may be unavailable
or limited in certain foreign countries. Policing unauthorized use of the
Company's technology is difficult. While the Company seeks to protect its
technology, there can be no assurance that the steps taken by the Company will
prevent misappropriation of its technology or that these confidentiality
agreements will be enforceable. In addition, litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. The computer software market is characterized by frequent and
substantial intellectual property litigation. Litigation of that sort could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company also relies on certain technology that it
licenses from third parties, including software that is integrated with
internally developed software and used with the Company's technology to
perform key functions.There can be no assurance that these third party
technology licenses will continue to be available to the Company on
commercially reasonable terms. The loss of or inability to maintain any of
these technology licenses could result in delays or reductions in
installations of LoanMaker Systems until equivalent technology could be
identified, licensed and integrated. Any delays or reductions in installations
of LoanMaker Systems could materially adversely effect the Company's business,
operating results and financial condition. See "Risk Factors--Intellectual
Property and Proprietary Rights; Limited Protection of Technology."
MORTGAGE BANKING OPERATIONS
General
The Company's mortgage banking operations are conducted through Sutter
Mortgage, which was established in 1985 and is based in Walnut Creek,
California. Sutter Mortgage is a full service mortgage banking company engaged
in the origination and sale of first mortgage loans, second mortgage loans and
home equity lines of credit. The Company's revenues from its mortgage loan
origination activities result from mortgage loan
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origination and related fees, interest earned on mortgage loans that are held
by the Company pending their sale, and net gains on the sale of mortgage
loans. Sutter Mortgage currently originates mortgage loans via wholesale, net
branch and retail distribution systems. See "Sutter Mortgage Acquisition,"
"Selected Financial Information," "Pro Forma Combined Financial Information"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
The mortgage loans originated by the Company are comprised of: (i)
conforming conventional loans which qualify for inclusion in purchase and
guarantee programs sponsored by FHLMC and FNMA and must meet credit and
property standards established by FHLMC and FNMA; (ii) non-conforming
conventional loans which are not eligible for sale to FHLMC and FNMA,
primarily due to size limitations, credit criteria or property type and must
meet the Company's own underwriting criteria, as well as satisfy the criteria
of those secondary market conduits to whom such loans are sold; and (iii)
loans insured by HUD and guaranteed by VA, which must meet the guidelines of
FHA or VA.
The Company maintains all underwriting, document preparation and loan
funding functions in its Walnut Creek office to control overhead, maintain
consistency in service and meet loan quality control standards. The Company
has invested in the technology necessary to provide on-line access and
information to all wholesale, net branch and retail remote locations. In
addition to being a mortgage bank itself, Sutter Mortgage acts as a delegated
underwriter for 17 of the 30 lenders presently represented on the LoanMaker
System. This enables Sutter Mortgage to make many of the Company's
underwriting decisions which enables the Company to increase the speed of the
loan approval process and to increase the percentage of loans that can be
approved on-line within one to two hours.
Mortgage Loan Origination
The Company currently originates mortgage loans through three primary
distribution systems: wholesale, net branches, and retail. The wholesale
operation includes the solicitation of loans and a regional office from which
mortgage loans are received from approximately 600 approved independent
mortgage brokers. The net branch distribution system is composed of eight loan
brokerage companies that have formed an affiliation with the Company. The
Company's retail distribution system serves the San Francisco metropolitan
area.
Wholesale Distribution System. Historically, Sutter Mortgage's primary
source of mortgage loan originations has been its wholesale distribution
system, which operates through the Company's Walnut Creek, California office
and a regional office in Newport Beach, California. Mortgage loans are
solicited from approximately 600 approved independent mortgage brokers. Sutter
Mortgage's wholesale operation has enabled it to achieve a high volume of
mortgage loan originations at a lower cost than retail mortgage loan
originations because the mortgage loan broker performs most of the labor
intensive functions of the mortgage loan origination process, such as taking
the mortgage loan application and processing the mortgage loan.
A total of five account executives operate from the Walnut Creek office and
three operate from the Newport Beach regional office. The account executives
are responsible for developing and maintaining relationships with the mortgage
brokers in their territories. A mortgage broker must be approved by the
Company before mortgage loans are accepted for underwriting. The approval
process generally includes verification of proper licenses, a quality control
review and receipt of satisfactory references.
The Company's account executives typically have underwriting expertise that
enable them to assist the mortgage broker in understanding the Company's
underwriting criteria and in selecting which of the Company's loan products is
most suitable for the mortgage broker's customers. Mortgage brokers submit
processed mortgage loan packages to the Company for underwriting and approval.
All mortgage loans originated by the wholesale distribution system are
underwritten by the Company in accordance with its credit and underwriting
standards.
Net Branch Distribution System. Sutter Mortgage initiated a net branch
distribution system in late 1996 and currently operates eight net branches
from the Walnut Creek office. Five net branches operate in Contra Costa
County, one in San Mateo County, one in Marin County, and one in Sacramento
County, California. Select
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independent mortgage brokers enter into a contractual relationship with the
Company and operate as a branch of the Company while maintaining the identity
the mortgage broker has established in its own marketplace. The net branch is
responsible for its own operating expenses, but enjoys the reputation and
benefits of operating as a mortgage banker. The majority of loan origination
volume of the net branch is obligated to be delivered to the Company. A net
branch must be approved by the Company before a net branch contract is signed.
The approval process generally includes verification of proper licenses, a
quality control review, a review of the mortgage broker's financial statements
and receipt of satisfactory references.
Net branches submit processed mortgage loan packages to the Company for
underwriting and approval. All mortgage loans originated by the net branch
distribution system are underwritten by the Company in accordance with its
credit and underwriting standards. The Company realizes the same cost savings
on net branch operations as they do with wholesale operations because the net
branch performs most of the labor intensive functions of the mortgage loan
origination process.
Retail Distribution System. The Company conducts its retail operations
through one retail office located in Walnut Creek, California that has
approximately 15 loan officers operating from it with loan processors and
clerical support. The Company underwrites its retail loans in its Walnut Creek
headquarters. Retail loan officers are responsible for establishing referral
relationships with local real estate brokers and agents and home builders. The
retail distribution system is a small source of business for the Company.
Sale of Mortgage Loans
The Company's mortgage banking operations derive the majority of their
income from the sale of mortgage loans. The Company is approved to sell
approximately 300 different mortgage loan products to 27 secondary market
conduits. The Company includes a spread, a percentage of the loan amount, to
the price on all loans before they are distributed by the Company's various
distribution systems. This spread is realized upon the sale of the loan. The
Company also realizes related fee income resulting from charges the Company
imposes for underwriting and closing documentation preparation.
The Company endeavors to minimize any interest rate risk by committing the
loan for sale to one of the secondary market conduits at the time the interest
rate is established for the borrower. In this way, the Company bears no
interest rate risk between the time the mortgage loan is funded and the time
it is sold to the conduit.
Quality Control
All mortgage loan originations, regardless of the source, must be
underwritten in accordance with the Company's underwriting criteria, including
loan-to-value ratios, borrowers income qualifications, debt ratios and credit
history, investor requirements, necessary insurance and property appraisal
requirements. The Company's underwriting standards also comply with relevant
guidelines set forth by HUD, VA, FNMA, FHLMC and secondary market conduits.
All Company underwriting personnel are located in the Company's Walnut Creek
office, make underwriting decisions independent of the Company's mortgage loan
personnel and report to the Company's Vice President--Mortgage Operations.
Under the Company's quality control plan, the Company's internal quality
control underwriter re-verifies at least 10% of the mortgage loans funded each
month to ensure that the Company's underwriting standards have been satisfied.
The report of the quality control underwriter is forwarded directly to the
Company's Vice President--Mortgage Operations. Mortgage loans submitted by
mortgage brokers recently approved by the Company are automatically re-
verified at the time of submission, until such time as the quality of the
mortgage loans submitted by the mortgage broker is consistently acceptable.
Interest Income
The Company derives net interest income from interest earned on warehouse
loans originated by the Company, less interest expense incurred to fund such
loans. The Company presently maintains $50 million dollars in warehouse credit
line facilities to fund mortgage loan originations. Loans remain in the
warehouse
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lines an average of less than 30 days from the time of mortgage loan funding
until being purchased by one of the secondary market conduits. The Company
believes that it currently has adequate warehouse lines to provide for an
increase in its loan originations.
GOVERNMENT REGULATION
The mortgage banking and mortgage brokerage industries are highly regulated
industries. The mortgage banking operations of the Company are subject to the
rules and regulations of, and examinations by, the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Department of Housing and Urban Development ("HUD"), the Veterans
Administration ("VA"), the Rural Housing Service and state regulatory
authorities with respect to originating, underwriting, making, selling,
securitizing and servicing residential mortgage loans. In addition, there are
other federal and state statutes and regulations affecting such activities.
These rules and regulations, among other things, impose licensing obligations
on the Company, establish eligibility criteria for mortgage loans, prohibit
discrimination, provide for inspection and appraisals of properties, require
credit reports on prospective borrowers, regulate payment features, establish
collection, foreclosure and claims handling procedures and, in some cases, fix
maximum interest rates, fees and loan amounts. HUD lenders such as Sutter
Mortgage are required annually to submit to the Federal Housing Commissioner
audited financial statements. Sutter Mortgage's affairs are also subject to
examination by the Federal Housing Commissioner at all times to assure
compliance with HUD regulations, policies and procedures.
Mortgage origination and processing activities are subject to the Equal
Credit Opportunity Act, the Federal Truth-In-Lending Act, the Real Estate
Settlement Procedures Act, the Fair Credit Reporting Act, the Home Mortgage
Disclosure Act, the Right to Financial Privacy Act, among other laws, and the
regulations promulgated thereunder, which prohibit discrimination, require the
disclosure of certain information to borrowers concerning credit and
settlement costs, regulate the access to and use of credit records maintained
by credit bureaus, require the disclosure of loan origination information to
public officials and citizens of the United States and protect the borrower's
privacy of financial information, among other duties and obligations. Failure
to comply with regulatory requirements can lead to loss of approved status,
termination of servicing contracts without compensation to the servicer,
demands for indemnification or loan repurchases, class action lawsuits,
administrative enforcement actions and criminal prosecution.
Virtual Mortgage Network, Inc. is currently licensed as a mortgage broker in
California, Connecticut, Louisiana, Maryland, Oregon, Utah and Washington and
is in the process of applying for a broker license in Florida. The Company
believes Virtual Mortgage Network, Inc. is exempt from the broker license
requirements in Alaska, Colorado, New Mexico, Texas and Wyoming. Sutter
Mortgage is currently licensed as a lender in Arizona, California, Florida,
Idaho, New Jersey and Utah and has applied for a lender's license in Illinois
and Virginia. The Company believes that Sutter Mortgage is exempt from the
lender license requirements in Alaska, Oregon, Colorado, Minnesota, Nevada,
New Mexico and Texas.
Any person who acquires more than 10% of the Company's stock may become
subject to certain state licensing regulations requiring such person
periodically to file certain financial and other information. If any person
holding more than 10% of the Company's stock refuses to adhere to such filing
requirements, the Company's existing licensing arrangements could be
jeopardized. The loss of required licenses could have a material adverse
effect on the Company's business, operating results and financial condition.
EMPLOYEES
As of September 30, 1997, the Company had 162 full-time employees, all of
whom were based in the United States. These employees include 8 in the
Information Technology Department, 24 in Sales and Marketing, 15 in
Operations, 21 in Finance and Administration and 94 persons employed by the
Company's mortgage banking operations. The Company's employees are not
represented by any collective bargaining organizations, and the Company has
never experienced any work stoppages. The Company considers its relations with
its employees to be good.
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FACILITIES
The Company presently leases approximately 11,100 square feet of office
space in Newport Beach, California. The leases expire in December 1997 and
September 1998. The Company also leases approximately 14,000 square feet in
Walnut Creek, California for its mortgage banking operations. The Walnut Creek
lease expires in January 2003. The Company also leases approximately 2,500
square feet in Walnut Creek, California for a retail mortgage office, which
lease expires in February 2003, and 1,600 square feet in Newport Beach,
California for a wholesale mortgage office, which lease expires in May 1998.
The Company believes that it will have to relocate loan counselors and loan
processors to a larger facility within the next year because the Company
expects to be adding new employees as the number of installed LoanMaker
Systems increases. The Company presently leases approximately 1,283 square
feet of office space in Lake Oswego, Oregon under a lease expiring in January
2003 and approximately 848 square feet in Tampa, Florida under a lease
expiring in November 1999.
LEGAL PROCEEDINGS
In 1995 and 1996, the Company received threats of a lawsuit with respect to,
among other things, the Company's refusal to issue shares of Common Stock to
three individuals. These individuals had entered into an agreement with the
Company in March 1995 in connection with the initial capitalization of the
Company to purchase shares of Common Stock in exchange for certain assets to
be delivered to the Company by the individuals. The Company believed the
individuals failed to deliver the consideration required by the agreement, and
the Company refused to issue the Common Stock. The three individuals have made
a variety of allegations against the Company and Michael A. Barron, the
Company's Chairman and Chief Executive Officer, relating to the disputed
issuance of Common Stock and the formation of the Company, however, no legal
proceedings have ever been commenced by these individuals. These allegations
include the following: (i) the assertion that in October 1994 Mr. Barron was
hired as a consultant to Software Today, a company owned by the individuals,
to develop the business opportunity that has now turned into the Company, (ii)
the assertion that in exchange for Software Today's and the individuals'
agreement to pursue the opportunity through the Company, two of the
individuals ("Meader and Garde") would receive 25% of the initial equity of
the Company and the third individual ("Edwards") would also receive 25% of the
initial equity (with Mr. Barron also receiving 25% and two others (Dianne
David and Sandra Sawyer) collectively receiving the remaining 25%), (iii) the
assertion that Mr. Barron breached his consulting agreement with Software
Today and converted an opportunity made available to him while he was serving
as a consultant to Software Today in breach of his fiduciary duties to
Software Today, and (iv) the assertion that the Company has breached its
agreement to deliver the Common Stock. Mr. Barron was able to obtain, on his
behalf and on behalf of the Company, a settlement, an assignment of claims and
a release from the trustee in bankruptcy of Edwards with respect to half of
the shares in dispute in connection with the settlement of a defamation
lawsuit brought by Mr. Barron against Edwards. No legal action has been
commenced by the remaining claimants. The Company believes that the claim is
without merit, and the Company intends to vigorously defend any legal action
that may be commenced in the future. There can be no assurance, however, that
the Company would be successful in defending such a lawsuit, or that the
Company, even if successful, would not expend significant resources in its
defense. The founding stockholders of the Company (which consists of Mr.
Barron, Ms. David and Ms. Sawyer) have agreed to indemnify and hold the
Company harmless from any and all losses (including reasonable attorneys' fees
and expenses) the Company might incur with respect to the foregoing claims.
The shares of Common Stock owned by the founding stockholders of the Company
have been pledged, subject to certain pledge arrangements of Mr. Barron (see
"Risk Factors--Risks Related to Dependence on Key Personnel"), to secure the
founding stockholders' indemnification obligations to the Company. There can
be no assurance, however, that the indemnification provided by the founding
stockholders will be sufficient to fully indemnify the Company with respect to
any losses the Company might incur with respect to the foregoing claims.
46
<PAGE>
In May 1997, Independent National Mortgage ("INM") brought suit against
Sutter Mortgage in Los Angeles County Superior Court to recover damages it
claims it has incurred or will incur as a result of Sutter Mortgage's refusal
and/or failure to repurchase three loans INM purchased from Sutter Mortgage
between December 1994 and November 1995. One loan has been paid in full and
therefore INM has dismissed that portion of its suit with respect to such
loan. INM foreclosed on property related to another one of the three loans and
resold such property; the sale price resulted in a loss to INM of
approximately $650,000.
Under the terms of the stock purchase agreement pursuant to which the
Company acquired all of the outstanding capital stock of Sutter Mortgage, the
former sole shareholder of Sutter Mortgage agreed to indemnify, defend and
hold the Company (including Sutter Mortgage) harmless from all losses,
expenses and settlement amounts that might be incurred in connection with the
INM claim. To support the former shareholder's indemnification obligations to
the Company, $1,500,000 of the purchase price will be placed in an escrow
account at the closing of the Offering. The escrow will terminate on the later
of one year or the resolution of all outstanding claims. See "Sutter Mortgage
Acquisition."
Prior to inception of Virtual Mortgage's business, in March 1994, Sandra
Sawyer, a founder, a former director and the former vice president and
secretary of the Company, pleaded guilty to the federal misdemeanor of
accessory after the fact in connection with false statements made to a
federally insured bank in 1987 by an unrelated private company that Ms. Sawyer
owned and operated. Ms. Sawyer was sentenced to three years of probation and
300 hours of community service and was required to pay $50,000 in restitution.
In addition, Ms. Sawyer is currently on interim suspension with the State Bar
of California in connection with the above misdemeanor. Companies controlled
by Ms. Sawyer own approximately 5.3% of the Common Stock of the Company prior
to the Offering (2.1% of the Common Stock of the Company after the Offering.).
From August 1995 to September 1996, Ms. Sawyer rendered certain consulting
services (including legal services) to the Company. Since September 1996, Ms.
Sawyer has not provided any services to the Company. See "Certain
Transactions."
The Company occasionally becomes involved in litigation arising in the
normal course of business. Management believes that any liability with respect
to such legal actions, individually or in the aggregate, will not have a
material adverse effect on the Company's financial position or results of
operations.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and key employees of the Company as of
October 10, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Michael A. Barron.. 47 Chairman of the Board and Chief Executive Officer
John D. Murray..... 56 President, Chief Financial Officer, Chief Operating
Officer and Director
Robert Gottesman... 49 Vice President, Information Technology
Ronald Morck....... 49 Vice President--Mortgage Operations and President,
Sutter Mortgage Corporation
Michael Balter..... 45 Vice President, Sales and Marketing
Dianne D. David.... 42 Vice President, National Account Sales
Larry Wells........ 54 Director
Randall C. Fowler.. 58 Director
John Wells......... 55 Director
</TABLE>
The directors of the Company are divided into three classes, as nearly equal
in number as possible, designated as Class I, Class II and Class III. Mr.
Larry Wells and Mr. John Wells are the Class I directors, and there is no
family relationship between them. This class will stand for election at the
1998 annual stockholders meeting. Mr. Murray is the sole Class II director and
will stand for election at the 1999 annual stockholders meeting. Messrs.
Barron and Fowler are the Class III directors and will stand for election at
the 2000 annual meeting of stockholders. At each annual meeting of
stockholders, successors of the class of directors whose term expires at that
annual meeting are elected for a three-year term. There are no family
relationships between any of the executive officers and directors of the
Company.
Michael A. Barron has served as Chairman of the Board and a director of the
Company since March 1995. From October 1995 to July 1996, and since December
1996 Mr. Barron has served as Chief Executive Officer of the Company, and from
March 1995 to October 1995 Mr. Barron served as President of the Company. From
March 1994 to March 1995, Mr. Barron served as a consultant to Eclipse Holding
Company, Ltd. in the area of business planning. From April 1992 to March 1994,
Mr. Barron engaged in business consulting for companies such as TRW, Pacific
Bell and Century 21. From November 1989 to April 1992, Mr. Barron served as
President and founder of Finet Mortgage, a mortgage broker and banking
business. Mr. Barron was the Chairman and Chief Executive Officer of Sold
Corporation, a private software company, from November 1982 to August 1988 and
again from March 1989 to September 1989. Mr. Barron was a founder of Citidata,
the first electronic provider of multiple listing services. See "Risk
Factors--Risks Related to Dependence on Key Personnel." Mr. Barron and Ms.
David are domestic partners.
John D. Murray has served as director of the Company since July 1996,
President of the Company since December 1996, Chief Financial Officer of the
Company since May 1996 and Chief Operating Officer since December 1996. From
July 1996 to December 1996, Mr. Murray served as Chief Executive Officer of
the Company. From April 1995 to May 1996, Mr. Murray served as Executive Vice
President and Chief Financial Officer of Matthews Studio Equipment Group, a
designer, manufacturer and supplier of equipment to the entertainment
industry. From August 1992 to February 1995, Mr. Murray served as Chief
Operating Officer and Chief Financial Officer for Alpha Microsystems Inc, a
software, hardware and services provider to the internet and intranet markets.
From March 1988 to August 1992, Mr. Murray served as co-founder of South Coast
Communications Group (currently known as Allen & Caron, Inc.), which is a
full-service corporate, investor and marketing communications agency.
Robert Gottesman has served as Vice President, Information Technology since
July 1995. From May 1984 to December 1995, Mr. Gottesman served as a software
development consultant for both the San Fernando Valley Realtors Association,
a non-profit organization governing the multiple listing services for realtors
in
48
<PAGE>
Northern Los Angeles and Southern Ventura counties, and TRW-REDI (currently
known as Experian Information Solutions), a real estate information company
specializing in tax, title and property data. For TRW, Mr. Gottesman automated
a county tax information system and on-line title information system. Mr.
Gottesman was a co-founder of Citidata and served as its Vice President
Technology from June 1976 to November 1981.
Ronald Morck has served as Vice President--Mortgage Operations since October
1997 and as President of Sutter Mortgage Corporation since January 1984. From
June 1981 to January 1984, Mr. Morck served as Senior Vice President and Chief
Loan Officer at First Nationwide Bank in San Francisco, California.
Michael Balter has served as Vice President, Sales and Marketing since July
1997. Prior to coming to the Company, Mr. Balter worked for Intel Corporation
for 17 years. Mr. Balter served as the Vertical Marketing Manager for the
Personal Conferencing Division at Intel, where he was responsible for working
with several key start-up companies in the video loan origination application,
including the Company.
Dianne D. David has served as Vice President of Sales since September 1996,
and from July to December 1996, as the Chief Operating Officer of the Company.
From October 1995 to December 1996, Ms. David served as President of the
Company. From October 1995 to October 1997, Ms. David served as a director of
the Company. From August 1993 to December 1994, Ms. David served as an
independent financial services consultant and assisted residential mortgage
lending and financial service companies in expanding their businesses. From
July 1990 to February 1993, Ms. David served as Vice-President of Lender
Services of Finet Mortgage. From June 1987 to June 1990, Ms. David was
President of First Realty Financial Services, a computerized loan origination
based mortgage broker, and from June 1985 to May 1987, Ms. David was President
of Gulf West Mortgage, a residential mortgage broker. Ms. David and Mr. Barron
are domestic partners.
Larry Wells has been a director of the Company since May 1997. Mr. Wells has
been a partner at Anderson & Wells, an investment management company, since
February 1989. Mr. Wells is a director of Identix, Inc., Cellegy
Pharmaceuticals, Gateway Data Sciences Corp. and Tellegen Corp. Larry Wells is
not related to John Wells.
Randall C. Fowler has been a director of the Company since September 1996.
Mr. Fowler is the founder of Identix, Inc., which is a leader in designing,
developing, manufacturing and marketing products for the capture and/or
comparison of fingerprints for security, anti-fraud, law enforcement and other
applications. Mr. Fowler has served as the President and Chief Executive
Officer of Identix, Inc. since 1982. Mr. Fowler is a director of Fingerscan,
Inc. and ANADAC, Inc., both of which are subsidiaries of Identix, Inc.
John Wells has been a director of the Company since May 1997. Mr. Wells is a
retired partner of Gibson, Dunn & Crutcher LLP where he was a partner for 21
years. John Wells is not related to Larry Wells.
BOARD COMMITTEES
The Board of Directors formed a Compensation Committee and an Audit
Committee in July 1996. As of May 1997, John Wells, Larry Wells and Randall
Fowler are the members of each committee, with John Wells being the Chairman
of the Compensation Committee and Randall Fowler being the Chairman of the
Audit Committee. Prior to that date, there were no committees of the Board of
Directors. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for the Company's officers and
employees and administers the Company's stock option plans. The Audit
Committee reviews the results and scope of the audit and other accounting
related services and evaluates the Company's internal audit and control
functions.
DIRECTOR COMPENSATION
All non-employee directors are reimbursed for travel and other related
expenses incurred in attending meetings of the Board of Directors. All non-
employee directors are eligible to receive automatic annual grants
49
<PAGE>
under the Company's 1997 Performance Award Plan. See "--Stock Option Plans--
1997 Plan." In addition, at the time of John Wells' election to the Board of
Directors, he was granted a stock option to acquire 10,225 shares of Common
Stock at an exercise price of $7.78 per share. Except as set forth above, none
of the directors is presently compensated for serving as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of John Wells,
Larry Wells and Randall Fowler. No member of the Compensation Committee or
executive officer of the Company has a relationship that constitutes an
interlocking relationship with executive officers or directors of another
entity.
LIMITATION OF LIABILITY OF DIRECTORS
The Articles of Incorporation provide that the liability of the directors of
the Company for monetary damages to the Company or its stockholders are
eliminated to the fullest extent permissible under Nevada law. While the
Articles of Incorporation provide directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Articles of Incorporation will have no effect on
the availability of equitable remedies, such as an injunction or rescission,
based on a director's breach of such director's duty of care. See "Description
of Capital Stock--Limitation of Liability of Directors."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has entered into indemnity agreements with its directors and
officers that require the Company to indemnify the directors and officers to
the fullest extent permitted by applicable provisions of the Nevada General
Corporation Law. The Company believes the foregoing provisions are necessary
to attract and retain qualified persons as directors and officers. See
"Description of Capital Stock--Indemnification of Directors and Officers."
EXECUTIVE COMPENSATION
The following table shows the compensation paid by Virtual Mortgage Network,
Inc. during fiscal 1996 to the Company's Chief Executive Officer and its three
most highly compensated officers whose salary and bonus exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION SALARY BONUSES OPTIONS COMPENSATION
------------------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Michael A. Barron(1)............... $120,000 -- -- $ 1,900
Chairman of the Board and Chief
Executive Officer
John D. Murray(2).................. $ 70,500 $50,000 61,350 $ 3,400
President, Chief Financial Officer
and Chief Operating Officer
Dianne D. David(3)................. $138,000 -- -- $ 1,900
Vice President, National Sales
Accounts
Robert Gottesman(4) ............... $162,941 -- -- $14,000
Vice President, Information
Technology
</TABLE>
- --------
(1) Paid to a consulting firm, Eclipse Holdings, Inc. Other compensation is
the estimated value of perquisites and other personal benefits including
health insurance ($1,600) and life insurance ($300).
(2) Other compensation is the estimated value of perquisites and other
personal benefits including health insurance ($3,100) and life insurance
($300).
50
<PAGE>
(3) Other compensation is the estimated value of perquisites and other
personal benefits including health insurance ($1,600) and life insurance
($300).
(4) Of the $162,941 salary amount, $36,040 was paid directly to Mr. Gottesman
and $128,901 was paid to Mr. Gottesman's consulting firm, Voyager
Information Services. As of October 1996, Mr. Gottesman became an employee
of the Company. Other compensation is the estimated value of perquisites
and other personal benefits including health insurance ($1,000), life
insurance ($200) and housing expenses ($12,800).
OPTION GRANTS
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during the period of
January 1, 1996 to December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
% OF APPRECIATION
TOTAL OPTIONS FOR OPTION
STOCK GRANTED ALL EXERCISE TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAMED EXECUTIVE OFFICER GRANTED 1996 PER SHARE(2) DATE 5% ($) 10% ($)
----------------------- ------- ------------- ------------ ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Barron....... -- -- -- -- -- --
John D. Murray(1)....... 61,350 57.14% $4.89 4/30/01 $319,070 $384,327
Diane D. David.......... -- -- -- -- -- --
Robert Gottesman........ -- -- -- -- -- --
</TABLE>
- --------
(1) Of the options granted under the 1995 Plan, 25% vest after one year and
the remainder vest ratably over a three to four year period thereafter per
month thereafter. Options are subject to the employee's continued
employment. The options terminate ten years after the grant date, subject
to earlier termination in accordance with the 1995 Plan and the applicable
option agreement. See "Management--Stock Option Plans."
(2) The exercise price is equal to the market value on the date of the grant.
The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term
using the 5% and 10% appreciation rates established in regulations of the
Securities and Exchange Commission, compounded annually. The potential
realizable value is not intended to predict future appreciation of the
price of the Company's Common Stock. The values shown do not consider
nontransferability, vesting or termination of the options upon termination
of employment.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into Employment Agreements with Michael Barron and
John Murray which require each of Messrs. Barron and Murray to devote his full
business time, energy and ability to the business, affairs and interests of
the Company and his best efforts and abilities to promote the Company's
interests. The agreements provide for annual base salaries of $180,000 with
discretionary annual performance increases and/or performance bonuses to be
established by the Independent directors of the Company's Board of Directors
based on the Company's attainment of certain net income projections. The
agreements have three-year terms ending on September 30, 2000 and may be
terminated by the Company with or without cause as defined in the agreements.
The agreements also provide for severance payments upon termination of
employment without cause or resignation by the executive for good reason in
the amount of approximately $180,000 to each, with partial vesting of stock
options. The agreements further contain noncompetition, confidentiality,
indemnity and dispute resolution provisions.
Each of the Named Executive Officers has entered into a non-competition,
nonsolicitation, non-disclosure and assignment of inventions agreement with
the Company (the "Non-Competition Agreement"), which restricts the officer
from competing with the Company and from soliciting, diverting or attempting
to solicit or divert any customers or employees of the Company during the term
of the officer's employment and for one year after termination of employment.
The Non-Competition Agreement also obliges the Named Executive Officer not to
reveal any trade secrets or confidential information of the Company during the
term of the officer's employment and for five years after termination of
employment. The Non-Competition Agreement requires the Named
51
<PAGE>
Executive Officers to assign to the Company all right and interest in any
intellectual property related to the business of the Company and developed by
the officer during the term of the officer's employment with the Company.
The Compensation Committee, as the administrator of the Company's stock
option plans, has the authority to accelerate vesting of the shares of Common
Stock held by any of the Named Executive Officers in connection with certain
changes of control of the Company. See "--Stock Option Plans."
STOCK OPTION PLANS
1995 Plan. In November 1995, the Company adopted the Company's 1995 Stock
Option Plan (the 1995 Plan"). The 1995 Plan authorized the issuance of 409,000
shares of Common Stock, of which 365,461 shares have been issued in the form
of stock options. The Company's Board of Directors determined the terms and
conditions of each award under the 1995 Plan made to directors, officers,
employees and consultants of the Company. The exercise prices of options range
from $4.89 to $7.50, with options vesting 25% after one year and thereafter
ratably on a monthly basis over a three or four year period and terminating
ten years from the date of grant.
Options that have not yet become exercisable will lapse upon the date a
participant is no longer employed by the Company for any reason. Options that
have become exercisable must be exercised within 30 days after that date if
the termination of employment was for any reason other than retirement, total
disability, death or discharge for cause. If a participant is discharged for
cause, all options shall lapse immediately upon termination of employment. If
the termination of employment was due to retirement, total disability or
death, the options that are exercisable on the date of the termination must be
exercised within three months of the date of termination or a shorter period
provided in the award agreement. If the stockholders of the Company approve
the dissolution or liquidation of the Company, certain mergers or
consolidations, or the sale of substantially all of the business assets of the
Company, unless prior to that event the Board of Directors determines that
there shall be either no acceleration or limited acceleration of awards, each
option shall become immediately exercisable.
1997 Plan. In October 1997, the Company adopted the Company's 1997
Performance Award Plan (the "1997 Plan"), subject to subsequent stockholder
approval of the 1997 Plan which is expected to occur in November 1997. The
1997 Plan provides a means to attract, motivate, retain and reward key
employees (including officers and directors) of the Company and its
subsidiaries and certain other eligible persons and promote the success of the
Company.
Awards under the 1997 Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SARs"), restricted stock,
performance shares, stock bonuses or cash bonuses based on performance. Awards
may be granted singly or in combination with other awards. Any cash bonuses
would be paid based upon the extent to which performance goals set by the
Compensation Committee are met during the performance period. Awards under the
1997 Plan generally will be nontransferable by a holder (other than by will or
the laws of descent and distribution) and rights thereunder generally will be
exercisable, during the holder's lifetime, only by the holder, subject to such
exceptions as may be authorized by the Compensation Committee.
Administration; Change in Control. The 1997 Plan provides that it will be
administered by the Board of Directors or a committee appointed by the
Company's Board of Directors. The Board of Directors has appointed the
Company's Compensation Committee to serve as the committee under the 1997
Plan. The Compensation Committee will have the authority to (i) designate
recipients of awards, (ii) determine or modify the provisions of awards,
including vesting provisions, the number of shares or amount of cash subject
to awards, the terms of exercise of an award and expiration dates, (iii)
approve the form of award agreements, and (iv) construe and interpret the 1997
Plan; consistent with the terms and limits of the Plan. The Compensation
Committee will have the discretion to accelerate and extend the exercisability
or term and establish the events of termination or reversion of outstanding
awards.
52
<PAGE>
Upon a Change in Control Event each option and SAR will become immediately
exercisable, restricted stock will immediately vest free of restrictions and
the number of shares, cash or other property covered by each performance share
award will be issued to the grantee of such award, unless the Compensation
Committee determines to the contrary. A "Change in Control Event" is defined
generally to include the acquisition of 50% or more of the outstanding voting
securities of the Company by any person, a transfer of substantially all of
the Company's assets, the dissolution or liquidation of the Company, or a
merger, consolidation or reorganization whereby stockholders immediately prior
to such event own less than 50% of the outstanding voting securities of the
surviving entity after such event.
Plan Amendment; Termination and Term. The Company's Board of Directors will
have the authority to amend, suspend or discontinue the 1997 Plan at any time,
but no such action will affect any outstanding award in any manner adverse to
the participant without the consent of the participant. The 1997 Plan may be
amended by the Board of Directors without stockholder approval unless such
approval is required by applicable law.
The 1997 Plan will remain in existence as to all outstanding awards until
such awards are exercised or terminated. The maximum term of unvested or
unexercised options, SARs and other rights to acquire Common Stock under the
1997 Plan is 10 years after the initial date of award. No award can be made
after the tenth anniversary of the date on which the Board of Directors
approved the 1997 Plan.
Authorized Shares and Other Provisions. The maximum number of shares of
Common Stock that may be issued in respect of awards under the 1997 Plan is
1,000,000 shares. The number and kind of shares available for grant and the
shares subject to outstanding awards will be adjusted to reflect the effect of
a stock dividend, stock split, recapitalization, merger, consolidation,
reorganization, combination or exchange of shares, extraordinary dividend or
other distribution or other similar transaction. If any award expires or is
cancelled or terminated without having been exercised or paid in full, or if
any Common Stock subject to a restricted stock award does not vest or is not
delivered, the unpurchased, unvested or undelivered shares will again be
available for award under the 1997 Plan. No incentive stock option may be
granted at a price that is less than fair market value of the Common Stock
(less than 110% of fair market value of the Common Stock on the date of grant
for certain participants) on the date of grant.
Automatic Annual Grants to Non-Employee Directors. Under the 1997 Plan, each
director who is not an employee (each, a "Non-Employee Director") and who is
in office at the time the stockholders of the Company approve the 1997 Plan
will be automatically granted stock options to purchase 20,000 shares of
Common Stock on the date of such approval at an exercise price equal to the
market price on the date of the approval. Each new Non-Employee Director after
the date of such approval will be granted stock options to purchase 20,000
shares of Common Stock upon becoming a director at an exercise price equal to
the market price on that date. In addition, at the close of trading on the day
of the annual stockholders meeting in each calendar year beginning in 1998 and
continuing for each subsequent year during the term of the 1997 Plan, each
person who is a Non-Employee Director as of such date will be granted stock
options to purchase 10,000 shares of Common Stock at an exercise price equal
to the market price of the Common Stock on that date. If a Non-Employee
Director's services are terminated for any reason other than the director's
death, disability or retirement, any portion of stock options held by such
director that are exercisable will remain exercisable for six months after
such termination of services or until the expiration of the term of such
option, whichever occurs first. If the Non-Employee Director dies, becomes
disabled or retires, stock options held by such director will become
exercisable for two years after the date of such termination of services.
Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the 1997 Plan follow certain basic patterns.
Generally, awards under the 1997 Plan that are includable in the income of the
recipient at the time of award or exercise (such as nonqualified stock
options, SARs, restricted stock and performance awards) are deductible by the
Company, and awards that are not required to be included in the income of the
recipient at such times (such as incentive stock options) are not deductible
by the Company.
53
<PAGE>
Grant of Options. The Board of Directors of the Company has authorized the
grant of options relating to approximately 552,800 shares of Common Stock to
Eligible Persons, including Michael Barron and John Murray who were granted
options to acquire 334,150 and 218,650 shares of Common Stock, respectively,
which shall be effective upon the closing of this Offering. The exercise price
of each option granted is the initial public offering price per share of the
Common Stock offered hereby. Such options vest in equal installments of 1/48th
per month over a period of four years.
COMPENSATION PLAN
The Company's Board of Directors approved the Company's 1995 Consultant and
Employee Stock Compensation Plan (the "Compensation Plan") in March 1995. The
purpose of the Compensation Plan was to compensate officers, directors,
consultants, lawyers and accountants for services rendered to the Company,
other than services in connection with the offer or sale of securities,
through awards of Common Stock. The maximum number of shares authorized under
the Compensation Plan was 102,250, 20,450 of which were issued in the form of
restricted stock (818 shares of which the Company has repurchased at par value
upon the departures of three employees) and 81,800 of which have been granted
and are not restricted. The Board of Directors of the Company, however,
administers the Compensation Plan and may increase the maximum number of
shares under the plan at such times as it deems advisable.
The Company's Board of Directors has the authority to interpret the
Compensation Plan and to prescribe rules and regulations for the plan. The
Board of Directors has complete discretion in determining when, to whom and in
what amount awards are to be granted. The maximum number of allowable
participants, however, is set at 35.
CERTAIN TRANSACTIONS
Between March 1995 and June 1996, the Company issued certain promissory
notes and warrants to purchase Common Stock ("Warrants") to American Growth
Fund I, L.P., a California limited partnership (the "Fund"), in exchange for
consulting services. The general partner of the Fund is American Growth
Capital Corporation, a Nevada corporation ("AGCC"). Donna Snyder, a director
of the Company from March 1996 to September 1996, was an executive officer and
stockholder of AGCC. The Company paid approximately $154,700 from March 1995
to September 1996 in aggregate consulting fees to AGCC directly. In August
1997, a temporary receiver was appointed by a federal court to oversee the
affairs of the Fund and AGCC. The receiver was appointed at the request of the
Securities and Exchange Commission.
In July 1996, the Company consolidated all outstanding promissory note
indebtedness in favor of the Fund by issuing two promissory notes in the
principal amounts of $200,000 and $300,000 in exchange for the cancellation of
all prior promissory notes. The $200,000 note matured in March 1997 and
presently accrues interest at 15% interest per annum. The $300,000 note is a
Phase I Bridge Note. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The Fund purchased 51,125 shares of Common Stock as well as 35,788 Warrants
on March 22, 1995 for $200,000. On June 14, 1995, the Fund purchased 250,000
shares of Preferred Stock for $250,000, and an additional 100,000 shares of
Preferred Stock on March 15, 1996 for $100,000. On March 29, 1996, the Company
issued 1,534 Warrants, with an exercise price of $3.423 per share, to the Fund
for services rendered. As consideration for increasing such exercise price to
$4.89 per share, the Company issued 1,245 Warrants, with an exercise price of
$4.89 per share, to the Fund on September 9, 1996.
Donna Snyder was also an executive officer and stockholder of American
Growth Capital Investments, Inc., a Nevada corporation ("AGCI"). AGCI has
rendered consulting services to the Company in consideration for an aggregate
of 25,563 Warrants, each with an exercise price of $4.89 per share.
On March 31, 1996, the Company issued 20,450 Warrants to Randall C. Fowler,
a director of the Company, in exchange for consulting services rendered. These
Warrants had an exercise price of $4.89 per share and Mr. Fowler exercised the
Warrants on January 22, 1997. In addition, Mr. Fowler had subscribed to
acquire 35,000 shares of Preferred Stock in connection with the Company's
private placement which occurred from September 1995 through March 1996. His
subscription was in excess of the amount of Preferred Stock authorized by the
Board of Directors. Consequently, the Company and Mr. Fowler agreed to convert
his subscription into a $35,000 Phase II Bridge Note and 2,386 Phase II Bridge
Warrants effective as of September 30, 1997.
54
<PAGE>
On July 5, 1996, the Company issued 20,450 Warrants to Larry Wells, a
director of the Company, in exchange for consulting services rendered. These
Warrants have an exercise price of $7.78 per share. On February 5, 1997, Mr.
Wells exercised 12,863 Warrants. In addition, Mr. Wells had subscribed to
acquire 42,500 shares of Preferred Stock in connection with the Company's
private placement which occurred from September 1995 through March 1996. His
subscription was in excess of the amount of Preferred Stock authorized by the
Board of Directors. Consequently, the Company and Mr. Wells agreed to convert
his subscription into a $42,500 Phase II Bridge Note and 2,898 Phase II Bridge
Warrants effective as of September 30, 1997.
John Wells, a director of the Company, had subscribed to acquired 15,000
shares of Preferred Stock in connection with the Company's private placement
which occurred from September 1995 through March 1996. His subscription was in
excess of the amount of Preferred Stock authorized by the Board of Directors.
Consequently, the Company and Mr. Wells agreed to convert his subscription
into a $15,000 Phase II Bridge Note and 1,023 Phase II Bridge Warrants
effective as of September 30, 1997. Also, in May 1997 the Company granted an
option to acquire 10,255 shares of Common Stock to Mr. Wells at an exercise
price of $7.50 per share.
On October 1, 1996, the Company entered into an agreement with Sandra
Sawyer, a former officer and director of the Company, and Villa Nova
Management Co., Inc. ("Villa Nova"), a consulting firm controlled by Ms.
Sawyer, whereby the consulting services of both were terminated. As
consideration, the Company (i) agreed to pay up to $149,300 as a severance
package to Villa Nova, of which $142,800 has been paid, (ii) allowed Villa
Nova 90 days in which to exercise stock options to purchase 5,113 shares of
Common Stock which had vested, which Villa Nova exercised, and (iii) issued to
Villa Nova a warrant to purchase 5,113 shares of Common Stock at an exercise
price of $4.89 per share. Sandra Sawyer is the President of Villa Nova. See
"Business--Legal Proceedings."
On October 21, 1997, the Company made a short-term personal loan to Michael
A. Barron, Chairman and Chief Executive Officer of the Company, in the amount
of $112,500. The loan bears interest at ten percent per annum. The loan was
made to Mr. Barron as an accommodation to bridge a short-term financial need
pending his receipt of funds from a third-party source. The loan is due upon
Mr. Barron's receipt of funds from the third-party source and in no event
later than October 31, 1997. The loan was approved by all of the non-employee
directors of the Company and is secured by a pledge of 58,666 shares of Common
Stock owned by Mr. Barron.
Compensation paid by the Company for Mr. Barron's services has been paid to
Eclipse Holdings, Inc., a consulting firm owned by Mr. Barron's domestic
partner, Dianne David. Amounts paid to Eclipse equalled $113,000 in 1995,
$120,000 in 1996 and $110,000 as of June 30, 1997.
The Company has entered into indemnity agreements with each of its directors
and executive officers. These agreements require the Company to indemnify such
individuals for certain liabilities to which they may be subject as a result
of their affiliation with the Company, to the fullest extent allowed by law.
The Company has adopted a policy that transactions, other than compensation
matters, between the Company and its executive officers, directors and
affiliates, will be submitted to the Company's non-employee directors for
approval.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 30, 1997, and as
adjusted to give effect to the sale of shares offered hereby by (i) each
person who is known to the Company to beneficially own 5% or more of the
outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES -----------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING(2) OFFERING(3)
- ---- ------------ ----------- -----------
<S> <C> <C> <C>
Remy Trafelet(4)......................... 712,026 24.9% 10.4%
Orin Kramer(4)........................... 701,910 24.6% 10.2%
Kramer Spellman, LP(4)................... 681,413 23.9% 10.0%
Michael A. Barron(5)..................... 263,294 10.0% 4.0%
Diane D. David(5)........................ 215,578 8.2% 3.3%
Sandra S. Sawyer(6)...................... 139,743 5.3% 2.1%
John D. Murray(7)........................ 40,916 1.5% *
Robert Gottesman(8)...................... 39,418 1.5% *
Larry Wells(9)........................... 81,636 3.1% 1.2%
Randall C. Fowler(10).................... 26,246 1.0% *
John Wells(11)........................... 1,023 * *
Michael Balter........................... -- * *
Ronald Morck............................. -- * *
All directors and executive officers as a
group (9 persons)....................... 668,111 24.6% 10.0%
</TABLE>
- -------
* Less than one percent.
(1) Includes the number of shares and percentage ownership represented by
such shares determined to be beneficially owned by a person in accordance
with the rules of the Securities and Exchange Commission plus all
additional options and warrants to purchase Common Stock exercisable at
any time after 60 days from September 30, 1997. Such shares, however, are
not deemed outstanding for the purposes of computing the percentage
ownership of any other person. Such exercisable options are shown in the
footnotes to this table for each such person. To the Company's knowledge,
the persons named in this table have sole voting and investment power
with respect to all shares of Common Stock shown as owned by them,
subject to community property laws where applicable and except as
indicated in the other footnotes to this table.
(2) Percentage calculation is based upon 2,619,229 shares consisting of (i)
1,455,956 shares outstanding as of September 30, 1997, (ii) 368,136
shares of Common Stock issuable upon the automatic exercise of warrants
in connection with the Offering, (iii) an estimated 65,000 shares of
Common Stock issued in connection with the Acquisition and (iv) 730,137
shares of Common Stock issued in connection with certain private
placements of Common Stock subsequent to September 30, 1997.
(3) Percentage calculation is based upon 6,619,229 shares consisting of (i)
the shares considered outstanding as set forth in note 2 above and (ii)
4,000,000 shares of Common Stock to be issued in connection with the
Offering.
(4) Includes: (i) 229,403 shares of Common Stock and 195,903 warrants to
acquire Common Stock owned by Boston Provident Partners, L.P.; (ii)
24,967 shares of Common Stock and 14,811 warrants to acquire Common Stock
owned by Pine Boston Partners, L.P.; (iii) 25,952 shares of Common Stock
and 15,267 warrants to acquire Common Stock owned by International
Charitable Interests II, L.P.; (iv) 28,688 shares of Common Stock and
19,816 warrants to acquire Common Stock owned by BP Institutional
Partners, L.P.; (v) 46,256 shares of Common Stock and 33,085 warrants to
acquire Common Stock owned by BP Overseas Partners, L.P.; and (vi) 30,120
shares of Common Stock and 22,887 warrants to acquire Common Stock owned
by Maritime Global Subsidiary I, Ltd. Mr. Trafelet and Mr. Kramer each
have voting and dispositive power over the above shares and warrants. The
address for each of the above holders is 2050 Center St., Suite 300, Fort
Lee, NJ 07024.
(5) Includes 2,557 shares of Common Stock subject to options exercisable
within 60 days. The address for this individual is 4590 MacArthur Blvd.,
Suite 175, Newport Beach, CA 92660.
(6) Includes: (i) 5,113 shares of Common Stock and 5,113 warrants to acquire
Common Stock exercisable within 60 days which are owned by Villa Nova
Management Co., Inc.; and (ii) 207,908 shares of Common Stock owned by
Tradenet Development Co., Ltd. S.A. de C.V.; with respect to which Ms.
Sawyer has voting and dispositive power. The address for Ms. Sawyer is
4590 MacArthur Blvd., Suite 503, Newport Beach, CA 92660.
(7) Consists of 40,916 shares of Common Stock subject to options exercisable
within 60 days of September 30, 1997.
(8) Consists of 39,418 shares of Common Stock subject to options exercisable
within 60 days of September 30, 1997.
(9) Includes: (i) 13,977 warrants to acquire Common Stock owned by Daystar
Partners, L.P.; (ii) 3,410 warrants to acquire Common Stock owned by
Anacapa Ventures Partners; and (iii) 40,900 warrants to acquire Common
Stock owned by Sundance Venture Partners, L.P. Mr. Wells has voting and
dispositive power over the above warrants.
(10) Includes 5,796 Warrants to acquire Common Stock.
(11) Includes 1,023 Warrants to acquire Common Stock.
56
<PAGE>
REGISTERED STOCKHOLDERS
Subject to certain lock-up arrangements, the Registered Stockholders may
offer and sell the 920,086 shares of Common Stock owned by them on the Nasdaq
National Market in negotiated transactions or otherwise. The Company will not
receive any proceeds from the sale of shares by the Registered Stockholders.
See "Shares Eligible for Future Sale."
Except as indicated below and for their ownership of Common Stock of the
Company, the Registered Stockholders have no material relationship with the
Company. The following table sets forth certain information regarding the
Registered Stockholders.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
REGISTERED STOCKHOLDER OWNED TO BE OFFERED
---------------------- ------------ -------------
<S> <C> <C>
Remy Trafelet (1)................................... 712,026 472,827
Orin Kramer (1)..................................... 701,910 466,404
Kramer Spellman, L.P. (1)........................... 681,413 453,557
American Growth Fund I, L.P. ....................... 107,734 20,451
Moore Global Investments Ltd........................ 102,251 102,251
Robert Merrick...................................... 80,663 64,308
Larry Wells (2)..................................... 81,636 61,185
Arthur Sutter....................................... 65,000 65,000
Jeffrey Gendell..................................... 34,084 34,084
Randall Fowler (3).................................. 26,246 5,796
James Scibelli...................................... 6,818 6,818
Sunshine Charitable Trust........................... 6,817 6,817
Ronald Ruben........................................ 8,041 5,139
James Scullion...................................... 3,922 3,922
Vance Driscoll...................................... 3,410 3,410
Robert Weiss........................................ 3,410 3,410
KSH Investment Group, Inc. ......................... 3,409 3,409
Ronald Krinick...................................... 3,409 3,409
Mid-Lakes P/S Trust................................. 3,409 3,409
Alfred Abiouness.................................... 3,409 3,409
Windy City, Inc. ................................... 3,409 3,409
Judy Shapiro........................................ 3,409 3,409
Allenstown Investment Ltd. Corp. ................... 3,409 3,409
Paul and Judy Berkman JTWROS........................ 3,409 3,409
KAM Group, Inc. .................................... 3,409 3,409
Linda Bassin........................................ 3,409 3,409
Edward S. Raskin Trust.............................. 3,409 3,409
Harvey Greenfield................................... 3,409 3,409
M. D. Funding....................................... 3,409 3,409
Andrew Malik........................................ 1,706 1,706
Steven Nimirov...................................... 1,706 1,706
Joseph Bianco....................................... 1,705 1,705
Stanley Goldberg Revocable Trust.................... 1,364 1,364
John Wells (4)...................................... 1,023 1,023
</TABLE>
- --------
(1) Includes: (i) 229,403 shares of Common Stock and 195,903 warrants to
acquire Common Stock owned by Boston Provident Partners, L.P.; (ii)
24,967 shares of Common Stock and 14,811 warrants to acquire Common Stock
owned by Pine Boston Partners, L.P.; (iii) 25,952 shares of Common Stock
and 15,267 warrants to acquire Common Stock owned by International
Charitable Interests II, L.P.; (iv) 28,688 shares of Common Stock and
19,816 warrants to acquire Common Stock owned by BP Institutional
Partners, L.P.; (v) 46,256 shares of Common Stock and 33,085 warrants to
acquire Common Stock owned by BP Overseas Partners, L.P.; and (vi) 30,120
shares of Common Stock and 22,887 warrants to acquire Common Stock owned
by Maritime Global Subsidiary I, Ltd. Mr. Trafelet and Mr. Kramer each
have voting and dispositive power over the above shares and warrants.
(2) Includes: (i) 13,977 warrants to acquire Common Stock owned by Daystar
Partners, L.P.; (ii) 3,410 warrants to acquire Common Stock owned by
Anacapa Ventures Partners; and (iii) 40,900 warrants to acquire Common
Stock owned by Sundance Venture Partners, L.P. Mr. Wells has voting and
dispositive power over the above warrants and is a director of the
Company.
(3) Mr. Fowler is a director of the Company.
(4) Mr. Wells is a director of the Company.
56-1
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock are being registered to permit public secondary
sales of the registered Common Stock (the "Registered Shares") by the
Registered Stockholders from time to time after the date of this Prospectus.
The Company has agreed to bear all expenses (other than any underwriting
discounts, selling commissions and fees and expenses of counsel and other
advisors to the Registered Stockholders) in connection with the registration
and sale of the Registered Shares.
The Company anticipates that the Registered Stockholders may sell all or a
portion of the Registered Shares from time to time through a broker or brokers
on the Nasdaq National Market or in other over-the-counter market transactions
at the then prevailing market price. The Registered Stockholders may also sell
the Registered Shares in privately negotiated transactions, directly or
through a broker or brokers, at a price and pursuant to other terms negotiated
between the parties.
Brokers effecting sales of the Registered Shares may receive customary
brokerage commissions from the Registered Stockholders. Brokers or dealers
engaged by the Registered Stockholders may arrange for other brokers or
dealers to participate. In connection with such sales, the Registered
Stockholders and brokers participating in such sales may be deemed to be
"underwriters" within the meaning of the Securities Act and may be deemed by
the National Association of Securities Dealers to have received underwriting
compensation for purposes of the Association's Rules of Fair Practice.
Each of the Registered Stockholders has agreed not to sell its Registered
Shares except as permitted by the terms of the 24-Month Provisional Lock-up
Agreement. See "Shares Eligible for Future Sale."
56-2
<PAGE>
DESCRIPTION OF CAPITAL STOCK
OUTSTANDING CAPITAL
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, $.005 par value, and 10,000,000 shares of Preferred Stock, $.001
par value, 2,250,000 shares of which have been designated as Series A
Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as the Board
may declare out of funds legally available for that purpose. Holders of Common
Stock are entitled to one vote per share on all matters on which they are
entitled to vote. Holders of Common Stock have no preemptive, conversion,
redemption or sinking funds rights. In the event of a liquidation, dissolution
or winding-up of the Company, holders of Common Stock are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all debts and liabilities of the Company and the liquidation
preference of any outstanding Preferred Stock. The outstanding shares of
Common Stock are, and the shares of Common Stock offered by the Company hereby
when issued will be, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to the outstanding Series A
Preferred Stock of the Company and any other series of Preferred Stock that
the Company may issue in the future.
PREFERRED STOCK
The Company currently has 2,250,000 shares of Series A Preferred Stock
outstanding. Each share of Series A Preferred Stock, as of September 30, 1997,
is convertible at the option of the holder into .249 shares of Common Stock,
which number is subject to upward adjustment if the Company issues certain
equity securities in the future for less than $4.01 per share. Holders of
Series A Preferred Stock are entitled to receive dividends before any
dividends are paid on the Company's Common Stock (which accrue at the rate of
10% per year and are not cumulative), hold a liquidation preference in the
amount of $1.00 for each share of Series A Preferred Stock and hold the right
to vote with the Common Stock on all matters submitted to the stockholders,
with each holder having, as of September 30, 1997, .249 votes per share of
Series A Preferred Stock. After June 1, 1998, holders of a majority of the
Series A Preferred Stock may require the Company to redeem the Series A
Preferred Stock, if lawfully permitted to do so, at $1.10 per share. Holders
of a majority of the outstanding Series A Preferred Stock also have the right
to approve certain Company actions, including the sale or merger of the
Company, certain amendments to the Company's Articles of Incorporation and the
declaration of dividends on the Company's Common Stock. Such voting and
approval rights could have the effect of making a third party less willing to
acquire a majority of the outstanding voting stock of the Company. In
addition, the conversion of the Series A Preferred Stock into Common Stock,
and the sale of such Common Stock into the market, could have a material
adverse effect on the market value of the Common Stock. At December 31, 1996,
the Company had received oversubscriptions with respect to 150,000 shares of
Series A Preferred Stock. Subsequent to December 31, 1996, the
oversubscriptions were converted into an aggregate of $100,000 in Phase II
Bridge Notes (with 6,817 associated Phase II Bridge Warrants, in the
aggregate) and 12,470 shares of Common Stock with the consents of the
applicable investors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The Board is authorized to provide for the issuance of additional Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and to fix the number of
shares to be included in any series. Any Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding-up, or both. In addition, any shares
of Preferred Stock may have class or series voting rights. Issuances of
Preferred Stock, while providing the Company with flexibility in connection
with general corporate purposes, may, among other things, have an adverse
effect on the rights of holders of Common Stock, may have the effect of
delaying, deterring or preventing a change in control of the Company without
further action by the stockholders, may discourage bids for the Company's
Common
57
<PAGE>
Stock at a premium over the market price of the Common Stock, and may
adversely affect the market price and the voting and other rights of the
holders of Common Stock. At present, the Company has no plans to issue any
additional shares of Preferred Stock.
REGISTRATION RIGHTS
After the Offering, pursuant to the Virtual Mortgage Network, Inc. Master
Registration Rights Agreement (the "Registration Rights Agreement"), holders
of 51,125 shares of Common Stock, 35,788 warrants to purchase Common Stock and
2,250,000 shares of Series A Preferred Stock that are presently convertible
into 368,136 shares of Common Stock (the "Registrable Shares") or their
transferees (the "Rights Holders") will have registration rights that entitle
the holders to request that the Company include some or all of the shares
owned by these holders, subject to certain conditions, in a Company
registration of its securities under the Securities Act. Under the terms of
the Registration Rights Agreement, if the Company proposes to register any of
its securities under the Securities Act for its own account, the holders of
Registrable Shares are entitled to receive written notice of the registration
and are entitled to include, at the Company's expense, Registrable Shares
therein. Holders of 60% of the Registrable Shares, excluding certain shares
from the calculation, have demand rights for two registrations following the
consummation of the Offering. The underwriters of any offering have the right,
under specified conditions, to limit the number of Registrable Shares included
in these registrations. All fees, costs and expenses for these registrations
will be borne by the Company, with certain exceptions, provided that these
holders will be required to bear their pro rata share of the underwriting
discounts and commissions. All of the Rights Holders have agreed under the 24-
Month Provisional Lock-up Agreement not to sell shares of Common Stock or
request registration with respect thereto, except as permitted by the 24-Month
Provisional Lock-up Agreement. See "Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Articles of Incorporation and the Bylaws of the
Company summarized in the succeeding paragraphs may be deemed to have anti-
takeover effects and may delay, deter or prevent a tender offer or takeover
attempt that a stockholder might consider to be in such stockholder's best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders. However, certain of the
following provisions may be limited or prohibited by the application of
Section 2115 of the California General Corporation Law described below.
Classified Board of Directors. The Articles of Incorporation divide the
Board of Directors into three classes of directors serving staggered three-
year terms. As a result, approximately one-third of the Board of Directors
will be elected at each annual meeting of stockholders.
The classification of directors and provisions in the Articles of
Incorporation that limit the ability of stockholders to increase the size of
the Board of Directors, together with provisions in the Articles of
Incorporation that limit the ability of stockholders to remove directors and
that permit the remaining directors to fill any vacancies on the Board, will
have the effect of making it more difficult for stockholders to change the
composition of the Board of Directors. As a result, two annual meetings of
stockholders may be required for the stockholders to change a majority of the
directors, whether or not a change in the Board of Directors would be
beneficial to the Company and its stockholders and whether or not a majority
of the Company's stockholders believes that such a change would be desirable.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures with regard to
stockholder proposals and the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors. The Company may reject a stockholder proposal or nomination that is
not made in accordance with such procedures.
Prohibition on Stockholder Action by Written Consent and Limitations on
Calling Stockholder Meetings. The Articles of Incorporation and Bylaws
prohibit stockholder action by written consent in lieu of a meeting, and
provide that stockholder action can be taken only at an annual or special
meeting of stockholders. The
58
<PAGE>
Articles of Incorporation provide that, subject to the rights of holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, special meetings of stockholders can be called only by the
Board of Directors, the Chairman of the Board of Directors or the Chief
Executive Officer of the Company. Stockholders are not permitted to call a
special meeting or to require that the Board of Directors call a special
meeting of stockholders. Such provision may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting unless a
special meeting is called by the Board of Directors, the Chairman of the Board
or the Chief Executive Officer of the Company.
Certain Provisions of the Nevada General Corporation Law. Nevada's
"Combination with Interested Stockholders Statute," which applies to Nevada
corporations having at least 200 stockholders, prohibits an "interested
stockholder" from entering into a "combination" with the corporation, unless
certain conditions are met. A "combination" includes (a) any merger with an
"interested stockholder," (b) any consolidation, sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets, in one transaction
or a series of transactions, to an "interested stockholder," having: (i) an
aggregate market value equal to 5% or more of the aggregate market value of
the corporation's assets; (ii) an aggregate market value equal to 5% or more
of the aggregate market value of all outstanding shares of the corporation; or
(iii) representing 10% or more of the earning power or net income of the
corporation, or (c) any issuance or transfer of shares of the corporation or
its subsidiaries having an aggregate market value equal to 5% or more of the
aggregate market value of all the outstanding shares of the corporation. An
"interested stockholder" is a person who, together with affiliates and
associates, beneficially owns (or within the prior three years, did
beneficially own) 10% or more of the corporation's voting stock. Stockholders
who owned 10% or more of the corporation's stock on January 1, 1991 are
exempt.
A corporation to which the statute applies may not engage in a "combination"
within three years after the interested stockholder acquired its shares,
unless the combination or the interested stockholder's acquisition of shares
was approved by the board of directors before the interested stockholder
acquired the shares. If this approval is not obtained, then after the three-
year period expires, the combination may be consummated with the approval of
the board of directors or a majority of the voting power held by disinterested
stockholders, or if the consideration to be paid by the interested stockholder
is at least equal to the higher of: (i) the highest price per share paid by
the interested stockholder within the three years immediately preceding the
date of the announcement of the combination or in the transaction in which it
became an interested stockholder, whichever is higher; (ii) the market value
per common share on the date of announcement of the combination or the date
the interested stockholder acquired the shares, whichever is higher; or (iii)
if higher for the holders of preferred stock, the highest liquidation value of
the preferred stock.
Nevada's "Control Share Acquisition Statute" prohibits an acquiror, under
certain circumstances, from voting shares of a target corporation's stock
after crossing certain threshold ownership percentages, unless the acquiror
obtains the approval of the target corporation's stockholders. The statute
specifies three thresholds: at least one-fifth but less than one-third, at
least one-third but less than a majority, and a majority or more, of the
outstanding voting power. Once an acquiror crosses one of the above
thresholds, shares which it acquired in the transaction taking it over the
threshold or within ninety days become "Control Shares" which are deprived of
the right to vote until a majority of the disinterested stockholders restore
that right. If the stockholders fail to restore voting rights to the acquiror,
then the corporation may, if so provided in its Articles of Incorporation and
By-Laws, call certain of the acquiror's shares for redemption. The Company's
Articles of Incorporation and Bylaws do not currently permit it to call an
acquiror's shares for redemption under these circumstances. The Control Share
Acquisition Statute also provides that in the event the stockholders restore
full voting rights to a holder of Control Shares which owns a majority of the
voting stock, then all other stockholders who do not vote in favor of
restoring voting rights to the Control Shares may demand payment for the "fair
value" of their shares (which is generally equal to the highest price paid in
the transaction subjecting the stockholder to the statute). The Control Share
Acquisition Statute only applies to Nevada corporations with at least 200
stockholders, including at least 100 record stockholders who are Nevada
residents, and which do business directly or indirectly in Nevada.
59
<PAGE>
The provisions described above, together with the ability of the Board of
Directors to issue Preferred Stock as described under "--Preferred Stock," may
have the effect of delaying or deterring a change in the control or management
of the Company.
APPLICATION OF THE CALIFORNIA GENERAL CORPORATION LAW TO THE COMPANY
If the Company's equity securities are held by less than 800 stockholders, a
majority of its outstanding shares are held by persons with California
addresses and the Company has operational characteristics that indicate that
it has significant contacts to California, the Company may be subject to
Section 2115 of the California Corporations Code. In such event, the Company
would be subject to certain key provisions of the California General
Corporation Law, including, without limitation, those provisions relating to
the number of directors to be elected each year (all directors would be
required to be elected each year under California law applicable to companies
with less than 800 beneficial holders of their equity securities), the
stockholders' right to cumulate votes at elections of directors (cumulative
voting would be mandatory under California law applicable to companies with
less than 800 beneficial holders of their equity securities), the
stockholders' right to remove directors without cause (which under California
law is subject to the stockholders' right to cumulative voting), the Company's
ability to indemnify its officers, directors and employees (which generally is
more limited in certain situations in California than in Nevada), the
Company's ability to make distributions, dividends or repurchases (which
generally is more restrictive in California than in Nevada), inspection of
corporate records (which is generally more available in California than in
Nevada), approval of certain corporate transactions, and dissenters' rights.
After consultation with the Underwriters of the Offering, the Company
anticipates that it will have more than 800 stockholders following the
completion of the Offering. If this is the case, the Company would not be
subject to Section 2115 of the California Corporations Code as of the record
date of its next annual meeting of stockholders (even if such section
otherwise applied) if it continued to have 800 or more stockholders as of such
date.
LIMITATION OF LIABILITY OF DIRECTORS
The Articles of Incorporation provide that the liability of the directors of
the Company for monetary damages to the Company or its stockholders are
eliminated to the fullest extent permissible under Nevada law.
While the Articles of Incorporation provide directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Articles of Incorporation will have no
effect on the availability of equitable remedies, such as an injunction or
rescission based on a director's breach of such director's duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation contain provisions authorizing the Company to
indemnify its directors and officers to the fullest extent permitted by the
laws of Nevada. In addition, the Company has entered into indemnity agreements
with its directors and officers that require the Company to indemnify the
directors and officers to the fullest extent permitted by applicable
provisions of the Nevada General Corporation Law. The Company intends to
explore alternatives for obtaining directors' and officers' insurance to cover
certain liabilities, including liabilities under the Securities Act.
The Company believes the foregoing provisions are necessary to attract and
retain qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.
LISTING
Application is being made to have the Company's Common Stock approved for
quotation on the Nasdaq National Market under the trading symbol "VMNI."
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock could
have the effect of depressing the prevailing market price of its Common Stock.
Upon completion of the Offering, the Company will have outstanding 6,619,229
shares of Common Stock (assuming no exercise of outstanding options or
warrants after September 30, 1997, other than warrants that are automatically
exercised for shares of Common Stock upon completion of the Offering) and
2,250,000 shares of Series A Preferred Stock (which are convertible into
368,136 shares of Common Stock as of October 15, 1997). Of these shares, the
4,000,000 shares of Common Stock sold in the Offering (4,600,000 if the
Underwriters' over-allotment option is exercised in full) will be freely
transferable without restriction or further registration under the Securities
Act, unless purchased by Affiliates of the Company, as that term is defined in
Rule 144 of the Securities Act, which shares will be subject to the resale
limitations of Rule 144 adopted under the Securities Act. Officers, directors
and stockholders of the Company holding all of the remaining 2,619,229
outstanding shares of Common Stock prior to the Offering and all holders of
the Company's Series A Preferred Stock and of warrants and options to acquire
Common Stock have agreed under the terms of the 24-Month Provisional Lock-up
Agreement not to sell such Common Stock and such related securities for 24
months following the effective date of the Offering, without the consent of
Barington, except that (i) such 24-month period shall be reduced to 12 months,
if the closing sale price of the Common Stock on Nasdaq National Market has
been at least 200% of the initial public offering price per share of Common
Stock for a period of 20 consecutive trading days ending within five days of
the date of such sale, and such sale is completed at a price in excess of 200%
of the initial public offering price per share of Common Stock (the "Stock
Price Out") and (ii) each such holder may sell up to 50% of such holder's
shares of Common Stock commencing 18 months following the effective date of
the Offering, without regard to the market price of the Common Stock. In
addition, the Company has agreed, subject to limitations, not to sell any
shares of Common Stock for 24 months following the effective date of the
Offering, without the consent of Barington, except as permitted under the
Stock Price Out to the 24-Month Provisional Lock-up Agreement. See
"Underwriting." The Company has been advised by Barington that it has no
general policy with respect to granting releases from such lock-up agreements.
Barington may in its discretion and without notice to the public, waive the
lock-up and permit sales prior to the expiration of the lock-up period.
Concurrent with the Offering, the Company has also registered 855,086 shares
held by certain stockholders of the Company who participated in certain debt
and equity financings of the Company and registered 65,000 shares of Common
Stock issued in connection with the Acquisition, which would under certain
circumstances permit the holders to resell shares without complying with Rule
144. See "Sutter Mortgage Acquisition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The holders of all 920,086 of such registered shares have
agreed to the 24-Month Provisional Lock-up Agreement.
Following the completion of the Offering, 1,699,143 shares of Common Stock
and the Series A Preferred Stock held by existing stockholders will be
"Restricted Securities" as that term is defined under Rule 144 (the
"Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of: (i) 1% of the number of shares
of Common Stock then outstanding (approximately 66,192 shares immediately
after the Offering) or (ii) the average weekly trading volume of the Company's
Common Stock in the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned Restricted Shares for at least two years is entitled to
sell those shares pursuant to Rule 144(k) without regard to the limitations
and requirements described above.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or
61
<PAGE>
consultant to the Company who purchased his or her shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits Affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that non-Affiliates may sell the shares
in reliance on Rule 144 without having to comply with the holding period,
public information, volume limitation or notice provisions of Rule 144. All
holders of Rule 701 shares are required to wait until 90 days after the date
of this Prospectus before selling their shares.
As of September 30, 1997, options to purchase a total of 375,687 shares of
Common Stock were outstanding (of which options to purchase 103,105 shares
were then exercisable), and all of the total shares issuable pursuant to these
exercisable options are subject to 24-Month Provisional Lock-up Agreements
with the Representatives. An additional 1,000,000 shares of Common Stock are
available for future grants under the Company's 1997 Performance Award Plan.
See "Management--Stock Option Plans." As of September 30, 1997, warrants to
purchase 568,603 shares of Common Stock were outstanding, excluding warrants
that are automatically exercised for shares of Common Stock upon completion of
the Offering.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock option plans that do not qualify for an exemption under Rule 701 from
the registration requirements of the Securities Act. The Company expects to
file these registration statements approximately 90 days following the date of
this Prospectus, and the registration statements are expected to become
effective upon filing. Shares covered by these registration statements will
thereupon be eligible for sale in the public markets, subject to Rule 144
limitations applicable to Affiliates and the lock-up agreements, to the extent
applicable.
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the trading price of the Common Stock. Nevertheless, sales of substantial
amounts of Common Stock in the public market, or the perception that these
sales could occur, could adversely affect the trading price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities. Sales of substantial amounts of Common
Stock under Rule 144, Regulation S or otherwise, or even the potential for
such sales, could depress the market price of the Common Stock, and could
impair the Company's ability to raise capital through the sale of its equity
securities. See "Underwriting" and "Description of Capital Stock."
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and each of the Underwriters, for whom Barington Capital Group,
L.P. and Value Investing Partners, Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company the
aggregate number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Barington Capital Group, L.P..........................................
Value Investing Partners, Inc.........................................
---------
TOTAL............................................................... 4,000,000
=========
</TABLE>
The Common Stock is being sold on a firm commitment basis. The Underwriting
Agreement provides, however, that the obligations of the several Underwriters
are subject to certain conditions precedent. The Underwriters are committed to
purchase all the Common Stock offered hereby if any is purchased. The
Representatives have informed the Company that they do not expect to sell any
Common Stock to any account over which they have discretionary authority.
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock directly to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to selected
dealers at that price, less a concession of not more than $. per share. The
Underwriters may allow, and such dealers may re-allow, a discount of not more
than $. per share on sales to certain other dealers. After the initial
public offering, the price to the public of the Common Stock and the other
terms may be changed.
The Company has granted the Underwriters an option, exercisable during the
45-day period following the date of this Prospectus, to purchase up to 600,000
additional shares of Common Stock at the initial public offering price, less
the underwriting discount (the "Over-Allotment Option"). The Underwriters may
exercise such option only for the purpose of covering any over-allotments in
the sale of shares of Common Stock offered by this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to
make in respect thereof.
The Company has agreed to pay the Representatives a non-accountable expense
allowance of 3% of the gross proceeds from the sale of the Common Stock
(including the proceeds of the sale of any shares of Common Stock to cover
over-allotments), of which $50,000 has been paid to date.
Except in connection with acquisitions, the exercise of options to purchase
up to 1,409,000 shares of Common Stock that may be granted or issued under the
Company's stock option plans or certain underwritten public offerings effected
six months after the effective date of the Offering, the Company has agreed
for a period of 24 months from the effective date of the Offering, that it
will not offer, issue, sell, contract to sell, grant any option for the sale
of or otherwise dispose of, or purchase any shares of Common Stock or other
equity securities of the Company without the prior written consent of
Barington, except as permitted under the Stock Price Out to the 24-Month
Provisional Lock-up Agreement. In addition, the officers, directors and
stockholders of the Company have agreed, under the terms of the 24-Month
Provisional Lock-up Agreement, that they will not offer, sell or otherwise
dispose of any shares of Common Stock or other equity securities of the
Company owned by them to the public for a period of at least 24 months from
the effective date of the Offering, without the prior written consent of
Barington. Under the terms of the 24-Month Provisional Lock-up Agreement, any
stockholder may (i) sell shares of Common Stock commencing 12 months after the
effective date of the Offering in the event that the closing sale price of the
Common Stock on the Nasdaq National Market has been at least 200% of the
initial public offering price per share of Common Stock for a period of 20
consecutive trading days ending
63
<PAGE>
within five days of the date of such sale, and such sale is completed at a
price in excess of 200% of the initial public offering price per share of
Common Stock and (ii) sell up to 50% of such stockholder's shares of Common
Stock commencing 18 months following the effective date of the Offering,
without regard to the market price of the Common Stock. Barington may, in its
discretion and without notice to the public, waive these lock-up agreements
and permit holders otherwise agreeing to lock up their shares to sell any or
all of their shares.
The Company has granted Value Investing Partners, Inc. a right of first
refusal on terms no more favorable than can be obtained elsewhere, for a
period of 24 months from the date of this Prospectus with respect to acting as
a broker, dealer, underwriter or advisor of any sale of securities for cash to
be made by the Company or any of its present or future subsidiaries.
Value Investing Partners, Inc. is entitled to appoint one member of the
Company's Board of Directors, which member may be a director, officer,
employee or affiliate of Value Investing Partners, Inc., and is also entitled
to observer status at any Board meeting held during the 24 months immediately
following the date of this Prospectus. Value Investing Partners, Inc. does not
presently intend to appoint a member of the Company's Board of Directors.
In connection with the Offering, the Company shall issue to the
Representatives, for nominal consideration, warrants (the "Representative
Warrants") to purchase from the Company 10,000 shares of Common Stock for
every 100,000 shares of Common stock sold in the Offering (including shares
purchased under the Over-Allotment Option). The Representative Warrants are
initially exercisable at a per share price equal to 110% of the public
offering price for a period of five years commencing one year from the date of
this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of 24 months from the date hereof, except to
officers and/or employees of the Representatives or to other Underwriters and
their respective officers and/or employees.
Value Investing Partners, Inc. received cash compensation in connection with
certain private placements of Common Stock prior to the Offering.
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a market will develop or be sustained
following the Offering. The initial public offering price of the Common Stock
was determined by negotiations among the Representatives and the Company. The
factors considered in determining the initial public offering price were an
assessment of the prospects for the Company, an assessment of the industry in
which the Company operates, an assessment of management, the number of shares
of Common Stock offered and the price that purchasers of such shares might be
expected to pay, given the nature of the Company and the general condition of
the securities markets at the time of the Offering. Accordingly, the offering
price set forth on the cover page of this Prospectus should not necessarily be
considered an indication of the actual value of the Company or the Common
Stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by O'Melveny & Myers LLP, Newport Beach, California.
Certain legal matters will be passed upon for the Underwriters by Reid &
Priest LLP, New York, New York.
64
<PAGE>
EXPERTS
The consolidated financial statements of Virtual Mortgage Network, Inc. ( a
development stage Company) included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report. Reference is made to said report which includes an explanatory
paragraph that states substantial doubt about Virtual Mortgage Network, Inc.'s
ability to continue as a going concern, as described in Note 1 to its
consolidated financial statements.
The financial statements of Sutter Mortgage Corporation included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report. Reference is made to said
report which includes an explanatory paragraph that states substantial doubt
about Sutter Mortgage Corporation's ability to continue as a going concern, as
described in Note 1 to its financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), of which this Prospectus forms a part, covering the Common Stock
to be sold pursuant to the Offering. As permitted by the rules and regulations
of the Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. Additional information,
exhibits and undertakings can be inspected at and obtained from the Commission
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at certain
regional offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7
World Trade Center, New York, New York, 10048. Copies of the material can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates.
Electronic filings made through the Electronic Data Gathering Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov). For additional information with respect to the Company,
the Common Stock and related matters and documents, reference is made to the
Registration Statement and the exhibits thereto. Statements contained herein
as to the contents of any contract or any other document referred to are not
necessarily complete and, in each instance, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each statement is
qualified in its entirety by such reference.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and will make available to its stockholders quarterly reports containing
unaudited consolidated financial statements for the first three quarters of
each fiscal year.
65
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VIRTUAL MORTGAGE NETWORK, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Deficit........................... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
SUTTER MORTGAGE CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-17
Balance Sheets............................................................. F-18
Statements of Operations and Accumulated Deficit........................... F-19
Statements of Cash Flows................................................... F-20
Notes to Financial Statements.............................................. F-21
</TABLE>
F-1
<PAGE>
The accompanying consolidated financial statements retroactively reflect a
one for 4.89 reverse stock split of the Company's common stock approved by the
Company's Board of Directors in October 1997, subject to shareholder approval
prior to the closing of this offering. The opinion below is in the form which
will be signed by Arthur Andersen LLP upon consummation of the reverse stock
split, which is described in Note 9 of the Notes to the Consolidated Financial
Statements, and assumes that from April 18, 1997 to the date of such reverse
stock split, no other events shall have occurred that would affect the
accompanying financial statements and notes thereto.
ARTHUR ANDERSEN LLP
Orange County, California
October 21, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of VIRTUAL MORTGAGE NETWORK, INC.:
We have audited the accompanying consolidated balance sheets of VIRTUAL
MORTGAGE NETWORK, INC. (a Nevada corporation in the development stage) and
subsidiaries as of December 31, 1995 and 1996 and the related consolidated
statements of operations, stockholders' deficit and cash flows for the period
from inception (March 2, 1995) to December 31, 1995, the year ended December
31, 1996 and for the period from inception (March 2, 1995) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Virtual Mortgage Network,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for the period from inception (March 2,
1995) to December 31, 1995, the year ended December 31, 1996 and for the
period from inception (March 2, 1995) to December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, as of December 31, 1996, the Company has a working
capital deficit and stockholders' deficit and has incurred a cumulative net
loss of $8,524,998. The Company's losses are expected to continue for the
foreseeable future until such time as the Company is able to successfully
establish, operate and sufficiently expand its video-conferencing system.
Should its proposed public offering not be completed, the Company would be
required to seek alternative sources of financing to develop its video-
conferencing system and support its operations. Such sources of financing
could include equity financing or debt offerings. There can be no assurance
that such additional funding will be available on acceptable terms, if at all,
or that such funds, if raised, would enable the Company to achieve sufficient
revenue levels and maintain profitable operations. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
that might result from the outcome of these uncertainties.
ARTHUR ANDERSEN LLP
Orange County, California
April 18, 1997
F-2
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ------------
1995 1996 1997
----------- ----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................. $ 22,222 $ 39,638 $ 239,485
Prepaid expenses and other current
assets.............................. 11,034 90,081 88,965
Deferred offering costs.............. -- 179,254 268,537
Deferred acquisition costs........... -- -- 73,713
----------- ----------- ------------
Total current assets............... 33,256 308,973 670,700
----------- ----------- ------------
PROPERTY AND EQUIPMENT................. 309,907 612,394 719,278
Less-accumulated depreciation and
amortization........................ 31,278 156,152 281,556
----------- ----------- ------------
278,629 456,242 437,722
----------- ----------- ------------
OTHER ASSETS........................... 12,082 15,229 19,052
----------- ----------- ------------
$323,967 $ 780,444 $ 1,127,474
=========== =========== ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable........................ $ 250,000 $ 3,742,333 $ 4,211,665
Accounts payable..................... 137,006 1,121,479 1,188,037
Accrued liabilities.................. 145,006 460,066 1,052,576
----------- ----------- ------------
Total current liabilities.......... 532,012 5,323,878 6,452,282
----------- ----------- ------------
REDEEMABLE SERIES A PREFERRED STOCK,
$.001 par value; 2,250,000 shares
authorized; 1,426,500 shares issued
and outstanding at December 31, 1995;
2,250,000 shares issued and
outstanding at December 31, 1996 and
at June 30, 1997: 150,000 shares
subscribed at December 31, 1996 and
June 30, 1997......................... 1,133,272 2,017,064 2,017,064
----------- ----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' DEFICIT:
Common stock, $.005 par value;
25,000,000 shares authorized;
664,623 shares issued and
outstanding at December 31, 1995;
707,568 shares issued and
outstanding at December 31, 1996 and
1,266,108 shares issued and
outstanding at June 30, 1997........ 3,250 3,460 6,191
Additional paid-in capital........... 227,800 600,760 4,766,346
Warrants............................. -- 1,422,750 1,422,750
Deferred compensation................ (28,117) (62,470) 30,214
Deficit accumulated during
development stage................... (1,544,250) (8,524,998) (13,567,373)
----------- ----------- ------------
Total stockholders' deficit........ (1,341,317) (6,560,498) (7,341,872)
----------- ----------- ------------
$ 323,967 $ 780,444 $ 1,127,474
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(MARCH 2, INCEPTION
1995) TO YEAR ENDED (MARCH 2, SIX-MONTH PERIOD ENDED INCEPTION
DECEMBER DECEMBER 1995) TO JUNE 30, (MARCH 2, 1995)
31, 31, DECEMBER ------------------------ TO JUNE 30,
1995 1996 31, 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $ 2,416 $ 123,119 $ 125,535 $ 8,010 $ 392,124 $ 517,659
OPERATING EXPENSES:
Loan Production
Costs................ -- 909,010 909,010 286,105 837,100 1,746,110
Technology
Development.......... 169,100 532,050 701,150 234,010 428,011 1,129,161
Sales and marketing... 387,001 1,667,005 2,054,006 433,100 941,070 2,995,076
General and
administrative....... 993,743 3,344,576 4,338,319 1,225,860 2,349,900 6,688,219
----------- ----------- ----------- ----------- ----------- ------------
1,549,844 6,452,641 8,002,485 2,179,075 4,556,081 12,558,566
----------- ----------- ----------- ----------- ----------- ------------
Loss from
operations......... (1,547,428) (6,329,522) (7,876,950) (2,171,065) (4,163,957) (12,040,907)
INTEREST INCOME
(EXPENSE).............. 5,363 (695,904) (690,541) (59,486) (864,904) (1,555,445)
OTHER INCOME (EXPENSE).. (2,185) 44,678 42,493 (5,357) (13,514) 28,979
----------- ----------- ----------- ----------- ----------- ------------
Net loss.............. $(1,544,250) $(6,980,748) $(8,524,998) $(2,235,908) $(5,042,375) $(13,567,373)
=========== =========== =========== =========== =========== ============
Pro forma net loss per
share.................. $ (4.89) $ (1.81) $ (3.06)
=========== =========== ===========
Pro forma weighted
average number of
shares outstanding..... 1,428,159 1,236,313 1,648,866
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
----------------- ADDITIONAL DURING TOTAL
NUMBER OF PAID-IN DEFERRED DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT WARRANTS CAPITAL COMPENSATION STAGE DEFICIT
--------- ------ ---------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 2, 1995
(inception)............ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock at $0.005 to
founders in March
1995................. 511,248 2,500 -- (2,000) -- -- 500
Issuance of common
stock at $1.23 for
services related to
sale of Series A
Preferred Stock in
March 1995........... 51,125 250 -- 62,250 -- -- 62,500
Issuance of common
stock options at
$1.23 to employees in
March 1995........... -- -- -- 37,470 (37,470) -- --
Amortization of
deferred
compensation......... -- -- -- -- 9,353 -- 9,353
Issuance of common
stock at $1.23 to
employees for
services in December
1995................. 102,250 500 -- 130,080 -- -- 130,580
Net loss.............. -- -- -- -- -- (1,544,250) (1,544,250)
--------- ------ ---------- ---------- --------- ------------ -----------
BALANCE, December 31,
1995................... 664,623 3,250 -- 227,800 (28,117) (1,544,250) (1,341,317)
--------- ------ ---------- ---------- --------- ------------ -----------
Issuance of common
stock for cash at
$4.89 in April 1996.. 2,045 10 -- 9,990 -- -- 10,000
Common stock issued at
$6.12 for services
rendered in December
1996................. 40,900 200 -- 244,220 -- -- 244,420
Fair value of warrants
issued at $6.12 in
connection with notes
payable from June
through December
1996................. -- -- 1,408,000 -- -- -- 1,408,000
Issuance of warrants
at $6.12 pursuant to
settlement agreement
in October 1996...... -- -- 14,750 -- -- -- 14,750
Deferred compensation
on options issued to
employees............ -- -- -- 118,750 (118,750) -- --
Amortization of
deferred
compensation......... -- -- -- -- 84,397 -- 84,397
Net loss.............. -- -- -- -- -- (6,980,748) (6,980,748)
--------- ------ ---------- ---------- --------- ------------ -----------
BALANCE, December 31,
1996................... 707,568 3,460 1,422,750 600,760 (62,470) (8,524,998) (6,560,498)
========= ====== ========== ========== ========= ============ ===========
Exercise of employee
stock options at
$0.005 in January
1997................. 15,337 75 -- -- -- -- 75
Exercise of warrants
at $4.89 in January
1997................. 20,450 100 -- 99,900 -- -- 100,000
Exercise of warrants
at $7.78 in February
1997................. 12,863 62 -- 99,938 -- -- 100,000
Issuance of common
stock in February
1997 at $7.78........ 385,383 1,885 -- 2,998,115 -- -- 3,000,000
Issuance of common
stock in June 1997 at
$7.78................ 124,917 611 -- 967,633 -- -- 968,244
Repurchase of
restricted stock at
initial grant price
of $0.005 in June
1997................. (410) (2) -- -- -- -- (2)
Amortization of
deferred
compensation......... -- -- -- -- 92,684 -- 92,684
Net loss.............. -- -- -- -- (5,042,375) (5,042,375)
--------- ------ ---------- ---------- --------- ------------ -----------
BALANCE, June 30, 1997.. 1,266,108 $6,191 $1,422,750 $4,766,346 $ 30,214 $(13,567,373) $(7,341,872)
========= ====== ========== ========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION INCEPTION
(MARCH 2, (MARCH 2,
1995) TO YEAR ENDED 1995) TO SIX-MONTH PERIODS ENDED INCEPTION
DECEMBER DECEMBER DECEMBER JUNE 30, (MARCH 2, 1995)
31, 31, 31, ------------------------ TO JUNE 30,
1995 1996 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(1,544,250) $(6,980,748) $(8,524,998) $(2,235,908) $(5,042,375) $(13,567,373)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 31,278 168,147 199,425 65,221 125,404 324,829
Compensation expense
on common stock,
options and warrants
issued............... 193,580 259,170 452,750 157,383 -- 452,750
Amortization of
deferred
compensation......... 9,353 84,397 93,750 (37,508) 92,686 186,436
Amortization of
discount on notes
payable.............. -- 397,393 397,393 154,750 469,332 866,725
Changes in operating
assets and
liabilities:
(Increase) decrease in
prepaid expenses and
other current
assets............... (11,034) 7,620 (3,414) 8,605 (72,597) (76,011)
Increase in deferred
offering costs....... -- (179,254) (179,254) (137,530) (89,283) (268,537)
Increase in other
assets............... (12,082) (3,147) (15,229) (190) (3,875) (19,104)
Increase in accounts
payable.............. 137,006 984,473 1,121,479 48,792 66,558 1,188,037
Increase in accrued
liabilities.......... 145,006 315,060 460,066 372,209 546,608 1,006,674
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities......... (1,051,143) (4,946,889) (5,998,032) (1,604,176) (3,907,542) (9,905,574)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment......... (309,907) (302,487) (612,394) (114,675) (106,884) (719,278)
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (309,907) (302,487) (612,394) (114,675) (106,884) (719,278)
----------- ----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
issuance of preferred
stock................. 1,133,272 883,792 2,017,064 732,742 -- 2,017,064
Net proceeds from
issuance of notes
payable............... 250,000 4,373,000 4,623,000 967,778 -- 4,623,000
Net proceeds from
issuance of common
stock................. -- 10,000 10,000 -- 4,214,273 4,224,273
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 1,383,272 5,266,792 6,650,064 1,700,520 4,214,273 10,864,337
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH................ 22,222 17,416 39,638 (18,331) 199,847 239,485
CASH, at beginning of
period................. -- 22,222 -- 22,222 39,638 --
----------- ----------- ----------- ----------- ----------- ------------
CASH, at end of period.. $ 22,222 $ 39,638 $ 39,638 $ 3,891 $ 239,485 $ 239,485
=========== =========== =========== =========== =========== ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During March 1995, 10,225 shares of common stock were issued to three
stockholders in exchange for $500 in notes receivable.
During March 1995, 51,125 shares of common stock valued at $62,500 were
issued for services related to the issuance of preferred stock and were
recorded as a reduction of the proceeds.
During May and June 1996, warrants were granted in connection with bridge
financings with an estimated fair market value of $1,408,000, which is
included as a discount to the related notes payable.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. COMPANY BACKGROUND AND SIGNIFICANT RISK FACTORS
Virtual Mortgage Network, Inc. (the Company), a development stage company,
was incorporated under the name of Dental Centers of America, Inc. in Nevada
on December 31, 1992. The Company was inactive until March 2, 1995 and
effective November 17, 1995, the Company changed its name to Virtual Mortgage
Network, Inc.
The Company was formed for the purpose of developing, installing and
operating a wide-area mortgage loan origination network, providing lending
services to home buyers using a PC-based video-conferencing network located in
real estate offices. The Company's "LoanMaker System" is intended to enable
home buyers to work face-to-face via video-conferencing with the Company's
loan counselors located at its corporate headquarters in Southern California.
The Company is in the development stage and has not generated significant
revenues to date. Since inception, the Company has been engaged in
organizational activities, including recruiting personnel, marketing, raising
capital, establishing office facilities and alpha and beta testing
computerized video conferencing systems. The Company's success is dependent
upon numerous items including the successful development and marketing of the
proposed video conferencing system, its ability to sign realtors and lenders
and success in raising additional capital to fund future development. The
failure of the Company to meet any of these conditions could have a materially
adverse effect upon the Company and may force the Company to reduce or curtail
operations.
As of December 31, 1996, the Company has a working capital deficit and
stockholders' deficit and has incurred a cumulative net loss of $8,524,998.
The Company's losses are expected to continue for the foreseeable future until
such time as the Company is able to successfully establish, operate and
sufficiently expand the video conferencing system. Should its proposed public
offering not be completed, the Company would be required to seek alternative
sources of financing to develop the video conferencing system and support its
operations. Such sources of financing could include equity financing or debt
offerings. There can be no assurance that such additional funding will be
available on acceptable terms, if at all, or that such funds, if raised, would
enable the Company to achieve and maintain profitable operations. These
matters raise substantial doubt about the ability of the Company to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification
of assets that might result from the outcome of these uncertainties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, all of which are inactive.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
c. Deferred Offering Costs
Certain direct legal, accounting and underwriting fees incurred in
connection with the proposed initial public offering (the IPO) have been
capitalized in the accompanying balance sheet. Such costs will be recorded as
a reduction of the proceeds received in the IPO upon closing or will be
expensed in the future should the IPO not be consummated.
d. Property and Equipment
Property and equipment primarily consists of computers and purchased
software and is stated at cost. Depreciation is provided using the straight-
line method over the estimated useful lives of three years.
e. Revenue Recognition
Substantially all of the Company's revenues to date have been derived from
fees received for processing loans. Loan processing fees are recognized when
related loans are closed and funded by the lenders.
f. Income Taxes
The Company accounts for income taxes using the asset and liability method
as prescribed by Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under the asset and liability method, deferred
income tax assets and liabilities are determined based on the differences
between the financial reporting and tax basis of assets and liabilities and
are measured using the currently enacted tax rates and laws.
g. Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock Based Compensation." This standard, if fully adopted,
requires the accounting for employee stock-based compensation using a fair
value methodology. For stock options, fair value is determined using an option
pricing model that takes into account the stock price at the date of grant,
the exercise price, the expected life of the option, the volatility of the
underlying stock, the expected dividends and the risk-free interest rate. For
stock based compensation issued to non-employees, the standard requires
measurement based on the value of the related services performed or the stock
based compensation issued, whichever is more reliably measurable.
The adoption of the accounting methodology of SFAS 123 related to employees
is optional and as permitted under SFAS 123, the Company intends to continue
to account for employee stock options using the intrinsic value methodology in
accordance with APB Opinion No. 25; however, pro forma disclosures as if the
Company adopted the accounting methodology of SFAS 123 are required to be
presented (see Note 6).
h. Pro Forma Net Loss Per Common Share
Pro forma net loss per common share is calculated using the pro forma
weighted average number of common shares outstanding. For the year ended
December 31, 1996 and for the six months ended June 30, 1997, per share
information was computed pursuant to the rules of the Securities and Exchange
Commission (SEC), which require that common stock issued by the Company during
the twelve months immediately preceding the Company's initial public offering
plus the number of common shares issuable pursuant to the grant of options
issued during the same period, be included in the calculation of the shares
outstanding using the treasury stock method. The outstanding mandatorily
redeemable Series A preferred stock and the effect of the other stock options
are not included because they would be anti-dilutive or are immaterial.
F-8
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Primary and fully dilutive earnings per share are the same for all periods
presented.
Net loss per share for the year ended December 31, 1996 has been computed on
a pro forma basis, giving effect to the automatic conversion of 368,136
warrants issued to certain note holders (see Note 3). Historical earnings per
share are not presented for all periods as such amounts are not meaningful in
light of the conversion of the warrants.
3. NOTES PAYABLE
Notes payable consist of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable bearing interest at five
percent due on July 17, 1995............ $ 50,000 $ 50,000 $ 50,000
Notes payable bearing interest at prime
(8.75% at December 31, 1995) plus two
percent due on March 27, 1996........... 200,000 -- --
Notes payable bearing interest at twelve
percent per annum. Upon the Company's
failure to pay amounts due on the
Maturity Date, which is the earlier of
(i) March 6, 1997, or (ii) consummation
of the IPO, the interest rate on the
notes increases to fifteen percent per
annum................................... -- 4,703,000 4,703,000
-------- ----------- ----------
250,000 4,753,000 4,753,000
Less--Discount........................... -- (1,010,667) (541,335)
-------- ----------- ----------
$250,000 $ 3,742,333 $4,211,665
======== =========== ==========
</TABLE>
In conjunction with substantially all of the notes above, the Company issued
detachable warrants to purchase Common Stock at an exercise price of $.005 per
share. The number of warrants for the purchase of Common Stock to be issued is
calculated by dividing the principal amount of the notes by $4.00 per share.
The issuance of the warrants with debt resulted in the allocation of
$1,408,000 to the warrants and a discount of the notes payable resulting in a
risk adjusted rate of approximately 43 percent. The discount will be amortized
over 18 months or until the close of the IPO at which time any remaining
discount will be charged to interest expense. The warrants will automatically
convert to Common Stock upon the successful completion of an initial public
offering.
Among the notes issued in 1996 was a note payable in the amount of $130,000,
issued to a third party as compensation for investment services rendered in
relation to the private placement of the above notes. This amount has been
included in prepaid expenses and other current assets as a financing charge,
which will be amortized over eighteen months, the expected life of the notes.
4. INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company incurred net operating losses since inception. At December 31, 1996,
the Company had approximately $6,367,000 and $3,183,000 of federal and state
net operating loss carryforwards, respectively, available to offset future
taxable income; such carryforwards expire through 2011 and 2001, respectively.
Under the Tax Reform Act of 1986, the benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which may cause limitations in the amount of net operating losses that the
Company may utilize in any one year include,
F-9
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
but are not limited to, a cumulative ownership change of more than 50 percent
over a three year period. At December 31, 1996, the effect of such limitation,
if imposed, has not been determined.
Deferred tax assets, totaling approximately $515,000 and $2,407,000 at
December 31, 1995 and 1996, respectively, consist primarily of the tax effect
of net operating loss carryforwards. The Company has provided a full valuation
allowance against the deferred tax assets due to uncertainty regarding
realizability.
5. STOCKHOLDERS' DEFICIT
a. Stock Split
On March 22, 1995, the Company's Board of Directors approved a 50 for 1
stock split to be effected as a stock dividend. All references in the
accompanying consolidated financial statements to the number of shares and per
share amounts have been restated to reflect the effect of this action. (See
Note 9)
b. Series A Preferred Stock
The stockholders of the Company have authorized 10,000,000 shares of
preferred stock, 2,250,000 of which have been set aside for Series A Preferred
Stock (Series A Preferred). In May 1995, the Company completed the sale of
750,000 shares of Series A Preferred at the selling price of $1.00 per share.
500,000 of these shares were sold to the developer of a portion of the
Company's video-conferencing technology (the "Technology Developer"). In
addition, during the period from September 1995 to March 1996 the Company
completed the sale of 1,650,000 shares of Series A Preferred to various
investors at a purchase price of $1.00 per share, which includes 150,000
shares that have been subscribed and paid for, but which are in excess of the
total of Series A Preferred authorized by the Company's board of directors.
In connection with the sale of the Series A Preferred, the Company entered
into a purchase and rights agreement with the Technology Developer which gives
the Technology Developer certain registration rights, as defined. Furthermore,
the agreement stipulates that if the Company does not use the vendor's the
Technology Developer's technology, the Technology Developer, shall have the
right to force the Company to repurchase all of the shares at the higher of:
(i) $1.00 per share plus the amount of any declared but unpaid dividends, plus
10% per annum, compounded annually; or (ii) the then current fair market
value, as defined.
Each share of Series A Preferred is convertible into shares of Common Stock
based on a conversion formula included in the Company's Articles of
Incorporation at the option of the holder. Should the Series A Preferred Stock
not be converted prior to June 1, 1998, the stock would be redeemable at 110%
of its purchase price, plus any accrued dividends. In the event of
liquidation, Series A Preferred has preference over Common Stock in the amount
of $1.00 per share, plus declared but unpaid dividends. Holders of Series A
Preferred are entitled to one vote for each share of Common Stock into which
shares can be converted.
c. Common Stock Warrants
In March 1995, the Company issued 35,787 warrants for the purchase of Common
Stock at an exercise price of $3.43 per share to a third party performing
investment services for the Company. During 1996, the Company issued 139,607
warrants at an exercise price of $4.89 per share for various services. As
discussed in Note 7, the Company issued 5,112 warrants to a former employee in
conjunction with a settlement agreement at an exercise price of $4.89 per
share. The Company has measured these transactions using the fair value of the
warrants issued.
F-10
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
d. Common Stock
In December 1996, the Company issued 40,900 shares of common stock to a
third party for services performed. The Company recorded compensation expense
based on the fair value of the services rendered ($244,420, or $5.98 per
share) during the year ended December 31, 1996.
6. COMPENSATION PLANS
a. Consultant and Employee Stock Compensation Plan
In March 1995, the Company's Board of Directors approved the Company's 1995
Consultant and Employee Stock Compensation Plan (the Compensation Plan).
Employees and consultants of the Company are eligible to participate in the
Compensation Plan. The Company has reserved 102,250 shares of common stock for
issuance under the Compensation Plan, and in December 1995, 102,250 shares
were issued under the Compensation Plan to various employees and consultants
in exchange for services. The Company has recorded $125,000 in compensation
expense based on the estimated fair value of the Company's common stock as
determined by the Board of Directors.
b. Employment Agreement
During March 1995, the Company entered into four-year employment agreements
with key executives. In connection therewith, the Company granted 40,900
options for the purchase of common stock at an exercise price of twenty-five
percent of the book value per share of the Company on the vesting date, as
defined. These options vest ratably over the four year contract. As of
December 31, 1996, 15,337 options were vested. The Company recorded
compensation expense of $9,375 and $84,375 for the years ended December 31,
1995 and 1996, respectively, based on the estimated fair value of the common
stock at the vesting dates. In conjunction with a settlement agreement with
one of the employees, discussed in Note 7, 7,669 unexercised options were
canceled. Future compensation charges will be incurred, based upon the fair
value of the Company's common stock at future vesting dates in 1997 and 1998.
c. Stock Option Plan
In November 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan (the 1995 Plan). Under the 1995 Plan, awards may consist of any
combination of stock options (incentive and nonqualified), restricted stock,
stock appreciation rights and performance share awards. The Company has
reserved 409,000 shares of common stock for issuance under the 1995 Plan.
Stock options granted under the 1995 Plan are exercisable over a period not to
exceed ten years with 25% vesting after one year and thereafter ratably on a
monthly basis over a three year period. As of December 31, 1996, 208,512 stock
options had been granted to various employees and approximately 200,488
remained available for grant.
F-11
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following represents stock option activity since inception (March 2,
1995):
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AVERAGE EXERCISE
OPTIONS PRICE PER SHARE
------- ----------------
<S> <C> <C>
Outstanding at inception (March 2, 1995)............ -- $--
Granted........................................... 40,900 .00
Exercised......................................... -- --
------- ----
Outstanding at December 31, 1995.................... 40,900 .00
Granted........................................... 183,000 1.00
Exercised......................................... 15,388 --
------- ----
Outstanding at December 31, 1996.................... 208,512 $.85
======= ====
Options available for future grant.................. 200,488
=======
</TABLE>
The fair value of each option granted subsequent to December 15, 1995 is
estimated using the Black-Scholes option-pricing model on the date of grant
using the following assumptions: (i) no dividend yield, (ii) volatility of
effectively zero, (iii) risk-free interest rate of seven percent and (iv)
expected life of four to five years.
The following table summarizes the information regarding stock options as of
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------
EXERCISE PRICE NUMBER OUTSTANDING LIFE NUMBER EXERCISABLE EXERCISE PRICE
-------------- ------------------ ---- ------------------ --------------
<S> <C> <C> <C> <C>
$4.16 208,512 5 years 43,251 $4.01
</TABLE>
Had compensation expense for the Company's 1996 stock-based compensation
been recorded under the fair market value principles applicable under SFAS No.
123, the Company's net loss for the year ended December 31, 1996 would be
unchanged from the amounts recorded under the principles of APB No. 25, as the
relationship of the exercise price of the Company's stock-based compensation
and the fair market value of the underlying common stock as of the date of
grant generates no compensation expense under the principles of either SFAS
No. 123 or APB No. 25.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
7. COMMITMENTS AND CONTINGENCIES
a. Legal Proceedings
The Company is involved in litigation arising from the normal course of
business. Management believes, based on the advice of counsel, that the final
outcome will not have a material adverse effect on the Company's financial
position or results of operations.
In 1995 and 1996, the Company received threats of a lawsuit with respect to,
among other things, the Company's refusal to issue shares of Common Stock to
three individuals. These individuals had entered into an agreement with the
Company in March 1995 in connection with the initial capitalization of the
Company to purchase shares of Common Stock in exchange for certain assets to
be delivered to the Company by the individuals. The Company believed the
individuals failed to deliver the consideration required by the agreement, and
the Company refused to issue the Common Stock. The three individuals have made
a variety of allegations against the Company and Michael A. Barron, the
Company's Chairman and Chief Executive Officer, relating to
F-12
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the disputed issuance of Common Stock and the formation of the Company,
however, no legal proceedings have ever been commenced by these individuals.
These allegations include the following: (i) the assertion that in October
1994 Mr. Barron was hired as a consultant to Software Today, a company owned
by the individuals, to develop the business opportunity that has now turned
into the Company, (ii) the assertion that in exchange for Software Today's and
the individuals' agreement to pursue the opportunity through the Company, two
of the individuals ("Meader and Garde") would receive 25% of the initial
equity of the Company and the third individual ("Edwards") would also receive
25% of the initial equity (with Mr. Barron also receiving 25% and two others
(Dianne David and Sandra Sawyer) collectively receiving the remaining 25%),
(iii) the assertion that Mr. Barron breached his consulting agreement with
Software Today and converted an opportunity made available to him while he was
serving as a consultant to Software Today in breach of his fiduciary duties to
Software Today, and (iv) the assertion that the Company has breached its
agreement to deliver the Common Stock. Mr. Barron was able to obtain, on his
behalf and on behalf of the Company, a settlement, an assignment of claims and
a release from the trustee in bankruptcy of Edwards with respect to half of
the shares in dispute in connection with the settlement of a defamation
lawsuit brought by Mr. Barron against Edwards. No legal action has been
commenced by the remaining claimants. The Company believes that the claim is
without merit, and the Company intends to vigorously defend any legal action
that may be commenced in the future. There can be no assurance, however, that
the Company would be successful in defending such a lawsuit, or that the
Company, even if successful, would not expend significant resources in its
defense. The founding stockholders of the Company (which consists of Mr.
Barron, Ms. David and Ms. Sawyer) have agreed to indemnify and hold the
Company harmless from any and all losses (including reasonable attorneys' fees
and expenses) the Company might incur with respect to the foregoing claims.
The shares of Common Stock owned by the founding stockholders of the Company
have been pledged subject to certain pledge arrangements of Mr. Barron, to
secure the founding stockholders' indemnification obligations to the Company.
There can be no assurance, however, that the indemnification provided by the
founding stockholders will be sufficient to fully indemnify the Company with
respect to any losses the Company might incur with respect to the foregoing
claims.
b. Operating Leases
The Company has entered into lease agreements for its current office
facilities, which expire on various dates through 1998 and a $20 million
master operating lease agreement (the "Agreement") to supply the Company with
its video-conferencing equipment. The Agreement allows for the leasing of
individual computer systems with a lease period of two to three years. At
December 31, 1996, future minimum lease payments under noncancelable operating
leases are as follows:
<TABLE>
<S> <C>
Year Ending December,
1997......................................................... $ 848,000
1998......................................................... 396,000
1999......................................................... 18,000
2000......................................................... 6,000
----------
$1,268,000
==========
</TABLE>
Rent expense for the period and year ended December 31, 1995 and 1996
aggregated $60,000 and $582,000, respectively.
F-13
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
c. Settlement Agreement
In October 1996, the Company entered into a settlement agreement with one of
its employees and a consulting firm controlled by the employee. The agreement
required the Company to pay the consulting firm approximately $149,000 in cash
for services provided in 1996. In addition, the Company granted the former
consulting firm 5,112 warrants to purchase common stock at an exercise price
of $4.89 per share. Compensation expense totaling approximately $164,000 was
recorded in the accompanying 1996 financial statements for this settlement
agreement.
8. SUBSEQUENT EVENTS
a. Private Placement of Common Stock
In February 1997, the Company completed a private placement of 385,383
shares of its common stock at a purchase price of $7.78 per share, raising net
proceeds of approximately $3,000,000. The investors received certain rights
and privileges, including an ability to convert the common shares into a debt
instrument and the right to receive warrants for the purchase of the Company's
common stock for $7.34 per share should the contemplated IPO not be completed
by August 15, 1997, as well as anti-dilution privileges and registration
rights.
9. INFORMATION RELATED TO UNAUDITED INTERIM FINANCIAL STATEMENTS
a. Basis of Presentation
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations, although the
Company believes that the disclosures made are adequate to make the
information presented not misleading. These unaudited financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results of
operations, changes in cash flows and financial position as of and for the
periods presented. These unaudited financial statements should be read in
conjunction with the audited financial statements and related notes thereto,
appearing elsewhere herein. The results for the interim periods presented are
not necessarily indicative of results to be expected for a full year.
b. Pro Forma Net Loss Per Share
Net loss per share is calculated using the weighted average number of shares
outstanding. Common equivalent shares are excluded from the computation as
their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission ("SEC") Staff Accounting Bulletins, common and common
equivalent shares, issued during the period commencing 12 months prior to the
initial filing of a proposed public offering at prices below the public
offering price have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method for
stock options and warrants at the estimated initial public offering price).
Earnings per share for each of the six months ended June 30, 1996 and 1997
have been computed on a pro forma basis giving effect to the automatic
conversion of 450,016 warrants issued to certain note holders (see Note 3).
Historical earnings per share are not presented as such amounts are not
meaningful in light of the conversion of the warrants.
F-14
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
c. Proposed Initial Public Offering
Subsequent to June 30, 1997, the Company has proposed the filing of a Form
S-1 Registration Statement with the Securities and Exchange Commission to sell
common stock to the public (the IPO). A portion of the proceeds will be used
to repay debt. If the Company is successful at completing this offering and
repaying the debt, it will incur charges equal to any unamortized discount on
such debt. Unamortized discount on notes payable was $541,000 at June 30,
1997. There can be no assurance that the Company's proposed public offering
will be successful.
d. Sutter Mortgage Acquisition
In June 1997, the Company entered into an agreement (the Purchase Agreement)
to acquire the outstanding common stock of Sutter Mortgage Corporation, a
residential mortgage bank. An amendment to the Purchase Agreement was entered
into in October 1997. The amendment stipulates that the purchase price for
Sutter Mortgage will be approximately $5.0 million, subject to adjustment. Of
the purchase price, $1.5 million will be paid at the closing of the
acquisition and, concurrent with the closing of the IPO, an additional $1.0
million will be paid to the former stockholder of Sutter Mortgage,
$1.5 million will be funded into an escrow account and common stock of the
Company valued at approximately $1.0 million (based on the IPO price), subject
to adjustment, will be issued to the former stockholder. The $1.5 million,
which will be held in escrow, will be available to satisfy any claims the
Company may have against the former stockholder with respect to the
acquisition. The escrow will terminate on the later of one year or the
resolution of all outstanding claims. The shares of common stock to be issued
to the former stockholder are required to be registered with the IPO or
pursuant to a similar registration statement declared effective at or about
the same time as the IPO.
e. Stock Split
In October 1997, the Board of Directors of the Company approved a one for
4.89 reverse stock split, subject to stockholder approval which is expected to
occur in November 1997. All references in the accompanying consolidated
financial statements to the number of shares and per share data have been
restated to reflect the effect of this action.
f. Stock Option Plan
In October 1997, the Board of Directors adopted the Company's 1997 Stock
Option Plan (the 1997 Plan). Under the 1997 Plan, awards may consist of any
combination of stock options (incentive and nonqualified), restricted stock,
stock appreciation rights and performance share awards. The Company has
reserved 1,000,000 shares of common stock for issuance under the 1997 Plan.
The following represents stock option activity since inception December 31,
1996.
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AVERAGE EXERCISE
OPTIONS PRICE PER SHARE
------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996.................... 208,512 $4.16
Granted........................................... 46,088 7.78
Exercised......................................... 20,450 .00
------- -----
Outstanding at June 30, 1997........................ 234,150 5.04
=======
</TABLE>
F-15
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
g. Events Subsequent to Unaudited Interim Financial Statements
In September 1997, the Company entered into loan and security agreements
with 20 accredited investors pursuant to which the Company executed promissory
notes in the aggregate principal amount of $895,000 and issued 61,002 common
stock purchase warrants exercisable at $.005 per share for shares of the
Company's common stock. Of these amounts, $500,000 of the notes and 25,553
warrants were issued to enable the Company to repurchase equal amounts of
previously issued notes and warrants, respectively. The notes are secured by
the assets of the Company, mature on the earlier of the consummation of an
initial public offering or January 6, 1998, and accrue interest at 15% per
annum.
From July 1, 1997 to October 16, 1997, the Company completed private
placements of 919,985 shares of its common stock to certain accredited
investors at prices from $5.63 to $7.78 per share. The proceeds of the private
placements were also used to fund the completion and testing of the Company's
technology, to pay certain outstanding debt, and to fund the Company's working
capital needs.
On October 21, 1997, the Company made a short-term personal loan to Michael
A. Barron, Chairman and Chief Executive Officer of the Company, in the amount
of $112,500. The loan bears interest at ten percent per annum. The loan was
made to Mr. Barron as an accommodation to bridge a short-term financial need
pending his receipt of funds from a third-party source. The loan is due upon
Mr. Barron's receipt of funds from the third-party source and in no event
later than October 31, 1997. The loan was approved by all of the non-employee
directors of the Company and is secured by a pledge of 58,666 shares of Common
Stock owned by Mr. Barron.
h. New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". This
statement is effective for both interim and annual reporting periods ending
after December 15, 1997. SFAS No. 128 replaces primary EPS and basic EPS and
fully diluted EPS with diluted EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding. Diluted EPS is computed in
the same way as fully diluted EPS, except that the calculation now uses the
average share price for the reporting period to compute dilution from options
under the treasury stock method. Management does not believe that adoption of
this standard will have a significant impact on earnings per share.
In June 1997, the FASB issued SFAS Nos. 130 and 131 "Reporting Comprehensive
Income" and "Disclosures about Segments of an Enterprise and Related
Information." FASB No. 130 and No. 131 are effective for fiscal years
beginning after December 15, 1997, with earlier adoption permitted. The
Company does not believe that adoption of these standards will have a material
effect on the Company.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Sutter Mortgage Corporation:
We have audited the accompanying balance sheets of SUTTER MORTGAGE
CORPORATION (the Company) as of December 31, 1996 and 1995 and the related
statements of operations and accumulated deficit and cash flows for the three
years ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Sutter Mortgage
Corporation as of December 31, 1996 and 1995 and the results of its operations
and its cash flows for the three years ended December 31, 1996 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, as of December 31, 1996, the Company has an accumulated
deficit and has suffered recurring losses from operations. The Company's
losses are expected to continue throughout fiscal 1997 and until Virtual
Mortgage Network, Inc (the Buyer--See Note 1) and the Company can successfully
integrate their operations and the Buyer is able to successfully establish,
operate and sufficiently expand its video-conferencing system. Should the
Buyer's proposed public offering not be completed, the Company would be
required to seek alternative sources of financing to support its operations.
Such sources of financing could include equity financing or debt offerings.
There can be no assurance that such additional funding will be available on
acceptable terms, if at all, or that such funds, if raised, would enable the
Company to achieve sufficient revenue levels and maintain profitable
operations. These matters raise substantial doubt about the ability of the
Company to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets that might result from the outcome
of these uncertainties.
ARTHUR ANDERSEN LLP
Orange County, California
September 12, 1997
F-17
<PAGE>
SUTTER MORTGAGE CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents.......................... $ 265,598 $ 378,884
Accounts receivable................................ 84,555 309,031
Officer notes receivable and employee advances..... 93,798 75,576
Mortgage loans held for sale....................... 23,641,988 34,320,774
Property and equipment, net........................ 431,412 459,378
Prepaid expenses and other assets.................. 50,549 56,670
----------- -----------
Total assets..................................... $24,567,900 $35,600,313
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Lines of credit and financing arrangements......... $23,933,654 $34,395,774
Accounts payable and accrued liabilities........... 889,399 388,227
Other notes payable................................ 10,992 19,237
Obligations under capital leases................... -- 46,081
----------- -----------
Total liabilities................................ 24,834,045 34,849,319
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock, no par value.
Authorized--1,500,000 shares; 692,000 shares issued
and outstanding................................... 294,752 294,752
Additional paid-in capital......................... 3,906,679 3,906,679
Accumulated deficit................................ (3,323,068) (2,799,867)
Due from affiliates................................ (1,144,508) (650,570)
----------- -----------
Total shareholder's equity (deficit)............. (266,145) 750,994
----------- -----------
Total liabilities and shareholder's equity
(deficit)....................................... $24,567,900 $35,600,313
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-18
<PAGE>
SUTTER MORTGAGE CORPORATION
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Loan origination fees................. $ 1,197,946 $ 696,097 $ 1,035,443
Other fees............................ 335,763 299,787 68,322
Gain on sale of mortgages and related
servicing rights..................... 4,297,914 2,645,664 3,125,420
Gain on sale of servicing rights...... 3,623 257,134 151,328
Interest income....................... 1,618,406 979,500 908,333
Other income.......................... 25,140 20,170 16,270
----------- ----------- -----------
7,478,792 4,898,352 5,305,116
----------- ----------- -----------
EXPENSES:
Personnel............................. 3,924,597 2,546,737 3,586,630
General and administrative............ 1,753,830 1,255,153 2,230,915
Professional fees..................... 73,036 56,861 181,254
Depreciation and amortization......... 194,950 247,985 253,925
Interest.............................. 1,583,180 1,004,873 898,903
Provision for possible loan losses.... 470,000 175,000 50,000
----------- ----------- -----------
7,999,593 5,286,609 7,201,627
----------- ----------- -----------
Loss before income taxes............ (520,801) (388,257) (1,896,511)
INCOME TAX BENEFIT (PROVISION).......... (2,400) (3,200) 302,870
----------- ----------- -----------
Net loss............................ (523,201) (391,457) (1,593,641)
ACCUMULATED DEFICIT, beginning of year.. (2,799,867) (2,408,410) (814,769)
----------- ----------- -----------
ACCUMULATED DEFICIT, end of year........ $(3,323,068) $(2,799,867) $(2,408,410)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
SUTTER MORTGAGE CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $ (523,201) $ (391,457) $ (1,593,641)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization..... 194,950 247,985 253,925
(Increase) decrease from changes in:
Accounts receivable............... 224,476 (47,660) 1,298,740
Officer notes receivable and
employee advances................ (18,222) 26,360 174,172
Loans held for sale............... 10,678,786 (25,072,739) 25,060,956
Income taxes receivable........... -- 287,873 (651,609)
Prepaid expenses and other
assets........................... 6,121 30,443 101,297
Accounts payable and accrued
liabilities...................... 501,172 8,172 (456,882)
------------ ------------ ------------
Net cash provided by (used in)
operating activities........... 11,064,082 (24,911,023) 24,186,958
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.. (166,984) (1,750) (130,183)
Increase in due from affiliate....... (493,938) (230,771) (203,163)
------------ ------------ ------------
Net cash (used in) investing
activities......................... (660,922) (232,521) (333,346)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
lines of credit and financing
arrangements........................ (10,462,120) 25,147,737 (24,899,690)
Principal repayments of obligations
under capital lease and other notes
payable............................. (54,326) (91,453) 74,808
------------ ------------ ------------
Net cash provided by (used in)
financing activities............... (10,516,446) 25,056,284 (24,824,882)
NET DECREASE IN CASH AND CASH
EQUIVALENTS.......................... $ (113,286) $ (87,260) $ (971,270)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR.............................. 378,884 466,144 1,437,414
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................. $ 265,598 $ 378,884 $ 466,144
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid........................ 1,623,805 999,769 1,016,796
============ ============ ============
Income taxes paid.................... 2,400 3,200 270,200
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
The Company incurred $67,800 of capital lease obligations in 1994 for
furniture, fixtures, and equipment.
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
SUTTER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION
Sutter Mortgage Corporation (the Company) was incorporated in California on
August 26, 1985 for the purpose of originating and selling residential
mortgage loans. Operations commenced on September 1, 1985. The Company is the
successor to Western States Funding Corporation. The Company is owned by a
sole shareholder, and is the 100% owner of Western States Servicing
Corporation (Western States) which is in turn the sole owner of Better Homes
Realty, Incorporated (Better Homes). Western States is an inactive mortgage
servicing corporation and Better Homes is a real estate brokerage franchiser.
On July 22, 1993, the Company became the 100% owner of Sutter Financial
Incorporated (Sutter Financial). Sutter Financial is engaged in the business
of originating and selling multi-family mortgage loans.
In June 1997, the Company's sole shareholder entered into an agreement to
sell all of the issued and outstanding common stock of the Company to Virtual
Mortgage Network, Inc. (Buyer). The subsidiaries of the Company will be spun-
off prior to the purchase and will not be acquired by the Buyer. The purchase
is expected to close in October 1997.
The Company is a full service mortgage banking company that originates
residential loans throughout California and other western states. Loans are
obtained either directly through employed loan officers (retail) or indirectly
through licensed real estate loan brokers (wholesale). All loans are closed
through the Company's lines of credit and sold in the secondary market. The
Company is approved by the Federal National Mortgage Association (FNMA), the
Federal Home Loan Mortgage Corporation (FHLMC) and The Department of Housing
and Urban Development (HUD). The Company's principal offices are located in
Walnut Creek, California.
As of December 31, 1996, the Company has an accumulated deficit and has
suffered recurring losses from operations. The Company's losses are expected
to continue throughout fiscal 1997 and until the Buyer and the Company can
successfully integrate their operations and the Buyer is able to successfully
establish, operate and sufficiently expand its video conferencing system.
Should the Buyer's proposed public offering not be completed, the Company
would be required to seek alternative sources of financing to support its
operations. Such sources of financing could include equity financing or debt
offerings. There can be no assurance that such additional funding will be
available on acceptable terms, if at all, or that such funds, if raised, would
enable the Company to achieve and maintain profitable operations. These
matters raise substantial doubt about the ability of the Company to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification
of assets that might result from the outcome of these uncertainties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include only the accounts of the
Company, and exclude the accounts and operations of its wholly owned
subsidiaries, Western States and its wholly owned subsidiary, Better Homes,
and Sutter Financial. These wholly owned subsidiaries have been treated as if
they had been spun off for the purposes of complying with the financial
statement requirements of the Securities and Exchange Commission. Amounts due
from these affiliates are included in the accompanying financial statements.
Repayment of amounts due from affiliates will effectively be made through a
reduction in the equity of the sole shareholder prior to acquisition by the
Buyer. As a result, amounts due from affiliates are reflected as a contra-
equity account in the accompanying financial statements.
b. Loan Origination Fees
Loan origination fees and direct loan origination costs are recognized when
the loan is sold.
F-21
<PAGE>
SUTTER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
c. Sale of Mortgages and Related Servicing Rights
Revenues resulting from sales of mortgages and related servicing rights are
recognized at the date title has irrevocably passed to the buyer and there are
no significant unresolved contingencies. The Company does not currently
provide loan servicing for others.
d. Mortgage Loans Held for Sale
Mortgage loans held for sale are valued at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements calculated on aggregate mortgage loans outstanding.
e. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-
line method over the lesser of the estimated useful lives of the related
assets or lease terms, generally 3 to 7 years.
f. Income Taxes
The Corporation accounts for income taxes using the asset and liability
method of accounting. Under the asset and liability method, deferred income
taxes are recognized for the future tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities.
Under the asset and liability method, deferred tax assets are recognized for
deductible temporary differences and operating loss and tax credit carry
forwards, and a valuation allowance is established to reduce deferred tax
assets if it is determined that it is more likely than not that the related
tax benefits will not be realized.
g. Cash Equivalents
The Company classifies all highly liquid investments with original
maturities of three months or less as cash equivalents.
h. Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
i. Impact of Recent Accounting Pronouncements
The FASB has issued SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." This statement provides
new accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. This statement also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings and requires that
liabilities and derivatives incurred or obtained by transferors as part of a
transfer of financial assets be initially measured at fair value. It also
requires that servicing assets be measured by allocating the
F-22
<PAGE>
SUTTER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
carrying amount between the assets sold and retained interests based on their
relative fair values at the date of transfer. Additionally, this statement
requires that the servicing assets and liabilities be subsequently measured by
(a) amortization in proportion to and over the period of estimated net
servicing income and (b) assessment for asset impairment or increased
obligation based on their fair values. The Company adopted SFAS No. 125
effective January 1, 1997. Management does not expect adoption of SFAS No. 125
to have a significant impact on the Company's results of operations or
financial position.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Furniture, fixtures, and equipment................ $ 547,709 $ 523,866
Computer equipment and software................... 557,844 505,429
Automobiles....................................... 70,833 70,833
Leasehold improvements............................ 293,737 203,012
----------- ----------
1,470,123 1,303,140
Accumulated depreciation and amortization......... (1,038,711) (843,762)
----------- ----------
$ 431,412 $ 459,378
=========== ==========
</TABLE>
4. LINES OF CREDIT AND FINANCING ARRANGEMENTS
The Company has lines of credit and financing arrangements as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Line of credit for $5,000,000 secured by mortgage
loans. Interest is stated at LIBOR plus 2.5%.
Maturity date is December 31, 1997.............. $ 3,901,366 $ 4,058,806
Line of credit for $10,000,000 secured by
assignment of presold conforming mortgage loans.
Interest is stated at prime plus .75%. Maturity
date is November 29, 1997....................... 7,119,044 10,345,351
Line of credit for $25,000,000 secured by
mortgage loans. Interest is stated at LIBOR plus
.90%. No stated maturity date................... 10,501,199 16,800,234
Line of credit for $5,000,000 secured by mortgage
loans. Interest is stated at LIBOR plus 1%. No
stated maturity date............................ 2,120,379 3,116,383
Line of credit for $150,000. Interest is stated
at prime plus 1.5%. Maturity date is November
29, 1997........................................ 150,000 75,000
Note payable for $150,000. Interest is stated at
9.75%. Maturity date is September 30, 1999...... 141,666 --
----------- -----------
Total lines of credit and financing
arrangements.................................. $23,933,654 $34,395,774
=========== ===========
</TABLE>
One of the Company's lines of credit requires the Company to comply with
certain debt covenants, including minimum tangible net worth requirements, a
minimum leverage ratio, as defined, and a minimum current ratio, as defined.
As of December 31, 1996, the Company was not in compliance with these
covenants. A waiver of noncompliance for the period from January 1, 1997 to
March 31, 1997 has been obtained from the financial institution. One of the
lines of credit requires a commitment fee of .25% per annum on the average
unused limit if the average outstanding balance falls below 50% of maximum
available borrowings. Certain of the lines of credit are personally guaranteed
by the Company's shareholder.
F-23
<PAGE>
SUTTER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LEASES
The Company has noncancellable operating leases for office space and
branches which expire in periods from 1997 to 2001. The Company's future
minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 223,665
1998........................................................... 206,250
1999........................................................... 206,250
2000........................................................... 206,250
2001........................................................... 206,250
Thereafter..................................................... 223,438
----------
$1,272,103
==========
</TABLE>
Rental expense for the years ended December 31, 1996, 1995 and 1994 was
$237,571, $237,764 and $497,060, respectively.
6. INCOME TAXES
Income tax provision (benefit) for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ---------
<S> <C> <C> <C>
Current:
Federal........................................... $ -- $ -- $(306,070)
State............................................. 2,400 3,200 3,200
------ ------ ---------
2,400 3,200 (302,870)
Deferred:
Federal........................................... -- -- --
State............................................. -- -- --
------ ------ ---------
$2,400 $3,200 $(302,870)
====== ====== =========
</TABLE>
The tax effect of temporary differences that give rise to the significant
portion of deferred tax assets and liabilities at December 31 are presented
below:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax asset:
Office furniture and equipment, principally due to
difference in depreciation........................ $ 17,985 $ 10,696
Net operating losses............................... 543,190 513,484
Less: valuation allowance.......................... (561,175) (524,180)
--------- ---------
Total deferred tax asset......................... -- --
--------- ---------
</TABLE>
A valuation allowance is provided for the deferred tax asset when it is more
likely than not that some portion of the deferred tax asset will not be
realized. Therefore, the Company has established a valuation allowance on the
aforementioned deferred tax asset due to the uncertainty of realization.
The Company has federal net operating loss carryforwards of approximately
$1,411,000 expiring in 2011 and California net operating loss carryforwards of
$705,000 expiring in 2001. Under the Tax Reform Act of 1986, the benefits from
net operating losses carried forward may be impaired or limited in certain
circumstances.
F-24
<PAGE>
SUTTER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Events which may cause limitations in the amount of net operating losses that
the Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50 percent over a three year period.
At December 31, 1996, the effect of such limitation which would result from
the purchase of the Company as described in Note 1 has not been determined.
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan (the Plan), which is a
qualified plan under Section 401(k) of the Internal Revenue Code. The Plan
covers substantially all employees of the Company. Under the Plan,
participants may elect to defer the lesser of the maximum amount permitted by
law from compensation subject to income tax as a salary deferral contribution
or 20% of his or her salary compensation. The Company, at its sole discretion,
may provide matching contributions based on current year earnings. There were
no costs incurred related to the Plan for the years ended December 31, 1996,
1995 and 1994, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company became subject to the disclosure
requirements of SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments." SFAS No. 107 requires that the Company disclose the fair value
of financial instruments for which it is practicable to estimate that value.
Financial instruments are defined under SFAS No. 107 as cash, evidence of an
ownership in an entity, or a contract that conveys or imposes on an entity the
contractual right of obligation to either receive or deliver cash or another
financial instrument.
A significant portion of the Company's assets and liabilities are financial
instruments as defined under SFAS No. 107. Additionally, the Company is also a
party to financial instruments that are not reported on the balance sheet
("off-balance sheet financial instrument"). Such off-balance sheet financial
instruments include commitments to originate loans and commitments to deliver
loans.
The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Corporation's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Company's financial
instruments, active markets do not exist. Therefore, considerable judgments
were required in estimating fair value for certain items. The subjective
factors include, among other things, the estimated timing and amount of cash
flows, risk characteristics, and interest rates, all of which are subject to
changes.
Cash and Cash Equivalents
As cash and cash equivalents are highly liquid, their carrying value
approximates their fair value.
Mortgage Loans Held for Sale and Related Financial Instruments
The fair value of mortgage loans held for sale, commitments to originate
mortgage loans, and mandatory commitments to sell mortgage loans are estimated
using quoted market prices for mortgage-backed securities backed by similar
loans. The fair value of commitments to originate mortgage loans includes a
portion of the unrealized gain or loss calculated using' quoted market prices
based on a historical estimate of the percentage of such commitments that will
actually result in mortgage loans originated.
F-25
<PAGE>
SUTTER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Lines of Credit
The fair value of lines of credit is believed to be equal to the carrying
amount because the terms of the debt are similar to terms currently offered by
lenders, and the interest rates are variable based on current market rates.
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- -----------
<S> <C> <C>
December 31, 1996
Financial assets:
Cash and cash equivalents................... $ 265,598 $ 265,598
Accounts receivable......................... 84,555 84,555
Officer notes receivable and employee
advances................................... 93,798 93,798
Mortgage loans held for sale................ 23,641,988 23,641,988
Financial liabilities:
Lines of credit and financing arrangements.. 23,933,654 23,933,654
December 31, 1995
Financial assets:
Cash and cash equivalents................... $ 378,884 $ 378,884
Accounts receivable......................... 309,031 309,031
Officer notes receivable and employee
advances................................... 75,576 75,576
Mortgage loans held for sale................ 34,320,774 34,320,774
Financial liabilities:
Lines of credit and financing arrangements.. 34,395,774 34,395,774
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business including certain matters pertaining to repurchase
requests on mortgage loans previously originated and sold by the Company. In
the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's financial condition.
F-26
<PAGE>
[GRAPHICS OF VARIOUS COMPANY LOGOS OF THE
COMPANY AND SELECTED STRATEGIC PARTNERS
AND FLOW
CHART DISPLAYING TRANSACTION FLOW OF A
LOAN ORIGINATED USING THE LOANMAKER
SYSTEM.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS TO ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Sutter Mortgage Acquisition.............................................. 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Dilution................................................................. 20
Capitalization........................................................... 21
Selected Financial Information........................................... 22
Pro Forma Combined Financial Information................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 32
Management............................................................... 48
Certain Transactions..................................................... 54
Principal Stockholders................................................... 56
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 64
Experts.................................................................. 65
Additional Information................................................... 65
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO OF VIRTUAL MORTGAGE NETWORK]
COMMON STOCK
---------------
PROSPECTUS
---------------
BARINGTON CAPITAL GROUP
VALUE INVESTING PARTNERS, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS TO ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Sutter Mortgage Acquisition.............................................. 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Dilution................................................................. 20
Capitalization........................................................... 21
Selected Financial Information........................................... 22
Pro Forma Combined Financial Information................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 32
Management............................................................... 48
Certain Transactions..................................................... 54
Principal Stockholders................................................... 56
Registered Stockholders.................................................. 56-1
Plan of Distribution..................................................... 56-2
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 61
Experts.................................................................. 65
Additional Information................................................... 65
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
920,086 SHARES
[LOGO OF VIRTUAL MORTGAGE NETWORK]
COMMON STOCK
---------------
PROSPECTUS
---------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the
issuance and distribution of the Common Stock being registered. All amounts
are estimates except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 15,522
NASD filing fee.................................................... 4,840
Nasdaq National Market listing fee................................. 34,048
Accounting fees and expenses....................................... 125,000
Legal fees and expenses............................................ 375,000
Blue Sky qualification fees and expenses........................... 7,000
Printing and engraving expenses.................................... 125,000
Transfer agent and registrar fees.................................. 3,000
Road Show expenses................................................. 40,000
Miscellaneous...................................................... 20,590
--------
Total.......................................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation provide that a director will not be personally
liable for monetary damages to the Company or its stockholders to the extent
permitted under the Nevada General Corporation Law (i.e., liability (i) for
any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for paying a
dividend or approving a stock repurchase in violation of Section 78.300 of the
Nevada General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit).
While the Articles of Incorporation provide directors with protection from
awards for monetary damages, it does not eliminate the directors' duty of
care. Accordingly, the Articles of Incorporation will have no effect on the
availability of equitable remedies, such as an injunction or rescission based
on a director's breach of such director's duty of care.
The Articles of Incorporation contain provisions authorizing the Company to
indemnify its directors and officers to the fullest extent permitted by the
laws of Nevada.
II-1
<PAGE>
The Company has entered into indemnity agreements with certain of its
directors and officers that require the Company to indemnify such directors
and officers to the fullest extent permitted by applicable provisions of the
Nevada General Corporation Law. The Company intends to explore alternatives
for obtaining directors' and officers' insurance to cover certain liabilities,
including liabilities under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act:
In March 1995, the Company issued 5,113 shares of Common Stock to Camelot
Holdings, Inc. ("Camelot") (which stock was eventually transferred to
Michael Barron) for $25.00, 3,068 shares of Common Stock to Dianne David
for $15.00 and 1,841 shares of Common Stock to Tradenet Financial Banking
Services ("Tradenet") for $9.00. The Company relied on the exemption
provided by Section 4(2) of the Securities Act.
In March 1995, the Company declared a 50-for-1 stock split effected as a
stock dividend on outstanding shares of Common Stock, pursuant to which
Camelot received 250,512 additional shares (which were eventually
transferred to Michael Barron), Dianne David received 93,156 additional
shares and Tradenet received 100,205 additional shares. Exemption from the
registration provisions of the Securities Act is claimed with respect to
the above dividend on the basis that the dividend did not involve a "sale"
of securities and, therefore, registration thereof was not required.
In March 1995, the Company issued 51,125 shares of Common Stock, warrants
to purchase 35,788 shares of Common Stock at an exercise price of $4.89 per
share and promissory notes in the aggregate amount of $300,000 to American
Growth Fund I, L.P. (the "Fund") in exchange for $200,000. From April 1995
to June 1996, the Company issued various promissory notes in favor of the
Fund, but in July 1996, the Company consolidated all outstanding promissory
note indebtedness in favor of the Fund by issuing two promissory notes in
the principal amounts of $200,000 and $300,000 in exchange for the
cancellation of all outstanding promissory notes. The Company relied on the
exemption provided by Section 4(2) of the Securities Act.
In April through December 1995, the Company issued an aggregate of
102,250 shares of Common Stock to 18 employees and consultants pursuant to
the Company's 1995 Consultant and Employee Stock Compensation Plan.
Pursuant to the terms of the plan, the Company repurchased 818 shares at
par value at the time the three employees left the Company. The Company
relied on the exemption provided by Section 4(2) of the Securities Act.
In May 1995, Intel Corporation purchased 500,000 shares of the Company's
Series A Preferred Stock for $500,000. The Company relied on the exemption
provided by Section 4(2) of the Securities Act.
In June 1995, the Company issued 250,000 shares of Series A Preferred
Stock to the Fund for $250,000. The Company relied on the exemption
provided by Section 4(2) of the Securities Act.
From September 1995 to March 1996, the Company sold an aggregate of
1,650,000 shares of Series A Preferred Stock in a private placement to
approximately 80 accredited investors for an aggregate purchase price of
$1,650,000. Of the shares sold, 150,000 were oversubscribed and in
September 1997 such shares were cancelled and the consideration paid was
converted into either part of the bridge financing or into Common Stock as
described below. The Company relied on exemptions provided by Section 4(6)
and Section 4(2) of the Securities Act.
II-2
<PAGE>
The Company issued 20,450 warrants to purchase Common Stock, exercisable
at $4.89 per share, to Michael Baum in January 1996 in exchange for
consulting services rendered. In March 1996, the Company issued 20,450
warrants to purchase Common Stock, exercisable at $4.89 per share, to South
Coast Communications (currently known as Allen and Caron) in exchange for
consulting services rendered. In March 1996, the Company issued 20,450
warrants to purchase Common Stock, exercisable at $4.89 per share, to
Randall Fowler in exchange for consulting services rendered. In May 1996,
the Company issued 5,113 warrants to purchase Common Stock, exercisable at
$4.89 per share, to Frank Klepetko in exchange for services rendered. For
each of the above transactions, the Company relied on the exemption
provided by Section 4(2) of the Securities Act.
In January 1996, the Company issued 25,563 warrants to purchase Common
Stock, exercisable at $4.89 per share, to American Growth Capital
Investments, Inc. ("AGCI") in exchange for consulting services, and in
February 1996 issued 40,900 additional warrants to purchase Common Stock,
exercisable at $4.89 per share, to AGCI in exchange for consulting
services. In March 1996, the Company issued 1,534 warrants, exercisable at
$4.89 per share, to the Fund in exchange for consulting services. In
September 1996, the Company issued 1,245 warrants, exercisable at $4.89 per
share, to AGCI in exchange for AGCI's and the Fund's agreement to adjust
the exercise price of all of the warrants described in this paragraph to
$4.89 per share. For all of the above transactions, the Company relied on
the exemption provided by Section 4(2) of the Securities Act.
Between June 1996 and September 1997, the Company issued 368,136 warrants
to purchase Common Stock, exercisable at $.005 per share, and promissory
notes in the aggregate principal amount of $5,400,000 to certain accredited
investors in connection with a bridge financing. The Company relied on the
exemption provided by Section 4(2) of the Securities Act.
On July 5, 1996, the Company issued 20,450 Warrants to Larry Wells, a
director of the Company, in exchange for consulting services rendered.
These Warrants have an exercise price of $7.78 per share. On February 5,
1997, Mr. Wells exercised 12,863 Warrants. The Company relied on the
exemption provided by Section 4(2) of the Securities Act.
Between February and August 1997 the Company issued an aggregate of
486,950 shares of Common Stock and 266,106 warrants to purchase Common
Stock, exercisable at $7.34 per share, in a private placement to five
accredited investors for an aggregate purchase price of $3,790,000. The
Company relied on the exemption provided by Section 4(2) of the Securities
Act.
Between June and October 1997, the Company issued an aggregate of 943,343
shares of Common Stock in private placements to certain accredited
investors at $5.63 to $7.78 per share. The Company relied on the exemption
provided by Section 4(2) of the Securities Act.
From time to time during the three years preceding the date hereof, the
Registrant issued stock options to purchase Common Stock pursuant to the
Registrant's stock option plans to officers, employees and consultants of
the Registrant. During the period referred to above, no options granted
pursuant to the Company's stock option plans were exercised. Exemption from
the registration provisions of the Securities Act is claimed with respect
to the grant of options referred to above, on the basis that the grant of
options did not involve a "sale" of securities and, therefore, registration
thereof was not required.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view
to distribution thereof. Appropriate legends were affixed to the stock
certificates and warrants issued in these transactions. All recipients had
access, through employment or other relationships, to information about the
Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of the Registrant.*
3.2 Amended and Restated Bylaws of the Registrant.*
4.1 Specimen stock certificate.*
5.1 Opinion of O'Melveny & Myers LLP.*
10.1 Form of Indemnity Agreement between the Registrant and each of its
executive officers and directors.*
10.2 Indemnification and Pledge Agreement among the Registrant, Michael
Barron, Dianne David and Sandra Sawyer.*
10.3 Office Building Lease--Koll Center Newport No. 8, dated September 5,
1995, by and between Koll Center Newport No. 8 and Virtual Realty
Network, Inc. (now Virtual Mortgage Network, Inc., the Registrant).
10.4 Office Building Lease--Koll Center Newport No. 8, dated July 10,
1990, by and between Koll Center Newport No. 8 and Tiempo Escrow II.
10.5 Amendment No. 1 to Office Building Lease dated September 23, 1993,
by and between Koll Center Newport No. 8 and Tiempo Escrow II.
10.6 Sublease Agreement, dated March 21, 1995, by and between Tiempo
Escrow II and Today, Inc.
10.7 Amendment No. 1 to Office Building Sublease; Name Change, dated
March 21, 1995, by and between Tiempo Escrow II and Today, Inc.
10.8 Sublease and Operating Agreement, dated October 2, 1996, by and
between five Centerpointe Executive Suites and the Registrant.
10.9 Master Lease Agreement, dated July 20, 1995, by and between Data
General Corporation and the Registrant.
10.10 Priority Customer Support Plan Agreement, dated January 15, 1996, by
and between Dynatek, Inc. and the Registrant.
10.11 Dynatek Software License Agreement, dated August 23, 1995, by and
between Dynatek, Inc. and the Registrant.
10.12 Agreement, dated December 1, 1995, by and between the Registrant and
American Growth Capital Corporation.
10.13 Investment Agreement, dated March 21, 1995, by and between the
Registrant and American Growth Fund I, LP.
10.14 Amendment to Investment Agreement, dated March 21, 1995, between the
Registrant and American Growth Fund I, LP.
10.15 Second Amendment to Investment Agreement, dated September 9, 1996,
by and between the Registrant and American Growth Fund I, LP.
10.16 Form of Subscription Agreement.
10.17 Series A Preferred Stock Purchase Agreement, dated May 19, 1995, by
and between the Registrant and the persons and entities listed on
Exhibit A attached thereto.
10.18 Addendum to Series A Preferred Stock Purchase Agreement, dated May
19, 1995, by and between the Registrant and American Growth Fund I,
LP.
10.19 Rights Agreement, dated May 19, 1995, by and between the Registrant
and the individuals and entities set forth on Exhibit A attached
thereto.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.20 Co-sale and Right of First Refusal Agreement, dated May 19, 1995, by
and among the Registrant, the individuals listed on the signature
page attached thereto and the investors listed on Exhibit A attached
thereto.
10.21 1995 Consultant and Employee Stock Compensation Plan.
10.22 1995 Stock Option Plan.
10.23 Form of 1997 Performance Award Plan.
10.24 Master Registration Rights Agreement dated September 9, 1996 among
the Registrant and the other signatories thereto.
10.25 Agreement, made December 20, 1996, and effective October 1, 1996, by
and between the Registrant and Interealty Corp.
10.26 Agreement, made and effective December 20, 1996, by and between the
Registrant and Interealty Corp.
10.27 First Amended and Restated Stock Purchase Agreement, entered into as
of June 6, 1997, between the Registrant, Sutter Mortgage Corporation
("Sutter") and Arthur H. Sutter.
10.28 Term Sheet relating to Amendment of First Amended and Restated Stock
Purchase Agreement re: Acquisition of Sutter Mortgage Corporation,
dated as of September 30, 1997, among the Registrant, Sutter
Mortgage Corporation and Arthur H. Sutter.
10.29 Agreement, dated October 21, 1996, between Intel Corporation and the
Registrant.
10.30 Form of Bridge Loan and Security Agreement (Phase I).*
10.31 Form of Promissory Note (Phase I).*
10.32 Form of Common Stock Purchase Warrant (Phase I).*
10.33 Form of Note Extension Agreement.
10.34 Form of Common Stock Purchase Warrant regarding Note Extension
Agreement.*
10.35 Form of Bridge Loan and Security Agreement (Phase II).*
10.36 Form of Promissory Note (Phase II).*
10.37 Form of Common Stock Purchase Warrant (Phase II).*
10.38 Mortgage Loan Purchase Agreement, dated June 3, 1994, between Paine
Webber Real Estate Securities Inc. ("Paine Webber") and Sutter.*
10.39 Amendment, dated June 26, 1995, to the Mortgage Loan Purchase
Agreement, by and between Sutter and Paine Webber.*
10.40 Supplemental Agreement, dated June 3, 1994, between Paine Webber and
Sutter.*
10.41 Amendment, dated June 26, 1995, to Mortgage Loan Custodial
Agreement, between Paine Webber and Sutter.*
10.42 Revolving Credit and Collateral Loan Agreement, dated September 6,
1988, between Sutter and Imperial Bank.*
10.43 Letter Agreement, dated September 26, 1988, between Sutter and
Imperial Bank.*
10.44 Note, dated November 30, 1996, by Sutter in favor of Imperial Bank
in the amount of $10,000,000.*
10.45 Note, dated November 30, 1996, by Sutter in favor of Imperial Bank
in the amount of $150,000.*
10.46 Letter Agreement, dated February 10, 1997, between Imperial Bank and
Sutter.*
10.47 Letter Agreement, dated December 1, 1996, between Imperial Bank and
Sutter.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.48 Mortgage Loan Purchase and Sale Agreement, undated, between Sutter
and Prudential Securities Realty Funding Corporation.*
10.49 Mark-to-Market Agreement, dated April 20, 1995, between Sutter and
Prudential Securities Incorporated.*
10.50 Master Mortgage Loan Purchasing Agreement, dated October 7, 1992,
between First Collateral Services, Inc. ("First Collateral") and
Sutter.*
10.51 Servicing Agreement, dated October 7, 1992, between First Collateral
and Sutter.*
10.52 Security Agreement (Servicing), dated October 7, 1992, between First
Collateral and Sutter.*
10.53 Bailee Agreement and Amendment to Purchase Contract, dated January
6, 1993, among First Collateral, Sutter and The Prudential Home
Mortgage Company, Inc.*
10.54 Letter Agreement, dated July 11, 1994, between First Collateral and
Sutter.*
10.55 Letter Agreement, dated March 21, 1997, between First Collateral and
Sutter.*
10.56 Form of Representatives' Warrant.*
11.1 Statement re: Computation of Earnings Per Share.
21.1 List of Subsidiaries.*
23.1 Consent of Arthur Andersen LLP.
23.3 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).*
27 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULES.
Set forth below is the financial statement schedule included as part of the
Registration Statement:
Schedule II
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the Consolidated Financial
Statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in the denominations and registered in the names as required
by the Underwriters to permit prompt delivery to each purchaser.
II-6
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission this indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against these 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 a director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether the indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of the issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
the registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the Offering of those securities at
that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act,
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
Provided, however, That paragraphs (d)(1)(i) and (d)(1)(ii) of this
section do not apply if the Registration Statement is on Form S-3, Form
S-8 or Form F-3, and the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the Registration
Statement.
(2) That for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newport
Beach, County of Orange, State of California, on the 21st day of October, 1997.
VIRTUAL MORTGAGE NETWORK, INC.
/s/ Michael A. Barron
By: _________________________________
Michael A. Barron
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael A. Barron Chairman of the Board, Chief October 21, 1997
____________________________________ Executive Officer (Principal
Michael A. Barron Executive Officer), and
Director
/s/ John D. Murray President, Chief Financial October 21, 1997
____________________________________ Officer (Principal Financial
John D. Murray and Accounting Officer),
Chief Operating Officer and
Director
/s/ Randall C. Fowler Director October 21, 1997
____________________________________
Randall C. Fowler
/s/ Larry Wells Director October 21, 1997
____________________________________
Larry Wells
/s/ John Wells Director October 21, 1997
____________________________________
John Wells
</TABLE>
II-8
<PAGE>
EXHIBIT 10.3
OFFICE BUILDING LEASE
BETWEEN
KOLL CENTER NEWPORT NUMBER 8
LANDLORD
AND
VIRTUAL REALTY NETWORK, INC.
TENANT
<PAGE>
OFFICE BUILDING LEASE
---------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. BASIC LEASE TERMS...................................................... 1
2. PREMISES AND COMMON AREAS.............................................. 3
3. TERM................................................................... 3
4. POSSESSION............................................................. 3
5. RENT................................................................... 4
6. OPERATING EXPENSES..................................................... 4
7. SECURITY DEPOSIT....................................................... 5
8. USE.................................................................... 5
9. NOTICES................................................................ 5
10. BROKERS................................................................ 6
11. SURRENDER; HOLDING OVER................................................ 6
12. TAXES ON TENANT'S PROPERTY............................................. 6
13. ALTERATIONS............................................................ 6
14. REPAIRS................................................................ 7
15. LIENS.................................................................. 8
16. ENTRY BY LANDLORD...................................................... 8
17. UTILITIES AND SERVICES................................................. 8
18. ASSUMPTION OF RISK AND INDEMNIFICATION................................. 8
19. INSURANCE.............................................................. 9
20. DAMAGE OR DESTRUCTION.................................................. 10
21. EMINENT DOMAIN......................................................... 11
22. DEFAULTS AND REMEDIES.................................................. 12
23. LANDLORD'S DEFAULT..................................................... 13
24. ASSIGNMENT AND SUBLETTING.............................................. 13
25. SUBORDINATION.......................................................... 15
26. ESTOPPEL CERTIFICATE................................................... 15
27. BUILDING PLANNING...................................................... 15
28. RULES AND REGULATIONS.................................................. 16
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S
MORTGAGEES AND LESSORS................................................. 16
30. DEFINITION OF LANDLORD................................................. 16
31. WAIVER................................................................. 16
32. PARKING................................................................ 16
33. FORCE MAJEURE.......................................................... 17
34. SIGNS.................................................................. 17
35. LIMITATION ON LIABILITY................................................ 18
36. FINANCIAL STATEMENTS................................................... 18
37. QUIET ENJOYMENT........................................................ 18
38. MISCELLANEOUS.......................................................... 18
39. EXECUTION OF LEASE..................................................... 19
SIGNATURE PAGE....................................................... 19
</TABLE>
EXHIBITS:
A-I Site Plan
A-II Outline of Floor Plan of Premises
B Rentable Square Feet and Usable Square Feet
C Work Letter Agreement
D Notice of Lease Term Dates and Tenant's Percentage
E Definition of Operating Expenses
F Standards for Utilities and Services
G Estoppel Certificate
H Rules and Regulations
<PAGE>
OFFICE BUILDING LEASE
This OFFICE BUILDING LEASE ("Lease") is entered into as of the 5 day of
September, 1995 by and between Koll Center Newport Number 8, a California
limited partnership ("Landlord"), and Virtual Realty Network, Inc., a Nevada
corporation ("Tenant").
1. BASIC LEASE TERMS. For purposes of this Lease, the following terms have
the following definitions and meanings:
(a) Landlord: Koll Center Newport Number 8, a California limited
partnership.
(b) Landlord's Address (for Notices):
4350 Von Karman Avenue, Suite 100
Newport Beach, CA 92660 Attention: KCN8 Manager
or such other place as Landlord may from time to time designate by notice to
Tenant.
(c) Tenant: Virtual Realty Network, Inc., a Nevada corporation.
(d) Tenant's Address (Premises):
4590 MacArthur Boulevard, Suite 175
Newport Beach, CA 92660 Attention: Lee Shorey
(e) Development: The parcel(s) of real property commonly known as Koll
Center Newport and located in the City of Newport Beach (the "City") County of
Orange (the "County"), State of California ("State"), as shown on the site plan
attached hereto as Exhibit "A-1".
-------------
(f) Building: A six (6) story office building located within the
Development, which Building contains approximately 113,787 Rentable Square Feet
(subject to adjustment as provided in Exhibit "B"), with the street address of
-----------
4590 MacArthur Boulevard, Newport Beach, CA 92660.
(g) Premises: Those certain premises known as Suite 290 as generally shown
on the floor plan attached hereto as Exhibit "A-11", located on the second (2nd)
--------------
floor of the Building, which Premises contains approximately 4,432 Rentable
Square Feet and 3,949 Usable Square Feet.
(h) Tenant's Percentage: Tenant's percentage of the Building on a Rentable
Square Foot basis, which initially is 3,895%.
(i) Term: three (3) Lease Years and 0 Months.
(j) Commencement Date: September 15, 1995.
Expiration date: September 14, 1998.
(k) Commencement Date: The date on which the Term of this Lease will
commence as set forth in subparagraph 1(j) above.
(l) Initial Monthly Base Rent: $3,213.20, subject to adjustment as provided
in Subparagraph 1(m) below and as otherwise provided in this Lease.
<PAGE>
(m) Adjustment to Monthly Base Rent: Monthly Base Rent will be adjusted in
accordance with the following:
LEASE YEAR OR MONTHS MONTHLY BASE RENT
Months 1 - 6: $3,213.20 per rentable square foot per month;
Months 7 - 12: $6,426.40 per rentable square foot per month;
Months 13 - 24: $6,648.00 per rentable square foot per month;
Months 25 - 36: $6,869.60 per rentable square foot per month;
(n) Operating Expense Allowance: Operating Expense Allowance means that portion
of Tenant's Percentage of Operating Expenses as described in Paragraph 6 below
which Landlord has included in Monthly Base Rent, which for purposes of this
Lease, will be an amount equal to Tenant percentage of Operating Expenses for
the 1995 Calendar Year.
(o) Security: $7,556.56
(p)
(q) Tenant Improved Allowance: $5.00 per Usable Square Foot of the Premises, to
be applied as provided in the Work Letter Agreement attached hereto as
Exhibit "C".
- -----------
(r) Permitted Use: General office use consistent with other Class "A" offices
uses at Koll Center Newport and no other use without the express written consent
of Landlord, which consent Landlord may withhold in its sole and absolute
discretion.
(s) Parking: Sixteen (16) unreserved employee parking spaces at $15.00 per
space per month subject to the terms and conditions of Paragraph 32 below and
the Rules and Regulations regarding parking contained in Exhibit "H".
-----------
(t) Broker(s): N/A
(u) Guarantor(s): N/A
(v) Interest Rate: shall mean the greater of ten percent (10%) per annum or
two percent (2%) in excess of the prime lending or reference rate of Wells Fargo
Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the
calendar month immediately prior to the event giving rise to the Interest Rate
imposition; provided however, the Interest Rate will in no event exceed the
maximum interest rate permitted to be charged by applicable law.
(w) Exhibits: A-1 through H, inclusive, which Exhibits are attached to this
Lease and incorporated herein by this reference. As provided in Paragraph 3
below, a completed version of Exhibit "D" will be delivered to Tenant after
-----------
Landlord delivers possession of the Premises to Tenant.
(x) Addendum Paragraphs: 40 through 42 , inclusive, which Addendum
Paragraphs are attached to this Lease and incorporated herein by this reference.
This paragraph 1 represents a summary of the basic terms and definitions of this
Lease. In the event of any inconsistency between the terms contained in this
Paragraph 1 and any specific provision of this Lease, the terms of the more
specific provision shall prevail.
-2-
<PAGE>
2. PREMISES AND COMMON AREAS.
(a) Premises. Landlord hereby leases to Tenant and Tenant hereby leases for
Landlord the Premises as improved or to be improved with the Tenant Improvements
described in the Work Letter Agreement, a copy of which is attached hereto as
Exhibit "C"
- -----------
(b) Mutual Covenants. Landlord and Tenant agree that the letting and hiring of
the Premises is upon and subject to the terms, covenants and conditions
contained in this Lease and each party covenants as a material part of the
consideration for this Lease to keep and perform their respective obligations
under this Lease.
(c) Tenant's Use of Common Areas. During the Term of this Lease, Tenant shall
have the nonexclusive right to use in common with Landlord and all persons,
firms and corporations conducting business in the Development and their
respective customers, guests, licensees, invitees, subtenants, employees and
agents (collectively, "Development Occupants"), subject to the terms of this
Lease, the Rules and Regulations referenced in Paragraph 32 below and all
covenants, conditions and restrictions now or hereafter affecting the
Development, the following common areas of the Building and/or the Development
(collectively, the "Common Areas"):
(i) The Building's common entrances, hallways, lobbies, public restrooms on
multi-tenant floors, elevators, stairways and accessways, loading docks, ramps,
drives and platforms and any passageways and serviceways thereto, and the common
pipes, conduits, wires and appurtenant equipment within the Building which serve
the Premises (collectively, "Building Common Areas"); and
(ii) The parking facilities of the Development which serve the Building (subject
to the provisions of Exhibit "H"), loading and unloading areas, trash areas,
-----------
roadways, sidewalks, walkways, parkways, driveways, landscaped areas, plaza
areas, fountains and similar areas and facilities situated within the
Development and appurtenant to the Building which are not reserved for the
exclusive use of any Development Occupants (collectively, "Development Common
Areas").
(d) Landlord's Reservation of Rights. Provided Tenant's use of and access to
the Premises and parking to be provided to Tenant under this Lease is not
interfered with an unreasonable manner, Landlord reserves for itself and for all
other owner(s) and operator(s) of the Development Common Areas and the balance
of the Development, the right from time to time to: (i) install, use, maintain,
repair, replace and relocate pipes, ducts, conduits, wires and appurtenant
meters and equipment above the ceiling surfaces, below the floor surfaces,
within the walls and in the central core areas of the Building; (ii) make
changes to the design and layout of the Development, including, without
limitation, changes to buildings, driveways, entrances, loading and unloading
areas, direction of traffic, landscaped areas and walkways, and, subject to the
parking provisions contained in Paragraph 32 and Exhibit "H", parking spaces and
-----------
parking areas, and (iii) use or close temporarily the Building Common Areas, the
Development Common Areas and/or other portions of the Development while engaged
in making improvements, repairs or alterations to the Building, the Development,
or any portion thereof.
3. TERM. The term of this Lease ("Term") will be for the period designated in
Subparagraph 1(i), commencing on the Commencement Date, and ending on the last
day of the month in which the expiration of such period occurs, including any
extensions of the Term pursuant to any provision of this Lease or written
agreement of the parties. Notwithstanding the foregoing, if the Commencement
Date falls on any day other than the first day of a calendar month then the Term
of this Lease will be measured from the first day to the month following the
month in which the Commencement Date occurs. Each consecutive twelve (12)
month period of the Term of this Lease, commencing on the Commencement Date,
will be referred to herein as a "Lease Year". Landlord's Notice of Lease Term
Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "D" attached
-----------
hereto, will set forth the Commencement Date, the date upon which the Term of
this Lease shall end, the Rentable Square Feet within the Premises and the
Building, and Tenant's Percentage and will be delivered to Tenant after
Landlord delivers possession of the Premises to Tenant. The Notice will be
binding upon Tenant unless Tenant objects to the Notice in writing within five
(5) days of Tenant's receipt of the Notice.
4. POSSESSION.
(a) Delivery of Possession. Landlord agrees to deliver possession of the
Premises to Tenant on the Commencement Date; provided, however, Tenant agrees
that if Landlord is unable to deliver possession of the Premises to Tenant on
the Commencement Date due to Landlord's negligence or willful misconduct or due
to any Force Majuere Delay(s) (as described in Paragraph 33 of this Lease),
then this Lease will not be void or voidable and Landlord will not be liable to
Tenant for any loss or damage resulting therefrom, but the Commencement Date and
the Expiration Date will be extended by the number of days Landlord is late in
delivering the Premises to Tenant, and rent will not commence to accrue under
this Lease until Landlord delivers the Premises to Tenant. Notwithstanding the
foregoing, Landlord will not be obligated to deliver possession of the Premises
to Tenant (but Tenant will be liable for rent if Landlord can otherwise deliver
the Premises to Tenant) until Landlord has received from Tenant all of the
following: (i) a copy of this Lease fully executed by Tenant and the guaranty of
Tenant's obligations under this Lease, if any, executed by the Guarantor(s);
(ii) the Security Deposit and the first installment of Monthly Base Rent; (iii)
executed copies of policies of insurance or certificates thereof as required
under Paragraph 19 of this Lease; (iv) copies of all governmental permits and
authorizations, if any, required in connection with Tenant's operation of its
business within the Premises; and (v) if Tenant is a corporation or partnership,
such evidence of due formation, valid existence and authority as Landlord may
reasonably require, which may include, without limitation, a certificate of good
standing, certificate of secretary, articles of incorporation, statement of
partnership, or other similar documentation.
(b) Condition of Premises. Prior to the Commencement Date and in accordance
with the Work Letter Agreement attached hereto as Exhibit "C", Landlord and
-----------
Tenant will jointly conduct a walk-through inspection of the Premises and will
jointly prepare a punch-list ("Punch-List") of items required to be installed by
Landlord under the Work Letter Agreement which require finishing or correction.
The Punch-List will not include any items of damage to the Premises caused by
Tenant's move-in early entry, if permitted, which damage will be corrected or
repaired by Landlord, at Tenant's expense or, at Landlord's election, by Tenant,
at Tenant's expense. Other than the items specified in the Punch-List, by
taking possession of the Premises, Tenant will be deemed to have accepted the
Premises in its condition on the date of delivery of possession and to have
acknowledged that the Tenant
-3-
<PAGE>
Improvements have been installed as required by the Work Letter Agreement and
that there are no additional items needing work or repair. Landlord will cause
all items in the Punch-List to be repaired or corrected within thirty (30) days
following the preparation of the Punch-List or as soon as practicable after the
preparation of the Punch-List. Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty with respect to the
Premises, the Building, the Development or any portions thereof or with respect
to the suitability of same for the conduct of Tenant's business and Tenant
further acknowledges that Landlord will have no obligation to construct or
complete any additional buildings or improvements within the Development.
5. RENT.
(a) Monthly Base Rent. Tenant agrees to pay Landlord the Monthly Base Rent for
the Premises (subject to adjustment as hereinafter provided) in advance on the
first day of each calendar month during the Term without prior notice or demand,
except that Tenant agrees to pay the Monthly Base Rent for the first month of
the Term directly to Landlord concurrently with Tenant's delivery of the
executed Lease to Landlord. If the Term of this Lease commences or ends on a day
other than the first day of a calendar month, then the rent for such period will
be prorated in the proportion that the number of days this Lease is in effect
during such period bears to the number of days in such month. All rent must be
paid to Landlord, without any deduction or offset, in lawful money of the United
States of America, at the address designated by Landlord or to such other person
or at such other place as Landlord may from time to time designate in writing.
Monthly Base Rent will be adjusted during the Term of this Lease as provided in
Subparagraph 1(m).
(b) Additional Rent. All amounts and charges to be paid by Tenant hereunder,
including, without limitation, payments for Operating Expenses, insurance,
repairs and parking, will be considered additional rent for purposes of this
Lease, and the word "rent" as used in this Lease will include all such
additional rent unless the context specifically or clearly implies that only
Monthly Base Rent is intended.
(c) Late Payments. Late payments of Monthly Base Rent and/or any item of
additional rent will be subject to interest and a late charge as provided in
Subparagraph 22(f) below.
6. OPERATING EXPENSES.
(a) Operating Expenses. In addition to Monthly Base Rent, throughout the Term
of this Lease, Tenant agrees to pay Landlord as additional rent in accordance
with the terms of this Paragraph 6, Tenant's Percentage of Operating Expenses as
defined in Exhibit "E" attached hereto to the extent Tenant's Percentage of
-----------
Operating Expenses exceeds Tenant's Operating Expense Allowance.
(b) Estimate Statement. Prior to the Commencement Date and on or about March
1st of each subsequent calendar year during the Term of this Lease, Landlord
will endeavor to deliver to Tenant a statement ("Estimate Statement") wherein
Landlord will estimate both the Operating Expenses and Tenant's Percentage of
Operating Expenses for the then current calendar year. If the estimate of
Tenant's Percentage of Operating Expenses in the Estimate Statement exceeds
Tenant's Operating Expense Allowance, Tenant agrees to pay Landlord, as
"Additional Rent", one-twelfth (1/12th) of such excess each month thereafter,
beginning with the next installment of rent due, until such time as Landlord
issues a revised Estimate Statement or the Estimate Statement for the succeeding
calendar year, except that, concurrently with the regular monthly rent payment
next due following the receipt of each such Estimate Statement, Tenant agrees to
pay Landlord an amount equal to one monthly installment of such excess (less any
applicable Operating Expenses already paid) multiplied by the number of months
from January, in the current calendar year, to the month of such rent payment
next due, all months inclusive. If at any time during the Term of this Lease,
but not more often than quarterly, Landlord reasonably determines that Tenant's
Percentage of Operating Expenses for the current calendar year will be greater
than the amount set forth in the then current Estimate Statement, Landlord may
issue a revised Estimate Statement and Tenant agrees to pay Landlord, within ten
(10) days of receipt of the revised Estimate Statement, the difference between
the amount owed by Tenant under such revised Estimate Statement and the amount
owed by Tenant under the original Estimate Statement for the portion of the then
current calendar year which has expired. Thereafter Tenant agrees to pay
Tenant's Percentage of Operating Expenses based on such revised Estimate
Statement until Tenant receives the next calendar year's Estimate Statement or a
new revised Estimate Statement for the current calendar year. In the event
Tenant's Percentage of Operating Expenses for any calendar year is less than
Tenant's Operating Expense Allowance, Tenant will not be entitled to a credit
against any rent, additional rent or Tenant's Percentage of future Operating
Expenses payable hereunder.
(c) Actual Statement. By March 1st of each calendar year during the Term of
this Lease, Landlord will also endeavor to deliver to Tenant a statement
("Actual Statement") which states the actual Operating Expenses for the
preceding calendar year. If the Actual Statement reveals that Tenant's
Percentage of the actual Operating Expenses is more than the total Additional
Rent paid by Tenant for Operating Expenses on account of the preceding calendar
year, Tenant agrees to pay Landlord the difference in a lump sum within ten (10)
days of receipt of the Actual Statement. If the Actual Statement reveals that
Tenant's Percentage of the actual Operating Expenses is less than the Additional
Rent paid by Tenant for Operating Expenses on account of the preceding calendar
year, Landlord will credit any overpayment toward the next monthly
installment(s) of Tenant's Percentage of the Operating Expenses due under this
Lease.
(d) Miscellaneous. Any delay or failure by Landlord in delivering any Estimate
Statement or Actual Statement pursuant to this Paragraph 6 will not constitute a
waiver of its right to require an increase in rent nor will it relieve Tenant of
its obligations pursuant to this Paragraph 6, except that Tenant will not be
obligated to make any payments based on such Estimate Statement or Actual
Statement until ten (10) days after receipt of such Estimate Statement or Actual
Statement. Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage of the actual
Operating Expenses for the year in which this Lease terminates, Tenant agrees to
promptly pay any increase due over the estimated expenses paid and, conversely,
any overpayment made in the event said expenses decrease shall promptly be
rebated by Landlord to Tenant. Such obligation will be a continuing one which
will survive the expiration or earlier termination of this Lease. Prior to the
expiration or sooner termination of the Lease Term and Landlord's acceptance of
Tenant's surrender of the Premises, Landlord will have the right to estimate the
actual Operating Expenses for the then current Lease Year and to collect from
Tenant prior to Tenant's surrender of the Premises, Tenant's Percentage of any
excess of such actual Operating Expenses over the estimated Operating Expenses
paid by Tenant in such Lease Year.
-4-
<PAGE>
7. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant will deposit with Landlord the Security Deposit designated in
Subparagraph 1(o). The Security Deposit will be held by Landlord as security
for the full and faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the Term
hereof. If Tenant fully and faithfully performs its obligations under this
Lease, including, without limitation, surrendering the Premises upon the
expiration or sooner termination of this Lease in compliance with Subparagraph
11(a) below, the Security Deposit or any balance thereof will be returned to
Tenant (or, at Landlord's option, the last assignee of Tenant's interest
hereunder) within thirty (30) days following the expiration of the Lease Term or
as required under applicable law, provided that Landlord may retain the Security
Deposit until such time as any outstanding rent or additional rent amount has
been determined and paid in full. The Security Deposit is not, and may not be
construed by Tenant to constitute, rent for the last month or any portion
thereof. If Tenant defaults with respect to any provisions of this Lease
including, but not limited to, the provisions relating to the payment of rent or
additional rent, Landlord may (but will not be required to) use, apply or retain
all or any part of the Security Deposit for the payment of any rent or any other
sum in default, or for the payment of any other amount which Landlord may spend
or become obligated to spend by reason of Tenant's default or to compensate
Landlord for any loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
agrees, within ten (10) days after Landlord's written demand therefor, to
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount and Tenant's failure to do so shall constitute a
default under this Lease. Landlord is not required to keep Tenant's Security
Deposit separate from its general funds, and Tenant is not entitled to interest
on such Security Deposit. Should Landlord sell its interest in the Premises
during the Term hereof and deposit with the purchaser thereof the then
unappropriated Security Deposit funds, Landlord will be discharged from any
further liability with respect to such Security Deposit.
8. USE.
(a) Tenant's Use of the Premises. The Premises may be used for the use or
uses set forth in Subparagraph 1(r) only, and Tenant will not use or permit the
Premises to be used for any other purpose without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Nothing in this Lease will be deemed to give Tenant any exclusive
right to such use in the Building or the Development.
(b) Compliance. At Tenant's sole cost and expense, Tenant agrees to procure,
maintain and hold available for Landlord's inspection, all governmental licenses
and permits required for the proper and lawful conduct of Tenant's business from
the Premises, if any. Tenant agrees not to use, alter or occupy the Premises or
allow the Premises to be used, altered or occupied in violation of, and Tenant,
at its sole cost and expense, agrees to use and occupy the Premises and cause
the Premises to be used and occupied in compliance with: (i) any and all laws,
statutes, zoning restrictions, ordinances, rules, regulations, orders and
rulings now or hereafter in force and any requirements of any insurer, insurance
authority or duly constituted public authority having jurisdiction over the
Premises, the Building or the Development now or hereafter in force, (ii) the
requirements of the Board of Fire Underwriters and any other similar body, (iii)
the Certificate of Occupancy issued for the Building, and (iv) any recorded
covenants, conditions and restrictions and similar regulatory agreements, if
any, which affect the use, occupation or alteration of the Premises, the
Building and/or the Development. Tenant agrees to comply with the Rules and
Regulations referenced in Paragraph 28 below. Tenant agrees not to do or permit
anything to be done in or about the Premises which will in any manner obstruct
or interfere with the rights of other tenants or occupants of the Development,
or injure or unreasonably annoy them, or use or allow the Premises to be used
for any unlawful or unreasonably objectionable purpose. Tenant agrees not to
cause, maintain or permit any nuisance or waste in, on, under or about the
Premises or else where within the Development. Notwithstanding anything
contained in this Lease to the contrary, all transferable development rights
related in any way to the Development are and will remain vested in Landlord,
and Tenant hereby waives any rights thereto.
(c) Hazardous Materials. Except for ordinary and general office supplies
typically used in the ordinary course of business within office buildings, such
as copier toner, liquid paper, glue, ink and common household cleaning materials
(some or all of which may constitute "Hazardous Materials" as defined in this
Lease), Tenant agrees not to cause or permit any Hazardous Materials to be
brought upon, stored, used, handled, generated, released or disposed of on, in,
under or about the Premises, the Building, the Common Areas or any other portion
of the Development by Tenant, its agents, employees, subtenants, assignees,
licenses, contractors or invitees (collectively, "Tenants Parties"), without the
prior written consent of Landlord, which consent Landlord may withhold in its
sole and absolute discretion. Upon the expiration or earlier termination of
this Lease, Tenant agrees to promptly remove from the Premises, the Building and
the Development, at its sole cost and expense, any and all Hazardous Materials,
including any equipment or systems containing Hazardous Materials which are
installed, brought upon, stored, used, generated or released upon, in, under or
about the Premises, the Building and/or the Development or any portion thereof
by Tenant or any of Tenant's Parties. To the fullest extent permitted by law,
Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord
and Landlord's partners, officers, directors, employees, agents, successors and
assigns (collectively, "Landlord Indemnified Paries") from and against any and
all claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including, without limitation, clean-up,
removal, remediation and restoration costs, sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees and court costs) which arise or
result from the presence of Hazardous Materials on, in, under or about the
Premises, the Building or any other portion of the Development and which are
caused or permitted by Tenant or any of Tenant's Parties. Tenant agrees to
promptly notify Landlord of any release of Hazardous Materials at the Premises,
the Building or any other portion of the Development which Tenant becomes aware
of during the Term of this Lease, whether caused by Tenant or any other persons
or entities. In the event of any release of Hazardous Materials caused or
permitted by Tenant or any of Tenant's Parties, Landlord shall have the right,
but not the obligation, to cause Tenant to immediately take all steps Landlord
deems necessary or appropriate to remediate such release and prevent any similar
future release to the satisfaction of Landlord and Landlord's mortgagee(s). As
used in this Lease, the term "Hazardous Materials" shall mean and include any
hazardous or toxic materials, substances or wastes as now or hereafter
designated under any law, statute, ordinance, rule, regulation, order or ruling
of any agency of the State, the United States Government or any local
governmental authority, including, without limitation, asbestos, petroleum,
petroleum hydrocarbons and petroleum based products, urea formaldehyde foam
insulation, polychlorinated biphenyls ("PCBs"), and freon and other
chlorofluorocarbons. The provisions of this Subparagraph 8(c) will survive the
expiration or earlier termination of this Lease.
9. NOTICES. Any notice required or permitted to be given hereunder must be in
writing and may be given by personal delivery (including delivery by overnight
courier or an express mailing service) or by mail, if sent by registered or
certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at
the Premises and notices to Landlord shall be sufficient if delivered to
Landlord
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at the address designated in Subparagraph 1(b). Either party may specify a
different address for notice purposes by written notice to the other, except
that the Landlord may in any event use the Premises as Tenant's address for
notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who negotiated this
Lease are stated in Subparagraph 1(t). Each party represents and warrants to the
other, that, to its knowledge, no other broker, agent or finder (a) negotiated
or was instrumental in negotiating or consummating this Lease on its behalf, and
(b) is or might be entitled to a commission or compensation in connection with
this Lease. Landlord and Tenant each agree to promptly indemnify, protect,
defend and hold harmless the other from and against any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs (including attorneys' fees and court costs) resulting from
any breach by the indemnifying party of the foregoing representation, including,
without limitation, any claims that may be asserted by any broker, agent or
finder undisclosed by the indemnifying party. The foregoing mutual indemnity
shall survive the expiration or earlier termination of this Lease.
11. SURRENDER; HOLDING OVER.
(a) Surrender. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not constitute a merger, and shall, at the
option of Landlord, operate as an assignment to Landlord of any or all subleases
or subtenancies. Upon the expiration or earlier termination of this Lease,
Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in
a state of first-class order, repair and condition, ordinary wear and tear and
casualty damage (if this Lease is terminated as a result thereof pursuant to
Paragraph 20) excepted, with all of Tenant's personal property and Alterations
(as defined in Paragraph 13) removed from the Premises to the extent required
under Paragraph 13 and all damage caused by such removal repaired as required by
Paragraph 13. Prior to the date Tenant is actually to surrender the Premises to
Landlord, Tenant agrees to give Landlord reasonable prior notice of the exact
date Tenant will surrender the Premises so that Landlord and Tenant can schedule
a walkthrough of the Premises to review the condition of the Premises and
identify the Alterations and personal property which are to remain upon the
Premises and which items Tenant is to remove, as well as any repairs Tenant is
to make upon surrender of the Premises. The delivery of keys to any employee of
Landlord or to Landlord's agent or any employee thereof alone will not be
sufficient to constitute a termination of this Lease or a surrender of the
Premises.
(b) Holding Over. Tenant will not be permitted to hold over possession of the
Premises after the expiration or earlier termination of the Term without the
express written consent of Landlord, which consent Landlord may withhold in its
sole and absolute discretion. If Tenant holds over after the expiration or
earlier termination of the Term, Landlord may, at its option, treat Tenant as a
tenant at sufferance only, and such continued occupancy by Tenant shall be
subject to all of the terms, covenants and conditions of this Lease, so far as
applicable, except that the Monthly Base Rent for any such holdover period shall
be equal to the greater of (i) one hundred fifty percent (150%) of the Monthly
Base Rent in effect under this Lease immediately prior to such holdover, or (ii)
the then currently scheduled rental rate for comparable space in the Building,
in either event prorated on a daily basis. Acceptance by Landlord of rent after
such expiration or earlier termination will not result in a renewal of this
Lease. The foregoing provisions of this Paragraph 11 are in addition to and do
not affect Landlord's right of re-entry or any rights of Landlord under this
Lease or as otherwise provided by law. If Tenant fails to surrender the Premises
upon the expiration of this Lease in accordance with the terms of this Paragraph
11 despite demand to do so by Landlord, Tenant agrees to promptly indemnify,
protect, defend and hold Landlord harmless from all claims, damages, judgments,
suits, causes of action, losses, liabilities, penalties, fines, expenses and
costs (including attorneys' fees and costs), including, without limitation,
costs and expenses incurred by Landlord in returning the Premises to the
condition in which Tenant was to surrender it and claims made by any succeeding
tenant founded on or resulting from Tenant's failure to surrender the
Premises. The provisions of this Subparagraph 11(b) will survive the expiration
or earlier termination of this Lease.
12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency, all
taxes and assessments (real and personal) levied against (a) any personal
property or trade fixtures placed by Tenant in or about the Premises (including
any increase in the assessed value of the Premises based upon the value of any
such personal property or trade fixtures); and (b) any Tenant Improvements or
Alterations in the Premises (whether installed and/or paid for by Landlord or
Tenant) to the extent such items are assessed at a valuation higher than the
valuation at which tenant improvements conforming to Landlord's building
standard tenant improvements are assessed. If any such taxes or assessments are
levied against Landlord or Landlord's property, Landlord may, after written
notice to Tenant (and under proper protest if requested by Tenant) pay such
taxes and assessments, in which event Tenant agrees to reimburse Landlord all
amounts paid by Landlord within ten (10) business days after demand by Landlord;
provided, however, Tenant, at its sole cost and expense, will have the right,
with Landlord's cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes and assessments so paid
under protest.
13. ALTERATIONS. After installation of the initial Tenant Improvements for the
Premises pursuant to Exhibit "C", Tenant may, at its sole cost and expense, make
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alterations, additions, improvements and decorations to the Premises
(collectively, "Alterations") subject to and upon the following terms and
conditions.
(a) Prohibited Alterations. Tenant may not make any Alterations which: (i)
affect any area outside the Premises; (ii) affect the Building's structure,
equipment, services or systems, or the proper functioning thereof, or Landlord's
access thereto; (iii) affect the outside appearance, character or use of the
Building or the Building Common Areas; (iv) in the reasonable opinion of
Landlord, lessen the value of the Building; or (v) will violate or require a
change in any occupancy certificate applicable to the Premises.
(b) Landlord's Approval. Before proceeding with any Alterations which are not
prohibited in Subparagraph 13(a) above, Tenant must first obtain Landlord's
written approval of the plans, specifications and working drawings for such
Alterations, which approval Landlord will not unreasonably withhold or delay;
provided, however, Landlord's prior approval will not be required for any such
Alterations which are not prohibited by Subparagraph 13(a) above and which cost
less than Two Thousand Five Hundred Dollars ($2,500) as long as (i) Tenant
delivers to Landlord notice and a copy of any final plans, specifications and
working drawings for any such Alterations at least ten (10) days prior to
commencement of the work thereof, and (ii) the other conditions of this
Paragraph 13 are satisfied, including, without limitation, conforming to
Landlord's rules, regulations and insurance requirements which govern
contractors. Landlord's approval of plans, specifications and/or working
drawings for Alterations will not create any responsibility or liability on the
part of Landlord for their completeness, design sufficiency, or compliance with
applicable permits, laws, rules and regulation of governmental agencies or
authorities. In approving any Alterations, Landlord reserves the right to
require Tenant to
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increase its Security Deposit to provide Landlord with additional reasonable
security for the removal of such Alterations by Tenant as may be required by
this Lease.
(c) Contractors. Alterations may be made or installed only by contractors and
subcontractors which have been approved by Landlord, which approval Landlord
will not unreasonably withhold or delay, provided, however, Landlord reserves
the right to require that Landlord's contractor for the Building be given the
first opportunity to bid for any Alteration work. Before proceeding with any
Alterations, Tenant agrees to provide Landlord with ten (10) days prior written
notice and Tenant's contractors must obtain and maintain, on behalf of Tenant
and at Tenant's sole cost and expense; (i) all necessary governmental permits
and approvals for the commencement and completion of such Alterations; and (ii)
if requested by Landlord, a completion and lien indemnity bond, or other surety,
reasonably satisfactory to Landlord for such Alterations. Throughout the
performance of any Alterations, Tenant agrees to obtain, or cause its
contractors to obtain, workers compensation insurance and general liability
insurance in compliance with the provisions of Paragraph 19 of this Lease.
(d) Manner of Performance. All Alterations must be performed: (i) in accordance
with the approved plans, specifications and working drawings; (ii) in a
lien-free and first-class and workmanlike manner; (iii) in compliance with all
applicable permits, laws, statutes, ordinances, rules, regulations, orders and
rulings now or hereafter in effect and imposed by any governmental agencies and
authorities which assert jurisdiction; (iv) in such a manner so as not to
interfere with the occupancy of any other tenant in the Building, nor impose any
additional expense upon nor delay Landlord in the maintenance and operation of
the Building; and (v) at such times, in such manner, and subject to such rules
and regulations as Landlord may from time to time reasonably designate.
(e) Ownership. The Tenant Improvements, including, without limitation, all
affixed sinks, dishwashers, microwave ovens and other fixtures, and all
Alterations will become the property of Landlord and will remain upon and be
surrendered with the Premises at the end of the Term of this Lease; provided,
however, Landlord may, by written notice delivered to Tenant concurrently with
Landlord's approval of the final working drawings for any Alterations, identify
those Alterations which Landlord will require Tenant to remove at the end of the
Term of this Lease. Landlord may also require Tenant to remove Alterations which
Landlord did not have the opportunity to approve as provided in this Paragraph
13. If Landlord requires Tenant to remove any Alterations, Tenant, at its sole
cost and expense, agrees to remove the identified Alterations on or before the
expiration or earlier termination of this Lease and repair any damage to the
Premises caused by such removal (or, at Landlord's option, Tenant agrees to pay
to Landlord all of Landlord's costs of such removal and repair).
(f) Plan Review. Tenant agrees to pay Landlord, as additional rent, the
reasonable costs of professional services and costs for general conditions of
Landlord's third party consultants if utilized by Landlord (but not Landlord's
"in-house" personnel ) for review of all plans, specifications and working
drawings for any Alterations, within ten (10) business days after Tenant's
receipt of invoices either from Landlord or such consultants. In addition,
Tenant agrees to pay Landlord, within ten (10) business days after completion of
any Alterations, a fee to cover Landlord's costs of supervising and
administering the installation of such Alterations, in the amount of eight
percent (8%) of the cost of such Alterations, but in no event less than Two
Hundred Fifty Dollars ($250.00).
(g) Personal Property. All articles of personal property owned by Tenant or
installed by Tenant at its expense in the Premises (including Tenant's business
and trade fixtures, furniture, movable partitions and equipment [such as
telephones, copy machines, computer terminals, refrigerators and facsimile
machines]) will be and remain the property of Tenant, and must be removed by
Tenant from the Premises, at Tenants sole cost and expense, on or before the
expiration or earlier termination of this Lease. Tenant agrees to repair any
damage caused by such removal at its cost and expense, on or before the
expiration or earlier termination of this Lease. Tenant agrees to repair any
damage caused by such removal at its cost on or before the expiration or earlier
termination of this Lease.
(h) Removal of Alterations. If Tenant fails to remove by the expiration or
earlier termination of this Lease all of its personal property, or any
Alterations identified by Landlord for removal, Landlord may, at its option,
treat such failure as a hold-over pursuant to Subparagraph 11(b) above, and/or
Landlord may (without liability to Tenant for loss thereof) treat such personal
property and/or Alterations as abandoned and, at Tenant's sole cost and expense,
and in addition to Landlord's other rights and remedies under this Lease, at law
or in equity: (a) remove and store such items; and/or (b) upon ten (10) days
prior notice to Tenant, sell, discard or otherwise dispose of all or any such
items at private or public sale for such price as Landlord may obtain or by
other commercially reasonable means. Tenant shall be liable for all costs of
disposition of Tenant's abandoned property and Landlord shall have no liability
to Tenant with respect to any such abandoned property. Landlord agrees to apply
the proceeds of any sale of any such property to any amounts due to Landlord
under this Lease under this Lease from Tenant (including Landlord's attorneys'
fees and other costs incurred in the removal, storage and/or sale of such
items), with any remainder to be paid to Tenant.
14. REPAIRS
(a) Landlord's Obligations. Landlord agrees to repair and maintain the
structural portions of the Building and the plumbing, heating, ventilating, air
conditioning, elevator and electrical system installed or furnished by Landlord,
unless such maintenance and repairs are (i) attributable to items installed in
Tenant's Premises which are above standard interior improvements (such as, for
example, custom lighting, special HVAC and/or electrical panels or systems,
kitchen or restroom facilities and appliances constructed or installed within
Tenant's Premises) or (ii) caused in part or in whole by the act, neglect or
omission of any duty by Tenant, its agents, servants, employees or invitees, in
which case Tenant will pay to Landlord, as additional rent, the reasonable cost
of such maintenance and repairs. Landlord will not be liable for any failure to
make any such repairs or to perform any maintenance unless such failure shall
persist for an unreasonable time after written notice of the need of such
repairs or maintenance is given to Landlord by Tenant. Except as provided in
Paragraph 20, Tenant will not be entitled to any abatement of rent and Landlord
will not have any liability by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant waives the right to make
repairs at Landlord's expense under any law, statute, ordinance, rule,
regulation, order or ruling (including, without limitation, to the extent the
Premises are located in California, the provisions of California Civil Code
Sections 1941 and 1942 and any successor statutes or laws of a similar nature).
(b) Tenant's Obligations. Tenant agrees to keep, maintain and preserve the
Premises in first class condition and repair and, when and if needed, at
Tenant's sole cost and expense, to make all repairs to the Premises and every
part thereof. Any such maintenance and repairs will be performed by Landlord's
contractor, or at Landlord's option, by such contractor or contractors as Tenant
may choose from an approved list to be submitted by Landlord. Tenant agrees to
pay all costs and expenses incurred in such
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maintenance and repair within seven (7) days after billing by Landlord or such
contractor or contractors. Tenant agrees to cause any mechanics' liens or other
liens arising as a result of work performed by Tenant or at Tenant's direction
to be eliminated as provided in Paragraph 15 below. Except as provided in
Subparagraph 14(a) above, Landlord has no obligation to alter, remodel,
improve, repair, decorate or paint the Premises or any part thereof.
(c) Tenant's Failure to Repair. If Tenant refuses or neglects to repair and
maintain the Premises properly as required hereunder to the reasonable
satisfaction of Landlord, Landlord, at any time following ten (10) days from the
date on which Landlord makes a written demand on Tenant to effect such repair
and maintenance, may enter upon the Premises and make such repairs and/or
maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as
additional rent, Landlord's costs for making such repairs plus an amount not to
exceed ten percent (10%) of such costs for overhead, within ten (10) days of
receipt from Landlord of a written itemized bill therefor. Any amounts not
reimbursed by Tenant within such ten (10) day period will bear interest at the
Interest Rate until paid by Tenant.
15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or other
liens to be filed against all or any part of the Development, the Building or
the Premises, nor against Tenant's leasehold interest in the Premises, by reason
of or in connection with any repairs, alterations, improvements or other work
contracted for or undertaken by Tenant or any other act or omission of Tenant or
Tenant's agents, employees, contractors, licensees or invitees. At Landlord's
request, Tenant agrees to provide Landlord with enforceable, conditional and
final lien releases (or other evidence reasonably requested by Landlord to
demonstrate protection from liens) from all persons furnishing labor and/or
materials at the Premises. Landlord will have the right at all reasonable times
to post on the Premises and record any notices of non-responsibility which it
deems necessary for protection from such liens. If any such liens are filed,
Tenant will, at its sole cost, promptly cause such liens to be released of
record or bonded so that it no longer affects title to the Development, the
Building or the Premises. If Tenant fails to cause any such liens to be so
released or bonded within ten (10) days after filing thereof, such failure will
be deemed a material breach by Tenant under this Lease without the benefit of
any additional notice or cure period described in Paragraph 22 below, and
Landlord may, without waiving its rights and remedies based on such breach, and
without releasing Tenant from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payment in satisfaction of
the claims giving rise to such liens. Tenant agrees to pay to Landlord within
ten (10) days after receipt of invoice from Landlord, any sum paid by Landlord
to remove such liens, together with interest at the Interest Rate from the date
of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will at 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
nonresponsiblity, and/or to repair the Premises as permitted or required by this
Lease. In exercising such entry rights, Landlord will endeavor to minimize, as
reasonably practicable, the interference with Tenant's business and will provide
Tenant with reasonable advance notice of any such entry (except in emergency
situations). Landlord may, in order to carry out such purposes, erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed. Landlord will at all times have and
retain a key with which to unlock all doors in the Premises, excluding Tenant's
vaults and safes. Landlord will have the right to use any and all means which
Landlord may reasonably deem proper to open said doors in an emergency in order
to obtain entry to the Premises. Any entry to the Premises obtained by Landlord
by any of said means, or otherwise, will not be construed or deemed to be a
forcible or unlawful entry into the Premises, or an eviction of Tenant from the
Premises. Landlord will not be liable to Tenant for any damages or losses for
any entry by Landlord.
17. UTILITIES AND SERVICES. Throughout the Term of the Lease so long as the
Premises are occupied, Landlord agrees to furnish or cause to be furnished to
the Premises the utilities and services described in the Standards for Utilities
and Services attached hereto as Exhibit "F", subject to the conditions and in
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accordance with the standards set forth therein. Landlord may require Tenant
from time to time to provide Landlord with a list of Tenant's employees and/or
agents which are authorized by Tenant to subscribe on behalf of Tenant for any
additional services which may be provided by Landlord. Any such additional
services will be provided to Tenant at Tenant's cost. Landlord will not be
liable to Tenant for any failure to furnish any of the foregoing utilities and
services if such failure is caused by all or any of the following: (i) accident,
breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor
dispute of any character; (iii) governmental regulation, moratorium or other
governmental action or inaction; (iv) inability despite the exercise of
reasonable diligence to obtain electricity, water or fuel; or (v) any other
cause beyond Landlord's reasonable control. In addition, in the event of any
stoppage or interruption of services or utilities, Tenant shall not be entitled
to any abatement or reduction of rent (except as expressly provided in
Subparagraphs 20(f) or 21(b) if such failure results from a damage or taking
described therein), no eviction of Tenant will result from such failure and
Tenant will not be relieved from the performance of any covenant or agreement in
this Lease because of such failure. In the event of any failure, stoppage or
interruption thereof, Landlord agrees to diligently attempt to resume service
promptly. If Tenant requires or utilizes more water or electrical power than is
considered reasonable or normal by Landlord, Landlord may at its option require
Tenant to pay, as additional rent, the cost, as fairly determined by Landlord,
incurred by such extraordinary usage and/or Landlord may install separate
meter(s) for the Premises, at Tenant's sole expense, and Tenant agrees
thereafter to pay all charges of the utility providing service and Landlord will
make an appropriate adjustment to Tenant's Operating Expenses calculation to
account for the fact Tenant is directly paying such metered charges, provided
Tenant will remain obligated to pay its proportionate share of Operating
Expenses subject to such adjustment.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) Assumption of Risk. Tenant, as a material part of the consideration to
Landlord, hereby agrees that neither Landlord nor any Landlord Indemnified
Parties (as defined in Subparagraph 8(c) above) will be liable to Tenant for,
and Tenant expressly assumes the risk of and waives any and all claims it may
have against Landlord or any Landlord Indemnified Parties with respect to, (i)
any and all damage to property or injury to persons in, upon or about the
Premises, the Building or the Development resulting from any act or omission
(except for the grossly negligent or intentionally wrongful act or omission) of
Landlord, (ii) any such damage caused by other tenants or persons in or about
the Building or the Development, or caused by quasi-public work, (iii) any
damage to property entrusted to employees of the Building, (iv) any loss of or
damage to property by theft or otherwise, or (v) any injury or damage to persons
or property resulting from any casualty, explosion, falling plaster or other
masonry or glass, steam, gas, electricity, water or rain which may leak from any
part of the Building or any other portion of the Development or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place, or resulting from dampness.
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Notwithstanding anything to the contrary contained in this Lease, neither
Landlord nor any Landlord Indemnified Parties will be liable for consequential
damages arising out of any loss of the use of the Premises or any equipment or
facilities therein by Tenant or any Tenant Parties or for interference with
light or other incorporated hereditaments. Tenant agrees to give prompt notice
to Landlord in case of fire or accidents in the Premises or the Building, or of
defects therein or in the fixtures or equipment.
(b) Indemnification. Tenant will be liable for, and agrees, to the maximum
extent permissible under applicable law, to promptly indemnify, protect, defend
and hold harmless Landlord and all Landlord Indemnified Parties, from and
against, any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs, including attorneys'
fees and court costs (collectively), "Indemnified Claims"), arising or resulting
from (i) any act or omission of Tenant or any Tenant Parties (as defined in
Subparagraph 8(c) above; (ii) the use of the Premises and Common Areas and
conduct of Tenant's business by Tenant or any Tenant Parties, or any other
activity, work or thing done, permitted or suffered by Tenant or any Tenant
Parties, in or about the Premises,the Building or elsewhere within the
Development; and/or (iii) any default by Tenant of any obligations on Tenant's
part to be performed under the terms of this Lease. In case any action or
proceeding is brought against Landlord or any Landlord Indemnified Parties by
reason of any such Indemnified Claims, Tenants, upon notice from Landlord,
agrees to promptly defend the same at Tenant's sole cost and expense by counsel
approved in writing by Landlord, which approval Landlord will not unreasonably
withhold.
(c) Survival; No Release of Insurers. Tenant's indemnification obligations
under Subparagraph 18(b) will survive the expiration or earlier termination of
this Lease. Tenant's covenants agreements and indemnification obligation in
Subparagraphs 18(a) and 18(b) above, are not intended to and will not relieve
any insurance carrier of its obligations under policies required to be carried
by Tenant pursuant to the provisions of this Lease.
19. INSURANCE
(a) Tenant's Insurance. On or before the earlier to occur of (i) the
Commencement Date, or (ii) the date Tenant commences any work of any type in the
Premises pursuant to this Lease (which may be prior to the Commencement Date),
and continuing throughout the entire Term hereof and any other period of
occupancy, Tenant agrees to keep in full force and effect, at its sole cost and
expense, the following insurance:
(i) "All Risks" property insurance including at least the following perils:
fire and extended coverage, smoke damage, vandalism, malicious mischief,
sprinkler leakage (including earthquake sprinkler leakage). This insurance
policy must be upon all property owned by Tenant, for which Tenant is legally
liable, or which is installed at Tenant's expense, and which is located in the
Building including, without limitation, any Tenant Improvements which satisfy
the foregoing qualification and any Alterations, and all furniture, fittings,
installations, fixtures and any other personal property of Tenant, in an amount
not less than the full replacement cost thereof. If there is a dispute as to
full replacement cost, the decision of Landlord or any mortgagee of Landlord
will be presumptive.
(ii) One (1) year insurance coverage for business interruption and loss of
income and extra expense insuring the same perils described in Subparagraph
19(a)(i) above, in such amounts as will reimburse Tenant for any direct or
indirect loss of earnings attributable to any such perils including prevention
of access to the Premises, Tenant's parking areas or the Building as a result of
any such perils.
(iii) Commercial General Liability Insurance or Comprehensive General Liability
Insurance (on an occurrence form) insuring bodily injury, personal injury and
property damage including the following divisions and extensions of coverage:
Premises and Operations; Owners and Contractors protective, blanket contractual
liability (including coverage for Tenant's indemnity obligations under this
Lease); products and completed operations; liquor liability (if Tenant serves
alcohol on the Premises); and fire and water damage legal liability in an amount
sufficient to cover the replacement value of the Premises, including Tenant
Improvements, that are rented under the terms of this Lease. Such insurance
must have the following minimum limits of liability; bodily injury, personal
injury and property damage - $1,000,000 each occurrence, provided that if
liability coverage is provided by a Commercial General Liability policy the
general aggregate limit shall apply separately and in total to this location
only (per location general aggregate), and provided further, such minimum limits
of liability may be adjusted from year to year to reflect increases in coverages
as recommended by Landlord's insurance carrier as being prudent and commercially
reasonable for tenants of first class office buildings comparable to the
Building, rounded to the nearest five hundred thousand dollars.
(iv) Comprehensive Automobile Liability insuring bodily injury and property
damage arising from all owned, non-owned and hired vehicles, if any, with
minimum limits of liability of $1,000,000 per accident.
(v) Worker's Compensation as required by the laws of the State with the
following minimum limits of liability: Coverage A - statutory benefits;
Coverage B - $1,000,000 per accident and disease.
(vi) Any other form or forms of insurance as Tenant or Landlord or any
mortgagees of Landlord may reasonably require from time to time in form, in
amounts, and for insurance risks against which, a prudent tenant would protect
itself, but only to the extent coverage for such risks and amounts are available
in the insurance market at commercially acceptable rates. Landlord makes no
representation that the limits of liability required to be carried by Tenant
under the terms of this Lease are adequate to protect Tenant's interests and
Tenants interests and Tenant should obtain such additional insurance or
increased liability limits as Tenant deems appropriate.
(b) Supplemental Tenant Insurance Requirements.
(i) All policies must be in a form reasonably satisfactory to Landlord and
issued by an insurer admitted to do business in the State.
(ii) All policies must be issued by insurers with a policyholder rating of "A"
and a financial rating of "X" in the most recent version of Best's Key Rating
Guide.
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(iii) All policies must contain a requirement to notify Landlord (and Landlord's
property manager and any mortgagees or ground lessors of Landlord who are named
as additional insureds, if any) in writing not less than thirty (30) days prior
to any material change, reduction in coverage, cancellation or other termination
thereof. Tenant agrees to deliver to Landlord, as soon as practicable after
placing the required insurance, but in any event within the time frame specified
in Subparagraph 19(a) above, certificate(s) of insurance and/or if required by
Landlord, certified copies of each policy evidencing the existence of such
insurance and Tenant's compliance with the provisions of this Paragraph 19.
Tenant agrees to cause replacement policies or certificates to be delivered to
Landlord not less than thirty (30) days prior to the expiration of any such
policy or policies. If any such initial or replacement policies or certificates
are not furnished within the time(s) specified herein, Tenant will be deemed to
be in material default under this Lease without the benefit of any additional
notice or cure period provided in Subparagraph 22(a)(iii) below, and Landlord
will have the right, but not the obligation, to procure such insurance as
Landlord deems necessary to protect Landlord's interests at Tenant's expense. If
Landlord obtains any insurance that is the responsibility of Tenant under this
Paragraph 19, Landlord agrees to deliver to Tenant a written statement setting
forth the cost of any such insurance and showing in reasonable detail the manner
in which it has been computed and Tenant agrees to promptly reimburse Landlord
for such costs as additional rent.
(iv) General Liability and Automobile Liability policies under Subparagraphs
19(a)(iii) and (iv) must name Landlord and Landlord's property manager (and at
Landlord's request, Landlord's mortgagees and ground lessors of which Tenant has
been informed in writing) as additional insureds and must also contain a
provision that the insurance afforded by such policy is primary insurance and
any insurance carried by Landlord and Landlord's property manager or Landlord's
mortgagees or ground lessors, if any, will be excess over and non-contributing
with Tenant's insurance.
(c) Tenant's Use. Tenant will not keep, use, sell or offer for sale in or
upon the Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building or the Development Common Areas. If
Tenant's occupancy or business in, or on, the Premises, whether or not Landlord
has consented to the same, results in any increase in premiums for the insurance
periodically carried by Landlord with respect to the Building or the Development
Common Areas or results in the need for Landlord to maintain special or
additional insurance, Tenant agrees to pay Landlord the cost of any such
increase in premiums or special or additional coverage as additional rent within
ten (10) days after being billed therefor by Landlord. In determining whether
increased premiums are a result of Tenant's use of the Premises, a schedule
issued by the organization computing the insurance rate on the Building, the
Development Common Areas or the Tenant Improvements showing the various
components of such rate, will be conclusive evidence of the several items and
charges which make up such rate. Tenant agrees to promptly comply with all
reasonable requirements of the insurance authority or any present or future
insurer relating to the Premises.
(d) Cancellation of Landlord's Policies. If any of Landlord's insurance
policies are cancelled or cancellation is threatened or the coverage reduced or
threatened to be reduced in any way because of the use of the Premises or any
part thereof by Tenant or any assignee or subtenant of Tenant or by anyone
Tenant permits on the Premises and, if Tenant fails to remedy the condition
giving rise to such cancellation, threatened cancellation, reduction of
coverage, threatened reduction of coverage, increase in premiums, or threatened
increase in premiums, within forty-eight (48) hours after notice thereof, Tenant
will be deemed to be in material default of this Lease and Landlord may, at its
option, either terminate this Lease or enter upon the Premises and attempt to
remedy such condition, and Tenant shall promptly pay Landlord the reasonable
costs of such remedy as additional rent. If Landlord is unable, or elects not
to remedy such condition, then Landlord will have all of the remedies provided
for in this Lease in the event of a default by Tenant.
(e) Waiver of Subrogation. Tenant's property insurance shall contain a clause
whereby the insurer waives all rights of recovery by way of subrogation against
Landlord. Tenant shall also obtain and furnish evidence to Landlord of the
waiver by Tenant's worker's compensation insurance carrier of all rights of
recovery by way of subrogation against Landlord.
20. DAMAGE OR DESTRUCTION.
(a) Partial Destruction. If the Premises or the Building are damaged by fire
or other casualty to an extent not exceeding twenty-five percent (25%) of the
full replacement cost thereof, and Landlord's contractor reasonably estimates in
a writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition immediately
prior to such damage within one hundred eighty (180) days from the date of such
casualty, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs, reconstruction and restoration (including proceeds from
Tenant and/or Tenant's insurance which Tenant is required to deliver to Landlord
pursuant to Subparagraph 20(e) below to cover Tenant's obligation for the costs
of repair, reconstruction and restoration of any portion of the Tenant
Improvements and any Alterations from Alterations for which Tenant is
responsible under this Lease), then Landlord agrees to commence and proceed
diligently with the work of repair, reconstruction and restoration and this
Lease will continue in full force and effect.
(b) Substantial Destruction. Any damage or destruction to the Premises or the
Building which Landlord is not obligated to repair pursuant to Subparagraph
20(a) above will be deemed a substantial destruction. In the event of a
substantial destruction, Landlord may elect to either (i) repair, reconstruct
and restore the portion of the Building or the Premises damaged by such
casualty, in which case this Lease will continue in full force and effect,
subject to Tenant's termination right contained in Subparagraph 20(d) below, or
(ii) terminate this Lease effective as of the date which is thirty (30) days
after Tenant's receipt of Landlord's election to so terminate.
(c) Notice. Under any of the conditions of Subparagraph 20(a) or (b) above,
Landlord agrees to give written notice to Tenant of its intention to repair or
terminate, as permitted in such paragraphs, within the earlier of sixty (60)
days after the occurrence of such casualty, or fifteen (15) days after
Landlord's receipt of the estimate from Landlord's contractor (the applicable
time period to be referred to herein as the "Notice Period").
(d) Tenant's Termination Rights. If Landlord elects to repair, reconstruct
and restore pursuant to Subparagraph 20(b)(i) hereinabove, and if Landlord's
contractor estimates that as a result of such damage, Tenant cannot be given
reasonable use of and access to the Premises within three hundred sixty-five
(365) days after the date of such damage, then Tenant may terminate this Lease
effective upon delivery of written notice to Landlord within ten (10) days after
Landlord delivers notice to Tenant of its election to so repair, reconstruct or
restore.
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(e) Tenant's Cost and Insurance Proceeds. In the event of any damage or
destruction of all or any part of the Premises, Tenant agrees to immediately (i)
notify Landlord thereof, and (ii) deliver to Landlord all property insurance
proceeds received by Tenant with respect to any Tenant Improvements installed by
or at the cost of Tenant and any Alterations, but excluding proceeds for
Tenant's furniture, fixtures, equipment and other personal property, whether or
not this Lease is terminated as permitted in this Paragraph 20, and Tenant
hereby assigns to Landlord all rights to receive such insurance proceeds. If,
for any reason (including Tenant's failure to obtain insurance for the full
replacement cost of any Tenant Improvements installed by or at the cost of
Tenant and any Alterations from any and all casualties), Tenant fails to receive
insurance proceeds covering the full replacement cost of any Tenant Improvements
installed by or at the cost of Tenant and any Alterations which are damaged,
Tenant will be deemed to have self-insured the replacement cost of such items,
and upon any damage or destruction thereto, Tenant agrees to immediately pay to
Landlord the full replacement cost of such items, less any insurance proceeds
actually received by Landlord from Landlord's or Tenant's insurance with respect
to such items.
(f) Abatement of Rent. In the event of any damage, repair, reconstruction
and/or restoration described in this Paragraph 20, rent will be abated or
reduced, as the case may be, from the date of such casualty, in proportion to
the degree to which Tenant's use of the Premises is impaired during such period
of repair until such use is restored. Except for abatement of rent as provided
hereinabove, Tenant will not be entitled to any compensation or damages for loss
of, or interference with, Tenant's business or use or access of all or any part
of the Premises or for lost profits or any other consequential damages of any
kind or nature, which result from any such damage, repair, reconstruction or
restoration.
(g) Inability to Complete. Notwithstanding anything to the contrary contained
in this Paragraph 20, if Landlord is obligated or elects to repair, reconstruct
and/or restore the damaged portion of the Building or the Premises pursuant to
Subparagraph 20(a) or 20(b)(i) above, but is delayed from completing such
repair, reconstruction and/or restoration beyond the date which is on hundred
eighty (180) days after the date estimated by Landlord's contractor for
completion thereof by reason of any causes (other than delays caused by Tenant,
its subtenants, employees, agents or contractors) which are beyond the
reasonable control of Landlord as described in Paragraph 33, then either
Landlord or Tenant may elect to terminate this Lease upon ten (10) days prior
written notice given to the other after the expiration of such one hundred
eighty (180) day period.
(h) Damage Near End of Term. Landlord and Tenant shall each have the right to
terminate this Lease if any damage to the Premises or the Building occurs during
the last twelve (12) months of the Term of this Lease where Landlord's
contractor estimates in a writing delivered to Landlord and Tenant that the
repair, reconstruction or restoration of such damage cannot be completed within
sixty (60) days after the date of such casualty. If either party desires to
terminate this Lease under this Subparagraph (h), it shall provide written
notice to the other party of such election within ten (10) days after receipt of
Landlord's contractor's repair estimates.
(i) Waiver of Termination Right. Landlord and Tenant agree that the foregoing
provisions of this Paragraph 20 are to govern their respective rights and
obligations in the event of any damage or destruction and supersede and are in
lieu of the provisions of any applicable law, statute, ordinance, rule,
regulation, order or ruling now or hereafter in force which provide remedies for
damage or destruction of leased premises (including, without limitation, to the
extent the Premises are located in California, the provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any
successor statute or laws of a similar nature).
(j) Termination. Upon any termination of this Lease under any of the provisions
of this Paragraph 20, the parties will be released without further obligation to
the other from the date possession of the Premises is surrendered to Landlord
except for items which have accrued and are unpaid as of the date of termination
and matters which are to survive any termination of this Lease as provided in
this Lease.
21. EMINENT DOMAIN.
(a) Substantial Taking. If the whole of the Premises, or such part thereof as
shall substantially interfere with Tenant's use and occupancy of the Premises,
as contemplated by this Lease, is taken for any public or quasi-public purpose
by and lawful power or authority by exercise of the right of appropriation,
condemnation, or eminent domain, or sold to prevent such taking, either party
will have the right to terminate this Lease effective as of the date possession
is required to be surrendered to such authority.
(b) Partial Taking; Abatement of Rent. In the event of a taking of a portion of
the Premises which does not substantially interfere with Tenant's use and
occupancy of the Premises, then, neither party will have the right to terminate
this Lease and Landlord will thereafter proceed to make a functional unit of the
remaining portion of the Premises (but only to the extent Landlord receives
proceeds therefor from the condemning authority), and rent will be abated with
respect to the part of the Premises which Tenant is deprived of on account of
such taking. Notwithstanding the immediately preceding sentence to the contrary,
if any part of the Building or the Development is taken (whether or not such
taking substantially interferes with Tenant's use of the Premises), Landlord may
terminate this Lease upon thirty (30) days prior written notice to Tenant if
Landlord also terminates the leases of the other tenants of the Building which
are leasing comparably sized space for comparable lease terms.
(c) Condemnation Award. In connection with any taking of the Premises or the
Building, Landlord will be entitled to receive the entire amount of any award
which may be made or given in such taking or condemnation, without deduction or
apportionment for any estate or interest of Tenant, it being expressly
understood and agreed by Tenant that no portion of any such award will be
allowed or paid to Tenant for any so-called bonus or excess value of this Lease,
and such bonus or excess value will be the sole property of Landlord. Tenant
agrees not to assert any claim against Landlord or the taking authority for any
compensation because of such taking (including any claim for bonus or excess
value of this Lease); provided, however, if any portion of the Premises is
taken, Tenant will have the right to recover from the condemning authority (but
not from Landlord) and compensation as may be separately awarded or recoverable
by Tenant for the taking of Tenant's furniture, fixtures, equipment and other
personal property within the Premises, for Tenant's relocation expenses, and for
any loss of goodwill or other damage to Tenant's business by reason of such
taking.
(d) Temporary Taking. In the event of taking of the Premises or any part
thereof for temporary use, (i) this Lease will remain unaffected thereby and
rent will not abate, and (ii) Tenant will be entitled to receive such portion of
any award made for
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such use with respect to the period of the taking which is within the Term,
provided that if such taking remains in force at the expiration or earlier
termination of this Lease, Tenant will then pay to Landlord a sum equal to the
reasonable cost of performing Tenant's obligations under Paragraph 11 with
respect to surrender of the Premises and upon such payment Tenant will be
excused from such obligations. For purpose of this Subparagraph 21(d), a
temporary taking shall be defined as a taking for a period of ninety (90) days
or less.
22. DEFAULTS AND REMEDIES.
(a) Defaults. The occurrence of any one or more of the following events will
be deemed a default by Tenant:
(i) The abandonment of the Premises by Tenant, which for purposes of this
Lease means any absence by Tenant from the Premises for five (5) business days
or longer while in default of any other provision of this Lease and, with
respect to ground floor space only, any vacation of the Premises, which for
purposes of this Lease means any absence by Tenant from the Premises for thirty
(30) days or longer whether or not Tenant is in default under any provision of
this Lease.
(ii) The failure by Tenant to make any payment of rent or additional rent or
any other payment required to be made by Tenant hereunder, as and when due,
where such failure continues for a period of three (3) days after written notice
thereof from Landlord to Tenant;provided, however, that any such notice will be
in lieu of, and not in addition to, any notice required under applicable law
(including, without limitation, to the extent the Premises are located in
California, the provisions of California Code of Civil Procedure Section 1161
regarding unlawful detainer actions or any successor statute or law of a similar
nature).
(iii) The failure by Tenant to observe or perform any of the express or implied
covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in Subparagraph 22(a)(i) or (ii) above, where such
failure continues for a period of ten (10) days after written notice thereof
from Landlord to Tenant. The provisions of any such notice will be in lieu of,
and not in addition to, any notice required under applicable law (including,
without limitation, to the extent the Premises are located in California,
California Code of Civil Procedure Section 1161 regarding unlawful detainer
actions and any successor statute or similar law). If the nature of Tenant's
default is such that more than ten (10) days are reasonably required for its
cure, then Tenant will not be deemed to be in default if Tenant, with Landlord's
concurrence, commences such cure within such ten (10) day period and thereafter
diligently prosecutes such cure to completion.
(iv) (A) The making by Tenant of any general assignment for the benefit of
creditors; (B) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (C) 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 (D) 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.
(b) Landlord's Remedies; Termination. In the event of any default by Tenant,
in addition to any other remedies available to Landlord at law or in equity
under applicable law (including, without limitation, to the extent the Premises
are located in California, the remedies of Civil Code Section 1951.4 and any
successor statute or similar law), Landlord will have the immediate right and
option to terminate this Lease and all rights of Tenant hereunder. If Landlord
elects to terminate this Lease then, to the extent permitted under applicable
law, Landlord may recover from Tenant (i) The worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount of
such rent loss that Tenant proves could have been reasonably avoided;plus(iii)
the worth at the time of award of the amount by which the unpaid rent for the
balance of the Term after the time of award exceeds the amount of such rent loss
that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which, in the
ordinary course of things, results therefrom including, but not limited to:
attorneys' fees and costs; brokers' commissions; the costs of refurbishment,
alterations, renovation and repair of the Premises, and removal (including the
repair of any damage caused by such removal) and storage (or disposal) of
Tenant's personal property, equipment, fixtures, Alterations, the Tenant
Improvements and any other items which Tenant is required under this Lease to
remove but does not remove, as well as the unamortized value of any free rent,
reduced rent, free parking, reduced rate parking and any Tenant Improvement
Allowance or other costs or economic concessions provided, paid, granted or
incurred by Landlord pursuant to this Lease. The unamortized value of such
concessions shall be determined by taking the total value of such concessions
and multiplying such value by a fraction, the numerator of which is the number
of months of the Lease Term not yet elapsed as of the date on which the Lease is
terminated, and the denominator of which is the total number of months of the
Lease Term. As used in Subparagraphs 22(b)(i) and (ii) above, the "worth at the
time of award" is computed by allowing interest at the Interest Rate. As used in
Subparagraph 22(b)(iii) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
(c) Landlord's Remedies; Re-Entry Rights. In the event of any default by
Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord will also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere and/or disposed of at the sole cost and expense of and
for the account of Tenant in accordance with the provisions of Subparagraph
13(h) of this Lease or any other procedures permitted by applicable law. No re-
entry or taking possession of the Premises by Landlord pursuant to this
Subparagraph 22(c) will be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant or unless the
termination thereof is decreed by a court of competent jurisdiction.
(d) Landlord's Remedies; Re-Letting. In the event of the vacation or
abandonment of the Premises by Tenant or in the event that Landlord elects to
re-enter the Premises or takes possession of the Premises pursuant to legal
proceeding or pursuant to any notice provided by law, then if Landlord does not
elect to terminate this Lease, Landlord may from time to time, without
terminating this Lease, either recover all rent as it becomes due or relet the
Premises or any part thereof on terms and conditions as Landlord in its sole and
absolute discretion may deem advisable with the right to make alterations and
repairs to the Premises in connection with
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such reletting. If Landlord elects to relet the Premises, then rents received by
Landlord from such reletting will be applied first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord, second, to
the payment of any cost of such reletting; third, to the payment of the cost of
any alterations and repairs to the Premises incurred in connection with such
reletting, fourth, to the payment of rent due and unpaid hereunder and the
residue, if any, will be held by Landlord and applied to payment of future rent
as the same may become due and payable hereunder. Should that portion of such
rents received from such reletting during any month, which is applied to the
payment of rent hereunder, be less than the rent payable during that month by
Tenant hereunder, then Tenant agrees to pay such deficiency to Landlord
immediately upon demand therefor by Landlord. Such deficiency will be calculated
and paid monthly.
(e) Landlord's Remedies; Performance for Tenant. All covenants and agreements
to be performed by Tenant under any of the terms of this Lease are to be
performed by Tenant at Tenant's sole cost and expense and without any abatement
of rent. If Tenant fails to pay any sum of money owed to any party other than
Landlord, for which it is liable under this Lease, or if Tenant fails to perform
any other act on its part to be performed hereunder, and such failure continues
for ten (10) days after notice thereof by Landlord, Landlord may, without
waiving or releasing or releasing Tenant from its obligations, but shall not be
obligated to, make any such payment or perform any such other act to be made or
performed by Tenant. Tenant agrees to reimburse Landlord upon demand all sums so
paid by Landlord and all necessary incidental costs, together with interest
thereon at the Interest Rate, from the date of such payment by Landlord until
reimbursed by Tenant. This remedy shall be in addition to any other right or
remedy of Landlord set forth in this Paragraph 22.
(f) Late Payment. If Tenant fails to pay any installment of rent within five
(5) days of when due or if Tenant fails to make any other payment for which
Tenant is obligated under this Lease within five (5) days of when due, such late
amount will accrue interest at the Interest Rate and Tenant agrees to pay
Landlord as additional rent such interest on such amount from the date such
amount becomes due until such amount is paid. In addition, Tenant agrees to pay
to Landlord concurrently with such late payment amount, as additional rent, a
late charge equal to five percent (5%) of the amount due to compensate Landlord
for the extra costs Landlord will incur as a result of such late payment. The
parties agree that (i) it would be impractical and extremely difficult to fix
the actual damage Landlord will suffer in the event of Tenant's late payment,
(ii) such interest and late charge represents a fair and reasonable estimate of
the detriment that Landlord will suffer by reason of late payment by Tenant, and
(iii) the payment of interest and late charges are distinct and separate in that
the payment of interest is to compensate Landlord for the use of Landlord's
money by Tenant, while the payment of late charges is to compensate Landlord for
Landlord's processing, administrative and other costs incurred by Landlord as a
result of Tenant's delinquent payments. Acceptance of any such interest and late
charge will not constitute a waiver of the Tenant's default with respect to the
overdue amount, or prevent Landlord from exercising any of the other rights and
remedies available to Landlord. If Tenant incurs a late charge more than three
(3) times in any period of twelve (12) months during the Lease Term, then,
notwithstanding that Tenant cures the late payments for which such late charges
are imposed, Landlord will have the right to require Tenant thereafter to pay
all installments of Monthly Base Rent quarterly in advance throughout the
remainder of the Lease Term.
(g) Landlord's Security Interest. Tenant hereby grants to Landlord a lien and
security interest on all property of Tenant now or hereafter placed in or upon
the Premised including, but not limited to, all fixtures, machinery, equipment,
furnishings and other articles of personal property, and all proceeds of the
sale or other disposition of such property (collectively, the "Collateral") to
secure the payment of all rent to be paid by Tenant pursuant to this Lease. Such
lien and security interest shall be in addition to any landlord's lien provided
by law. This Lease shall constitute a security agreement under the Commercial
Code of the State so that Landlord shall have and may enforce a security
interest in the Collateral. Tenant agrees to execute as debtor and deliver such
financing statements and any further documents as Landlord may now or hereafter
reasonably request to protect such security interest pursuant to such code.
Landlord may also at any time file a copy of this Lease as a financing
statement. Landlord, as secured party, shall be entitled to all rights and
remedies afforded as secured party under such code, which rights and remedies
shall be in addition to Landlord's liens and rights provided by law or by the
other terms and provisions of this Lease.
(h) Rights and Remedies Cumulative. All rights, options and remedies of
Landlord contained in this Lease will be construed and held to be cumulative,
and no one of them will be exclusive of the other, and Landlord shall have the
right to pursue any one or all of such remedies or any other remedy or relied
which may be provided by law or in equity, whether or not stated in this Lease.
Nothing in this Paragraph 22 will be deemed to limit or otherwise affect
Tenant's indemnification of Landlord pursuant to any provision of this Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of
any obligations required to be performed by Landlord under this Lease unless
Landlord fails to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance, then Landlord will
not be deemed in default if it commences such performance within such thirty
(30) day period and thereafter diligently pursues the same to completion. Upon
any default by Landlord, Tenant may exercise any of its rights proved at law or
in equity, subject to the limitations on liability set forth in Paragraph 35 of
this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) Restriction on Transfer. Except as expressly provided in this Paragraph 24,
Tenant will not, either voluntarily or by operation of law, assign or encumber
this Lease or any interest herein or sublet the Premises or any part thereof,
or permit the use or occupancy of the Premises by any party other than Tenant
(any such assignment, encumbrance, sublease or the like will sometimes be
referred to as a "Transfer"), without the prior written consent of Landlord,
which consent Landlord will not unreasonably withhold.
(b) Corporate and Partnership Transfers. For purpose of this Paragraph 24, if
Tenant is a corporation, partnership or other entity, any transfer, assignment,
encumbrance or hypothecation of twenty-five percent (25%) or more (individually
or in the aggregate) of any stock or other ownership interest in such entity,
and/or any transfer, assignment, hypothecation or encumbrance of any
controlling ownership or voting interest in such entity, will be deemed a
Transfer and will be subject to all of the restrictions and provisions contained
in this Paragraph 24. Notwithstanding the foregoing, the immediately preceding
sentence will not apply to
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any transfers of stock of Tenant if Tenant is a publicly-held corporation and
such stock is transferred publicly over a recognized security exchange or
over-the counter market.
(c) Permitted Controlled Transfers. Notwithstanding the provisions of this
Paragraph 24 to the contrary, Tenant may assign this Lease or sublet the
Premises or any portion thereof ("Permitted Transfer"), without Landlord's
consent and without extending any sublease termination option to Landlord, to
any parent, subsidiary or affiliate corporate which controls, is controlled by
or is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which acquires
all the assets of Tenant's business as a going concern, provided that: (i) at
least twenty (20) days prior to such assignment or sublease, Tenant delivers to
Landlord the financial statements and other financial and background information
of the assignee or sublessee described in Subparagraph 24(d) below; (ii) if an
assignment assumes, in full, the obligations of Tenant under this Lease (or if a
sublease, the sublessee of a portion of the Premises or Term assumes, in full,
the obligations of Tenant with respect to such portion); (iii) the financial net
worth of the assignee or sublessee as of the time of the proposed assignment or
sublease equals or exceeds that of Tenant as of the date of execution of this
Lease; (iv) Tenant remains fully liable under this Lease; and (v) the use of the
Premises under Paragraph 8 remains unchanged.
(d) Transfer Notice. If Tenant desires to effect a Transfer, then at least
thirty (30) days prior to the date when Tenant desires the Transfer to the
effective (the "Transfer Date"), Tenant agrees to give Landlord a notice (the
"Transfer Notice"), stating the name, address and business of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
"Transferee"), reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and the
proposed Transferee, and the consideration and all other material terms and
conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require. If Landlord reasonably requests additional detail, the
Transfer Notice will not be deemed to have been received until Landlord receives
such additional detail, and Landlord may withhold consent to any Transfer until
such information is provided to it.
(e) Landlord's Options. Within fifteen (15) days of Landlord's receipt of any
Transfer Notice, and any additional information requested by Landlord concerning
the proposed Transferee's financial responsibility, Landlord will elect to do
one of the following (i) consent to the proposed Transfer, (ii) refuse such
consent, which refusal shall be on reasonable grounds including, without
limitation, those set forth in Subparagraph 24(f) below; or (iii) terminate
this Lease as to all or such portion of the Premises which is proposed
to be sublet or assigned and recapture all or such portion of the Premises for
reletting by Landlord.
(f) Reasonable Disapproval. Landlord and Tenant hereby acknowledge that
Landlord's disapproval of any proposed Transfer pursuant to Subparagraph 24(e)
will be deemed reasonably withheld if based upon any reasonable factor,
including, without limitation, any or all of the following factors: (i) if the
Building is less than eighty percent (80%) occupied, if the net effective rent
payable by the Transferee (adjusted on a rentable square foot basis) is less
than the net effective rent then being quoted by Landlord for new leases in the
Building for comparable size space for a comparable period of time; (ii) the
proposed Transferee is a governmental entity; (iii) the portion of the Premises
to be sublet or assigned is irregular in shape with inadequate means of ingress
and egress; (iv) the use of the Premises by the Transferee (A) is not permitted
by the use provisions in Paragraph 8 hereof, (B) violates any exclusive use
granted by Landlord to another tenant in the Business, or (C) otherwise poses a
risk of increased liability to Landlord; (v) the Transfer would likely result in
a significantly and inappropriate increase in the use of the parking areas or
Development Common Areas by the Transferee's employees or visitors, and/or
significant increase the demand upon utilities and services to be provided by
Landlord to the Premises; (vi) the Transferee does not have the financial
capability to fulfill the obligations imposed by the Transfer and this Lease;
(vii) the Transferee is not in Landlord's reasonable opinion consistent with
Landlord's desired tenant mix; or (viii) the Transferee poses a business or
other economic risk which Landlord deems unacceptable.
(g) Additional Conditions. A condition to Landlord's consent to any Transfer of
this Lease will be the delivery to Landlord of a true copy of the fully executed
instrument of assignment, sublease, transfer or hypothecation, and, in the case
of an assignment, the delivery to Landlord of an agreement executed by the
Transferee in form and substance reasonably satisfactory to Landlord, whereby
the Transferee assumes and agrees to be bound by all of the terms and provisions
of this Lease and to perform all of the obligations of Tenant hereunder. As a
condition for granting its consent to any assignment or sublease, Landlord may
require that the assignee or sublessee remit directly to Landlord on a monthly
basis, all monies due to Tenant by said assignee or sublessee. As a condition to
Landlord's consent to any sublease, such sublease must provide that it is
subject and subordinate to this Lease and to all mortgages; that Landlord may
enforce the provisions of the sublease, including collection of rent; that in
the event of termination of this Lease for any reason, including without
limitation a voluntary surrender by Tenant, or in the event of any reentry or
repossession of the Premises by Landlord, Landlord may, at its option, either
(i) terminate the sublease, or (ii) take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, in which case such
sublessee will attorn to Landlord, but that nevertheless Landlord will not
(1) be liable for any previous act or omission of Tenant under such sublease,
(2) be subject to any defense or offset previously accrued in favor of the
sublessee against Tenant, or (3) be bound by any previous modification of any
sublease made without Landlord's written consent, or by any previous prepayment
by sublessee by sublessee of more than one month's rent.
(h) Excess Rent. If Landlord consents to any assignment of this Lease, Tenant
agrees to pay to Landlord, as additional rent, all sums and other consideration
payable to and for the benefit of Tenant by the assignee on account of the
assignment, as and when such sums and other considerations are due and payable
by the assignee to or for the benefit of Tenant (or, if Landlord so requires,
and without any release of Tenant's liability for the same, Tenant agrees to
instruct the assignee to pay such sums and other consideration directly to
Landlord). If for any sublease, Tenant receives rent or other consideration,
either initially or over the term of the sublease, in excess of the rent fairly
allocable to the portion of the Premises which is subleased based on square
footage. Tenant agrees to pay to Landlord as additional rent the excess of each
such payment of rent or other consideration received by Tenant promptly after
its receipt. In calculating excess rent or other consideration which may be
payable to Landlord under this paragraph, Tenant will be entitled to deduct
commercially reasonable third party brokerage commissions and attorneys' fees
and other amounts reasonably and actually expended by Tenant in connection with
such assignment or subletting if acceptable written evidence of such
expenditures is provided to Landlord.
(i) Termination Rights. If Tenant requests Landlord's consent to any assignment
or subletting of all or a portion of the Premises, Landlord will have the right,
as provided in Subparagraph 24(e), to terminate this Lease as to all or such
portion of the Premises which is proposed to be sublet or assigned effective as
of the date Tenant proposes to sublet or assign all or less than all of
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the Premises. Landlord's right to terminate this Lease as to less than all of
the Premises proposed to be sublet or assigned will not terminate as to any
future additional subletting or assignment as a result of Landlord's consent to
a subletting of less than all of the Premises or Landlord's failure to exercise
its termination right with respect to any subletting or assignment. Landlord
will exercise such termination right, if at all, by giving written notice to
Tenant within (30) days of receipt by Landlord of the financial responsibility
information required by this Paragraph 24. Tenant understands and acknowledges
that the option, as provided in this Paragraph 24, to terminate this Lease as to
all or such portion of the Premises which is proposed to be sublet or assigned
rather than approve the subletting or assignment of all or a portion of the
Premises, is a material inducement for Landlord's agreeing to lease the Premises
to Tenant upon the terms and conditions herein set forth. In the event of any
such termination with respect to less than all of the Premises, the cost of
segregating the recaptured space from the balance of the Premises will be paid
by Tenant and Tenant's future monetary obligations under this Lease will be
reduced proportionately on a square footage basis to correspond to the balance
of the Premises which Tenant continues to lease.
(j) No Release. No Transfer will release Tenant of Tenant's obligations under
this Lease or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. Landlord may
require that any Transferee remit directly to Landlord on a monthly basis, all
monies due Tenant by said Transferee. However, the acceptance of rent by
Landlord from any other person will not be deemed to be a waiver by Landlord of
any provision hereof. Consent by Landlord to one Transfer will not be deemed
consent to any subsequent Transfer. In the event of default by any Transferee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such Transferee or successor. Landlord may consent to
subsequent assignments of this Lease or sublettings or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions will not relieve Tenant of liability under this Lease.
(k) Administrative and Attorney's Fees. If Tenant effects a Transfer or
requests the consent of Landlord to any Transfer (whether or not such Transfer
is consummated), then, upon demand, Tenant agrees to pay Landlord a non-
refundable administrative fee of Two Hundred Fifty Dollars ($250.00), plus any
reasonable attorneys' fees incurred by Landlord in connection with such Transfer
or request for consent (whether attributable to Landlord's in-house attorneys or
paralegals or otherwise) not to exceed One Hundred Dollars ($100.00) for each
one thousand (1,000) rentable square feet of area contained within the Premises
or portion thereof to be assigned or sublet. Acceptance of the Two Hundred Fifty
Dollar ($250.00) administrative fee and/or reimbursement of Landlord's
attorneys' and paralegal fees will in no event obligate Landlord to consent to
any proposed Transfer.
25. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or beneficiary with a deed of trust
encumbering the Building and/or the Development, or any lessor of a ground or
underlying lease with respect to the Building, this Lease will be subject and
subordinate at all times to: (i) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building, and (ii) the lien
of any mortgage or deed of trust which may now exist or hereafter be executed
for which the Building, the Development or any leases thereof, or Landlord's
interest and estate in any of said items, is specified as security.
Notwithstanding the foregoing, Landlord reserves the right to subordinate any
such ground leases or underlying leases or any such liens to this Lease. If any
such ground lease or underlying lease terminates for any reason or any such
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, at the election of Landlord's successor in interest,
Tenant agrees to attorn to and become the tenant of such successor in which
event Tenant's right to possession of the Premises will not be disturbed as long
as Tenant is not in default under this Lease. Tenant hereby waives its rights
under any law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder in
the event of any such foreclosure proceeding or sale. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, and additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement with
respect to any such ground lease or underlying leases or the lien of any such
mortgage or deed of trust. If Tenant fails to sign and return any such documents
within ten (10) days of receipt, Tenant will be in default hereunder.
26. ESTOPPEL CERTIFICATE.
(a) Tenant's Obligation. Within ten (10) days following any written request
which Landlord may make from time to time, Tenant agrees to execute and deliver
to Landlord a statement, in a form substantially similar to the form of
Exhibit "G" attached hereto or as may reasonably be required by Landlord's
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lender, certifying: (i) the date of commencement of this Lease; (ii) the fact
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that this Lease is in full force and effect, and stating the
date and nature of such modifications); (iii) the date to which the rent and
other sums payable under this Lease have been paid; (iv) that there are no
current defaults under this Lease by either Landlord or Tenant except as
specified in Tenant's statement; and (v) such other matters reasonably requested
by Landlord. Landlord and Tenant intend that any statement delivered pursuant to
this Paragraph 26 may be relied upon by any mortgage, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein.
(b) Tenant's Failure to Deliver. Tenant's failure to deliver such statement
within such time will be conclusive upon Tenant (i) that this Lease is in full
force and effect, without modification except as may be represented by Landlord,
(ii) that there are no uncured defaults in Landlord's performance, and (iii)
that not more than one (1) month's rent has been paid in advance. Without
limiting the foregoing, if Tenant fails to deliver any such statement within
such ten (10) day period, Landlord may deliver to Tenant an additional request
for such statement and Tenant's failure to deliver such statement to Landlord
within ten (10) days after delivery of such additional request will constitute a
default under this Lease. Tenant agrees to indemnify and protect Landlord from
and against any and all claims, damages, losses, liabilities and expenses
(including attorneys' fees and costs) attributable to any failure by Tenant to
timely deliver and such estoppel certificate to Landlord as required by this
Paragraph 26.
27. BUILDING PLANNING. If Landlord requires the Premises for use in conjunction
with another suite or for other reasons connected with the planning program for
the Building, Landlord will have the right, upon sixty (60) days prior written
notice to Tenant, to move Tenant to other space in the Building of substantially
similar size as the Premises, and with tenant improvements of substantially
similar age, quality, and layout as then existing in the Premises. Any such
relocation will be at Landlord's cost and expense, including the cost of
providing such substantially similar tenant improvements (but not any furniture
or personal property) and Tenant's reasonable moving, telephone installation
and stationary reprinting costs. If Landlord so relocates Tenant, the terms
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and conditions of this Lease will remain in full force and effect and apply to
the new space, except that (a) a revised Exhibit "A-II" will become part of
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this Lease and will reflect the location of the new space, (b) Paragraph 1 of
this Lease will be amended to include and state all correct data as to the new
space, (c) the new space will thereafter be deemed to be the "Premises", and
(d) all economic terms and conditions (e.g. rent, total Operating Expense
Allowance, etc.) will be adjusted on a per square foot basis based on the total
number of rentable square feet of area contained in the new space. Landlord and
Tenant agree to cooperate fully with one another in order to minimize the
inconvenience of Tenant resulting from any such relocation. However, if the
new space does not meet with Tenant's reasonable approval, Tenant will have
the right to cancel this Lease upon giving Landlord thirty (30) days notice
within ten (10) days of receipt of Landlord's relocation notification; provided,
however, Landlord has the right, by written notice to Tenant given within ten
(10) days following receipt of Tenant's cancellation notice to rescind
Landlord's relocation notice, in which event Landlord's relocation notice will
be rescinded, Tenant's cancellation notice will be cancelled and this Lease will
remain in full force and effect. If Tenant cancels this Lease pursuant to this
Paragraph 27, Tenant agrees to vacate the Building and the Premises within
thirty (30) days of its delivery to Landlord of the notice of cancellation.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with
the "Rules and Regulations," a copy of which is attached hereto and incorporated
herein by this reference as Exhibit "H", and all reasonable and
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nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord will not be responsible to Tenant for
the violation or non-performance by any other tenant or occupant of the Building
of any of the Rules and Regulations.
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.
(a) Modifications. If, in connection with Landlord's obtaining or entering into
any financing or ground lease for any portion of the Building or the
Development, the lender or ground lessor requests modifications to this Lease,
Tenant, within ten (10) days after request therefor, agrees to execute an
amendment to this Lease incorporating such modifications, provided such
modifications are reasonable and do not increase the obligations of Tenant under
this Lease or adversely affect the leasehold estate created by this Lease.
(b) Cure Rights. In the event of any default on the part of the Landlord,
Tenant will give notice by registered or certified mail to any beneficiary of a
deed of trust or mortgage covering the Premises or ground lessor of Landlord
whose address has been furnished to Tenant, and Tenant agrees to offer such
beneficiary, mortgagee or ground lessor a reasonable opportunity to cure the
default (including with respect to any such beneficiary or mortgagee, time to
obtain possession of the Premises, subject to this Lease and Tenant's rights
hereunder, by power of sale or a judicial foreclosure, if such should prove
necessary to effect a cure).
30. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so far
as covenants or obligations on the part of Landlord are concerned, means and
includes only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title (other
than a transfer for security purposes only), Landlord herein named (and in case
of any subsequent transfers or conveyances, the then grantor) will be
automatically relieved from and after the date of such transfer, assignment or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, so long as the transferee assumes in writing all such covenants and
obligations of Landlord arising after the date of such transfer. Landlord and
Landlord's transferees and assignees have the absolute right to transfer all or
any portion of their respective title and interest in the Development, the
Building, the Premises and/or this Lease without the consent of Tenant, and such
transfer or subsequent transfer will not be deemed a violation on Landlord's
part of any of the terms and conditions of this Lease.
31. WAIVER. The waiver by either party of any breach of any term, covenant or
condition herein contained will not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor will any custom or practice which may develop between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of either party to insist upon performance in strict accordance with
said terms. The subsequent acceptance of rent or any other payment hereunder by
Landlord will not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of a lesser sum than the basic rent and additional rent or other sum
then due will be deemed to be other than on account of the earliest installment
of such rent or other amount due, nor will any endorsement or statement on any
check or any letter accompanying any check be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or other amount or pursue any
other remedy provided in this Lease. The consent or approval of Landlord to or
of any act by Tenant requiring Landlord's consent or approval will not be deemed
to waive or render unnecessary Landlord's consent or approval to or of any
subsequent similar acts by Tenant.
32. PARKING.
(a) Grant of Parking Rights. So long as this Lease is in effect and provided
Tenant is not in default hereunder, Landlord grants to Tenant and Tenant's
Authorized Users (as defined below) a license to use the number and type of
parking spaces designated in Subparagraph 1(s) subject to the terms and
conditions of this Paragraph 32 and the Rules and Regulations regarding parking
contained in Exhibit "H" attached hereto. Except as otherwise expressly set
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forth in Subparagraph 1(s), as consideration for the use of such parking spaces,
Tenant agrees to pay to Landlord or, at Landlord's election, directly to
Landlord's parking operator, as additional rent under this Lease, the prevailing
parking rate for each such parking space as established by Landlord in its
discretion from time to time. Tenant agrees that all parking charges will be
payable on a monthly basis concurrently with each monthly payment of Monthly
Base Rent. Tenant agrees to submit to Landlord or, at Landlord's election,
directly to Landlord's parking operator with a copy to Landlord, written notice
in a form reasonably specified by Landlord containing the names, home and office
addresses and telephone numbers of those persons who are authorized by Tenant to
use Tenant's parking spaces on a monthly basis ("Tenant's Authorized Users") and
shall use its best efforts to identify each vehicle of Tenant's Authorized Users
by make, model and license number. Tenant agrees to deliver such notice prior to
the beginning of the Term of this Lease and to periodically update such notice
as well as upon specific request by Landlord or Landlord's parking operator to
reflect changes to Tenant's Authorized Users or their vehicles.
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<PAGE>
(b) Visitor Parking. So long as this Lease is in effect, Tenant's visitors and
guests will be entitled to use those specific parking areas which are designated
for short term visitor parking and which are located within the surface parking
area(s), if any, and/or within the parking structure(s) which serve the
Building. Visitor parking will be made available at a charge to Tenant's
visitors and guests, with the rate being established by Landlord in its
discretion from time to time. Tenant, at its sole cost and expense, may elect to
validate such parking for its visitors and guests. All such visitor parking will
be on a non-exclusive, in common basis with all other visitors and guests of the
Development.
(c) Use of Parking Spaces. Tenant will not use or allow any of Tenant's
Authorized Users to use any parking spaces which have been specifically assigned
by Landlord to other tenants or occupants or for other uses such as visitor
parking or which have been designated by any governmental entity as being
restricted to certain uses. Tenant will not be entitled to increase or reduce
its parking privileges applicable to the Premises during the Term of the Lease
except as follows: If at any time Tenant desires to increase or reduce the
number of parking spaces allocated to it under the terms of this Lease, Tenant
must notify Landlord in writing of such desire and Landlord will have the right,
in its sole and absolute discretion, to either (a) approve such requested
increase in the number of parking spaces allocated to Tenant (with an
appropriate increase to the additional rent payable by Tenant for such
additional spaces based on the then prevailing parking rates), (b) approve such
requested decrease in the number of parking spaces allocated to Tenant (with an
appropriate reduction in the additional rent payable by Tenant for such
eliminated parking spaces based on the then prevailing parking rates), or (c)
disapprove such requested increase or decrease in the number of parking spaces
allocated to Tenant. Promptly following receipt of Tenant's written request,
Landlord will provide Tenant with written notice of its decision including a
statement of any adjustments to the additional rent payable by Tenant for
parking under the Lease, if applicable.
(d) General Provisions. Except as otherwise expressly set forth in Subparagraph
1(s), Landlord reserves the right to set and increase monthly fees and/or daily
and hourly rates for parking privileges from time to time during the Term of the
Lease. Landlord may assign any unreserved and unassigned parking spaces and/or
make all or any portion of such spaces reserved, if Landlord reasonably
determines that it is necessary for orderly and efficient parking or for any
other reasonable reason. Failure to pay the rent for any particular parking
spaces or failure to comply with any terms and conditions of this Lease
applicable to parking may be treated by Landlord as a default under this Lease
and, in addition to all other remedies available to Landlord under the Lease, at
law or in equity, Landlord may elect to recapture such parking spaces for the
balance of the Term of this Lease if Tenant does not cure such failure within
the applicable cure period set forth in Paragraph 22 of this Lease. In such
event, Tenant and Tenant's Authorized Users will be deemed visitors for purposes
of parking space use and will be entitled to use only those parking areas
specifically designated for visitor parking subject to all provisions of this
Lease applicable to such visitor parking use. Except in connection with an
assignment or sublease expressly permitted under the terms of this Lease,
Tenant's parking rights and privileges described herein are personal to Tenant
and may not be assigned or transferred, or otherwise conveyed, without
Landlord's prior written consent, which consent Landlord may withhold in its
sole and absolute discretion. In any event, under no circumstances may Tenant's
parking rights and privileges be transferred, assigned or otherwise conveyed
separate and apart from Tenant's interest in this Lease.
(e) Cooperation with Traffic Mitigation Measures. Tenant agrees to use its
reasonable, good faith efforts to cooperate in traffic mitigation programs which
may be undertaken by Landlord independently, or in cooperation with local
municipalities or governmental agencies or other property owners in the vicinity
of the Building. Such programs may include, but will not be limited to,
carpools, vanpools and other ridesharing programs, public and private transit,
flexible work hours, preferential assigned parking programs and programs to
coordinate tenants within the Development with existing or proposed traffic
mitigation programs.
(f) Parking Rules and Regulations. Tenant and Tenant's Authorized Users shall
comply with all rules and regulations regarding parking set forth in Exhibit "H"
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attached hereto and Tenant agrees to cause its employees, subtenants, assignees,
contractors, suppliers, customers and invitees to comply with such rules and
regulations. Landlord reserves the right from time to time to modify and/or
adopt such other reasonable and non-discriminatory rules and regulations for the
parking facilities as it deems reasonably necessary for the operation of the
parking facilities.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or
prevented from the performance of any act required under this Lease by reason of
strikes, lock-outs, labor troubles, inability to procure standard materials,
failure of power, restrictive governmental laws, regulations or orders or
governmental action or inaction (including failure, refusal or delay in issuing
permits, approvals and/or authorizations which is not the result of the action
or inaction of the party claiming such delay), riots, civil unrest or
insurrection, war, fire, earthquake, flood or other natural disaster, unusual
and unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay. The provisions of this Paragraph 33 will
not operate to excuse Tenant from prompt payment of rent or any other payments
required under the provisions of this Lease.
34. SIGNS. Landlord will designate the location on the Premises, if any, for
one or more Tenant identification sign(s). Tenant agrees to have Landlord
install and maintain Tenant's identification sign(s) in such designated location
in accordance with this Paragraph 34 at Tenant's sole cost and expense. Tenant
has no right to install Tenant identification signs in any other location in, on
or about the Premises or the Development and will not display or erect any other
signs, displays or other advertising materials that are visible from the
exterior of the Building or from within the Building in any interior or exterior
common areas. The size, design, color and other physical aspects of any and all
permitted sign(s) will be subject to (i) Landlord's written approval prior to
installation, which approval may be withheld in Landlord's discretion, (ii) any
covenants, conditions or restrictions governing the Premises, and (iii) any
applicable municipal or governmental permits and approvals. Tenant will be
solely responsible for all costs for installation, maintenance, repair and
removal of any Tenant identification sign(s). If Tenant fails to remove Tenant's
sign(s) upon termination of this Lease and repair any damage caused by such
removal, Landlord may do so at Tenant's sole cost and expense. Tenant agrees to
reimburse Landlord for all costs incurred by Landlord to effect any
installation, maintenance or removal on Tenant's account, which account will be
deemed additional rent, and may include, without limitation, all sums disbursed,
incurred or deposited by Landlord including Landlord's costs, expenses and
actual attorneys' fees with interest thereon at the Interest Rate from the date
of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant
under this Lease are personal to
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Tenant and may not be assigned, transferred or otherwise conveyed to any
assignee or subtenant of Tenant without Landlord's prior written consent, which
consent Landlord may withhold in its sole and absolute discretion.
35. LIMITATION ON LIABILITY. In consideration of the benefits accruing
hereunder, Tenant on behalf of itself and all successors and assigns of Tenant
covenants and agrees that, in the event of any actual or alleged failure, breach
or default hereunder by Landlord: (a) Tenant's recourse against Landlord for
monetary damages will be limited to Landlord's interest in the Building
including, subject to the prior rights of any Mortgagee, Landlord's interest in
the rents of the Building and any insurance proceeds payable to Landlord; (b)
Except as may be necessary to secure jurisdiction of the partnership, no partner
of Landlord shall be sued or named as a party in any suit or action and no
service of process shall be made against any partner of Landlord; (c) No partner
of Landlord shall be required to answer or otherwise plead to any service of
process; (d) No judgment will be taken against any partner of Landlord and any
judgment taken against any partner of Landlord may be vacated and set aside at
any time after the fact; (e) No writ of execution will be levied against the
assets of any partner of Landlord; (f) The obligations under this Lease do not
constitute personal obligations of the individual partners, directors, officers
or shareholders of Landlord, and Tenant shall not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or any of
their personal assets for satisfaction of any liability in respect to this
Lease; and (g) These covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and
at any time during the Term of this Lease upon ten (10) days prior written
notice from Landlord, Tenant agrees to provide Landlord with a current financial
statement for Tenant and any guarantors of Tenant and financial statements for
the two (2) years prior to the current financial statement year for Tenant and
any guarantors of Tenant. Such statements are to be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, audited by an independent certified public accountant.
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant
paying the rent required under this Lease and paying all other charges and
performing all of the covenants and provisions on Tenant's part to be observed
and performed under this Lease, Tenant may peaceably and quietly have, hold and
enjoy the Premises in accordance with this Lease.
38. MISCELLANEOUS.
(a) Conflict of Laws. This Lease shall be governed by and construed solely
pursuant to the laws of the State, without giving effect to choice of law
principles thereunder.
(b) Successors and Assigns. Except as otherwise provided in this Lease, all of
the covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
(c) Professional Fees and Costs. If either Landlord or Tenant should bring suit
against the other with respect to this Lease, then all costs and expenses,
including without limitation, actual professional fees and costs such as
appraisers', accountants' and attorneys' fees and costs, incurred by the party
which prevails in such action, whether by final judgment or out of court
settlement, shall be paid by the other party, which obligation on the part of
the other party shall be deemed to have accrued on the date of the commencement
of such action and shall be enforceable whether or not the action is prosecuted
to judgment. As used herein, attorneys' fees and costs shall include, without
limitation, attorneys' fees, costs and expenses incurred in connection with any
(i) postjudgment motions; (ii) contempt proceedings; (iii) garnishment, levy,
and debtor and third party examination; (iv) discovery; and (v) bankruptcy
litigation.
(d) Terms and Headings. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. The paragraph headings of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
(e) Time. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
(f) Prior Agreement; Amendments. This Lease constitutes and is intended by the
parties to be a final, complete and exclusive statement of their entire
agreement with respect to the subject matter of this Lease. This Lease
supersedes any and all prior and contemporaneous agreements and understandings
of any kind relating to the subject matter of this Lease. There are no other
agreements, understandings, representations, warranties, or statements, either
oral or in written form, concerning the subject matter of this Lease. No
alteration, modification, amendment or interpretation of this Lease shall be
binding on the parties unless contained in a writing which is signed by both
parties.
(g) Separability. The provisions of this Lease shall be considered separable
such that if any provision or part of this Lease is ever held to be invalid,
void or illegal under any law or ruling, all remaining provisions of this Lease
shall remain in full force and effect to the maximum extent permitted by law.
(h) Recording. Neither Landlord nor Tenant shall record this Lease nor a short
form memorandum thereof without the consent of the other.
(i) Counterparts. This Lease may be executed in one or more counterparts, each
of which shall constitute an original and all of which shall be one and the same
agreement.
(j) Nondisclosure of Lease Terms. Tenant acknowledges and agrees that the terms
of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of Landlord
to negotiate other leases and impair Landlord's relationship with other tenants.
Accordingly, Tenant agrees that it, and its partners, officers, directors,
employees, agents and attorneys, shall not intentionally and voluntarily
disclose the terms and conditions of this Lease to any newspaper or other
publication or any other tenant or apparent prospective tenant of the Building
or other portion of the
-18-
<PAGE>
Development, or real estate agent, either directly or indirectly, without the
prior written consent of Landlord, provided, however, that Tenant may disclose
the terms to prospective subtenants or assignees under this Lease.
(k) Non-Discrimination. Tenant acknowledges and agrees that there shall be no
discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion
thereof.
39. EXECUTION OF LEASE.
(a) Joint and Several Obligations. If more than one person executes this Lease
as Tenant, their execution of this Lease will constitute their covenant and
agreement that (i) each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
(i) the term "Tenant" as used in this Lease means and includes each of them
jointly and severally. The act of or notice from, or notice or refund to, or the
signature of any one or more of them, with respect to the tenancy of this Lease,
including, but not limited to, any renewal, extension, expiration, termination
or modification of this Lease, will be binding upon each and all of the persons
executing this Lease as Tenant with the same force and effect as if each and
all of them had so acted or so given or received such notice or refund or so
signed.
(b) Tenant as Corporation or Partnership. If Tenant executes this Lease as a
corporation or partnership, then Tenant and the persons executing this Lease on
behalf of Tenant represent and warrant that such entity is duly qualified and in
good standing to do business in California and that the individuals executing
this Lease on Tenant's behalf are duly authorized to execute and deliver this
Lease on its behalf, and in the case of a corporation, in accordance with a duly
adopted resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, if requested by Landlord, and in
accordance with the bylaws of Tenant, and, in the case of a partnership, in
accordance with the partnership agreement and the most current amendments
thereto, if any, copies of which are to be delivered to Landlord on execution
hereof, if requested by Landlord, and that this Lease is binding upon Tenant in
accordance with its terms.
(c) Examination of Lease. Submission of this instrument by Landlord to Tenant
for examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease otherwise until execution
by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by
their duly authorized representatives as of the date first above written.
"TENANT" "LANDLORD"
VIRTUAL REALTY NETWORK, INC., KOLL CENTER NEWPORT NUMBER 8,
a Nevada corporation a California limited partnership
By:/s/ Michael A. Barron By: KOLL MANAGEMENT SERVICES,
------------------------------- INC.,
a Delaware Corporation,
Print Name: Michael A. Barron as Agent
-------------------
Title: President By:/s/ Richard Koenig
------------------ -------------------------
Print Name: Richard Koenig
-----------------
Title: Senior Manager
---------------------
-19-
<PAGE>
ADDENDUM TO OFFICE BUILDING LEASE
DATED SEPTEMBER 5, 1995
BY AND BETWEEN KOLL CENTER NEWPORT NUMBER 8,
A CALIFORNIA LIMITED PARTNERSHIP, AS "LANDLORD" AND
VIRTUAL REALTY NETWORK, INC.,
AS "TENANT"
- --------------------------------------------------------------------------------
40. OPTION TO EXTEND:
----------------
(a) Subject to the terms of this Paragraph #40 and Paragraph #41 entitled
"Options," Landlord hereby grants to Tenant an option (the "Extension Option")
to extend the Term of the Lease for an additional period of five (5) years (the
"Option Term"), on the same terms, covenants and conditions as provided for in
the Lease during the initial Lease Term, except that all economic terms such as,
without limitation, Monthly Basic Rent, an Operating Expense Allowance, if any,
parking charges, partially abated rent, ect., shall be established based on the
"fair market rental rate" for the Premises for the Option Term as defined and
determined in accordance with the provisions of this Paragraph below.
b) In no event shall the Monthly Base Rent be less than the Monthly Base
Rent for the last month of the initial Term of the Lease.
c) The Extension Option must be exercised, if at all, by written notice
("Extension Notice") delivered by Tenant to Landlord no earlier than the date
which is two hundred seventy (270) days, and no later than the date which is one
hundred eighty (180) days prior to the expiration of the then current Term of
the Lease.
d) The term "fair market rental rate" as used in the Lease and any Rider
or Addendum attached thereto shall mean Landlord's reasonable and good faith
determination of the annual amount per rentable square foot, projected during
the relevant period, that a willing, comparable, non-equity tenant (excluding
sublease and assignment transactions) would pay, and a willing, comparable
landlord of a comparable Class "A" quality office building located in the
Newport Beach-Irvine-Costa Mesa airport ares ("Comparison Area") would accept,
at arm's length (what Landlord is accepting in current transactions for the
Building may be considered), for space comparable size, quality and floor height
as the leased area at issue taking into account the age, quality and layout of
the existing improvements in the leased area at issue and taking into account
items that professional real estate brokers customarily consider, including, but
not limited to, rental rates, office space availability, tenant size, tenant
improvement allowances, operating expenses and allowance, parking charges, free
rent, free parking and any other lease concessions, if any, then being charged
or granted by Landlord or the lessors of such similar office buildings.
e) Landlord's determination of the fair market rental rate shall be
delivered to Tenant in writing ("Landlord's Determination") within fifteen (15)
days following Landlord's receipt of the Extension Notice. If Tenant reasonably
objects to Landlord's Determination, then Tenant shall have the right, by
delivering written notice to Landlord within fifteen (15) days following
Tenant's receipt of Landlord's Determination, to rescind Tenant's Extension
Notice, in which event, Tenant's Extension Option shall be void and of no
further force or effect.
41. OPTIONS:
-------
(a) Definition: As used in this Paragraph, the word "Option" has the
following meaning:
(i) The Option to Extend pursuant to Paragraph 40 herein.
(b) Option Personal: Each Option granted to Tenant is personal to the
---------------
original Tenant executing this Lease and may be exercised only by the original
Tenant executing this Lease while occupying the entire Premises (as expanded)
and without the intent of thereafter assigning this Lease or subletting the
Premises (as expanded) and may not be exercised or be assigned, voluntarily or
involuntarily, by any person or entity other than the original Tenant executing
this Lease. The Options, if any, granted to Tenant under this Lease are not
assignable separate and apart from this Lease, nor may any Option be separated
from this Lease in any manner, either by reservation or otherwise.
(c) Effect of Default on Option: Tenant shall have no right to exercise
---------------------------
any Option, notwithstanding any provision of the grant of Option to the
contrary, and Tenant's exercise of any Option may be nullified by Landlord and
deemed of no further force or effect, if Tenant shall be in default of any
monetary obligation or material non-monetary obligation under the terms of the
Lease (or if Tenant would be in such default under the Lease but for the passage
of time or the giving of
<PAGE>
VIRTUAL REALTY NETWORK, INC.
Addendum
Page 2
notice, or both) as of Tenant's exercise of the Option in question or at any
time after the exercise of any such Option and prior to the commencement of the
Option event.
42. CONFLICT WITH BASIC LEASE: To the extent of any conflict between the printed
-------------------------
portion of this Lease and the provisions of this Addendum Sections 40 through
41, the provisions of this Addendum shall prevail.
"TENANT" "LANDLORD"
VIRTUAL REALTY NETWORK, INC., KOLL CENTER NEWPORT NUMBER 8,
a Nevada corporation a California limited partnership
By: /s/ Michael A. Barron By: KOLL MANAGEMENT SERVICES, INC.,
---------------------------- a Delaware corporation
as Agent
Print Name: Michael A. Barron
--------------------
Title: President By: /s/ Richard Koenig
------------------------ --------------------------------
Print Name: Richard Koenig
------------------------
Print Title: Senior Manager
-----------------------
<PAGE>
SITE PLAN
---------
KOLL CENTER NEWPORT
-------------------
[SITE PLAN APPEARS HERE]
EXHIBIT "A-I"
-------------
<PAGE>
OUTLINE OF FLOOR
PLAN OF PREMISES
----------------
[FLOORPLAN OF KOLL CENTER NEWPORT, WELLS FARGO BANK BLDG. APPEARS HERE]
EXHIBIT "A-II"
--------------
<PAGE>
RENTABLE SQUARE FEET AND SUABLE SQUARE FEET
-------------------------------------------
1. The term "Rentable Square Feet" as used in the Lease will be deemed to
include: (a) with respect to the Premises, the usable area of the Premises
determined in accordance with the Method for Measuring Floor Area in Office
Buildings, ANSI Z65.1-1980 (the "BOMA Standard"), plus a pro rata portion of the
main lobby area on the ground floor and all elevator machine rooms, electrical
and telephone equipment rooms and mail delivery facilities and other areas used
by all tenants of the Building, if any, plus (i) for single tenancy floors, all
the area covered by the elevator lobbies, corridors, special stairways,
restrooms, mechanical rooms, electrical rooms and telephone closets on such
floors, or (ii) for multiple tenancy floors, a pro-rata portion of all of the
area covered by the elevator lobbies, corridors, special stairways, restrooms,
mechanical rooms, electrical rooms and telephone closets on such floor, and (b)
with respect to the Building, the total rentable area for all floors in the
Building computed in accordance with the provisions of Subparagraph 1(a) above.
In calculating the "Rentable Square Feet" of the Premises or the Building, the
area contained within the exterior walls of the Building stairs, fire towers,
vertical ducts, elevator shafts, flues, vents, stacks and major pipe shafts will
be excluded.
2. The term "Usable Square Feet" as used in Exhibit "C" with respect to the
-----------
Premises will be deemed to include the usable area of the Premises as determined
in accordance with the BOMA Standard.
3. For purposes of establishing the initial Tenant's Percentage, Tenant's
Operating Expense Allowance, Monthly Base Rent, and Security Deposit as shown in
Paragraph 1 of the Lease, the number of Rentable Square Feet of the Premises is
deemed to be as set forth in Subparagraph 1(g) of the Lease, and the number of
Rentable Square Feet of the Building is deemed to be as set forth in
Subparagraph 1(f) of the Lease. For purposes of establishing the amount of the
Tenant Improvement Allowance in Exhibit "C", the number of Usable Square Feet of
-----------
the Premises is deemed to be as set forth in Subparagraph 1(g).
EXHIBIT "B"
-----------
<PAGE>
WORK LETTER AGREEMENT
---------------------
[ALLOWANCE]
This WORK LETTER AGREEMENT ("Work Letter Agreement") is entered into as of the
____ day of _________, 1995 by and between Koll Center Newport Number 8, a
California limited partnership ("Landlord"), and Virtual Realty Network, Inc., a
Nevada corporation ("Tenant").
R E C I T A L S:
- - - - - - - -
A. Concurrently with the execution of this Work Letter Agreement, Landlord and
Tenant have entered into a lease (the "Lease") covering certain premises (the
"Premises") more particularly described in Exhibit "A" attached to the Lease.
-----------
All terms not defined herein have the same meaning as set forth in the Lease. To
the extent applicable, the provisions of the Lease are incorporated herein by
this reference.
B. In order to induce Tenant to enter into the Lease and in consideration of
the mutual covenants hereinafter contained, Landlord and Tenant agree as
follows:
1. TENANT IMPROVEMENTS. As used in the Lease and this Work Letter Agreement,
-------------------
the term "Tenant Improvements" or "Tenant Improvement Work" means those items of
general tenant improvement construction shown on the Final Plans (described in
Paragraph 4 below), more particularly described in Paragraph 5 below.
2. WORK SCHEDULE. Within ten (10) days after the execution of this Lease,
-------------
Landlord will deliver to Tenant, for Tenant's review and approval, a schedule
("Work Schedule") which will set forth the timetable for the planning and
completion of the installation of the Tenant Improvements and the Commencement
Date of the Lease. The Work Schedule will set forth each of the various items
of work to be done or approval to be given by Landlord and Tenant in connection
with the completion of the Tenant Improvements. The Work Schedule will be
submitted to Tenant for its approval, which approval Tenant agrees not to
unreasonably withhold, and, once approved by both Landlord and Tenant, the Work
Schedule will become the basis for completing the Tenant Improvements. All
plans and drawings required by this Work Letter Agreement and all work performed
pursuant thereto are to be prepared and performed in accordance with the Work
Schedule. Landlord may, from time to time during construction of the Tenant
Improvements, modify the Work Schedule as Landlord reasonably deems appropriate.
If Tenant fails to approve the Work Schedule, as it may be modified after
discussions between Landlord and Tenant within five (5) business days after the
date the Work Schedule is first received by Tenant, the Work Schedule shall be
deemed to be approved by Tenant as submitted or Landlord may, at its option,
terminate the Lease upon written notice to Tenant.
3. CONSTRUCTION REPRESENTATIVES. Landlord hereby appoints the following
----------------------------
person(s) as Landlord's representative ("Landlord's Representative") to act for
Landlord in all matters covered by this Work Letter Agreement: Donna Clark.
Tenant hereby appoints the following person(s) as Tenant's representative
("Tenant's Representative") to act for Tenant in all matters covered by this
Work Letter Agreement: Lee Shorey.
All communications with respect to the matters covered by this Work Letter
Agreement are to made to Landlord's Representative or Tenant's Representative,
as the case may be, in writing in compliance with the notice provisions of the
Lease. Either party may change its representative under this Work Letter
Agreement at any time by written notice to the other party in compliance with,
notice provisions of the Lease.
4. TENANT IMPROVEMENT PLANS.
------------------------
(a) Preparation of Space Plans. In accordance with the Work Schedule, Tenant
--------------------------
agrees to meet with Landlord's architect and/or space planner for the purpose of
promptly preparing preliminary space plans for the layout of Premises ("Space
Plans"). The Space Plans are to be sufficient to convey the architectural
design of the Premises and layout of the Tenant Improvements therein and are to
be submitted to Landlord in accordance with the Work Schedule for Landlord's
approval. If Landlord reasonably disapproves any aspect of the Space Plans,
Landlord will advise Tenant in writing of such disapproval and the reasons
therefor in accordance with the Work Schedule. Tenant will then submit to
Landlord for Landlord's approval, in accordance with the Work Schedule, a
redesign of the Space Plans incorporating the revisions reasonably required by
Landlord.
(b) Preparation of Final Plans. Based on the approved Space Plans, and in
--------------------------
accordance with the Work Schedule, Landlord's architect will prepare complete
architectural plans, drawings and specifications and complete engineered
mechanical, structural and electrical working drawings for all of the Tenant
Improvements for the Premises (collectively, the "Final Plans"). The Final
Plans will show: (a) the subdivision (including partitions and walls), layout,
lighting, finish and decoration work (including carpeting and other floor
coverings) for the Premises; (b) all internal and external communications and
utility facilities which will require conduiting or other improvements from the
base Building shell work and/or within common areas; and (c) all other
specifications for the Tenant Improvements. The Final Plans will be submitted
to Tenant for signature to confirm that they are consistent with the Space
Plans. If Tenant reasonably disapproves any aspect of the Final Plans based on
any inconsistency with the Space Plans, Tenant agrees to advise Landlord in
writing of such disapproval and the reasons therefor within the time frame set
forth in the Work Schedule. In accordance with the Work Schedule, Landlord will
then cause Landlord's architect to redesign the Final Plans incorporating the
revisions reasonably requested by Tenant so as to make the Final Plans
consistent with the Space Plans.
EXHIBIT "C"
-----------
<PAGE>
(c) Requirements of Tenant's Final Plans. Tenant's Final Plans will include
------------------------------------
locations and complete dimensions, and the Tenant Improvements, as shown on the
Final Plans, will: (i) be compatible with the Building shell and with the
design, construction and equipment of the Building; (ii) if not comprised of the
Building standards set forth in the written description thereof (the
"Standards"), then compatible with and of at least equal quality as the
Standards and approved by Landlord; (iii) comply with all applicable laws,
ordinances, rules and regulations of all governmental authorities having
jurisdiction, and all applicable insurance regulations; (iv) not require
Building service beyond the level normally provided to other tenants in the
Building and will not overload the Building floors; and (v) be of a nature and
quality consistent with the overall objectives of Landlord for the Building, as
determined by Landlord in its reasonable but subjective discretion.
(d) Submittal of Final Plans. Once approved by Landlord and Tenant,
------------------------
Landlord's architect will submit the Final Plans to the appropriate governmental
agencies for plan checking and the issuance of a building permit. Landlord's
architect, with Tenant's cooperation, will make any changes to the Final Plans
which are requested by the applicable governmental authorities to obtain the
building permit. After approval of the Final Plans no further changes may be
made without the prior written approval of both Landlord and Tenant, and then
only after agreement by Tenant to pay any excess costs resulting from the design
and/or construction of such changes. Tenant hereby acknowledges that any such
changes will be subject to the terms of Paragraph 10 below.
(e) Changes to Shell of Building. If the Final Plans or any amendment
----------------------------
thereof or supplement thereto shall require changes in the Building shell, the
increased cost of the Building shell work caused by such changes will be paid
for by Tenant or charged against the "Allowance" described in Paragraph 5 below.
(f) Work Cost Estimate and Statement. Prior to the commencement of
--------------------------------
construction of any of the Tenant Improvements shown on the Final Plans,
Landlord will submit to Tenant a written estimate of the cost to complete the
Tenant Improvement Work, which written estimate will be based on the Final Plans
taking into account any modifications which may be required to reflect changes
in the Final Plans required by the City or County in which the Premises are
located (the "Work Cost Estimate"). Tenant will either approve the Work Cost
Estimate or disapprove specific items and submit to Landlord revisions to the
Final Plans to reflect deletions of and/or substitutions for such disapproved
items. Submission and approval of the Work Cost Estimate will proceed in
accordance with the Work Schedule. Upon Tenant's approval of the Work Cost
Estimate (such approved Work Cost Estimate to be hereinafter known as the "Work
Cost Statement"), Landlord will have the right to purchase materials and to
commence the construction of the items included in the Work Cost Statement
pursuant to Paragraph 6 hereof. If the total costs reflected in the Work Cost
Statement exceed the Allowance described in Paragraph 5 below, Tenant agrees to
pay such excess, as additional rent, within five (5) business days after
Tenant's approval of the Work Cost Estimate. Throughout the course of
construction, any differences between the estimated Work Cost in the Work Cost
Statement and the actual Work Cost will be determined by Landlord and
appropriate adjustments and payments by Landlord or Tenant, as the case may be,
will be made within five (5) business days thereafter.
5. PAYMENT FOR THE TENANT IMPROVEMENTS.
-----------------------------------
(a) Allowance. Landlord hereby grants to Tenant a tenant improvement of
---------
$5.00 per Usable Square Foot ($19,745) of the Premises (the "Allowance"). The
Allowance is to be used only for:
(i) Payment of the cost of preparing the Space Plans and the Final Plans,
including mechanical, electrical, plumbing and structural drawings and of all
other aspects necessary to complete the Final Plans. The Allowance will not be
used for the payment of extraordinary design work not consistent with the scope
of the Standards (i.e., above-standard design work) or for payments to any other
consultants, designers or architects other than Landlord's architect and/or
Tenant's architect.
(ii) The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements.
(iii) Construction of the Tenant Improvements, including, without limitation,
the following:
(aa) Installation within the Premises of all partitioning, doors, floor
coverings, ceilings, wall coverings and painting, millwork and similar items;
(bb) All electrical wiring, lighting fixtures, outlets and switches, and other
electrical work necessary for the Premises;
(cc) The furnishing and installation of all duct work, terminal boxes,
diffusers and accessories necessary for the heating, ventilation and air
conditioning systems within the Premises, including the cost of meter and key
control for after-hour air conditioning;
(dd) Any additional improvements to the Premises required for Tenant's use of
the Premises including, but not limited to, odor control, special heating,
ventilation and air conditioning, noise or vibration control or other special
systems or improvements;
(ee) All fire and life safety control systems such as fire walls, sprinklers,
halon, fire alarms, including piping, wiring and accessories, necessary for the
Premises;
(ff) All plumbing, fixtures, pipes and accessories necessary for the Premises;
(gg) Testing and inspection costs; and
(hh) Fees for the contractor and tenant improvement coordinator including, but
not limited to, fees and costs attributable to general conditions associated
with the construction of the Tenant Improvements.
(iv) All other costs to be expended by landlord in the construction of the
Tenant Improvements, including those costs incurred by Landlord for construction
of elements of the Tenant Improvements in the Premises, which construction was
C-2
<PAGE>
performed by Landlord prior to the execution of this Lease by Landlord and
Tenant and which construction is for the benefit of tenants and is customarily
performed by Landlord prior the execution of leases for space in the Building
for reasons of economics (examples of such construction would include, but not
be limited to, the extension of mechanical [including heating, ventilating and
air conditioning systems] and electrical distribution systems outside of the
core of the Building, wall construction, column enclosures and painting outside
of the core of the Building, ceiling hanger wires and window treatment).
(b) Excess Costs. The cost of each item referenced in Paragraph 5(a) above
------------
shall be charged against the Allowance. If the Work Cost exceeds the Allowance,
Tenant agrees to pay to Landlord such excess including Landlord's standard ten
percent (10%) fee for the contractor and tenant improvement coordinator
associated with the supervision of such excess work prior to the commencement of
construction within five (5) business days after invoice therefor (less any sums
previously paid by Tenant for such excess pursuant to the Work Cost Estimate).
In no event will the Allowance be used to pay for Tenant's furniture, artifacts,
equipment, telephone systems or any other item of personal property which is not
affixed to the Premises.
(c) Changes. If, after the Final Plans have been prepared and the Work Cost
-------
Statement has been established, Tenant requires any changes or substitutions to
the Final Plans, any additional costs related thereto including Landlord's
standard ten percent (10%) fee for the contractor and tenant improvement
coordinator associated with the supervision of such changes or substitutions are
to be paid by Tenant to Landlord prior to the commencement of construction of
the Tenant Improvements. Any changes to the Final Plans will be approved by
Landlord and Tenant in the manner set forth in Paragraph 4 above and will, if
necessary, require the Work Cost Statement to be revised and agreed upon between
Landlord and Tenant in the manner set forth in Subparagraph 4(f) above. Landlord
will have the right to decline Tenant's request for a change to the Final Plans
if such changes are inconsistent with the provisions of Paragraph 4 above, or if
the change would unreasonably delay construction of the Tenant Improvements and
the Commencement Date of the Lease.
(d) Governmental Cost Increases. If increases in the cost of the Tenant
---------------------------
Improvements as set forth in the Work Cost Statement are due to requirements of
any governmental agency, Tenant agrees to pay Landlord the amount of such
increase including Landlord's standard ten percent (10%) fee for the contractor
and tenant improvement coordinator associated with the supervision of such
additional work within (5) days of Landlord's written notice; provided, however,
that Landlord will first apply toward any such increase any remaining balance of
the Allowance.
(e) Unused Allowance Amounts. Any unused portion of the Allowance upon
------------------------
completion of the Tenant Improvements will not be refunded to Tenant or be
available to Tenant as a credit against any obligations of Tenant under the
Lease unless Tenant has paid for excess costs as described in Subparagraphs
5(b), 5(c) or 5(d), in which case the unused Allowance may be applied toward
such excess cost amounts and paid to Tenant.
6. CONSTRUCTION OF TENANT IMPROVEMENTS. Until Tenant approves the Final Plans
-----------------------------------
and Work Cost Statement, Landlord will be under no obligation to cause the
construction of any of the Tenant Improvements. Following Tenant's approval of
the Work Cost Statement described in Subparagraph 4(f) above and upon Tenant's
payment of the total amount by which such Work Cost Statement exceeds the
Allowance, if any, Landlord's contractor will commence and diligently proceed
with the construction of the Tenant Improvements, subject to Tenant Delays (as
described in Paragraph 9 below) and Force Majeure Delays (as described in
Paragraph 10 below).
7. FREIGHT/CONSTRUCTION ELEVATOR. Landlord will, consistent with its
-----------------------------
obligation to other tenants in the Building, if appropriate and necessary, make
the freight/construction elevator reasonably available to Tenant in connection
with initial decorating, furnishing and moving into the Premises. Tenant agrees
to pay for any after-hours staffing of the freight/construction elevator, if
needed.
8. SUBSTANTIAL COMPLETION.
----------------------
(b) Substantial Completion; Punch-List. For purposes of Subparagraph 8(a)(ii)
----------------------------------
above, the Tenant Improvements will be deemed to be "substantially completed"
when Landlord's contractor certifies in writing to Landlord and Tenant that
Landlord: (a) is able to provide Tenant with reasonable access to the Premises;
(b) has substantially performed all of the Tenant Improvement Work required to
be performed by Landlord under this Work Letter Agreement, other than decoration
and minor "punch-list" type items and adjustments which do not materially
interfere with Tenant's access to or use of the Premises; and (c) has obtained a
temporary certificate of occupancy or other required equivalent approval from
the local governmental authority permitting occupancy of the Premises. Within
ten (10) days after receipt of such certificate from Landlord's contractor,
Tenant will conduct a walk-through inspection of the Premises with Landlord and
provide to Landlord a written punch-list specifying those decoration and other
punch-list items which require completion, which items Landlord will thereafter
diligently complete.
(c) Delivery of Possession. Landlord agrees to deliver possession of the
----------------------
Premises to Tenant on the Commencement Date. Landlord agrees to use its
commercially reasonable efforts to cause the Premises to be substantially
completed on or before the Commencement Date. Tenant agrees that if Landlord is
unable to deliver possession of the Premises to Tenant on or prior to the
Commencement Date specified in Subparagraph 1(j) of the Lease will not be void
or voidable, nor will Landlord be liable to Tenant for any loss or damage
resulting therefrom, but if such late delivery is due to Landlord's negligence
or willful misconduct or due to any Force
C-3
<PAGE>
Majeure Delay(s), then, as Tenants's sole remedy, the Commencement Date and the
Expiration Date of the Term will be extended one(1) day for each day Landlord is
delayed in delivering possession of the Premises to Tenant.
9. TENANT DELAYS. For purposes of this Work Letter Agreement, "Tenant Delays"
-------------
means any delay in the completion of the Tenant Improvements resulting from any
or all of the following: (a) Tenant's failure to timely perform any of its
obligations pursuant to this Work Letter Agreement, including any failure to
complete, on or before the due date therefor, any action item which is Tenant's
responsibility pursuant to the Work Schedule delivered by Landlord to Tenant
pursuant to this Work Letter Agreement; (b) Tenant's changes to Space Plans or
final Plans after Landlord's approval thereof; (c) Tenant's request for
materials, finishes, or installations which are not readily available or which
are incompatible with the Standards; (d) any delay of Tenant in making payment
to Landlord for Tenant's share of the Work Cost; or (e) any other act or failure
to act by Tenant, Tenant's employees, agents, architects, independent
contractors, consultants and/or any other person performing or required to
perform services on behalf of Tenant.
10. FORCE MAJEURE DELAYS. For purposes of this Work Letter, "Force Majeure
--------------------
Delays" means any actual delay in the construction of the Tenant Improvements,
which is beyond the reasonable control of Landlord or Tenant, as the case may
be, as described in Paragraph 33 of the Lease.
IN WITNESS WHEREOF, the undersigned Landlord and Tenant have caused this Work
Letter Agreement to be duly executed by their duly authorized representatives as
of the date of the Lease.
"TENANT" "LANDLORD"
VIRTUAL REALTY NETWORK, INC., KOLL CENTER NEWPORT NUMBER 8,
a Nevada corporation a California limited partnership
By: /s/ Michael A. Barron By: KOLL MANAGEMENT SERVICES, INC.,
----------------------------- a Delaware corporation
as Agent
Print Name: Michael A. Barron
---------------------
Title: President By: /s/ Richard Koenig
-------------------------- ----------------------------
Print Name: Richard Koenig
-----------------
Print Title: Senior Manager
----------------
C-4
<PAGE>
NOTICE OF LEASE TERM DATES
AND TENANT'S PERCENTAGE
-----------------------
To:_____________________________
________________________________
________________________________
Date:____________
Re: Lease dated _______________________________, 19__ (the "Lease"), between
____________________________, Landlord, and ___________________________, Tenant,
concerning Suite _____ located at ______________________________________________
(the "Premises").
To Whom it May Concern:
In accordance with the subject Lease, we wish to advise and/or confirm as
follows:
1. That the Premises have been accepted by the Tenant as being substantially
complete in accordance with the subject Lease and that there is no deficiency in
construction except as may be indicated on the "Punch-List" prepared by Landlord
and Tenant, a copy of which is attached hereto.
2. That the Tenant has possession of the subject Premises and acknowledges that
under the provisions of the Lease the Commencement Date is ____________________,
and the Term of the Lease will expire on ______________________.
3. That in accordance with the Lease, rent commenced to accrue on ____________.
4. If the Commencement Date of the Lease is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter will be for the full amount of the monthly installment as provided
for in the Lease.
5. Rent is due and payable in advance on the first day of each and every month
during the Term of the Lease. Your rent checks should be payable to
_______________________ at ______________________________________________.
6. The number of Rentable Square Feet within the Premises is __________________
square feet as determined by Landlord's architect in accordance with the terms
of the Lease.
7. The number of Rentable Square Feet within the Building is __________________
square feet as determined by Landlord's architect in accordance with the terms
of the Lease.
8. Tenant's Percentage, as adjusted based upon the number of Rentable Square
Feet within the Premises, is _________%.
LANDLORD:
----------------------------------------
a
--------------------------------------
By:
-------------------------------------
Print Name:
--------------------------
Title:
-------------------------------
By:
-------------------------------------
Print Name:
--------------------------
Title:
-------------------------------
SAMPLE ONLY
[NOT FOR EXECUTION]
EXHIBIT "D"
-----------
<PAGE>
DEFINITION OF OPERATING EXPENSES
--------------------------------
1. Items Included in Operating Expenses. The term "Operating Expenses" as
------------------------------------
used in the Lease to which this Exhibit "E" is attached means: all costs and
-----------
expenses of operation and maintenance of the Building and the Common Areas (as
such terms are defined in the Lease), as determined by standard accounting
practices, calculated assuming the Building is ninety-five percent (95%)
occupied, including the following costs by way of illustration but not
limitation, but excluding those items specifically set forth in Paragraph 3
below:
(a) Real Property Taxes and Assessments (as defined in Paragraph 2 below) and
any taxes or assessments imposed in lieu thereof;
(b) any and all assessments imposed with respect to the Building pursuant to
any covenants, conditions and restrictions affecting the Development, the Common
Areas or the Building;
(c) water and sewer charges and the costs of electricity, heating, ventilating,
air conditioning and other utilities;
(d) utilities surcharges and any other costs, levies or assessments resulting
from statutes or regulations promulgated by any government or quasi-government
authority in connection with the use, occupancy or alteration of the Building or
the Premises or the parking facilities serving the Building or the Premises;
(e) costs of insurance obtained by Landlord pursuant to Paragraph 19 of the
Lease;
(f) waste disposal and janitorial services;
(g) labor;
(h) costs incurred in the management of the Building, including, without
limitation: (i) supplies, (ii) wages and salaries (and payroll taxes and
similar governmental charges related thereto) of employees used in the
management, operation and maintenance of the Building, (iii) Building management
office rental, supplies, equipment and related operating expenses, and (iv) a
management/administrative fee determined as a percentage of the annual gross
revenues of the Building exclusive of the proceeds of financing or a sale of the
Building and an administrative fee for the management of the Development Common
Area determined as a percentage of Development Common Area Operating Expenses;
(i) supplies, materials, equipment and tools including rental of personal
property used for maintenance;
(j) repair and maintenance of the elevators and the structural portions of the
Building, including the plumbing, heating, ventilating, air-conditioning and
electrical systems installed or furnished by Landlord;
(k) maintenance, costs and upkeep of all parking and Development Common Areas;
(l) depreciation on a straight line basis and rental of personal property used
in maintenance;
(m) amortization on a straight line basis over the useful life [together with
interest at the Interest Rate on the unamortized balance] of all capitalized
expenditures which are: (i) reasonably intended to produce a reduction in
operating charges or energy consumption; or (ii) required under any governmental
law or regulation that was not applicable to the Building at the time it was
originally constructed; or (iii) for replacement of any Building equipment
needed to operate the Building at the same quality levels as prior to the
replacement;
(n) costs and expenses of gardening and landscaping;
(o) maintenance of signs (other than signs of tenants of the Building);
(p) personal property taxes levied on or attributable to personal property used
in connection with the Building or the Common Areas;
(q) reasonable accounting, audit, verification, legal and other consulting
fees; and
(r) costs and expenses of repairs, resurfacing, repairing, maintenance,
painting, lighting, cleaning, refuse removal, security and similar items,
including appropriate reserves.
When calculating Operating Expenses for purposes of establishing Tenant's
Operating Expense Allowance, Operating Expenses shall not include Real Property
Taxes and Assessments attributable to special assessments, charges, costs, or
fees or due to modifications or changes in governmental laws or regulations
including, but not limited to, the institution of a split tax roll, and shall
exclude market-wide labor-rate increases due to extraordinary circumstances
including, but not limited to, boycotts and strikes and utility increases due to
extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages.
2. Real Property Taxes and Assessments. The term "Real Property Taxes and
-----------------------------------
Assessments", as used in this Exhibit "E", means: any form of assessment,
-----------
license fee, license tax, business license fee, commercial rental tax, levy,
charge, improvement bond, tax or similar imposition imposed by any authority
having the direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
or special assessment district thereof, as against any legal or equitable
interest of Landlord in the Premises, Building, Common Areas or the Development
(as such terms are defined in the Lease), adjusted to reflect an assumption that
the Building is fully assessed for real property tax purposes as a completed
building ready for occupancy, including the following by way of illustration but
not limitation:
EXHIBIT "E"
-----------
<PAGE>
(a) any tax on Landlord's "right" to rent or "right" to other income from the
Premises or as against Landlord's business of leasing the Premises;
(b) any assessment, tax, fee, levy or charge in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously included within
the definition of real property tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June, 1978 election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of this Lease;
(c) any assessment, tax, fee, levy or charge allocable to or measured by the
area of the Premises or other premises in the Building or the rent payable by
Tenant hereunder or other tenants of the Building, including, without
limitation, any gross receipts tax or excise tax levied by state, city or
federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof but not on Landlord's other
operations;
(d) any assessment, tax, fee, levy or charge upon this transaction or any
document to which Tenant is a party, creating or transferring an interest or an
estate in the Premises; and/or
(e) any assessment, tax, fee, levy or charge by any governmental agency related
to any transportation plan, fund or system (including assessment districts)
instituted within the geographic area of which the Building is a part.
Notwithstanding the foregoing, if at any time after the Commencement Date, the
amount of Real Property Taxes and Assessments decreases, then for purposes of
all subsequent Lease Years, including the Lease Year in which such decrease in
Real Property Taxes and Assessments occurs, Tenant's Operating Expense Allowance
shall be decreased by an amount equal to such decrease in Real Property Taxes
and Assessments.
3. Items Excluded From Operating Expenses. Notwithstanding the provisions of
--------------------------------------
Paragraphs 1 and 2 above to the contrary, "Operating Expenses" will not include:
(a) Landlord's federal or state income, franchise, inheritance or estate taxes;
(b) any ground lease rental;
(c) costs incurred by Landlord for the repair of damage to the Building to the
extent that Landlord is reimbursed by insurance or condemnation proceeds or by
tenants, warrantors or other third persons;
(d) depreciation, amortization and interest payments, except as specifically
provided herein, and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services Landlord
might otherwise contract for with a third party, where such depreciation,
amortization and interest payments would otherwise have been included in the
charge for such third party's services, all as determined in accordance with
standard accounting practices;
(e) brokerage commissions, finders' fees, attorneys' fees, space planning costs
and other costs incurred by Landlord in leasing or attempting to lease space in
the Building;
(f) costs of a capital nature, including, without limitation, capital
improvements, capital replacements, capital repairs, capital equipment and
capital tools, all as determined in accordance with standard accounting
practices; provided, however, the capital expenditures set forth in Subparagraph
1(m) above will in any event be included in the definition of Operating
Expenses;
(g) interest, principal, points and fees on debt or amortization on any
mortgage, deed of trust or other debt encumbering the Building or the
Development;
(h) costs, including permit, license and inspection costs, incurred with
respect to the installation of tenant improvements for tenants in the Building
(including the original Tenant Improvements for the Premises), or incurred in
renovating or otherwise improving, decorating, painting or redecorating space
for tenants or other occupants of the Building, including space planning and
interior design costs and fees;
(i) attorneys' fees and other costs and expenses incurred in connection with
negotiations or disputes with present or prospective tenants or other occupants
of the Building; provided, however, that Operating Expenses will include those
attorneys' fees and other costs and expenses incurred in connection with
negotiations, disputes or claims relating to items of Operating Expenses,
enforcement of rules and regulations of the Building, and such other matters
relating to the maintenance of standards required of Landlord under the Lease;
(j) except for the administrative/management fees described in Subparagraph
1(h) above, costs of Landlord's general corporate overhead;
(k) all items and services for which Tenant or any other tenant in the Building
reimburses Landlord (other than through operating expense pass-through
provisions);
(l) electric power costs for which any tenant directly contracts with the local
public service company; and
(m) costs arising from Landlord's charitable or political contributions.
E-2
<PAGE>
STANDARDS FOR UTILITIES AND SERVICES
------------------------------------
The following standards for utilities and services are in effect. Landlord
reserves the right to adopt nondiscriminatory modifications and additions
hereto.
Subject to the terms and conditions of the Lease and provided Tenant remains in
occupancy of the Premises, Landlord will provide or make available the
following utilities and services:
1. Provide non-attended automatic elevator facilities Monday through Friday,
except holidays, from 8 a.m. to 6 p.m., and have one elevator available for
Tenant's use at all other times.
2. On Monday through Friday, except holidays, from 8 a.m. to 6 p.m. and on
Saturday from 8 a.m. to 12 Noon (and other times for a reasonable additional
charge to be fixed by Landlord), ventilate the Premises and furnish air
conditioning or heating on such days and hours, when in the reasonable judgment
of Landlord it may be required for the comfortable occupancy of the Premises.
The air conditioning system achieves maximum cooling when the window coverings
are extended to the full length of the window opening and adjusted to a 45
degree angle upwards. Landlord will not be responsible for room temperatures if
Tenant does not keep all window coverings in the Premises extended to the full
length of the window opening and adjusted to a 45 degree angle upwards whenever
the system is in operation. Tenant agrees to cooperate fully at all times with
Landlord, and to abide by all reasonable regulations and requirements which
Landlord may prescribe for the proper function and protection of said air
conditioning system. Tenant agrees not to connect any apparatus, device, conduit
or pipe to the chilled and hot water air conditioning supply lines of the
Building. Tenant further agrees that neither Tenant nor its servants, employees,
agents, visitors, licensees or contractors shall at any time enter the
mechanical installations or facilities of the Building or the Development or
adjust, tamper with, touch or otherwise in any manner affect said installations
or facilities. The cost of maintenance and service calls to adjust and regulate
the air conditioning system will be charged to Tenant if the need for
maintenance work results from either Tenant's adjustment of room thermostats or
Tenant's failure to comply with its obligations under this Exhibit, including
keeping window coverings extended to the full length of the window opening and
adjusted to a 45 degree angle upwards. Such work will be charged at hourly rates
equal to then current journeyman's wages for air conditioning mechanics.
3. Landlord will make available to the Premises, 24 hours per day, seven days a
week, electric current as required by the Building standard office lighting and
fractional horsepower office business machines including copiers, personal
computers and word processing equipment in an amount not to exceed six (6) watts
per square foot per normal business day. Tenant agrees, should its electrical
installation or electrical consumption be in excess of the aforesaid quantity or
extend beyond normal business hours, to reimburse Landlord monthly for the
measured consumption at the average cost per kilowatt hour charged to the
Building during the period. If a separate meter is not installed at Tenant's
cost, such excess cost will be established by an estimate agreed upon by
Landlord and Tenant, and if the parties fail to agree, such cost will be
established by an independent licensed engineer selected in Landlord's
reasonable discretion, whose fee shall be shared equally by Landlord and Tenant.
Tenant agrees not to use any apparatus or device in, upon or about the Premises
(other than standard office business machines, personal computers and word
processing equipment) which may in any way increase the amount of such services
usually furnished or supplied to said Premises, and Tenant further agrees not to
connect any apparatus or device with wires, conduits or pipes, or other means by
which such services are supplied, for the purpose of using additional or unusual
amounts of such services without the written consent of Landlord. Should Tenant
use the same to excess, the refusal on the part of Tenant to pay upon demand of
Landlord the amount established by Landlord for such excess charge will
constitute a breach of the obligation to pay rent under this Lease and will
entitle Landlord to the rights therein granted for such breach. Tenant's use of
electric current will never exceed the capacity of the feeders to the Building,
or the risers or wiring installation and Tenants will not install or use or
permit the installation or use of any computer or electronic data processing
equipment in the Premises (except standard office business machines, personal
computers and word processing equipment) without the prior written consent of
Landlord.
4. Water will be available in public areas for drinking and lavatory purposes
only, but if Tenant requires, uses or consumes water for any purpose in addition
to ordinary drinking and lavatory purposes, of which fact Tenant constitutes
Landlord to be the sole judge, Landlord may install a water meter and thereby
measure Tenant's water consumption for all purposes. Tenant agrees to pay
Landlord for the cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant will keep said meter and
installation equipment in good working order and repair at Tenant's own cost and
expense, in default of which Landlord may cause such meter and equipment to be
replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to
pay for water consumed, as shown on such meter, as and when bills are rendered,
and on default in making such payment, Landlord may pay such charges and collect
the same from Tenant. Any such costs or expenses incurred, or payments made by
Landlord for any of the reasons or purposes hereinabove stated will be deemed to
be additional rent payable by Tenant and collectible by Landlord as such.
5. Landlord will provide janitor service to the Premises, provided the same are
used exclusively as offices, and are kept reasonably in order by Tenant, and
unless otherwise agreed to by Landlord and Tenant no one other than persons
approved by Landlord shall be permitted to enter the Premises for such purposes.
If the Premises are not used exclusively as offices, they will be kept clean and
in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord,
of removal of any of Tenant's refuse and rubbish to the extent that the same
exceeds the refuse and rubbish usually attendant upon the use of the Premises as
offices.
6. Landlord reserves the right to stop service of the elevator, plumbing,
ventilation, air conditioning and electrical systems, when necessary, by reason
of accident or emergency or for repairs, alterations or improvements, when in
the judgment of Landlord such actions are desirable or necessary to be made,
until said repairs, alterations or improvements shall have been completed, and
Landlord will have no responsibility or liability for failure to supply elevator
facilities, plumbing, ventilating, air conditioning or electric service, when
prevented from so doing by strike or accident or by any cause beyond Landlord's
reasonable control, or by laws, rules, orders, ordinances, directions,
regulations or by reason of the requirements of any federal, state, county or
municipal authority or failure of gas, oil or other suitable fuel supply or
inability by exercise of reasonable diligence to obtain gas, oil or other
suitable fuel supply. It is expressly understood and agreed that any covenants
on Landlord's part to furnish any services pursuant to any of the terms,
covenants, conditions, provisions or agreements of this Lease, or to perform any
act or thing for the benefit of Tenant, will not be deemed breached if Landlord
is unable to furnish or perform the same by virtue of a strike or labor trouble
or any other cause whatsoever beyond Landlord's control.
EXHIBIT "F"
-----------
<PAGE>
ESTOPPEL CERTIFICATE
--------------------
The undersigned,________________________________________("Tenant"), hereby
certifies to ____________________________________, as follows:
1. Attached hereto is a true, correct and complete copy of that certain lease
dated______________________, 1993, between ______________________________, a
_________________________("Landlord") and Tenant (the "Lease"), regarding the
premises located at__________________________________________________________
(the "Premises"). The Lease is now in full force and effect and has not been
amended, modified or supplemented, except as set forth in Paragraph 4 below.
2. The Term of the Lease commenced on __________________________, 19__.
3. The Term of the Lease will expire on_________________________, 19__.
4. The Lease has: (Initial one)
(_____) not been amended, modified, supplemented, extended, renewed or assigned.
(_____) been amended, modified, supplemented, extended, renewed or assigned by
the following described terms or agreements, copies of which are attached
hereto:
________________________________________________________________________________
________________________________________________________________________________
5. Tenant has accepted and is now in possession of the Premises.
6. Tenant and Landlord acknowledge that Landlord's interest in the Lease will be
assigned to ______________________________________________ and that no
modification, adjustment, revision or cancellation of the Lease or amendments
thereto shall be effective unless written consent of __________________________
is obtained, and that until further notice, payments under the Lease may
continue as heretofore.
7. The amount of Monthly Base Rent is $___________________
8. The amount of Security Deposit (if any) is $_____________________. No other
security deposits have been made except as follows:_____________________________
_______________________________________________________________________________.
9. Tenant is paying the full lease rental which has been paid in full as of the
date hereof. No rent or other charges under the Lease have been paid for more
than thirty (30) days in advance of its due date except as follows:
_______________________________________________________________________________.
10. All work required to be performed by Landlord under the Lease has been
completed except as follows:
_______________________________________________________________________________.
11. There are no defaults on the part of the Landlord or Tenant under the Lease
except as follows:
_______________________________________________________________________________.
12. Neither Landlord nor Tenant has any defense as to its obligations under the
Lease and claims no set-off or counterclaim against the other party except as
follows:_______________________________________________________________________.
13. Tenant has no right to any concession (rental or otherwise) or similar
compensation with renting the space it occupies other than as provided in the
Lease except as follows:________________________________________________________
________________________.
All provisions of the Lease and the amendments thereto (if any) referred to
above are hereby ratified.
The foregoing certification is made with the knowledge that ____________________
is relying upon the representations herein made in funding a loan to Landlord in
purchasing the Premises.
IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the
authorized officers of the undersigned as of __________________________, 19___.
TENANT:
- ------------------------------------
a
-----------------------------------
By:
---------------------------------
Print Name:
---------------------- SAMPLE ONLY
Title:
--------------------------- [NOT FOR EXECUTION]
By:
---------------------------------
Print Name:
----------------------
Title:
---------------------------
EXHIBIT "G"
-----------
<PAGE>
RULES AND REGULATIONS
---------------------
A. General Rules and Regulations. The following rules and regulations govern
------------------------------
the use of the Building and the Development Common Areas. Tenant will be bound
by such rules and regulations and agrees to cause Tenant's Authorized Users,
its employees, subtenants, assignees, contractors, suppliers, customers and
invitees to observe the same.
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice may be installed or displayed on any part of the outside or inside of
the Building or the Development without the prior written consent of Landlord.
Landlord will have the right to remove, at Tenant's expense and without notice,
any sign installed or displayed in violation of this rule. All approved signs
or lettering on doors and walls are to be printed, painted, affixed or inscribed
at the expense of Tenant and under the direction of Landlord by a person or
company designated or approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill, which is
visible from the exterior of the Premises. Tenant will immediately discontinue
such use. Tenant agrees not to place anything against or near glass partitions
or doors or windows which may appear unsightly from outside the Premises
including from within any interior common areas.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, escalators, or stairways of the Development. The halls, passages,
exits, entrances, elevator and stairways are not open to the general public, but
are open, subject to reasonable regulations, to Tenant's business invitees.
Landlord will in all cases retain the right to control and prevent access there
to of all persons whose presence in the reasonable judgement of Landlord would
be prejudicial to the safety, character, reputation and interest of the
Development and its tenants, provided that nothing herein contained will be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal or unlawful activities. No tenant and no employee or invitee of any
tenant will go upon the roof of the Building.
4. Tenant will not obtain for use on the Premises ice, drinking water, food,
food vendors, beverage, towel or other similar services or accept barbering or
bootblacking service upon the Premises, except at such reasonable hours and
under such reasonable regulations as may be fixed by Landlord. Landlord
expressly reserves the right to absolutely prohibit solicitation, canvassing,
distribution of handbills or any other written material, peddling, sales and
displays of products, goods and wares in all portions of the Development except
as may be expressly permitted under the Lease. Landlord reserves the right to
restrict and regulate the use of the common areas of the Development and
Building by invitees of tenants providing services to tenants on a periodic or
daily basis including food and beverage vendors. Such restrictions may include
limitations on time, place, manner and duration of access to a tenant's premises
for such purposes. Without limiting the foregoing, Landlord may require that
such parties use service elevators, halls, passageways and stairways for such
purposes to preserve access within the Building for tenants and the general
public.
5. Landlord reserves the right to require tenants to periodically provide
Landlord with a written list of any and all business invitees which
periodically or regularly provide goods and services to such tenants at the
premises. Landlord reserves the right to preclude all vendors from entering or
conducting business within the Building and the Development if such vendors
are not listed on a tenant's list of requested vendors.
6. Landlord reserves the right to exclude from the Building between the hours
of 6 p.m. and 8 a.m. the following business day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays,
any person unless that person is known to the person or employee in charge of
the Building or, has a pass or is properly identified. Tenant will be
responsible for all persons for whom it requests passes and will be liable to
Landlord for all acts of such persons. Landlord will not be liable for damages
for any error with regard to the admission to or exclusion from the Building of
any person. Landlord reserves the right to prevent access to the Building in
case of invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.
7. The directory of the Building or the Development will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom.
8. All cleaning and janitorial services for the Development and the Premises
will be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by Landlord
will be employed by Tenant or permitted to enter the Development for the purpose
of cleaning the same. Tenant will not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
9. Landlord will furnish Tenant, free of charge, with two keys to each door
lock in the Premises. Landlord may make a reasonable charge for any additional
keys. Tenant shall not make or have made additional keys, and Tenant shall not
alter any lock or install any new additional lock or bolt on any door of the
Premises. Tenant, upon the termination of its tenancy, will deliver to Landlord
the keys to all doors which have been furnished to Tenant, and in the event of
loss of any keys so furnished, will pay Landlord therefor.
10. If Tenant requires telegraphic, telephonic, burglar alarm, satellite
dishes, antennae or similar services, it will first obtain Landlord's approval,
and comply with, Landlord's reasonable rules and requirements applicable to such
services, which may include separate licensing by, and fees paid to, Landlord.
11. Freight elevator(s) will be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its discretion,
deems appropriate. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in
the elevators except between such hours and in such elevators as may be
designated by Landlord. Tenant's initial move in and subsequent deliveries of
bulky items, such as furniture, safes and similar items will, unless otherwise
agreed in writing by Landlord, be made during the hours of 6:00 p.m. to 6:00
a.m. or on Saturday or Sunday. Deliveries
EXHIBIT "H"
-----------
<PAGE>
during normal office hours shall be limited to normal office supplies and other
small items. No deliveries will be made which impede or interfere with other
tenants or the operation of the Building.
12. Tenant will not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which is
allowed by law. Landlord will have the right to reasonably prescribe the weight,
size and position of all safes, heavy equipment, files, materials, furniture or
other property brought into the Building. Heavy objects will, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight, which platforms will be provided at
Tenant's expense. Business machines and mechanical equipment belonging to
Tenant, which cause noise or vibration that may be transmitted to the structure
of the Building or to any space therein to such degree as to be objectionable to
any tenants in the Building or Landlord, are to be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. Tenant will be responsible for all
structural engineering required to determine structural load, as well as the
expense thereof. The persons employed to move such equipment in or out of the
Building must be reasonably acceptable to Landlord. Landlord will not be
responsible for loss of, or damage to, any such equipment or other property from
any cause, and all damage done to the Building by maintaining or moving such
equipment or other property will be repaired at the expense of Tenant.
13. Tenant will not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant will not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, nor will Tenant bring into or keep in or about the Premises
any birds or animals.
14. Tenant will not use any method of heating or air conditioning other than
that supplied by Landlord without Landlord's prior written consent.
15. Tenant will not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
will refrain from attempting to adjust controls. Tenant will keep corridor doors
closed, and shall keep all window coverings pulled down.
16. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
Without the written consent of Landlord, Tenant will not use the name of the
Building or the Development in connection with or in promoting or advertising
the business of Tenant except as Tenant's address.
17. Tenant will close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and lighting or gas before Tenant
and its employees leave the Premises. Tenant will be responsible for any damage
or injuries sustained by other tenants or occupants of the Building or by
Landlord or noncompliance with this rule.
18. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from any violation of this rule will
be borne by the tenant who, or whose employees or invitees, break this rule.
Cleaning of equipment of any type is prohibited. Shaving is prohibited.
19. Tenant will not sell, or permit the sale at retailof newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise to the general
public in or on the Premises. Tenant will not use the Premises for any business
or activity other than that specifically provided for in this Lease. Tenant will
not conduct, nor permit to be conducted, either voluntarily or involuntarily,
any auction upon the Premises without first having obtained Landlord's prior
written consent, which consent Landlord may withhold in its sole and absolute
discretion.
20. Tenant will not install any radio or television antenna, loudspeaker,
satellite dishes or other devices on the roof(s) or exterior walls of the
Building or the Development. Tenant will not interfere with radio or television
broadcasting or reception from or in the Development or elsewhere.
21. Except for the ordinary hanging of pictures and wall decorations, Tenant
will not mark, drive nails, screw or drill into the partitions, woodwork or
plaster or in any deface the Premises or any part thereof, except in accordance
with the provisions of the Lease pertaining to alterations. Landlord reserves
the right to direct electricians as to where and how telephone and telegraph
wires are to be introduced to the Premises. Tenant will not cut or bore holes
for wires. Tenant will not affix any floor covering to the floor of the Premises
in any manner except as approved by Landlord. Tenant shall repair any damage
resulting from noncompliance with this rule.
22. Tenant will not install, maintain or operate upon the Premises any vending
machines without the written consent of Landlord.
23. Landlord reserves the right to exclude or expel from the Development any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
24. Tenant will store all its trash and garbage within its Premises or in other
facilities provided by Landlord. Tenant will not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
is to be made in accordance with directions issued from time to time by
Landlord.
25. The Premises will not be used for lodging or for the storage of merchandise
held for sale to the general public, or for lodging or for manufacturing of any
kind, nor shall the Premises be used to any improper, immoral or objectionable
purpose. No cooking will be done or permitted on the Premises without Landlord's
consent, except the use by Tenant of Underwriters' Laboratory approved equipment
for brewing coffee, tea, hot chocolate and similar beverages shall be permitted,
and the use of a microwave oven for employees use will be permitted, provided
that such equipment and use is in accordance with all applicable federal, state,
county and city laws, codes ordinances, rules and regulations.
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26. Neither Tenant nor any of its employees, agents, customers and invitees
may use in any space or in the public halls of the Building or the Development
any hand truck except those equipped with rubber tires and side guards or such
other material-handling equipment as Landlord may approve. Tenant will not bring
any other vehicles of any kind into the Building.
27. Tenant agrees to comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. To the extent Landlord reasonably deems it necessary to exercise
exclusive control over any portions of the Common Areas for the mutual benefit
of the tenants in the Building or the Development, Landlord may do so subject to
reasonable, non-discriminatory additional rules and regulations.
30. Landlord may prohibit smoking in the Building and may require Tenant and
any of its employees, agents, clients, customers, invitees and guests who desire
to smoke, to smoke within designated smoking areas within the Development.
31. Tenant's requirements will be attended to only upon appropriate
application to Landlord's asset management office for the Development by an
authorized individual of Tenant. Employees of Landlord will not perform any work
or do anything outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord will admit any person
(Tenant or otherwise) to any office without specific instructions from Landlord.
32. These Rules and Regulations are in addition to, and will not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Landlord may waive any one
or more of these Rules and Regulations for the benefit of Tenant or any other
tenant, but no such waiver by Landlord will be construed as a waiver of such
Rules and Regulations in favor of Tenant or any other tenant, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations against any
or all of the tenants of the Development.
33. Landlord reserves the right to make such other and reasonable and
non-discriminatory Rules and Regulations as, in its judgment, may from time to
time be needed for safety and security, for care and cleanliness of the
Development and for the preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations herein above stated and any additional
reasonable and non-discriminatory rules and regulations which are adopted.
Tenant is responsible for the observance of all of the foregoing rules by
Tenant's employees, agents, clients, customers, invitees and guests.
B. Parking Rules and Regulations. The following rules and regulations
-----------------------------
govern the use of the parking facilities which serve the Building. Tenant will
be bound by such rules and regulations and agrees to cause its employees,
subtenants, assignees, contractors, suppliers, customers and invitees to observe
the same:
1. Tenant will not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, subtenants, customers or invitees to
be loaded, unloaded or parked in areas other than those designated by Landlord
for such activities. No vehicles are to be left in the parking areas overnight
and no vehicles are to be parked in the parking areas other than normally sized
passenger automobiles, motorcycles and pick-up trucks. No extended term storage
of vehicles is permitted.
2. Vehicles must be parked entirely within painted stall lines of a single
parking stall.
3. All directional signs and arrows must be observed.
4. The speed limit within all parking areas shall be five (5) miles per
hour.
5. Parking is prohibited: (a) in areas not striped for parking; (b) in
aisles or on ramps; (c) where "no parking" signs are posted; (d) in
cross-hatched areas; and (e) in such other areas as may be designated from time
to time by Landlord or Landlord's parking operator.
6. Landlord reserves the right, without cost or liability to Landlord, to
tow any vehicle if such vehicle's audio theft alarm system remains engaged for
an unreasonable period of time.
7. Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
8. Landlord may refuse to permit any person to park in the parking
facilities who violates these rules with unreasonable frequency, and any
violation of these rules shall subject the violator's car to removal, at such
car owner's expense. Tenant agrees to use its best efforts to acquaint its
employees, subtenants, assignees, contractors, suppliers, customers and invitees
with these parking provisions, rules and regulations.
9. Parking stickers, access cards, or any other device or form of
identification supplied by Landlord as a condition of use of the parking
facilities shall remain the property of Landlord. Parking identification
devices, if utilized by Landlord, must be displayed as requested and may not be
mutilated in any manner. The serial number of the parking identification device
may not be obliterated. Parking identification devices, if any, are not
transferable and any device in the possession of an unauthorized holder will be
void. Landlord reserves the right to refuse the sale of monthly stickers or
other parking identification devices to Tenant or any of its agents, employees
or representatives who willfully refuse to comply with these rules and
regulations and all unposted city, state or federal ordinances, laws or
agreements.
10. Loss or theft of parking identification devices or access cards must be
reported to the management office in the Development immediately, and a lost or
stolen report must be filed by the Tenant or user of such parking identification
device or access card at the time. Landlord has the right to exclude any vehicle
from the parking facilities that does not have a parking identification device
H-3
<PAGE>
or valid access card. Any parking identification device or access card which is
reported lost or stolen and which is subsequently found in the possession of an
unauthorized person will be confiscated and the illegal holder will be subject
to prosecution.
11. All damage or loss claimed to be the responsibility of Landlord must be
reported, itemized in writing and delivered to the management office located
within the Development within ten (10) business days after any claimed damage or
loss occurs. Any claim not so made is waived. Landlord is not responsible for
damage by water or fire, or for the acts or omissions of others, or for articles
left in vehicles. In any event, the total liability of Landlord, if any, is
limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss to any
car. Landlord is not responsible for loss of use.
12. The parking operators, managers or attendants are not authorized to make or
allow any exceptions to these rules and regulations, without the express written
consent of Landlord. Any exceptions to these rules and regulations made by the
parking operators, managers or attendants without the express written consent of
Landlord will not be deemed to have been approved by Landlord.
13. Landlord reserves the right, without cost or liability to Landlord, to tow
any vehicles which are used or parked in violation of these rules and
regulations.
14. Landlord reserves the right from time to time to modify and/or adopt such
other reasonable and non-discriminatory rules and regulations for the parking
facilities as it deems reasonably necessary for the operation of the parking
facilities.
H-4
<PAGE>
EXHIBIT 10.4
PLEASE SIGN AND RETURN
----------------------
PLEASE SIGNIFY YOUR APPROVAL ON ALL
SPACES PROVIDED AND RETURN TO YOUR
--------------
ASSET MANAGER FOR FULL EXECUTION.
-------------
YOUR "TENANT" COPY WILL THEN BE
RETURNED TO YOU.
THANK YOU
KOLL MARKETING GROUP
OFFICE BUILDING LEASE
BETWEEN
KOLL CENTER NEWPORT NUMBER 8
LANDLORD
AND
TIEMPO ESCROW II
-----------------------------------
TENANT
JULY 10 1990
---------------------, --
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Term..................................................... 1
2. Possession............................................... 1
3. Annual Basic Rent........................................ 1
4. Rental Adjustment........................................ 2
5. Security Deposit......................................... 3
6. Use...................................................... 3
7. Notices.................................................. 3
8. Brokers.................................................. 3
9. Holding Over............................................. 3
10. Taxes on Tenant's Property............................... 4
11. Condition of Premises.................................... 4
12. Alterations.............................................. 4
13. Repairs.................................................. 4
14. Liens.................................................... 5
15. Entry by Landlord........................................ 5
16. Utilities and Services................................... 5
17. Bankruptcy............................................... 5
18. Indemnification.......................................... 6
19. Damage to Tenant's Property.............................. 6
20. Tenant's Insurance....................................... 6
21. Damage or Destruction.................................... 7
22. Eminent Domain........................................... 8
23. Defaults and Remedies.................................... 8
24. Assignment and Subletting................................ 9
25. Subordination............................................ 9
26. Estoppel Certificate..................................... 10
27. Building Planning........................................ 10
28. Rules and Regulations.................................... 10
29. Conflict of Laws......................................... 10
30. Successors and Assigns................................... 10
31. Surrender of Premises.................................... 10
32. Attorneys' Fees.......................................... 11
33. Performance by Tenant.................................... 11
34. Mortgagee Protection..................................... 11
35. Definition of Landlord................................... 11
36. Waiver................................................... 11
37. Identification of Tenant................................. 11
38. Parking.................................................. 12
39. Terms and Headings....................................... 12
40. Examination of Lease..................................... 12
41. Time..................................................... 12
42. Prior Agreement; Amendments.............................. 12
43. Separability............................................. 12
44. Recording................................................ 12
45. Consents................................................. 12
46. Limitation on Liability.................................. 12
47. Riders................................................... 12
48. Modification for Lender.................................. 13
49. Airport Disclosure....................................... 13
</TABLE>
i
<PAGE>
TABLE OF EXHIBITS
EXHIBIT ITEM
A Floor Plan of the Premises
B Work Letter Agreement
C Standards for Utilities and Services
D Rules and Regulations
E Parking Rules and Regulations
ii
<PAGE>
KOLL CENTER NEWPORT NUMBER 8
OFFICE BUILDING LEASE
THIS LEASE is made as of the 10th day of July, 1990, by and between KOLL
CENTER NEWPORT NUMBER 8, a California Limited Partnership ("Landlord"), and
Tiempo Escrow II, A California Corporation. ("Tenant")
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
Suite Number 175 (the "Premises") outlined on the floor plan attached hereto and
marked Exhibit A, the Premises being agreed, for the purposes of this Lease, to
have an area of approximately 4,236 rentable square feet and being situated on
the ground floor(s) of that certain office building located at 4590 MacArthur
Boulevard, Newport Beach, California (the "Building").
[INITIAL APPEARS HERE]
The parties hereto agree that said letting and hiring is upon and
subject to the terms, covenants and conditions herein set. Tenant covenants, as
a material part of the consideration for this Lease to keep and perform each and
all of said terms, covenants and conditions for which Tenant is liable and that
this Lease is made upon the condition of such performance.
Prior to the commencing of the term of this Lease the Premises shall be
improved by the Tenant improvements described in the Work Letter marked Exhibit
B attached hereto and by this reference incorporated herein.
1. TERM
The term of this Lease shall be for five (5) years commencing upon the
earlier of:
(i) Substantial completion of the Tenant Improvements described
in the Work Letter (subject to the provisions of Paragraph 7 of the Work Letter)
and the tender of possession of the premises to Tenant or
(ii) The date that Tenant opens for business in the Premises, and
ending on the last day of the month in which the 6th anniversary of the
commencement date occurs, unless such term shall be sooner terminated as
hereinafter provided. As soon as the commencement date is determined, the
parties shall enter into an amendment of this Lease setting forth the precise
commencement and termination dates of this Lease. Failure to enter into such an
amendment, however, shall not affect Tenant's liability hereunder. Reference in
this Lease to a "Lease Year" shall mean each successive twelve month period
commencing with the first day of the month in which the term of this Lease
commences.
2. POSSESSION
Tenant agrees that, if Landlord is unable to deliver possession of the
Premises to Tenant on the scheduled commencement of the term of this Lease, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, but in such event Tenant shall not be
liable for any rent until Landlord tenders possession of the Premises to Tenant
with the Tenant improvements substantially completed. If Landlord completes
construction of the Tenant Improvements prior to the date scheduled in the Work
Letter, Landlord shall deliver possession of the Premises to Tenant upon such
completion and the term of the Lease shall thereupon commence.
[INITIAL APPEARS HERE]
3. ANNUAL BASIC RENT
(a) Tenant agrees to pay Landlord as Annual Basic Rent for the Premises
the sum of (SEE ADDENDUM, ITEM #50 AND #51) -------------------------------
Dollars ($ ____________________________) (subject to adjustment as hereinafter
provided) in twelve equal monthly installments of (SEE ADDENDUM, ITEM #50 AND
#51) ---------------------------- Dollars ($ ___________________) each, in
advance on the first day of each calendar month during the term, except that the
first month's rent shall be paid upon the execution hereof. If the term of this
Lease commences or ends on a day other than the first day of a calendar month,
then the rental for such period shall be prorated in the proportion that the
number of days this Lease is in effect during such period bears to thirty. In
addition to the Annual Basic Rent, Tenant agrees to pay as additional rental the
amount of rental adjustments and other charges required by this Lease. All
rental shall be paid to Landlord, without prior demand and without any deduction
or offset, in lawful money of the United States of America, at the address of
Landlord designated at the end of this Lease or to such other person or at such
other place as Landlord may from time to time designate in writing.
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<PAGE>
[INITIAL APPEARS HERE]
(c) Late Charges. In the event Tenant fails to pay any installment of
rent when due or in the event Tenant fails to make any other payment for which
Tenant is obligated under this Lease when due, then Tenant shall pay to Landlord
a late charge equal to 5% of the amount due to compensate Landlord for the extra
costs incurred as a result of such late payment.
4. RENTAL ADJUSTMENT.
(a) For the purpose of this Article 4, the following terms are defined as
follows:
(i) Tenant's Percentage: That portion of the Building occupied by
Tenant divided by the total square footage of the Building available for
occupancy, which result is the following percentage: 3.7476 %.
----------
(ii) Direct Expenses Base: The amount of the annual Direct
Expenses which Landlord has included in Annual Base Rent which amount is
$ 1990 Base Year * per square foot, for a total of $ 1990 Base Year *
---------------------- -----------------------
*(SEE ADDENDUM, ITEM #52.) [INITIAL APPEARS HERE]
(iii) Direct Expenses: The term "Direct Expenses" shall include:
(1) All real and personal property taxes and assessments
imposed by any governmental authority or agency on the Building and the land on
which the Building is located (including a prorata portion of any taxes levied
on any common areas): any assessments levied in lieu of taxes: any
non-progressive tax on or measured by gross rentals received from the rental of
space in the Building; and any other costs levied or assessed by, or at the
direction of, any federal, state, or local government authority in connection
with the use or occupancy of the Premises or the parking facilities serving the
Premises; any tax on this transaction or any document to which Tenant is a
party creating or transferring an interest in the Premises, and any expenses,
including cost of attorneys or experts, reasonably incurred by Landlord in
seeking reduction by the taxing authority of the above-referenced taxes, less
tax refunds obtained as a result of an application for review thereof; but
shall not include any net income, franchise, capital stock, estate or
inheritance taxes.
(2) Operating costs consisting of costs incurred by Landlord
in maintaining and operating the Building, exclusive of costs required to be
capitalized for federal income tax purposes, and including (without limiting the
generality of the foregoing) the following: cost of utilities, supplies and
insurance, cost of services of independent contractors, managers and other
suppliers, the fair rental value of the Building office, cost of compensation
(including employment taxes and fringe benefits) of all persons who perform
regular and recurring duties connected with the management, operation,
maintenance, and repair of the Building, its equipment, parking facilities and
the common areas, including, without limitation, engineers, janitors, foremen,
floor waxers, window washers, watchmen and gardeners, but excluding persons
performing services not uniformly available to or performed for substantially
all Building tenants.
(3) Amortization of such capital improvements as Landlord may
have installed: (a) for the purpose of reducing operating costs and (b) to
comply with governmental rules and regulations promulgated after completion of
the Building.
(b) If Tenants Percentage of the Direct Expenses paid or incurred by
Landlord for any calendar years exceeds the Direct Expenses Base included in
Tenants rent, then Tenant shall pay such excess as additional rent. As soon as
possible after the beginning of each calendar year, Landlord shall give to
Tenant a statement of any additional rent payable by Tenant hereunder for the
previous year, which shall be due and payable upon receipt. In addition, for
each year after the first calendar year, or portion thereof, Tenant shall pay
its percentage of Landlord's estimate of the amount by which Direct Expenses for
that year shall exceed the Direct Expenses Base. This estimated amount shall be
divided into twelve equal monthly installments. Tenant shall pay to Landlord,
concurrently with the regular monthly rent payment next due following the
receipt of such statement, an amount equal to one monthly installment multiplied
by the number of months from January in the calendar year in which said
statement is submitted to the month of such payment, both months inclusive.
Subsequent installments shall be payable concurrently with the regular monthly
rent payments for the balance of that calendar year and shall continue until the
next calendar year's statement is rendered. If, in any calendar year, Tenant's
Percentage of actual Direct Expenses is less than the estimate for that year,
then upon receipt of Landlord's statement, any overpayment made by Tenant on the
monthly installment basis shall be credited towards the next monthly rent
falling due and the estimated monthly installments of Tenant's Percentage of
Direct Expenses shall be adjusted to reflect such lower Direct Expenses for the
most recent year.
2
<PAGE>
(c) Even though the term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage of Direct Expenses
for the year in which this Lease terminates, Tenant shall immediately pay any
increase due over the estimated expenses paid and conversely, any overpayment
made in the event said expenses decrease shall be rebated by Landlord to Tenant.
5. SECURITY DEPOSIT.
Tenant has deposited with landlord the sum of Six Thousand Nine Hundred
Eighty-nine and 40/100 Dollars
($6,989.40). Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all of Tenant's obligations hereunder. If Tenant
defaults with respect to any provision of this Lease, including but not limited
to the provisions relating to the payment of rent, Landlord may (but shall not
be required to) use, apply or retain all or any part of this security deposit
for the payment of any rent or any other sum in default, or for the payment of
any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of the deposit is so used or
applied, Tenant shall, upon demand, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount. Tenants
failure to do so shall be a material breach of this Lease. Landlord shall not
be required to keep this security separate from its general funds, and Tenant
shall not be entitled to interest on such deposit. If Tenant shall fully and
faithfully perform all of its obligations under this lease, the security deposit
or any balance thereof shall be returned to Tenant (or, at Landlord's option, to
the last assignee of Tenant's interest hereunder) at the expiration of the Lease
term, provided that Landlord may retain the security deposit until such time as
any amount due from Tenant in accordance with Article 4 hereof has been
determined and paid in full.
6. USE.
Tenant shall use the Premises for Escrow offices or other office use
consistent with other Class "A" office use within Koll Center Newport and shall
not use or permit the Premises to be used for any other purpose without the
prior written consent of Landlord. Nothing contained herein shall be deemed to
give Tenant any exclusive right to such use in the Building. Tenant shall not
use or occupy the Premises in violation of law or of the certificate of
occupancy issued for the Building, and shall, upon written notice from Landlord,
discontinue any use of the Premises which is declared by any governmental
authority having jurisdiction to be a violation of law or of said certificate of
occupancy. Tenant shall comply with any direction of any governmental authority
having jurisdiction which shall, by reason of the nature of Tenants use or
occupancy of the Premises, impose any duty upon Tenant or Landlord with respect
to the Premises or with respect to the use or occupation thereof. Tenant shall
not do or permit to be done anything which will invalidate or increase the cost
of any fire, extended coverage or any other insurance policy covering the
Building and/or property located therein and shall comply with all rules,
orders, regulations and requirements of the Pacific Fire Rating Bureau or any
other organization performing a similar function. Tenant shall promptly, upon
demand, reimburse Landlord for any additional premium charged for such policy by
reason of Tenants failure to comply with the provisions of this Article. 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 improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
7. NOTICES.
Any notice required or permitted to be given hereunder must be in writing
and may be given by personal delivery or by mail, and if given by mail shall be
deemed sufficiently given if sent by registered or certified mail addressed to
Tenant at the Building, or to Landlord at its address set forth at the end of
this Lease. Either party may specify a different address for notice purposes by
written notice to the other except that the Landlord may in any event use the
Premises as Tenants address for notice purposes.
8. BROKERS.
Tenant warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease, except Grubb & Ellis
Company -Patrick J. Papaccio and Michael P. Quisling whose commission shall be
payable by Landlord, and that it knows of no other real estate broker or agent
who is or might be entitled to a commission in connection with this Lease. If
Tenant has dealt with any other person or real estate broker with respect to
leasing or renting space in the Building, Tenant shall be solely responsible for
the payment of any fee due said person or firm and Tenant shall hold Landlord
free and harmless against any liability in respect thereto, including attorneys'
fees and costs.
9. HOLDING OVER.
If Tenant holds over after the expiration or earlier termination of the
term hereof without the express written consent of Landlord, Tenant shall become
a Tenant at sufferance only, at a rental rate equal to one hundred fifty percent
of the rent in effect upon the date of such expiration (subject to adjustment as
provided in Paragraph 4 hereof and prorated on a daily basis), and otherwise
subject to the terms, covenants and conditions herein specified, so far as
applicable. Acceptance by Landlord of rent after such expiration or earlier
3
<PAGE>
termination shall not result in a renewal of this Lease. The foregoing
provisions of this Article 9 are in addition to and do not affect
Landlord's right of re-entry or any rights of Landlord hereunder or as
otherwise provided by law. If Tenant fails to surrender the Premises upon
the expiration of this Lease despite demand to do so by Landlord, Tenant
shall idemnify and hold Landlord harmless from all loss of liability,
including without limitation, any claim made by any succeeding tenant
founded on or resulting from such failure to surrender and any attorneys'
fees and costs.
10. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay, at least ten days
before delinquency, all taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased
by the inclusion therein of a value placed upon such personal property or
trade fixtures of Tenant and if Landlord, after written notice to Tenant,
pays the taxes based upon such increased assessment which Landlord shall
have the right to do regardless of the validity thereof, but only under
proper protest if requested by Tenant, Tenant shall, upon demand, repay to
Landlord the taxes so levied against Landlord, or the portion of such taxes
resulting from such increase in the assessment.
(b) If the Tenant Improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the
real property so as to become a part thereof, are assessed for real
property tax purposes at a valuation higher than the valuation at which
Tenant Improvements conforming to Landlord's "Building Standard" in other
space in the Building are assessed, then the real property taxes and
assessments levied against the Building by reason of such excess assessed
valuation shall be deemed to be taxes levied against personal property of
Tenant and shall be governed by the provisions of paragraph 10(a), above.
If the records of the County Assessor are available and sufficiently
detailed to serve as a basis for determining whether said Tenant
Improvements are assessed at a higher valuation than Landlord's "Building
Standard," such records shall be binding on both the Landlord and the
Tenant. If the records of the County Assessor are not available or
sufficiently detailed to serve as a basis for making said determination,
the actual cost of construction shall be used.
11. CONDITION OF PREMISES.
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. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the building were in
satisfactory condition at such time.
12. ALTERATIONS.
(a) Tenant shall make no alterations, additions or improvements in
or to the Premises without Landlord's prior written consent, and then only
by contractors or mechanics approved by Landlord. Tenant agrees that there
shall be no construction of partitions or other obstructions which might
interfere with Landlord's free access to mechanical installations or
service facilities of the Building or interfere with the moving of
Landlord's equipment to or from the enclosures containing said
installations or facilities. All such work shall be done at such times and
in such manner as Landlord may from time to time designate. Tenant
covenants and agrees that all work done by Tenant shall be performed in
full compliance with all laws, rules, orders, ordinances, regulations and
requirements of all governmental agencies, offices, and boards having
jurisdiction, and in full compliance with the rules, regulations and
requirements of the Pacific Fire Rating Bureau, and of any simular body.
Before commencing any work, Tenant shall give Landlord at least ten days
written notice of the proposed commencement of such work and shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion
and lien indemnity bond, satisfactory to Landlord, for said work. Tenant
further covenants and agrees that any mechanic's lien filed against the
Premises or against the Building for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant will be discharged by
Tenant, by bond or otherwise, within ten days after the filing thereof, at
the cost and expense of Tenant. All alterations, additions or improvements
upon the Premises made by either party, including (without limiting the
generality of the foregoing) all wallcovering, built-in cabinet work,
paneling and the like, shall, unless Landlord elects otherwise, become the
property of Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the term hereof, except that
Landlord may, by written notice to Tenant, require Tenant to remove all
partitions, counters, railings and the like installed by Tenant, and Tenant
shall repair all damage resulting from such removal or, at Landlord's
options, shall pay to Landlord all costs arising from such removal.
(b) All articles of personal property and all business and trade
fixtures, machinery and equipment, 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. If Tenant
shall fail to remove all of its effects from the Premises upon termination
of this Lease for any cause whatsoever, Landlord may, at its option,
remove the same in any manner that Landlord shall choose, and store said
effects without liability to Tenant for loss thereof. In such event, Tenant
agrees to pay Landlord upon demand any and all expenses incurred in such
removal, including court costs and attorneys' fees and storage charges on
such effects for any length of time that the same shall be in Landlord's
possession. Landlord may, at its option, without notice, sell said effects,
or any of the same, at private sale and without legal process, for such
price as Landlord may obtain and apply the proceeds of such sale upon any
amounts due under this Lease from Tenant to Landlord and upon the expense
incident to the removal and sale of said effects.
13. REPAIRS.
(a) By entry hereunder, Tenant accepts the Premises as being in good
and sanitary order, condition and repair. Tenant shall keep, maintain and
preserve the Premises in first class condition and repair, and shall, when
and if needed, at Tenant's sole cost and expense, make all repairs to the
Premises and every part thereof. Tenant shall, upon the expiration or
sooner termination of the term hereof,
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surrender the Premises to Landlord in the same condition as when received,
usual and ordinary wear and tear excepted. Landlord shall have no
obligation to alter, remodel, improve, repair, decorate or paint the
Premises or any part thereof. The parties hereto affirm that Landlord has
made no representations to tenant respecting the condition of the Premises
or the Building except as specifically herein set forth.
(b) Anything contained in Paragraph 13(a) above to the contrary
notwithstanding. Landlord shall repair and maintain the structural portions
of the Building, including the basic plumbing, heating, ventilating, air
conditioning and electrical systems installed or furnished by Landlord,
unless such maintenance and repairs are caused in part or in whole by the
act, neglect, or omission of any duty by Tenant, its agents, servants,
employees or invitees, in which case Tenant shall pay to Landlord, as
additional rent, the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in
Article 21 hereof, there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or
to any portion of the Building or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant waives the right to make
repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect.
14. LIENS.
Tenant shall not permit any mechanic's, matenalmen's or other liens
to be filed against the Building nor against Tenant's leasehold interest in
the Premises. Landlord shall have at all reasonable times to post and keep
posted on the Premises any notices which it deems necessary for protection
from such liens. If any such liens are filed, Landlord may, without waiving
its rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause such liens to be
released by any means shall deem proper, including payments in satisfaction
of the claim giving rise to such lien. Tenant shall pay to Landlord at
once, upon notice by Landlord, any sum paid by Landlord to remove such
liens, together with interest at the maximum rate per annum permitted by
law from the date of such payment by Landlord.
15. ENTRY BY LANDLORD.
Landlord reserves and shall at any and all times have the right to
enter the Premises to inspect the same, to supply janitor service and any
other service to be provided by Landlord to Tenant hereunder, to show the
Premises to prospective purchasers or tenants, to post notices of
nonresponsibility, to alter, improve or repair the Premises or any other
portion of the Building, all without being deemed guilty of any eviction of
Tenant and without abatement of rent. Landlord may, in order to carry out
such purposes, erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, provided
that the business of Tenant shall be interfered with as little as is
reasonably practicable. 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 in,
upon and about the Premises. Landlord shall at all times have and retain a
key with which to unlock all doors in the Premises, excluding Tenant's
vaults and safes. Landlord 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. Any entry to the Premises obtained by
Landlord by any of said means, or otherwise, shall not be construed or
deemed to be a forcible or unlawful entry into the Premises, or an eviction
of Tenant from the Premises or any portion thereof, and any damages caused
on account thereof shall be paid by Tenant. It is understood and agreed
that no provision of this Lease shall be construed as obligating Landlord
to perform any repairs, alterations or decorations except as otherwise
expressly agreed herein by Landlord.
16. UTILITIES AND SERVICES.
Provided that Tenant is not in default under this Lease, Landlord
agrees to furnish or cause to be furnished to the Premises the utilities
and services described in the Standards for Utilities and Services,
attached hereto as Exhibit C, subject to the conditions and in accordance
with the standards set forth therein. Landlord's failure to furnish any of
the foregoing items when such failure is caused by:
(i) Accident, breakage, or repairs,
(ii) Strikes, lockouts or other labor disturbance or labor
dispute of any character,
(iii) Governmental regulation, moratorium or other
governmental action,
(iv) Inability despite the exercise of reasonable diligence
to obtain electricity, water or fuel, or by
(v) Any other cause beyond Landlord's reasonable control,
shall not result in any liability to Landlord. In addition, Tenant shall
not be entitled to any abatement or reduction of rent by reason of such
failure, no eviction of Tenant shall result from such failure and Tenant
shall not be relieved from the performance of any covenant or agreement in
this Lease because of such failure. In the event of any failure, stoppage
or interruption thereof, Landlord shall diligently attempt to resume
service promptly.
17. BANKRUPTCY.
If Tenant shall file a petition in bankruptcy under any provision of
the Bankruptcy Code as then in effect, or if Tenant shall be
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adjudicated a bankrupt in involuntary bankruptcy proceedings and such
adjudication shall not have been vacated within thirty days from the date
thereof or if a receiver or trustee shall be appointed of Tenant's property and
the order appointing such receiver or trustee shall not be set aside or vacated
within thirty days after the entry thereof, or if Tenant shall assign Tenant's
estate or effects for the benefit of creditors, or if this Lease shall, by
operation of law or otherwise, pass to any person or persons other than Tenant,
then in any such event Landlord may terminate this Lease, if Landlord so elects,
with or without notice of such election and with or without entry or action by
Landlord. In such case, notwithstanding any other provisions of this Lease,
Landlord, in addition to any and all rights and remedies allowed by law or
equity, shall, upon such termination, be entitled to recover damages in the
amount provided in Paragraph 23(b) hereof. Neither Tenant nor any person
claiming through or under Tenant or by virtue of any statute or order of any
court shall be entitled to possession of the Premises but shall surrender the
Premises to Landlord. Nothing contained herein shall limit or prejudice the
right of Landlord to recover damages by reason of any such termination equal to
the maximum allowed by any statute or rule of law in effect at the time when and
governing the proceedings in which, such damages are to be proved; whether or
not such amount is greater, equal to, or less than the amount of damages
recoverable under the provisions of this Article 17.
18. INDEMNIFICATION.
Tenant shall indemnify, defend and hold Landlord harmless from all claims
arising from Tenants use of the Premises or the conduct or its business or from
any activity, work, or thing done, permitted or suffered by Tenant in or about
the Premises. Tenant shall further indemnify, defend and hold Landlord harmless
from all claims arising from any breach or default in the performance of any
obligation to be performed by Tenant under the terms of this Lease, or arising
from any act, neglect, fault or omission of Tenant or of its agents or
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in or about such claim or any action or proceeding brought
thereon. In case any action or proceeding shall be brought against Landlord by
reason of any such claim, Tenant upon notice from Landlord shall defend the
same at Tenant's expense by counsel approved in writing by Landlord. Tenant, as
a material part of the consideration to Landlord, hereby assunes all risk of
damage to property or injury to person in, upon or about the Premises from any
cause whatsoever except that which is caused by the failure of Landlord to
observe any of the terms and conditions of this Lease where such failure has
persisted for an unreasonable period of time after written notice of such
failure. Tenant hereby waives all its claims in respect thereof against
Landlord.
19. DAMAGE TO TENANT'S PROPERTY.
Notwithstanding the provisions of Article 18 to the contrary, Landlord or
its agents shall not be liable for (i) any damage to any property entrusted to
employees of the Building, (ii) loss or damage to any property by theft or
otherwise, (iii) any injury or damage to persons or property resulting from
fire, explosion, falling plaster, steam, gas, electricity, water or rain which
may leak from any part of the Building or from the pipes, appliances or plumbing
work therein or from the roof, street or sub-surface or from any other place or
resulting from dampness or (iv) any other cause whatsoever. Landlord or its
agents shall not be liable for interference with light or other incorporeal
heraditaments, nor shall Landlord be liable for any latent defect in the
Premises or in the Building. Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Premises or in the Building or of defects therein or
in the fixtures or equipment.
20. TENANT'S INSURANCE.
(a) Tenant shall, during the term hereof and any other period of
occupancy, at its sole cost and expense, keep in full force and effect the
following insurance:
(i) Standard form property insurance insuring against the pents of
fire; extended coverage, vandalism, malicious mischief, special extended
coverage ("All-Risk") and sprinkler leakage. This insurance policy shall be upon
all property owned by Tenant, for which Tenant is legally liable or that was
installed at Tenant's expense, and which is located in the Building including,
without limitation, furniture, fittings, installations, fixtures (other than
Tenant improvements installed by Landlord), and any other personal property, in
an amount not less than ninety percent of the full replacement cost thereof. In
the event that there shall be a dispute as to the amount which comprises full
replacement cost, the decision of Landlord or any mortgagees of Landlord shall
be conclusive. This insurance policy shall also be upon direct or indirect loss
of Tenant's earnings attributable to Tenant's inability to use fully or obtain
access to the Premises or Building in an amount as will properly reimburse
Tenant. Such policy shall name Landlord and any mortgagees of Landlord as
insured parties, as their respective interests may appear.
(ii) Comprehensive General Liability insurance insuring Tenant
against any liability arising out of the lease, use, occupancy or maintenance of
the Premises and all areas appurtenant thereto. Such insurance shall be in the
amount of $1,000,000 Combined Single Limit for injury to, or death of one or
more persons in an occurrence, and for damage to tangible property (including
loss of use) in an occurrence, with such liability amount to be adjusted from
year to year to reflect increases in the Consumer Price Index. The policy shall
insure the hazards of premises and operations, independent contractors,
contractual liability (covering the indemnity contained in Paragraph 20 hereof)
and shall (1) name Landlord as an additional insured, (2) contain a cross
liability provision, and (3) contain a provision that the insurance provided the
Landlord hereunder shall be primary and non-contributing with any other
insurance available to the Landlord.
(iii) Workmen's Compensation and Employer's Liability insurance (as
required by State Law).
(iv) Any other form or forms of insurance as Tenant or Landlord or
any mortgagees of Landlord may reasonably require from time to time in form, in
amounts and for insurance risks against which a prudent tenant would protect
itself.
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(b) All policies shall be written in a form satisfactory to Landlord and
shall be taken out with insurance companies holding a General Policyholders
Rating of "A" and a Financial Rating of "X" or better, as set forth in the most
current issue of Best Insurance Guide. Within ten days after the execution of
this Lease, Tenant shall deliver to Landlord copies of policies or certificates
evidencing the existence of the amounts and forms of coverage satisfactory to
Landlord. No such policy shall be cancellable and deducible in coverage except
after thirty days prior written notice to Landlord. Tenant shall, within ten
days prior to the expiration of such policies, furnish Landlord with renewals or
"binders" thereof, or Landlord may order such insurance and charge the cost
thereof to Tenant as additional rent. If Landlord obtains any insurance that is
the responsibility of Tenant under this section. Landlord shall deliver to
Tenant a written statement selling forth the cost of any such insurance and
showing in reasonable detail the manner in which it has been computed.
21. DAMAGE OR DESTRUCTION.
(a) In the event the Building and/or the Premises is damaged by fire or
other perils covered by Landlord's insurance, Landlord shall:
(i) In the event of total destruction, at Landlord's option, as soon
as reasonably possible thereafter, commence repair, reconstruction and
restoration of the Building and/or the Premises and prosecute the same
diligently to completion, in which event this Lease shall remain in full force
and effect; or within ninety days after such damage, elect not to so repair,
reconstruct or restore the Building and/or the Premises, in which event this
Lease shall terminate. In either event, Landlord shall give Tenant written
notice of its intention within said ninety day period. In the event Landlord
elects not to restore the Building and/or the
Premises, this Lease shall be deemed to have terminated as to the date of such
total destruction.
(ii) In the event of a partial destruction of the Building and/or the
Premises, to an extent not exceeding twenty-five percent of the full insurable
value thereof, and if the damage thereto is such that the Building and/or the
Premises may be repaired, reconstructed or restored within a period of ninety
days from the date of the happening of such casualty and if Landlord will
receive insurance proceeds sufficient to cover the cost of such repairs, then
Landlord shall commence and proceed diligently with the work of repair,
reconstruction and restoration and this Lease shall continue in full force and
effect. If such work of repair, reconstruction and restoration shall require a
period longer than ninety days or exceeds twenty-five percent of the full
insurable value thereof, or if said insurance proceeds will not be sufficient to
cover the cost of such repairs, then Landlord either may elect to so repair,
reconstruct or restore and the Lease shall continue in full force and effect or
Landlord may elect not to repair, reconstruct or restore and the Lease shall
then terminate. Under any of the conditions of this Subparagraph 21(a)(ii),
Landlord shall give written notice to Tenant of its intention within said ninety
day period. In the event Landlord elects not to restore the Building and/or the
Premises, this Lease shall be deemed to have terminated as of the date of such
partial destruction.
(b) Upon any termination of this Lease under any of the provisions of
this Article 21, the parties shall be released without further obligation to the
other from the date possession of the Premises is surrendered to Landlord except
for items which have therefore accrued and are then unpaid.
(c) In the event of repair reconstruction and restoration by Landlord as
herein provided, the rental payable under this Lease shall be abated
proportionately with the degree to which Tenant's use of the Premises is
impaired during the period of such repair, reconstruction or restoration.
Tenant shall not be entitled to any compensation or damages for loss in the use
of the whole or any part of the Premises and/or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
(d) Tenant shall not be released from any of its obligations under this
Lease except to the extent and upon the conditions expressly stated in this
Article 21. Notwithstanding anything to the contrary contained in this Article
21, if Landlord is delayed or prevented from repairing or restoring the damaged
Premises within one year after the occurence of such damage or destruction by
reason of acts of God, war, governmental restrictions, inability to procure the
necessary labor or materials, or other cause beyond the control of Landlord,
Landlord shall be relieved of its obligation to make such repairs or
restoration and Tenant shall be released from its obligations under this Lease
as of the end of said one year period.
(e) If damage is due to any cause other than fire or other peril covered
by extended coverage insurance, Landlord may elect to terminate this Lease.
(f) If landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall be obligated to make repair or restoration only of
those portions of the Building and the Premises which were originally provided
at Landlord's expense, and the repair and restoration of items not provided at
Landlord's expense shall be the obligation of Tenant.
(g) Notwithstanding anything to the contrary contained in this Article
21, Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article 21 occurs during the last twelve months of the term of this Lease
or any extension hereof.
(h) The provisions of California Civil Code (S) 1932, Subsection 2, and
(S) 1933, Subsection 4, which permit termination of a lease upon destruction of
the Leased premises, are hereby waived by Tenant; and the provisions of this
Article shall govern in case of such destruction.
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22. EMINENT DOMAIN.
In case all of the Premises, or such part thereof as shall substantially
interfere with Tenant's use and occupancy thereof, shall be taken for any public
or quasi-public purpose by any lawful power or authority by exercise of the
right of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority. Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking, and Landlord shall be entitled to receive
the entire amount of any award without deduction for any estate or interest of
Tenant. In the event the amount of property or the type of estate taken shall
not substantially interfere with the conduct of Tenant's business, Landlord
shall be entitled to the entire amount of the award without deduction for any
estate or interest of Tenant. Landlord shall restore the Premises to
substantially their same condition prior to such partial taking, and a
proporsonate allowance shall be made to Tenant for the rent corresponding to the
time during which, and to the part of the Premises of which, Tenant shall be so
deprived on account of such taking and restoration. Nothing contained in this
Paragraph shall be deemed to give Landlord any interest in any award made to
Tenant for the taking of personal property and fixtures belonging to Tenant.
23. DEFAULTS AND REMEDIES.
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) The vacation or abandonment of the Premises by Tenant. Abandonment
is herein defined to include, but is not limited to, any absence by Tenant from
the Premises for five business days or longer while in default of any provision
of this Lease.
(ii) The failure by Tenant to make any payment of rent or additional
rent or any other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of three days after written
notice thereof from Landlord to Tenant; provided however, that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure (S) 1161 regarding unlawful detainer actions.
(iii) The failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in Subparagraph 23(a) (i) or (ii) above, where
such failure shall continue for a period of ten days after written notice
thereof from Landlord to Tenant. Any such notice shall be in lieu of, and not in
addition to, any notice required under California Code of Civil Procedure
(S) 1161 regarding unlawful detainer actions. If the nature of Tenant's default
is such that more than ten days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant shall commence such cure
within said ten-day period and thereafter diligently prosecute such cure to
completion, which completion shall occur not later than sixty days from the date
of such notice from Landlord.
(iv) (1) The making by Tenant of any general assignment for the benefit
of creditors: 92) the filing or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within thirty days): (3) the appointment of a
trustee or receiver to take possession as 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 days: or (4) 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 days.
(b) In the event of any such default by Tenant, in addition to any other
remedies available to Landlord at law or in equity, Landlord shall have the
immediate option to terminate this Lease and all rights of Tenant hereunder in
the event that Landlord shall elect to so terminate this Lease then Landlord may
recover from Tenant:
(i) the worth at the time of award of any unpaid rent which had been
earned at the time of such termination: plus
(ii) the worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided: plus
(iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Tenant proves could be reasonably avoided: plus
(iv) any other amount necessary to compensate Landlord for all the
detriment proximately cause by Tenant's failure to perform Tenant's obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
As used in Subparagraphs 23(b) (i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at a rate equal to 2% in excess of the
"prime rate" of the Bank of America N.T.&S.A. as of the time of award not to
exceed, however the maximum rate permitted by law. As used in Subparagraph 25(b)
(iii) above, the "worth at the time of award" is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent.
(c) In the event of any such default by Tenant, Landlord shall also have the
right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises: such property may be removed
and stored in a public warehouse or elsewhere at the cost and for the account of
Tenant. No re-entry or taking possession of the Premises by Landlord pursuant
to this Paragraph 23(c) shall be construed as an election to terminate this
Lease unless a written notice of such intention is given to Tenant or unless the
termination thereof is decreed by a court of competent jurisdiction.
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(d) All rights. options and remedies of Landlord contained in this Lease
shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by law,
whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord or any rent or
other payments due hereunder or any omission by Landlord to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect defaults other than as specified in said waiver. The consent
or approval of Landlord to or of any act by Tenant requiring Landlord's consent
or approval shall not be deemed to waive or render unnecessary Landlord's
consent or approval to or of any subsequent similar acts by Tenant.
24. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, either voluntarily or by operation of law, assign,
hypothecate or transfer this Lease, or sublet the Premises or any part thereof,
without the prior written consent of Landlord in each instance.
(b) In the event Tenant desires to assign, hypothecate or otherwise
transfer this Lease or sublet the Premises, then at least thirty days prior to
the date when Tenant desires the assignment or sublease to be effective (the
"Assignment Date"), Tenant shall give Landlord a notice (the "Assignment
Notice"), which shall set forth the name, address and business of the proposed
assignee or sublessee, information (including references) concerning the
character, ownership, and financial condition of the proposed assignee or
sublessee, the Assignment Date, any ownership or commercial relationship
between Tenant and the proposed assignee or sublessee, and the consideration and
all other material terms and conditions of the proposed assignment or sublease,
all in such detail as Landlord shall reasonably require. If Landlord requests
additional detail, the Assignment Notice shall not be deemed to have been
received until Landlord receives such additional detail, and Landlord may
withhold consent to any assignment or sublease until such information is
provided to it.
(c) Landlord may, in its absolute discretion, withhold consent to any
assignment, hypothecation or transfer of this Lease for any reason. The
subletting of substantially all of the Premises for all or any part of the
remaining terms of this Lease shall be deemed an assignment rather than a
sublease for purposes of this clause. Notwithstanding the foregoing, Landlord
shall consent to the assignment or transfer, if the Assignment Notice states
that Tenant desires to assign the Lease to any entity into which Tenant is
merged, with which Tenant is consolidated or which acquires all or substantially
all of the assets of Tenant, provided that the assignee first executes,
acknowledges and delivers to Landlord an agreement whereby the assignee agrees
to be bound by all of the covenants and agreements in this Lease which Tenant
has agreed to keep, observe or perform, that the assignee agrees that the
provisions of this section shall be binding upon it as if it were the original
Tenant hereunder and that the assignee shall have a net worth (determined in
accordance with generally accepted accounting principles consistently applied)
immediately after such assignment which is at least equal to the net worth (as
so determined) of Tenant immediately prior to the assignment.
(d) Except as provided above, Landlord's consent to any sublease shall
not be unreasonably withheld. A condition to such consent shall be delivered by
Tenant to Landlord of a true copy of any such sublease. If Tenant shall sublet
all or any portion of the Premises that Tenant has occupied for its own use at
any time, then any consideration paid by the sublessee for the portion of the
Premises being sublet that previously was occupied by Tenant that exceeds one
hundred ten percent of the Basic Rent and Rental Adjustments provided by this
Lease for such portion of the Premises being sublet shall be due, owing and
payable from Tenant to Landlord when paid or owing by the sublessee under the
sublease. The parties intend that the preceding sentence shall not apply to any
sublease rentals respecting a portion of the Premises that, during the entire
term of this Lease, was not occupied by Tenant for its own use, but was always
subleased by Tenant and/or kept vacant. For the purpose of this section, the
rent for each square foot of floor space in the Premises shall be deemed equal.
(e) Any sale, assignment, hypothecation or transfer of this Lease or
subletting of the Premises that is not in compliance with the provisions of this
section shall be void and shall, at the option of Landlord, terminate this
Lease. The consent by Landlord to any assignment or subletting shall not be
construed as relieving Tenant or any assignee of this Lease or sublessee of the
Premises from obtaining the express written consent of Landlord to any further
assignment or subletting or as releasing Tenant or any assignee or sublessee of
Tenant from any liability or obligation hereunder whether or not then accrued.
In the event Landlord shall consent to an assignment or sublease, Tenant shall
pay Landlord as Additional Rent a reasonable attorneys' and administrative fee
not to exceed $500 for costs incurred in connection with evaluating the
Assignment Notice. This section shall be fully applicable to all further sales,
hypothecations, transfers, assignments and subleases of any portion of the
Premises by any successor or assignee of Tenant, or any sublessee of the
Premises.
25. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination and at the election of Landlord or
any mortgagee with a lien on the Building or any ground lessor with respect to
the Building, this Lease shall be subject and subordinate at all times to:
(a) All ground leases or underlying leases which may now exist or
hereafter be executed affecting the Building or the land upon which the Building
is situated or both, and
(b) The lien of any mortgage or deed of trust which may now exist or
hereafter be executed in any amount for which the Building, land, ground leases
or underlying leases, or Landlord's interest or estate in any of said items is
specified as security. Notwithstanding
9
<PAGE>
the foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease. In the event that any ground lease or underlying lease terminates
for any reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason. Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant or the successor in interest to
Landlord, at the option of such successor in interest. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form requested
by Landlord, any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground leases or underlying leases or the
lien of any such mortgage or deed of trust.
26. ESTOPPEL CERTIFICATE.
(a) Within ten days following any written request which Landlord may make
from time to time. Tenant shall execute and deliver to Landlord a statement
certifying:
(i) The date of commencement of this Lease;
(ii) The fact that this Lease is unmodified and in full force and effect
(or, if there have been modifications hereto, that this Lease is in full force
and effect, and stating the date and nature of such modifications);
(iii) The date to which the rental and other sums payable under this
Lease have been paid;
(iv) That there are no current defaults under this Lease by either
Landlord or Tenant except as specified in Tenant's statement; and
(v) Such other matters requested by Landlord, Landlord and Tenant
intend that any statement delivered pursuant to this Article 26 may be relied
upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the
Building or any interest therein.
(b) Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant:
(i) That this Lease is in full force and effect, without modification
except as may be represented by Landlord;
(ii) That there are no uncured defaults in Landlord's performance; and
(iii) That not more than one month's rental has been paid in advance.
28. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the "Rules and Regulations,"
a copy of which is attached hereto and marked Exhibit D, and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord shall not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the Building of
any of said Rules and Regulations.
29. CONFLICT OF LAWS.
This Lease shall be governed by and construed pursuant to the laws of the
State of California.
30. SUCCESSORS AND ASSIGNS.
Except as otherwise provided in this Lease, all of the covenants, conditions
and provisions of this Lease shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
31. SURRENDER OF PREMISES.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies.
10
<PAGE>
32. ATTORNEYS' FEES.
(a) If Landlord should bring suit for possession of the Premises, for the
recovery of any sum due under this Lease, or because of the breach of any
provisions of this Lease, or for any other relief against Tenant hereunder, or
in the event of any other litigation foreseen the parties with respect to this
Lease, then all costs and expenses, including reasonable attorneys' fees,
incurred by the prevailing party therein shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on the
date of the commencement of such action and shall be enforceable whether or not
the action is prosecuted to judgment.
(b) If Landlord is named as a defendant in any suit brought against Tenant
in connection with or arising out of Tenant's occupancy hereunder. Tenant shall
pay to Landlord its costs and expenses incurred in such suit, including
reasonable attorney's fees.
33. PERFORMANCE BY TENANT.
All convenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to pay any sum
of money owned to any party other than Landlord, for which it is liable
hereunder, or if Tenant shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue for ten days after notice
thereof by Landlord, Landlord may, without waiving or releasing Tenant from
obligations of Tenant, but shall not be obligated to make any such payment or
perform any such other act to be made or performed by Tenant. All sums so paid
by Landlord and all necessary incidental costs together with interest thereon at
the maximum rate permissible by law, from the date of such payment by Landlord,
shall be payable to Landlord on demand. Tenant covenants to pay any such
sums, and Landlord shall have (in addition to any other right or remedy of
Landlord) all rights and remedies in the event of the non-payment thereof by
Tenant as are set forth in Article 23 hereof.
34. MORTGAGEE PROTECTION.
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises whose address shall have been furnished to
Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default, including time to obtain possession of the Premises by
power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure.
35. DEFINITION OF LANDLORD.
The term "Landlord," as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title,
Landlord herein named (and in case of any subsequent transfers or conveyances,
the ten grantor) shall be automatically freed and retrieved from and after the
date of such transfer, assignment or conveyance of all liability as respects the
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed. Without further agreement, the transferee
of such title shall be deemed to have assumed and agreed to observe and
perform any and all obligations of Landlord hereunder, during its ownership of
the Premises. Landlord may transfer its interest in the Premises without the
consent of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
36. WAIVER.
The waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other term, covenant or condition herein contained, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of Landlord to insist upon the performance by Tenant in strict
accordance with said terms. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
37. IDENTIFICATION OF TENANT.
If more that one person executes this Lease as Tenant:
(a) Each of them is jointly and severally liable for the keeping, observing
and performing of all of the terms, covenants, conditions, provisions and
agreements of this Lease to be kept, observed and performed by Tenant, and
(b) The term "Tenant" as used in this Lease shall mean and include each of
them jointly and severally. The act of or notice from, or notice or refund to,
or the signature of any one or more of them, with respect to the tenancy of this
Lease, including, but not limited to any renewal, extension, expiration,
termination or modification of this Lease, shall be binding upon each and all of
the persons executing this Lease as Tenant with the same force and effect as if
each and all of them had so acted or so given or received such notice or refund
or so signed.
11
<PAGE>
38. PARKING
The use by Tenant, its employees and invitees, of the parking facilities of
the Building shall be on the terms and conditions set forth in exhibit E
attached hereto and by this reference incorporated herein and shall be subject
to such other agreement between Landlord and Tenant as may hereinafter be
established.
39. TERMS AND HEADINGS.
The words "Landlord" and "Tenant" as used herein shall include the plural as
well as the singular. Words used in any gender include other genders. The
paragraph headings of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
40. EXAMINATION OF LEASE.
Submission of this instrument for examination or signature by Tenant does not
constitute a reservation of or option for lease, and it is not effective as a
lease or otherwise until execution by and delivery to both Landlord and Tenant.
41. TIME.
Time is of the essence with respect to the performance of every provision of
this Lease in which time of performance is a factor.
42. PRIOR AGREEMENT:AMENDMENTS.
This Lease contains all of the agreements of the parties hereto with respect
to any matter covered or mentioned in this Lease, and no prior agreement or
understanding pertaining to any such matter shall be effective for any purpose.
No provisions of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in interest.
43. SEPARABILITY.
Any provision of this Lease which shall prove to be invalid, void or illegal
in no way affects, impairs or invalidates any other provision hereof, and such
other provisions shall remain in full force and effect.
44. RECORDING.
Neither Landlord nor Tenant shall record this Lease nor a short form
memorandum thereof without the consent of the other.
45. CONSENTS.
Whenever the consent of either party is required hereunder such consent shall
not be unreasonably withheld.
46. LIMITATION ON LIABILITY.
In consideration of the benefits accruing hereunder, Tenant and all
successors and assigns covenant and agree that in the event of any actual or
alleged failure, breach or default hereunder by Landlord:
(a) The sole and exclusive remedy shall be against the Landlord's interest in
the Building:
(b) No partner of Landlord shall be sued or named as a party in any suit or
action (except as may be necessary to secure jurisdiction of the partnership):
(c) No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership):
(d) No partner of Landlord shall be required to answer or otherwise plead to
any service of process:
(e) No judgement will be taken against any partner of Landlord:
(f) Any judgement taken against any partner of Landlord may be vacated and
set aside at any time nunc pro tunc:
(g) No writ of execution will ever be levied against the assets of any
partner of Landlord:
(h) These covenants and agreements are enforceable both by Landlord and also
by any partner of Landlord.
47. RIDERS.
Clauses, plats and riders, if any, signed by Landlord and Tenant and affixed
to this Lease are a part hereof.
12
<PAGE>
48. MODIFICATION FOR LENDER.
If, in connection with obtaining construction, interim or permanent financing
for the Building the lender shall request reasonable modifications in this Lease
as a condition to such financing, Tenant will not unreasonably withhold, delay
or defer its consent thereto, provided that such modifications do not increase
the obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
49. AIRPORT DISCLOSURE.
Tenant, its heirs, successors and assigns acknowledges that:
(a) The Orange County Airport may not be able to provide adequate air
service for business establishments which rely on such services;
(b) When an alternate air facility is available, a complete phase out of
jet service may occur at Orange County Airport;
(c) The City of Newport Beach may continue to oppose additional commercial
air service expansion at the Orange County Airport;
(d) Tenant, its heirs, successors and assigns will not actively oppose any
action taken by the City of Newport Beach to phase out or limit jet air service
at the Orange County Airport.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD: ADDRESS:
KOLL CENTER NEWPORT NUMBER 8, a California c/o The Koll Company
Limited Partnership 4350 Von Karman Avenue, Suite 200
By: /s/ Chuck Holden Newport Beach, CA 92660
----------------------------------
Chuck Holden, Vice President Asset
Management
TENANT: ADDRESS:
TIEMPO ESCROW II,
A California Corporation 4590 MacArthur Boulevard
- ------------------------------------- -----------------------------------
By: /s/ Anne Muter Suite 175
---------------------------------- -----------------------------------
Anne Muter, President Title
By: Newport Beach, CA 92660
---------------------------------- -----------------------------------
Title
13
<PAGE>
ADDENDUM TO OFFICE BUILDING LEASE
DATED JULY 10, 1990
BY AND BETWEEN KOLL CENTER NEWPORT #8
A CALIFORNIA LIMITED PARTNERSHIP AS "LANDLORD"
AND TIEMPO ESCROW II, A CALIFORNIA CORPORATION AS "TENANT"
EXECUTED CONCURRENTLY WITH THE KOLL CENTER NEWPORT #8
OFFICE BUILDING LEASE DATED JULY 10, 1990
- --------------------------------------------------------------------------------
This Addendum to Lease is executed by and between Koll Center Newport #8, a
California Limited Partnership (hereinafter "Landlord") and Tiempo Escrow II, a
California Corporation (hereinafter "Tenant") concurrently with the Koll Center
Newport #8 Office Building Lease dated July 10, 1990.
50. ANNUAL BASIC RENT - The rent payable in months one (1) through sixty (60)
-----------------
shall be as follows:
Month 1 - $1.50 per rentable square foot per month,
$6,354.00 per month,
Months 2-6 - Rent Free
Month 7 - $.75 per rentable square foot per month,
$3,177.00 per month,
Months 8-12 - $1.50 per rentable square foot per month,
$6,354.00 per month,
Months 13-24 - $1.56 per rentable square foot per month,
$6,608.16 per month,
Months 25-36 - $1.62 per rentable square foot per month, *
$6,872.49 per month,
Months 37-48 - $1.69 per rentable square foot per month, *
$7,147.39 per month,
Months 49-60 - $1.75 per rentable square foot per month, *
$7,433.28 per month.
*Rates per rentable square foot have been rounded. Monthly rates listed
represent the actual rent that will be due monthly.
<PAGE>
TIEMPO ESCROW II
Addendum
Page 2
51. RENTAL ABATEMENT: Tenant shall be granted free rent during months two (2)
----------------
through six (6) (total of five (5) months free).
52. BASE YEAR ADJUSTMENT: Notwithstanding anything to the contrary contained
--------------------
in Paragraph No. 4 "Rental Adjustment," the "Direct Expense Base" shall be
equal to the actual expenses incurred, as if the building were ninety-five
percent (95%) occupied for the Base Year 1990 and this Lease shall then be
amended accordingly.
53. PARKING: Parking for the building shall be provided as per the following:
-------
A) Unreserved Employee Parking: Landlord shall provide Tenant with
---------------------------
fifteen (15) unreserved employee parking spaces free for the Lease
term. Such parking shall be provided free and in common with the
surface parking lot surrounding the building.
B) Visitor Parking: Visitor parking shall be at a charge to Tenant's
---------------
invitees with the rate being established by Landlord from time-to-
time. Tenant may elect to validate such parking for their guests.
54. SIGNAGE:
-------
Monument Sign: Tenant shall be granted monument signage located in the
-------------
planter area in front of the subject premises. Final size, location, design
and placement shall be subject to final approval of Landlord and shall
conform to all project and governmental regulatory requirements.
Exterior Birch Street Directory Sign: Tenant shall be allowed one (1)
------------------------------------
Tenant identification position on the project "cube" directory sign which
is located on Birch Street closest to the building. Final lettering size
and position on the existing cube directory sign shall be subject to
Landlord's approval.
Cost: Cost of the above signage shall be at the sole cost and expense of
----
Tenant.
55. CONFLICT WITH BASIC LEASE: In the event of any conflict between the printed
-------------------------
portion of this Lease and the provisions of this Addendum, Sections 50
through 54, the provisions of this Addendum shall prevail.
<PAGE>
TIEMPO ESCROW II
Addendum
Page 3
KOLL CENTER NEWPORT #8 TIEMPO ESCROW II,
A California Limited Partnership A California Corporation
By: /s/ Chuck Holden By: /s/ Anne Muter
----------------------------------- ------------------------------
Chuck Holden Anne Muter
Title: Vice President Asset Management Title: President
-------------------------------- ---------------------------
Date: 7-10-90 Date:
--------------------------------- ----------------------------
<PAGE>
EXHIBIT A
[FLOOR PLAN APPEARS HERE]
FLOOR 1
Koll Center Newport 8
4590 MacArthur Blvd
FINAL
Suite #: 175 Usable: 3774
ID #: 100 Rentable: 4236
[LOGO OF STEVENSON SYSTEMS, INC APPEARS HERE]
<PAGE>
EXHIBIT B
WORK LETTER AGREEMENT
This Work Letter Agreement is entered into as of the 10th day of July, 1990
by and between KOLL CENTER NEWPORT NUMBER 8 ("Landlord") and Tiempo Escrow II, a
California Corporation ("Tenant").
RECITALS:
A. Concurrently with the execution of this Work Letter Agreement,
Landlord and Tenant have entered into a lease (the "Lease") covering certain
premises (the "Premises") more particularly described in Exhibit A attached to
the Lease.
B. In order to induce Tenant to enter into the Lease (which is hereby
incorporated by reference to the extent that the provisions of this Work Letter
Agreement may apply thereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant hereby agree as follows:
1. COMPLETION SCHEDULE
Within ten days after the execution of the Lease, Landlord shall deliver to
Tenant, for Tenant's review and approval, a schedule (the "Work Schedule")
setting forth a timetable for the planning and completion of the installation of
the Tenant improvements to be constructed in the Premises. The Work Schedule
shall set forth each of the various items of work to be done by or approval to
be given by Landlord and Tenant in connection with the completion of the Tenant
improvements. Such schedule shall be submitted to Tenant for its approval and,
upon approval by both Landlord and Tenant, such schedule shall become the basis
for completing the Tenant improvement work. If Tenant shall fail to approve the
Work Schedule, as it may be modified after discussions between Landlord and
Tenant, within five working days after the date such schedule is first received
by Tenant, Landlord may, at its option, terminate the Lease and all of its
obligations thereunder.
2. TENANT IMPROVEMENTS.
Reference herein to "Tenant Improvements" shall include all work to be done
in the Premises pursuant to the Tenant Improvement Plans described in Paragraph
3 below, including but not limited to partitioning, doors, ceilings, floor
coverings, finishes, (including paint and wallcovering) electrical, (including
lighting, switching, telephones, outlets, etc.) plumbing, heating, ventilating
and air conditioning, fire protection, cabinets and other mill work.
INITIAL
3. TENANT IMPROVEMENT PLANS.
HERE
Immediately after the execution of this Lease, Tenant agrees to meet with
Landlord's architect and/or space planner II. The purpose of preparing a space
plan for the layout of the Premises. Based upon such space plan, Landlord's
architect shall prepare final working drawings and specifications for the Tenant
Improvements. Such final working drawings and specifications may be referred to
herein as the "Tenant Improvement Plans." (See mutually approved Space Plan
attached hereto.)
INITIAL
4. FINAL PRICING AND DRAWING SCHEDULE.
HERE
After the preparation of the space plan and after Tenant's written approval
thereof, in accordance with the Work Schedule Landlord shall cause its architect
to prepare and submit to Tenant the final working drawings and specifications
referred to in Paragraph 3 hereof. Such working drawings shall be approved by
Landlord and Tenant in accordance with the Work Schedule and shall thereafter be
submitted to the appropriate governmental body for plan checking and a building
permit. Landlord, with Tenant's cooperation, shall cause to be made any changes
in the plans and specifications necessary to obtain the building permit. After
final approval of the working drawings, no further changes to the Tenant
Improvement Plans may be made without the prior written approval from both
Landlord and Tenant, and then only after agreement by Tenant to pay any excess
costs resulting from such changes.
5. CONSTRUCTION OF TENANT IMPROVEMENTS.
After the Tenant Improvement Plans have been prepared and approved, the
final pricing has been approved and a building permit for the Tenant
Improvements has been issued. Landlord shall enter into a construction contract
with its contractor for the installation of the Tenant Improvements in
accordance with the Tenant Improvement Plans. Landlord shall supervise the
completion of such work and shall use its best efforts to secure completion of
the work in accordance with the Work Schedule. The cost of such work shall be
paid as provided in Paragraph 6 hereof.
INITIAL
HERE
EXHIBIT B Page 1
<PAGE>
7. COMPLETION AND RENTAL COMMENCEMENT DATE.
The commencement of the term of this Lease and Tenant's obligation for
the payment of rental under the Lease shall not commence until substantial
completion of construction of the Tenant Improvements. However, if there shall
be a delay in substantial completion of the Tenant Improvements as a result of:
(i) Tenant's failure to approve any item or perform any other
obligation in accordance with and by the date specified in the Work Schedule;
(ii) Tenant's request for materials, finishes or installations other
than those readily available; or
(iii) Tenant's charges in the Tenant Improvement Plans after their
approval by Tenant; then the commencement of the term of the Lease and the
rental commencement date shall be accelerated by the number of days of such
delay.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the date
first above written.
LANDLORD: TENANT:
TIEMPO ESCROW, II,
A California Corporation
KOLL CENTER NEWPORT NUMBER 8, a -------------------------------
California Limited Partnership
By: /s/ Chuck Holden By: /s/ Anne Muter
------------------------------- ----------------------------
(LANDLORD) (TENANT)
Chuck Holden, Vice President Anne Muter, President
Asset Management
EXHIBIT B Page 2
<PAGE>
[FLOOR PLAN APPEARS HERE]
Notes:
1. Provide single-lite 3 X 6 solid core wood door to receive paint, with 2
transom above in building standard metal frame.
2. Provide SW X 4 pass through window in building standard metal frame at 45
A.F.F.
3. Provide waste trap and drain, hot and cold water, and garbage disposal, for
single bowl stainless steel sink in 24" deep plastic laminate counter top on
plastic laminate base cabinet with flush overlay doors and one adjustable shelf
inside, with 12" door plastic laminate upper cabinet with flush overlay doors
and two adjustable shelves inside.
[LOGO OF EHRLICH-ROMINGER ARCHITECTS APPEARS HERE]
JOB NO. 90094
DATE 6-19-90
TIEMPO ESCROW II
GROUND FLOOR
4590 MAC ARTHUR BLVD.
NEWPORT BEACH, CALIFORNIA 92660
EXHIBIT "B"
Page 3 of 3
<PAGE>
EXHIBIT C
STANDARDS FOR UTILITIES AND SERVICES
The following Standards for Utilities and Services are in effect.
Landlord reserves the right to adopt nondiscriminatory modifications and
additions hereto:
As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) Provide non-attended automatic elevator facilities Monday
through Friday, except holidays, from 8 A.M. to 6 P.M., and have one elevator
available at all other times.
(b) On Monday through Friday, except holidays, from 8 A.M. to 6
P.M., and on Saturday mornings from 8 A.M. to 12 Noon, (and other times for a
reasonable additional charge to be fixed by Landlord), ventilate the Premises
and furnish air conditioning or heating on such days and hours, when in the
judgment of Landlord it may be required for the comfortable occupancy of the
Premises. The air conditioning system achieves maximum cooling when the window
coverings are closed. Landlord shall not be responsible for room temperatures if
Tenant does not keep all window coverings in the Premises closed whenever the
system is in operation. Tenant agrees to cooperate fully at all times with
Landlord, and to abide by all regulations and requirements which Landlord may
prescribe for the proper function and protection of said air conditioning
system. Tenant agrees not to connect any apparatus, device, conduit or pipe to
the Building chilled and hot water air conditioning supply lines. Tenant further
agrees that neither Tenant nor its servants, employees, agents, visitors,
licensees or contractors shall at any time enter mechanical installations or
facilities of the Building or adjust, tamper with, touch or otherwise in any
manner affect said installations or facilities. The cost of maintenance and
service calls to adjust and regulate the air conditioning system shall be
charged to tenant if the need for maintenance work results from either Tenant's
adjustment of room thermostats or Tenant's failure to comply with its
obligations under this section, including keeping window coverings closed as
needed. Such work shall be charged at hourly rates equal to then-current
journeymen's wages for air conditioning mechanics.
(c) Landlord shall furnish to the Premises, during the usual
business hours on business days, electric current as required by the Building
standard office lighting and horsepower office business machines in an amount
not to exceed .025 KWH per square foot per normal business day. Tenant agrees,
should its electrical installation or electrical consumption be in excess of the
aforesaid quantity or extend beyond normal business hours, to reimburse Landlord
monthly for the measured consumption at the average cost per kilowatt hour
charged to the Building during the period. If a separate meter is not installed
at Tenant's cost such excess cost will be established by an estimate agreed upon
by Landlord and Tenant, and if the parties fail to agree, as established by an
independent licensed engineer. Tenant agrees not to use any apparatus or device
in or upon, or about the Premises which may in any way increase the amount of
such services usually furnished or supplied to said Premises, and Tenant further
agrees not to connect any apparatus or device with wires, conduits or pipes, or
other means by which such services are supplied, for the purpose of using
additional or unusual amounts of such services without written consent of
Landlord. Should Tenant use the same to excess, the refusal on the part of the
Tenant to pay upon demand of Landlord the amount established by the Landlord for
such excess charge shall constitute a breach of the obligation to pay rent under
this Lease and shall entitle Landlord to the rights therein granted for such
breach. At all times Tenant's use of electric current shall never exceed the
capacity of the leeders to the Building or the risers or wiring installation.
(d) Water will be available in public areas for drinking and
lavatory purposes only, but if Tenant requires, uses or consumes water for any
purposes in addition to ordinary drinking and lavatory purposes of which fact
Tenant constitutes Landlord to be the sole judge. Landlord may install a water
meter and thereby measure Tenant's water consumption for all purposes. Tenant
shall pay Landlord for the cost of the meter and the cost of installation
thereof and throughout the duration of Tenant's occupancy Tenant shall keep said
meter and installation equipment in good working order and repair at Tenant's
own cost and expense, in default of which Landlord may cause such meter and
equipment to be replaced or repaired and collect the cost thereof from Tenant.
Tenant agrees to pay for water consumed, as shown on said meter, as and when
bills are rendered, and on default in making such payment. Landlord may pay such
charges and collect the same from Tenant. Any such costs or expenses incurred,
or payments made by Landlord for any of the reasons or purposes hereinabove
stated shall be deemed to be additional rent payable by Tenant and collectible
by Landlord as such.
(e) Provide janitor service to the Premises, provided the same are
used exclusively as offices, and are kept reasonably in order by Tenant, and if
to be kept clean by Tenant, no one other than persons approved by Landlord shall
be permitted to enter the Premises for such purposes. If the Premises are not
used exclusively as offices, they shall be kept clean and in order by Tenant, at
Tenant's expense, and to the satisfaction of Landlord, and by persons approved
by Landlord. Tenant shall pay to Landlord the cost of removal of any of Tenant's
refuse and rubbish, to the extent that the same exceeds the refuse and rubbish
usually attendant upon the use of the Premises as offices.
Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electrical systems, when necessary,
by reason of accident or emergency or for repairs, alterations or improvements,
in the judgment of Landlord desirable or necessary to be made, until said
repairs, alterations or improvements shall have been completed, and shall
further have no responsibility or liability for failure to supply elevator
facilities, plumbing, ventilating, air conditioning or electrical service, when
prevented from so doing by
<PAGE>
strike or accident or by any cause beyond Landlord's reasonable control, or by
laws, rules, orders, ordinances, directions, regulators or requirements of any
federal, state, county or municipal authority or failure of gas, oil or other
suitable fuel supply or inability by exercise of reasonable diligence to obtain
gas, oil or other suitable fuel. It is expressly understood and agreed that any
covenants on Landlord's part to furnish any device pursuant to any of the terms,
covenants, conditions, provisions or agreements of this Lease, or to perform any
act or thing for the benefit of Tenant, shall not be deemed breached if Landlord
is unable to furnish or perform the same by virtue of a strike or labor trouble
or any other cause whatsoever beyond Landlord's control.
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice shall be installed or displayed on any part of the outside or inside
of the Building without the prior written consent of Landlord. Landlord
shall have the right to remove, at Tenant's expense and without notice, any
sign installed or displayed in violation of this rule. All approved signs
or lettering on doors and walls shall be printed, painted, affixed or
inscribed at the expense of Tenant by a person approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection
with any window or door of the Premises, or placed on any windowsill which
is visible from the exterior of the Premises, Tenant shall immediately
discontinue such use. Tenant shall not place anything against or near glass
partitions or doors or windows which may appear unsightly from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, escalators, or stairways of the Building. The halls, passages,
exits, entrances, shopping malls, elevators, escalators and stairways are
not open to the general public, but are open, subject to reasonable
regulation, to Tenants business invitees. Landlord shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interest of the Building and its tenants;
provided that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary
course of its business, unless such persons are engaged in illegal or
unlawful activities. No tenant and no employee or invitee of any tenant
shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the display
of the name and location of tenants only, and Landlord reserves the right
to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by
Landlord shall be employed by Tenant or permitted to enter the Building for
the purpose of cleaning the same. Tenant shall not cause any unnecessary
labor by carelessness or indifference to the good order and cleanliness of
the Premises.
6. Landlord will furnish Tenant, free of charge, with two keys to each door
lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and
Tenant shall not alter any lock or install a new additional lock or bolt on
any door of its Premises. Tenant, upon the termination of his tenancy,
shall deliver to Landlord the keys of all doors which have been furnished
to Tenant, and in the event of loss of any keys so furnished, shall pay
Landlord therefore.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
in their installation.
8. The Building freight elevator(s) shall be available for use by all tenants
in the Building, subject to such reasonable scheduling as Landlord, in its
discretion, shall deem appropriate. No equipment, materials, furniture,
packages supplies, merchandise or other property will by received in the
Building or carried in the elevators except between such hours and in such
elevators as may be designated by Landlord. Tenant's initial move in and
subsequent deliveries of bulky items, such as furniture, safes and similar
items shall, unless otherwise agreed in writing by Landlord, be made during
the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries
during normal office hours shall be limited to normal office supplies and
other small items. No deliveries shall be made which impede or interfere
with other tenants or the operation of the Building.
9. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which
is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary
to properly distribute the weight, which platforms shall be provided at
Tenant's expense. Business machines and mechanical equipment belonging to
Tenant, which cause noise or vibration that may be transmitted to the
structure of the Building or to any space therein to such a degree as to be
objectionable to Landlord or to any tenants in the Building, shall be
placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate noise or vibration.
The persons employed to move such equipment in or out of the Building must
be acceptable to Landlord. Landlord will not be responsible for loss of, or
damage to, any such equipment or other property from any cause, and all
damage done to the Building by maintaining or moving such equipment or
other property shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants
of the Building by reason of noise, odors or vibrations, nor shall Tenant
bring into or keep in or about the Premises any birds or animals.
EXHIBIT D Page 1
<PAGE>
11. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord.
12. Tenant shall not waste electricity, water or air-conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Buildings heating and air-conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice,
and shall refrain from attempting to adjust controls. Tenant shall keep
corridor doors closed, and shall close window coverings at the end of each
business day.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
14. Landlord reserves the right to exclude from the Building between the hours
of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant
shall be responsible for all persons for whom it requests passes and shall
be liable to Landlord for all acts of such persons. Landlord shall not be
liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. Landlord reserves the right to
prevent access to the Building in case of invasion, mob, riot, public
excitement or other commotion by closing the doors or by other appropriate
action.
15. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and electricity, gas or air
outlets before tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or
occupants of the Building or by Landlord for noncompliance with this rule.
16. Tenant shall not obtain for use on the Premises ice, drinking water, food,
beverage, towel or other similar services or accept barbering or
bootblacking service upon the Premises, except at such hours and under such
regulations as may be fixed by Landlord.
17. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused it.
18. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to
the general public in or on the Premises. Tenant shall not make any room-to-
room solicitation of business from other tenants in the Building. Tenant
shall not use the Premises for any business or activity other than that
specifically provided for in Tenant's Lease.
19. Tenant shall not install any radio or television antenna, loudspeaker or
other devices on the roof or exterior walls of the Building. Tenant shall
not interfere with radio or television broadcasting or reception from or in
the Building or elsewhere.
20. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Premises or any part thereof,
except in accordance with the provisions of the Lease pertaining to
alterations. Landlord reserves the right to direct electricians as to where
and how telephone and telegraph wires are to be introduced to the Premises.
Tenant shall not cut or bore holes for wires. Tenant shall not affix any
floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance
with this rule.
21. Tenant shall not install, maintain or operate upon the Premises any vending
machines without the written consent of Landlord.
22. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and Tenant shall
cooperate to prevent such activities.
23. Landlord reserves the right to exclude or expel from the Building any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor
or drugs or who is in violation of any of the Rules and Regulations of the
Building.
24. Tenant shall store all its trash and garbage within its Premises or in other
facilities provided by Landlord. Tenant shall not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse
disposal shall be made in accordance with directions issued from time to
time by Landlord.
25. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking shall be done or permitted on the Premises without
Landlord's consent, except that use by Tenant of Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar
beverages or use of microwave ovens for employee use shall be permitted,
provided that such equipment and use is in accordance with all applicable
federal, state, county and city laws, codes, ordinances, rules and
regulations.
26. Tenant shall not use in any space or in the public halls of the Building any
hand truck except those equipped with rubber tires and side guards or such
other material-handling equipment as Landlord may approve. Tenant shall not
bring any other vehicles of any kind into the building.
EXHIBIT D Page 2
<PAGE>
27. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
28. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or a governmental
agency.
29. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
30. Tenant's requirements will be attended to only upon appropriate application
to the Building management office by an authorized individual. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employee of
Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
31. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the
Building.
32. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of Tenant's lease of its Premises in the
Building.
33. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the
preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations hereinabove stated and any additional rules and
regulations which are adopted.
34. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
EXHIBIT D Page 3
<PAGE>
EXHIBIT E
PARKING RULES AND REGULATIONS
The following rules and regulations shall govern use of the parking
facilities which are appurtenant to the Building.
1. Landlord assumes no responsibility for any damage to any vehicle parked in
the parking areas or for any goods left is any such vehicle. All such
liability is to be specifically assumed by the operator of any such vehicle
as a condition of parking.
2. Tenant shall not park or permit the parking of any vehicle under its
control in any parking areas designated by Landlord as areas for parking by
visitors to the Building. Tenant shall not leave vehicles in the parking
areas overnight nor park any vehicles in the parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks.
3. Parking stickers or any other device or form of identification supplied by
Landlord as a condition of use of the parking areas shall remain the
property of Landlord. Such parking identification device must be displayed
as requested and may not be mutilated in any manner. The serial number of
the parking identification device may not be obliterated. Devices are not
transferable without Landlord's consent and any device in the possession of
an unauthorized holder will be void.
4. No overnight or extended term storage of vehicles shall be permitted.
5. Vehicles must be parked entirely within the painted stall lines of a single
parking stall.
6. All directional signs and arrows must be observed.
7. The speed limit within all parking areas shall be 5 miles per hour.
8. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles;
(c) where "no parking" signs are posted;
(d) on ramps;
(e) in cross hatched areas; and
(f) in such other areas as may be designated by Landlord or Landlord's
Parking Operator.
9. Each person using the parking facilities is required to park and lock his
own vehicle.
10. Loss or theft of parking identification devices from automobiles must be
reported to the garage manager immediately, and a lost or stolen report must be
filed by the customer at that time. Landlord has the right to exclude any
vehicle from the parking areas that does not have an identification device.
11. Any parking identification devices reported lost or stolen and thereafter
found on any unauthorized vehicle will be confiscated and the illegal holder
will be subject to prosecution.
12. Washing, waxing, cleaning or servicing (other than for emergency
situations) of any vehicles in any area not specifically reserved for such
purpose is prohibited.
13. Tenant shall acquaint all persons to whom Tenant assigns parking spaces of
these Rules and Regulations. Parking area managers or attendants are not
authorized to make or allow any exceptions to the Rules and Regulations.
14. Landlord reserves the right to refuse the sale of monthly stickers or other
parking identification devices in Reserved Parking areas or in other areas in
which a charge for parking is made to any tenant or person and /or his agents or
representatives who willfully refuse to comply with these Rules and Regulations
and all unposted City, State or Federal ordinances, laws or agreements.
15. Landlord reserves the right to modify and/or adopt such other reasonable
and non-discriminatory rules and regulations for the parking area as it deems
necessary for the operation of the parking areas. Landlord may refuse to permit
any person who violates these rules to park in the parking areas, and any
violation of the rules shall subject the vehicle to removal.
<PAGE>
LEASE SUMMARY
-------------
Tenant : Tiempo Escrow II
- ------
Building : KCN #8
- -------- 4590 MacArthur Blvd.
Newport Beach, CA 92660
Floor & Suite : Ground Floor - Suite 175
- -------------
Sq Ft Rentable : 4,236
- -----
Usable : 3,774
Term : Five (5) Years
- ----
Term Commencement : Completion of Tenant Improvements.
- -----------------
Free Rent : Five and one-half (5.5) months.
- ---------
Rental Rate
- -----------
(Monthly) : Yr 1 - $6,354.00 Yr 4 - $7,147.39
------- Yr 2 - $6,608.16 Yr 5 - $7,433.28
Yr 3 - $6,872.49
Expense Stop : 1990 Base Year
- ------------
Parking Spaces : Fifteen (15)
- --------------
Parking Rate
- ------------
(Monthly) : Yrs 1-5 - -0-
-------
T.I. Allowance : Build-to-suit
- --------------
Commission :
- ----------
Deposit : $6,989.40
- -------
Other Concessions : N/A
- -----------------
Options : N/A
- -------
Type of Space : Existing
- -------------
Use : Escrow offices
- ---
Broker : Grubb & Ellis (Pat Papaccio and Mike Quisling)
- ------
Space Planner : Ehrlich.Rominger
- -------------
Date : June 26, 1990
- ----
<PAGE>
AMENDMENT NO. 1 TO OFFICE BUILDING LEASE
----------------------------------------
This Amendment No. 1 ("Amendment") to Office Building Lease is made as of
this ____ day of August, 1993, by and between Koll Center Newport Number 8, a
California Limited Partnership ("Landlord") and Tiempo Escrow II, a California
Corporation ("Tenant").
R E C I T A L S
- - - - - - - -
The parties hereto are Landlord and Tenant under that certain Office
Building Lease dated July 10, 1990 ("Lease") covering space on the ground floor,
Suite 175, of the building located at 4590 MacArthur Boulevard, Newport Beach,
California (the "Premises") in the project known as Koll Center Newport (the
"Project").
WHEREAS, Landlord desires to provide modifications to the original Lease
agreement and subsequent amendments to extend the Lease Term and Tenant agrees
to same, the parties hereto mutually desire to amend said Lease as hereinafter
provided. All existing terms and conditions of the Lease, as amended, shall
remain in full force and effect, except as otherwise set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, promises,
agreements, terms and conditions set forth hereinafter, and other good and
valuable consideration, receipt of which is hereby acknowledged by the parties,
Landlord and Tenant agree as follows:
1. Term: The term of the above referenced Lease, scheduled to expire on
----
September 30, 1995, is hereby extended for forty-eight (48) months ("Extended
Term"), commencing August 1, 1993 ("Commencement Date") and terminating July 31,
1997.
2. Annual Basic Rent. Effective upon the Commencement Date, and for the
-----------------
months of the Extended Term thereafter through the Lease expiration date of July
31, 1997, Tenant shall pay to Landlord Annual Basic Rent for the Premises in the
amount set forth below:
<TABLE>
<CAPTION>
Term Rate/Amount
---- -----------
<C> <S>
8/01/93 - 7/31/94 $1.447 per rentable sq.ft. per month,
$6,130.94 per month,
$73,571.29 per annum;
8/01/94 - 7/31/95 $1.497 per rentable sq.ft. per month,
$6,342.74 per month,
$76,112.89 per annum;
8/01/95 - 7/31/96 $1.547 per rentable sq.ft. per month,
$6,554.54 per month,
$78,654.49 per annum;
</TABLE>
<PAGE>
TIEMPO ESCROW II
Amendment No. 1
Page 2
8/01/96-7/31/97 $1.597 per rentable sq.ft. per month,
$6,766.34 per month,
$81,196.09 per annum.
Annual Basic Rent shall be paid by Tenant to Landlord in accordance with
Paragraph 3 of the Lease.
3. Direct Expense Base: Paragraph 4 of the Lease is hereby modified
-------------------
to replace the Direct Expense Base of 1990 Base Year per square foot with a 1993
"Base Year" effective August 1, 1993. The amount of the annual Direct Expenses
which Landlord has included in the Annual Basic Rent shall be equal to the
actual expenses incurred by Landlord to operate the Building and Common Areas,
as further defined within section 4(a)(iii) of the Lease and Paragraph 52 of
the Addendum to Lease, during the Base Year (1993), including all expenses which
become due during, but which are not, for whatever reason, paid during the Base
Year. The Direct Expense Base shall be equal to the actual expenses incurred,
as if the Building were ninety-five percent (95%) occupied for the Base Year
1993. To the extent that Tenant's Percentage of the Direct Expenses for any
calendar year exceeds the Direct Expense Base Year, then Tenant shall pay such
difference as additional rent to Landlord as set forth in the Lease.
4. Tenant Improvements. Tenant shall lease the Premises in "As Is"
-------------------
condition and Landlord shall have no obligation to provide any tenant
improvements to the Premises.
5. Parking. Through the Extended Term, Tenant shall continue to
-------
enjoy and be bound by the parking rights and obligations provided for in
Paragraphs 38 and 53 of the Addendum to the Lease, however, commencing on
October 1, 1995 and continuing through July 31, 1997, Tenant shall pay $10.00
per stall per month for fifteen (15) unreserved employee parking stalls. Such
parking fees shall be paid as additional rent and shall be paid to Landlord, or
Landlord's designated agent, in accordance with Paragraph 3 of the Lease and
shall be subject to Paragraph 23 of the Lease.
6. Hazardous or Toxic Materials. Tenant covenants and agrees not to
----------------------------
introduce any hazardous or toxic materials onto the Premises without (a) first
obtaining Landlord's written consent; and (b) complying with all applicable
federal, state and local laws or ordinances pertaining to the transportation,
storage, use or disposal of such materials, including but not limited to
obtaining proper permits. If Tenant's transportation, storage, use or disposal
of such hazardous or toxic materials on the Premises results in (i)
contamination of the soil or surface or ground water; or (ii) loss or damage to
persons or property, then Tenant agrees to (a) notify Landlord immediately of
any contamination, claim of
<PAGE>
TIEMPO ESCROW II
Amendment No. 1
Page 3
contamination, loss or damage; (b) after consultation and approval by Landlord,
to clean up the contamination in full compliance with all applicable statutes,
regulations and standards at Tenant's sole cost and expense; and (c) to
indemnify, defend and hold Landlord free and harmless from any and all claims,
suits, causes of action, judgments, awards, costs and fees, including reasonable
attorneys' fees, arising from or in connection with any such contamination,
claim of contamination, loss or damage. This provision shall survive
termination of the Lease and this Amendment 3.
7. Deletion of Lease Provisions. Upon execution and delivery of this
----------------------------
Amendment, the following provisions of the Lease and subsequent amendments, or
portions of provisions as indicated below, shall be deemed deleted from the
Lease and shall be null and void and of no further force or effect.
A. Addendum, Paragraph 50 - Annual Basic Rent shall be deleted in
its entirety; and
B. Addendum, Paragraph 51 - Rental Abatement shall be deleted in
its entirety; and
C. Addendum, Paragraph 52 - Base Year Adjustments shall be
deleted in its entirety; and
8. Effectiveness of Lease. Except as set forth in this Amendment, all
----------------------
of the provisions of the Lease and addendum to Lease and prior amendments to
this Lease shall remain unchanged and in full force and effect. The remaining
unaffected portions of the Lease, addendum and prior amendments are hereby
ratified and affirmed and incorporated herein by this reference. All defined
terms herein shall have the same meaning as specified in the Lease, addendum and
prior amendments unless otherwise indicated.
9. Brokers. Tenant acknowledges that it has dealt only with the Koll
-------
Marketing Group and with no other real estate broker, finder, or other person,
with respect to this amendment. Tenant shall hold Landlord harmless from all
damages resulting from any claims that may be asserted by any broker, finder, or
other person, with whom Tenant has, or purportedly has, dealt.
<PAGE>
TIEMPO ESCROW II
Amendment No. 1
Page 4
IN WITNESS WHEREOF, the parties have executed this Amendment to Office Building
Lease as of the day and year first written above.
LANDLORD: TENANT:
KOLL CENTER NEWPORT NUMBER 8 TIEMPO ESCROW II,
A California Limited Partnership A California Corporation
By: Koll Management Services, Inc., By: /s/ Anne Muter
A Delaware Corporation, as Agent --------------------------------
Anne Muter
By: Title: President
-------------------------------- -----------------------------
Stephen Stage, Portfolio Manger
Date: Date: 9/2/93
------------------------------ ------------------------------
<PAGE>
[FINAL FLOOR PLAN OF
FLOOR 1
KOLL CENTER NEWPORT 8
4590 MACARTHUR BLVD.
APPEARS HERE]
<PAGE>
EXHIBIT 10.5
AMENDMENT NO. 1 TO OFFICE BUILDING LEASE
----------------------------------------
This Amendment No. 1 ("Amendment") to Office Building Lease is made as of
this 23rd day of September, 1993, by and between Koll Center Newport Number 8, a
California Limited Partnership ("Landlord") and Tiempo Escrow II, a California
Corporation ("Tenant").
R E C I T A L S
- - - - - - - -
The parties hereto are Landlord and Tenant under that certain Office
Building Lease dated July 10, 1990 ("Lease") covering space on the ground floor,
Suite 175, of the building located at 4590 MacArthur Boulevard, Newport Beach,
California (the "Premises") in the project known as Koll Center Newport (the
"Project").
WHEREAS, Landlord desires to provide modifications to the original Lease
agreement and subsequent amendments to extend the Lease Term and Tenant agrees
to same, the parties hereto mutually desire to amend said Lease as hereinafter
provided. All existing terms and conditions of the Lease, as amended, shall
remain in full force and effect, except as otherwise set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, promises,
agreements, terms and conditions set forth hereinafter, and other good and
valuable consideration, receipt of which is hereby acknowledged by the parties,
Landlord and Tenant agree as follows:
1. Term: The term of the above referenced Lease, scheduled to expire on
----
September 30, 1995, is hereby extended for forty-eight (48) months ("Extended
Term"), commencing August 1, 1993 ("Commencement Date") and terminating
July 31, 1997.
2. Annual Basic Rent. Effective upon the Commencement Date, and for the
-----------------
months of the Extended Term thereafter through the Lease expiration date of
July 31, 1997, Tenant shall pay to Landlord Annual Basic Rent for the Premises
in the amount set forth below:
<TABLE>
<CAPTION>
Term Rate/Amount
---- -----------
<S> <C>
8/01/93 - 7/31/94 $1.447 per rentable sq.ft. per month,
$6,130.94 per month,
$73,571.29 per annum;
8/01/94 - 7/31/95 $1.497 per rentable sq.ft. per month,
$6,342.74 per month,
$76,112.89 per annum;
8/01/95 - 7/31/96 $1.547 per rentable sq.ft. per month,
$6,554.54 per month,
$78,654.49 per annum;
</TABLE>
<PAGE>
TIEMPO ESCROW II
Amendment No. 1
Page 2
8/01/96 - 7/31/97 $1.597 per rentable sq. ft. per month,
$6,766.34 per month,
$81,196.09 per annum.
Annual Basic Rent shall be paid by Tenant to Landlord in accordance with
Paragraph 3 of the Lease.
3. Direct Expense Base: Paragraph 4 of the Lease is hereby modified to
-------------------
replace the Direct Expense Base of 1990 Base Year per square foot with a 1993
"Base Year" effective August 1, 1993. The amount of the annual Direct Expenses
which Landlord has included in the Annual Basic Rent shall be equal to the
actual expenses incurred by Landlord to operate the Building and Common Areas,
as further defined within section 4(a)(iii) of the Lease and Paragraph 52 of the
Addendum to Lease, during the Base Year (1993), including all expenses which
become due during, but which are not, for whatever reason, paid during the Base
Year. The Direct Expense Base shall be equal to the actual expenses incurred, as
if the Building were ninety-five percent (95%) occupied for the Base Year 1993.
To the extent that Tenant's Percentage of the Direct Expenses for any calendar
year exceeds the Direct Expense Base Year, then Tenant shall pay such difference
as additional rent to Landlord as set forth in the Lease.
4. Tenant Improvements. Tenant shall lease the Premises in "As Is"
-------------------
condition and Landlord shall have no obligation to provide any tenant
improvements to the Premises.
5. Parking. Through the Extended Term, Tenant shall continue to enjoy
-------
and be bound by the parking rights and obligations provided for in Paragraphs 38
and 53 of the Addendum to the Lease, however, commencing on October 1, 1995 and
continuing through July 31, 1997, Tenant shall pay $10.00 per stall per month
for fifteen (15) unreserved employee parking stalls. Such parking fees shall be
paid as additional rent and shall be paid to Landlord, or Landlord's designated
agent, in accordance with Paragraph 3 of the Lease and shall be subject to
Paragraph 23 of the Lease.
6. Hazardous or Toxic Materials. Tenant covenants and agrees not to
----------------------------
introduce any hazardous or toxic materials onto the Premises without (a) first
obtaining Landlord's written consent; and (b) complying with all applicable
federal, state and local laws or ordinances pertaining to the transportation,
storage, use or disposal of such materials, including but not limited to
obtaining proper permits. If Tenant's transportation, storage, use or disposal
of such hazardous or toxic materials on the Premises results in (i)
contamination of the soil or surface or ground water; or (ii) loss or damage to
persons or property, then Tenant agrees to (a) notify Landlord immediately of
any contamination, claim of
<PAGE>
TIEMPO ESCROW II
Amendment No. 1
Page 3
contamination, loss or damage; (b) after consultation and approval by Landlord,
to clean up the contamination in full compliance with all applicable statutes,
regulations and standards at Tenant's sole cost and expense; and (c) to
indemnify, defend and hold Landlord free and harmless from any and all claims,
suits, causes of action, judgments, awards, costs and fees, including reasonable
attorneys' fees, arising from or in connection with any such contamination,
claim of contamination, loss or damage. This provision shall survive
termination of the Lease and this Amendment 3.
7. Deletion of Lease Provisions. Upon execution and delivery of this
----------------------------
Amendment, the following provisions of the Lease and subsequent amendments, or
portions of provisions as indicated below, shall be deemed deleted from the
Lease and shall be null and void and of no further force or effect.
A. Addendum, Paragraph 50 - Annual Basic Rent shall be deleted
in its entirety; and
B. Addendum, Paragraph 51 - Rental Abatement shall be deleted in
its entirety; and
C. Addendum, Paragraph 52 - Base Year Adjustments shall be deleted
in its entirety; and
8. Effectiveness of Lease. Except as set forth in this Amendment, all
----------------------
of the provisions of the Lease and addendum to Lease and prior amendments to
this Lease shall remain unchanged and in full force and effect. The remaining
unaffected portions of the Lease, addendum and prior amendments are hereby
ratified and affirmed and incorporated herein by this reference. All defined
terms herein shall have the same meaning as specified in the Lease, addendum and
prior amendments unless otherwise indicated.
9. Brokers. Tenant acknowledges that is has dealt only with the Koll
-------
Marketing Group and with no other real estate broker, finder, or other person,
with respect to this amendment. Tenant shall hold Landlord harmless from all
damages resulting from any claims that may be asserted by any broker, finder, or
other person, with whom Tenant has, or purportedly has, dealt.
<PAGE>
TIEMPO ESCROW II
Amendment No. 1
Page 4
IN WITNESS WHEREOF, the parties have executed this Amendment to Office Building
Lease as of the day and year first written above.
LANDLORD: TENANT:
KOLL CENTER NEWPORT NUMBER 8 TIEMPO ESCROW II,
A California Limited Partnership A California Corporation
By: Koll Management Services, Inc., By: /s/ Anne Muter
A Delaware Corporation, as Agent ------------------------------------
Anne Muter
By: /s/ Stephen G. Stage Title: President
------------------------------- ---------------------------------
Stephen Stage, Portfolio Manager
Date: 9/23/93 Date: 9/2/93
----------------------------- ----------------------------------
<PAGE>
EXHIBIT 10.6
SUBLEASE AGREEMENT
------------------
This SUBLEASE AGREEMENT ("Sublease") is made this 21st day of
----
March, 1995 by and between TIEMPO ESCROW II, a CALIFORNIA CORPORATION ("Tenant")
- ----- ---------------- ----------------------
and TODAY INC., a CALIFORNIA CORPORATION ("Subtenant").
---------- ----------------------
R E C I T A L S:
- - - - - - - -
A. KOLL CENTER NEWPORT, a California Limited Partnership
------------------- ------------------------------
("Landlord"), as landlord, and Tenant, as tenant, executed a lease dated July
----
10, 1990 (the "Master Lease"), with regard to certain office space commonly
- -- --
known as 4590 MacArthur Blvd., Suite 175, Newport Beach, California (the
-------------------- --- -------------
"Premises"). A copy of the Master Lease, including all amendments thereto, is
attached hereto as Exhibit "A".
-----------
B. Tenant desires to sublease to Subtenant a portion of the
Premises as depicted on Exhibit "B" attached hereto (the "Subleased Premises"),
-----------
and Subtenant desires to lease the Subleased Premises from Tenant.
THEREFORE, Tenant and Subtenant agree as follows:
1. Assumption. Subtenant hereby expressly assumes and
----------
agrees to perform and be bound by all covenants, conditions and obligations
binding upon Tenant and the Premises under the Master Lease with regard to the
Subleased Premises. This Sublease is expressly subject and subordinate to the
Lease and all amendments thereto and any mortgages or deeds of trust which
encumber Landlord's interest in the Premises.
2. Rent. Subtenant will pay to Tenant as rent for the
----
Subleased Premises, in advance on the first day of each calendar month of the
term of this Sublease, without deduction, offset, prior notice or demand, in
lawful money of the United States, the sum of FOUR THOUSAND TWENTY FIVE Dollars
-------------------------
($4,025.00). Receipt of FOUR THOUSAND TWENTY FIVE Dollars ($4,025.00) is hereby
--------- ------------------------- ---------
acknowledged by Tenant as rent for the first month. Tenant will be responsible
for the payment to Landlord of all Operating Expenses and other items of
additional rent accruing under the Master Lease.
3. Term. The term of this Sublease will be for a period of
----
28 months commencing on 4-1, 1995 and ending on 7-31, 1997 (but in no event
- --------- --- - ---- -
later than the termination date of the Master Lease).
4. Use. Subtenant will use the Subleased Premises for
---
______________________, which is a permitted use described in the Master Lease,
and Subtenant will otherwise use the Subleased Premises in compliance with all
of the terms of the Master Lease and for no other purpose.
5. No Release. This Sublease will in no way release Tenant
----------
from any obligation or covenant of Tenant as tenant under the Master Lease.
6. Security Deposit. Subtenant will deposit with Tenant
----------------
upon execution hereof FOUR THOUSAND TWENTY FIVE Dollars ($4,025.00) as security
------------------------- ---------
for Subtenant's faithful performance of Subtenant's obligations hereunder.
Tenant may deal with the Security Deposit in accordance with the unmodified
terms and provisions of the Master Lease which relate to a security deposit.
<PAGE>
7. Condition of Premises. Subtenant accepts the Subleased Premises
---------------------
in its condition existing as of the date of the execution of this Sublease,
subject to the Master Lease and all applicable zoning, municipal, county and
state laws, ordinances and regulations governing and regulating the use of the
Premises. Subtenant acknowledges that neither Tenant nor Landlord nor any of
their agents or employees have made any representations or warranties as to the
suitability of the Subleased Premises for the conduct of Subtenant's business.
8. Construction. The terms, conditions and respective obligations
------------
of Tenant and Subtenant to each other under this Sublease will be the terms,
conditions and obligations contained in the Master Lease except for those
provisions of the Master Lease which are directly contradicted by the provisions
of this Sublease, in which event, the terms of this Sublease will control over
the terms of the Master Lease as between Tenant and Subtenant only. In all other
respects, the terms of the Master Lease will control. Accordingly, for the
purposes of this Sublease, wherever in the Master Lease the term "Landlord" is
used, it will be deemed to mean the Tenant herein, and whenever in the Maseter
Lease ther term "Tenant" issued, it will be deemed to mean the Subtenant herein.
9. Attornment. If Tenant defaults in its obligations under the
----------
Master Lease or the Master Lease terminates for any reason including, without
limitation, a voluntary surrender by Tenant or any reentry or repossession of
the Premises by Landlord, Landlord may terminate this Sublease or, at Landlord's
option and
<PAGE>
without being obligated to do so, Landlord may require Subtenant to attorn to
Landlord and, in the event Landlord exercises such opinion, Subtenant does
hereby attorn to Landlord and agrees to perform its obligations under this
Sublease directly to Landlord, in which event Landlord will take over all right,
title and interest of Tenant under this Sublease from the time of the exercise
of such option through the expiration or earlier termination of the term of this
Sublease. In the event of any such assumption of this Sublease by Landlord and
attornment by Subtenant, Landlord will not (i) be liable for any prepaid rents
or security deposit paid by Subtenant to Tenant, (ii) be liable for any previous
acts, omissions or defaults of tenant under this Sublease; (iii) be subject to
any defense or offset previously accrued in favor of Subtenant against Tenant;
or (iv) be bound by any modification of this Sublease made without Landlord's
written consent.
10. Parking. Provided Subtenant is not in default hereunder, and
-------
provided further that Tenant is not in default under the Master Lease,
Subtenant will have a license to use 15 of the reserved and of the
-- ---
unreserved parking spaces which Tenant is licensed to use, pursuant to and in
accordance with the terms of the Master Lease relative to parking; provided
however, Subtenant will pay directly to Landlord or Landlord's parking operator
the monthly rental charges for such parking space at the rates set forth in the
Master Lease as a condition to Subtenant's continued use of such parking spaces.
LESSEE WILL PROVIDE CUSTOMER PARKING AND EMPLOYEE PARKING PER ITEM 5 OF THE
AMENDMENT NO. 1 TO OFFICE BUILDING LEASE.
11. Further Assignment. Subtenant will not further sublease the
------------------
Subleased Premises or any portion thereof or assign any of its right or delegate
any of its duties under this Sublease, without first obtaining the prior written
consent of Tenant and Landlord.
12. Insurance. Subtenant will, during the entire term of this
---------
Sublease, carry all insurance policies required to be carried by Tenant under
the Master Lease in accordance with the terms of the Master Lease, but where
Tenant is required to be named as an additional insured, Landlord and its
mortgages will also be named as additional insureds.
13. Rules. Attached hereto and incorporated herein as Exhibit "C"
----- -----------
may be additional rules and regulations which will govern Subtenant's use of the
Subleased Premises, parking areas and the remainder of the Development of which
the Subleased Premises are a part and the term "Landlord" as used in such rules
and regulations shall be deemed to mean the Tenant herein, and the term
"Tenant" shall be deemed to mean the Subtenant herein. To the extent such rules
and regulations are inconsistent or conflict with any rules and regulations
attached to the Master Lease, the more restrictive rules and regulations will
prevail and control.
IN WITNESS WHEREOF, Tenant and Subtenant have executed this Sublease as
of the date first written above.
Tenant Subtenant
TIEMPO ESCROW II TODAY INC.
- ----------------------------------- -------------------------------
a CALIFORNIA CORPORATION a CALIFORNIA CORPORATION
- ----------------------------------- -------------------------------
By: By:
-------------------------------- ----------------------------
Its: Its:
---------------------------- -------------------------
GUARANTORS(S) OF THE MASTER LEASE: By:
----------------------------
Its:
-------------------------
<PAGE>
By:
----------------------------
Its:
-------------------------
The undersigned Landlord under the Master Lease attached hereto as Exhibit "A"
hereby consents to the subletting of the Premises described herein on the terms
and conditions contained in this Sublease. This consent applies only to this
Sublease and is not to be deemed to be a consent to any other sublease or
assignment.
DATE:
--------------------------- --------------------------------
a
-------------------------------
By:
-----------------------------
Its:
--------------------------
-2-
- --------------------------------------------------------------------------------
<PAGE>
CONSENT OF LANDLORD TO SUBLEASE
-------------------------------
KOLL CENTER NEWPORT, a CALIFORNIA LIMITED PARTNERSHIP ("Landlord"), the
landlord under the certain lease ("Master Lease") dated 7-10-90, entered into by
and between Landlord and TIEMPO ESCROW II, a CALIFORNIA CORPORATION ("Tenant"),
whereby Tenant, as the tenant, leased suite 175 in that certain building located
at 4590 Macarthur Blvd. in Newport Beach, California (the "Premises"), hereby
consents to the sublease ("Sublease") of the Premises by Tenant to TODAY INC., a
CALIFORNIA CORPORATION ("Subtenant"). Landlord's consent is not intended, and
shall not be construed (i) to modify or otherwise affect any of the provisions
of the Master Lease, or to release Tenant from any of its obligations and duties
under the Master Lease, (ii) as a waiver of any of Landlord's rights under the
Master Lease, (iii) as an authorization or a consent by Landlord to any
assignment of the interest of Tenant in the Master Lease or to the further
subleasing of the Premises, and (iv) as binding or obligating Landlord in any
manner whatsoever with respect to any of the covenants, undertakings,
representations, warranties or agreements contained in the sublease agreement
(the "Sublease Agreement"), if any, between Tenant and Subtenant.
Notwithstanding the foregoing, it is a condition to Landlord's consent
to the Sublease that Subtenant's occupancy of the Premises and any Sublease
Agreement are subject to the following: (i) Subtenant's occupancy of the
Premises and any Sublease Agreement will be subject and subordinate to the
Master Lease and to all mortgages which are secured, in whole or in part, by the
Premises; (ii) Landlord may enforce the provisions of the Sublease Agreement, if
any, including collection of rent directly from Subtenant; (iii) in the event of
termination of the Master Lease for any reason whatsoever, including, without
limitation, a voluntary surrender by Tenant, or any default by Tenant, or in the
event of any re-entry or repossession of the Premises by Landlord. Landlord may,
at its option, either (a) terminate the Sublease Agreement and Subtenant's
occupancy of the Premises, or (b) take over all of the right, title and interest
of Tenant, as sublandlord, under the Sublease Agreement, in which case the
Subtenant will attorn to Landlord, but that nevertheless Landlord will not (1)
be liable for any previous act or omission of Tenant under the Sublease, (2) be
subject to any defense or offset previously accrued in favor of the Subtenant
against Tenant, or (3) be bound by any previous prepayment by Subtenant of more
than one month's rent.
This Consent of Landlord has been executed this day of
___ ------------
, 19 .
- --------- ---
----------------------------------------------
a
---------------------------------------------
By:
-------------------------------------------
Its:
----------------------------------------
The undersigned Tenant and Subtenant referred to hereinabove hereby
acknowledge and accept the conditions of Landlord's consent to the Sublease as
described hereinabove.
Tenant: Subtenant:
TIEMPO ESCROW II TODAY INC.
- --------------------------------- -------------------------------------
a CALIFORNIA CORPORATION a CALIFORNIA CORPORATION
-------------------------------- ------------------------------------
By: By:
------------------------------ ----------------------------------
<PAGE>
SUBLEASE AGREEMENT
------------------
This SUBLEASE AGREEMENT ("Sublease") is made this 21st day of
March, 1995 by and between TIEMPO ESCROW II, a CALIFORNIA CORPORATION ("Tenant")
and TODAY INC., a CALIFORNIA CORPORATION, ("Subtenant").
RECITALS:
--------
A. KOLL CENTER NEWPORT, a California Limited Partnership
("Landlord"), as landlord, and Tenant, as tenant, executed a lease dated July
10, 1990 (the "Master Lease"), with regard to certain office space commonly
known as 4590 MacArthur Blvd., Suite 175, Newport Beach, California (the
"Premises). A copy of the Master Lease, including all amendments thereto, is
attached hereto as Exhibit "A".
-----------
B. Tenant desires to sublease to Subtenant a portion of the
Premises as depicted on Exhibit "B" attached hereto (the "Subleased Premises"),
-----------
and Subtenant desires to lease the Subleased Premises from Tenant.
THEREFORE, Tenant and Subtenant agree as follows:
1. Assumption.
----------
Subtenant hereby expressly assumes and agrees to perform and be bound by all
covenants, conditions and obligations binding upon Tenant and the Premises under
the Master Lease with regard to the Subleased Premises. This sublease is
expressly subject and subordinate to the Lease and all amendments thereto and
any mortgages or deeds of trust which encumber Landlord's interest in the
Premises.
2. Rent.
----
Subtenant will pay to Tenant as rent for the Subleased Premises. In advance on
the first day of each calendar month of the term of this Sublease, without
deduction, offset, prior notice or demand, in lawful money of the United States,
the sum of FOUR THOUSAND TWENTY FIVE-Dollars ($4,025.00). Receipt of __________
Dollars ($4,025.00) is hereby acknowledged by Tenant as rent for the first
month. Tenant will be responsible for the payment to Landlord of all Operating
Expenses and all other items of additional rent accruing under the Master Lease.
3. Term.
----
The term of this Sublease will be for a period of 28 months commencing on
4-1-95, and ending on 7-31, 1997 (but in no event later than the termination
date of the Master Lease).
4. Use.
---
Subtenant, will use the Subleased Premises for _________________, which is a
permitted use described. in the Master Lease, and Subtenant will otherwise use
the Subleased Premises in compliance with all of the terms of the Master Lease
and for no other purpose.
5. No Release.
----------
This Sublease will in no way release Tenant from any obligation or covenant of
Tenant as tenant under the Master Lease.
6. Security Deposit.
----------------
Subtenant will deposit with Tenant upon execution heron FOUR THOUSAND TWENTY
FIVE Dollars ($4,025.00) as security for Subtenant's faithful performance of
Subtenant's obligations hereunder. Tenant may deal with the Security Deposit in
accordance with the unmodified terms and provisions of the Master Lease which
relate to a security deposit.
7. Condition of Premises.
---------------------
Subtenant accepts the Subleased Premises in its condition existing as of the
date of the execution of this Sublease, subject to the Master Lease and all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises. Subtenant acknowledges that
neither Tenant nor Landlord nor any of their agents or employee have made any
representations or warranties as to the suitability of the Subleased Premises
for the Conduct of Subtenant's business.
8. Construction.
------------
The terms, conditions and respective obligations of tenant and Subtenant to each
other under this Sublease will be the terms, conditions and obligations
contained in the Master Lease, except for those provisions of the Master Lease
which are directly contradicted by the provisions of this Sublease, in which
event, the terms of this Sublease will control over the terms of the Master
Lease as between Tenant and Subtenant only. In all other respects, the terms of
the master Lease will control. Accordingly, for the purposes of this Sublease,
wherever in the Master Lease the term "Landlord" is used, it will be deemed to
mean the Tenant herein, and wherever in the Master Lease the term "Tenant" is
used, it will be deemed to mean the Subtenant herein.
9. Attornment.
----------
If tenant defaults in its obligations under the Master Lease or the Master Lease
terminates for any reason including, without limitation, a voluntary surrender
by Tenant or any reentry or repossession of the Premises by Landlord, Landlord
may terminate this Sublease or, at Landlord's option and
<PAGE>
without being obligated to do so, Landlord may require Subtenant to attorn to
Landlord and, in the event Landlord exercises such option, Subtenant does hereby
attorn to Landlord and agrees to perform its obligations under this Sublease
directly to Landlord, in which event Landlord will take over all right, title
and interest of Tenant under this Sublease from the time of the exercise of such
option through the expiration or earlier termination of the term of this
Sublease. In the event of any such assumption of this Sublease by Landlord and
attornment by Subtenant, Landlord will not (i) be liable for any prepaid rents
or security deposit paid by Subtenant to Tenant, (ii) be liable for any previous
acts, omissions or defaults of Tenant under this Sublease; (iii) be subject to
any defense or offset previously accrued in favor of Subtenant against Tenant;
or (iv) be bound by any modification of this Sublease made without Landlord's
written consent.
10. Parking. Provided Subtenant is not in default hereunder,
-------
and provided further that Tenant is not in default under the Master Lease,
Subtenant will have a license to use 15 of the reserved and ____ of the
--
unreserved parking spaces which Tenant is licensed to use, pursuant to and in
accordance with the terms of the Master Lease relative to parking; provided,
however, Subtenant will pay directly in Landlord or Landlord's parking operator
the monthly rental charges for such parking spaces at the rates set forth in the
Master Lease as a condition to Subtenant's continued use of such parking spaces.
LESSEE WILL PROVIDE CUSTOMER PARKING AND EMPLOYEE PARKING PER ITEM 5 OF THE
AMENDMENT NO. 1 TO OFFICE BUILDING LEASE.
11. Further Assignment. Subtenant will not further sublease
------------------
the Subleased Premises or any portion thereof or assign any of its rights or
delegate any of its duties under this Sublease, without first obtaining the
prior written consent of Tenant and Landlord.
12. Insurance. Subtenant will, during the entire term of
---------
this Sublease, carry all insurance policies required to be carried by Tenant
under the Master Lease in accordance with the terms of the Master Lease, but
where Tenant is required to be named as an additional insured, Landlord and its
mortgagees will also be named as additional insureds.
13. Rules. Attached hereto and incorporated herein as
-----
Exhibit "C" may be additional rules and regulations which will govern
- -----------
Subtenant's use of the Subleased Premises, parking areas and the remainder of
the Development of which the Subleased Premises are a part, and the term
"Landlord" as used in such rules and regulations shall be deemed to mean the
Tenant herein, and the term "Tenant" shall be deemed to mean the Subtenant
herein. To the extent such rules and regulations are inconsistent or conflict
with any rules and regulations attached to the Master Lease, the more
restrictive rules and regulations will prevail and control.
IN WITNESS WHEREOF, Tenant and Subtenant have executed this
Sublease as of the date first written above.
Tenant: Subtenant:
TIEMPO ESCROW II , TODAY INC. ,
- --------------------------------- ----------------------------------
a CALIFORNIA CORPORATION a CALIFORNIA CORPORATION
--------------------------------- ----------------------------------
By: By:
------------------------------- --------------------------------
Its: Its:
--------------------------- ----------------------------
GUARANTOR(S) OF THE MASTER LEASE: By:
--------------------------------
Its:
----------------------------
By:
--------------------------------
Its:
----------------------------
The undersigned Landlord under the Master Lease attached hereto as Exhibit "A"
hereby consents to the subletting of the Premises described herein on the terms
and conditions contained in this Sublease. This consent applies only to this
Sublease and is not to be deemed to be a consent to any other sublease or
assignment.
DATED: ,
---------------------------- -----------------------------------
a
----------------------------------
By:
--------------------------------
Its:
----------------------------
-2-
<PAGE>
CONSENT OF LANDLORD TO SUBLEASE
KOLL CENTER NEWPORT, a CALIFORNIA LIMITED PARTNERSHIP ("Landlord"), the
landlord under that certain lease ("Master Lease") dated 7-10-90, entered into
by and between Landlord and TIEMPO ESCROW II, a CALIFORNIA CORPORATION
("Tenant"), whereby Tenant, as the tenant, leased suite 175 in that certain
building located at 4590 Macarthur Blvd. in Newport Beach, California (the
"Premises"), hereby consents to the sublease ("Sublease") of the Premises by
Tenant to TODAY INC., a CALIFORNIA CORPORATION ("Subtenant"). Landlord's consent
is not intended, and shall not be construed (i) to modify or otherwise affect
any of the provisions of the Master Lease, or to release Tenant from any of its
obligations and duties under the Master Lease, (ii) as a waiver of any of
Landlord's rights under the Master Lease, (iii) as an authorization or a consent
by Landlord to any assignment of the interest of Tenant in the Master Lease or
to the further subleasing of the Premises, and (iv) as binding or obligating
Landlord in any manner whatsoever with respect to any of the covenants,
undertakings, representations, warranties or agreements contained in the
sublease agreement (the "Sublease Agreement"), if any, between Tenant and
Subtenant.
Notwithstanding the foregoing, it is a condition to Landlord's
consent to the Sublease that Subtenant's occupancy of the Premises and any
Sublease Agreement are subject to the following: (i) Subtenant's occupancy of
the Premises and any Sublease Agreement will be subject and subordinate to the
Master Lease and to all mortgages which are secured, in whole or in part, by the
Premises; (ii) Landlord may enforce the provisions of the Sublease Agreement, if
any, including collection of rent directly from Subtenant; (iii) in the event of
termination of the Master Lease for any reason whatsoever, including, without
limitation, a voluntary surrender by Tenant, or any default by Tenant, or in the
event of any re-entry or repossession of the Premises by Landlord. Landlord may,
at its option, either (a) terminate the Sublease Agreement and Subtenant's
occupancy of the Premises, or (b) take over all of the right, title and interest
of Tenant, as sublandlord, under the Sublease Agreement, in which case the
Subtenant will attorn to Landlord, but that nevertheless Landlord will not (1)
be liable for any previous act or omission of Tenant under the Sublease, (2) be
subject to any defense or offset previously accrued in favor of the Subtenant
against Tenant, or (3) be bound by any previous prepayment by Subtenant of more
than one month's rent.
This Consent of Landlord has been executed this ____ day of
_____________, 19___.
__________________________________
a_________________________________
By:_______________________________
Its:____________________________
The undersigned Tenant and Subtenant referred to hereinabove hereby acknowledge
and accept the conditions of Landlord's consent to the Sublease as described
hereinabove.
Tenant: Subtenant:
TIEMPO ESCROW II TODAY INC.
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
By:___________________________ By:_____________________________
Its:________________________ Its:__________________________
<PAGE>
EXHIBIT 10.7
AMENDMENT NO.1 TO OFFICE BUILDING SUBLEASE;
NAME CHANGE
THIS AMENDMENT TO OFFICE BUILDING SUBLEASE is entered into as of the
21st day of March, 1995 by and between Tiempo Escrow II, a California
- ---- ----- -- ---------------- ----------
Corporation, ("Tenant") Today Inc., a California Corporation, ("Landlord")
- ----------- ---------- ----------------------
for the premises located at 4590 MacArthur Blvd ("Premises").
-------------------
Landlord and Tenant, being parties to that certain Office Building Sublease
dated March 21st, 1995 (the "Lease"), hereby express their mutual desire and
---------- --
intent to amend the Lease to reflect a change to Tenant's name as follows:
1. NAME
The name of Tenant referred to in the Sublease and herein as Today
-----
Inc. shall be changed, for purposes of the Sublease and all amendments thereto,
- ---
to Virtual Realty Network, Inc. effective September 7, 1995. Such name
--------------------------- ----------- --
change shall not result in the release of Tenant, either before or after the
effectiveness of such name change, from any of its covenants, obligations or
liabilities under the Sublease.
2. NO OTHER MODIFICATION
Except as modified herein, all other terms and conditions of the
Sublease shall continue in full force and effect.
<TABLE>
<CAPTION>
<S> <C>
LANDLORD: SUBTENANT:
Tiempo Escrow II Virtual Realty Network, Inc
- ------------------------------ -------------------------------
a California corporation a Nevada corporation
- ------------------------------ -------------------------------
By: /s/ ANNE MUTER By: /s/ MICHAEL BARRON
- ------------------------------ -------------------------------
Title: Anne Muter, President Title: PRES/CEO
---------------------- ---------------------
Date: Date: 10/18/95
---------------------- ---------------------
By: By:
-------------------------- ---------------------------
Title: Title:
-------------------- --------------------
Date: Date:
-------------------- --------------------
</TABLE>
This Consent of Landlord has been executed this 25 day of October, 1995.
-- ------- --
Koll Center Newport No. 8
---------------------------------
a California Limited Partnership
---------------------------------
As Agent
---------------------------------
By: Illegible Signature
-----------------------------
Its: Service Manager
------------------------
<PAGE>
EXHIBIT 10.8
SUBLEASE AND OPERATING AGREEMENT
FIVE CENTERPOINTE EXECUTIVE SUITES
Lake Oswego, Oregon
by and between
FIVE CENTERPOINTE EXECUTIVE SUITES
"LESSOR"
and
VIRTUAL MORTGAGE NETWORK
"LESSEE"
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS AND FUNDAMENTAL PROVISIONS
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1.1 Basic Lease Provisions 1
ARTICLE 2 RENT AND OTHER CHARGES
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2.1 Payment of Rent 2
2.2 Security Deposit 2
2.3 Support Services Fee Schedule 2
ARTICLE 3 USE OF PREMISES
- ------------------------------
3.1 Lessee's Use 2
3.2 Trade Name 2
3.3 Legal Operation of Premises 2
3.4 Operating Rules and Regulations 2
3.5 Signs and Displays 3
3.6 Alterations to Premises 3
3.7 Substitution of Space 3
ARTICLE 4 INSURANCE
- -------------------------
4.1 Lessee Insurance 4
4.2 Increase in Insurance Premiums 4
ARTICLE 5 SUBORDINATION
- -----------------------------
5.1 Subordination 4
ARTICLE 6 TRANSFERS, ASSIGNMENT AND SUBLETTING
- ----------------------------------------------------
6.1 Covenant not to Assign or Sublet Without Consent 4
6.2 Conditions for Lessor's Consent 5
6.3 Assignment in Violation 5
6.4 No Claim for Damages 5
ARTICLE 7 INDEMNITY
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7.1 Lessee Indemnity 5
ARTICLE 8 DEFAULTS AND REMEDIES
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8.1 Default of Lessee/Remedies of Lessor 5
8.2 Bankruptcy 6
8.3 Remedies Cumulative 7
ARTICLE 9 SURRENDER OF PREMISES
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9.1 Surrender of Premises/Holding Over 7
ARTICLE 10 ACCESS TO PREMISES
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<TABLE>
<S> <C> <C>
10.1 Access to Premises 7
<CAPTION>
ARTICLE 11 MISCELLANEOUS
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<S> <C> <C>
11.1 Notices 7
11.2 Holding Over 7
11.3 Successors and Assigns 8
11.4 Representations and Entire Agreement 8
11.5 Late Charges 8
11.6 Time is of the Essence 8
11.7 Relationship of Parties 8
11.8 Waiver 8
11.9 Governing Law 8
11.10 Partial Invalidity 8
11.11 Keys to Premises 8
11.12 Interpretation 8
11.13 Annual Rent Increase 9
11.14 Survival of Obligations 9
11.15 Headings, Captions and References 9
11.16 Special Stipulations 9
11.17 Copy Machine 9
11.18 Janitorial Services 9
11.19 Shower Room Facilities 9
11.20 Staff Support 9
11.21 Conversion 9
</TABLE>
EXHIBITS
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Exhibit "A" Floor Plan
Exhibit "B" Guaranty
Exhibit "C" Rules & Regulation
Exhibit "D" Support Service Fee Schedule
Exhibit "E" Special Stipulations
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<PAGE>
ARTICLE 1
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FUNDAMENTAL PROVISIONS
----------------------
1.1 Basic Lease Provisions:
----------------------
A. DATE: October 2, 1996
B. LESSOR: Five Centerpointe Executive Suites.
C. ADDRESS OF LESSOR: Five Centerpointe Executive Suites
16869 SW 65th Avenue #216
Lake Oswego OR 97035
D. LESSEE: Virtual Mortgage Network
E. ADDRESS OF LESSEE: 4590 MacArthur Blvd. Ste 175
Newport Beach CA 92660
F. PERMITTED USE: General Office
G. LESSEE'S TRADE NAME N/A
H. PREMISES: That portion of the Centerpointe Floor Plan (as herein
defined) crosshatched on the Plan attached hereto as Exhibit "A" and
designated as Office Space Number(s) 400-7.
I. LEASE TERM/RENTAL COMMENCEMENT DATE: The Lease shall be binding
upon the parties as of the date hereof with the term of the Lease
extending to:
January 31, 1997, and thereafter on a month-to-month basis.
J. FIXED RENT: $950.00 to be paid as a monthly rental fee for use
of the Premises described above in item "H". Rent will be delinquent
after the fifth day of the month at which time a late fee will be
assessed as set forth in Article 11, section 5.
K. PREPAID RENT: $0 paid upon execution of this Lease to be applied
to the first installment(s) of Fixed Rent due hereunder.
L. SECURITY DEPOSIT: $950.00 paid upon the execution of this Sublease
to be applied in accordance with the terms and provisions of
Section 2.2 hereof.
M. GUARANTOR: ___________________________________ (See Exhibit "B"
for Form of Guaranty)
N. ADDRESS OF GUARANTOR:
__________________________________
__________________________________
O. LEASE TERM/RENTAL ENDING DATE: Lessee shall provide Lessor with
written notification of Lessee's intent to vacate the Premises at least
30 days in advance of the proposed Lease Term/Rental ending date.
Lessee shall return the Premises to Lessor in its original condition,
ordinary use and wear excepted.
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ARTICLE 2
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RENT AND OTHER CHARGES
----------------------
2.1 Payment of Rent: During the Term, Lessee covenants and agrees to pay
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to Lessor at the time and place designated in Section 1.1 hereof, without
demand, deduction or setoff all Rent as defined in Section 1.1(J) hereof.
2.2 Security Deposit: Lessee shall pay to Lessor on or before five (5)
----------------
days following the execution hereof the sum set forth in Section 1.1(L) hereof
(the "Security Deposit") to be held by Lessor as security for the performance by
Lessee of all obligations imposed on Lessee pursuant to this Lease. The Security
Deposit shall bear no interest and Lessor shall be entitled to commingle the
Security Deposit with Lessor's other funds. If Lessee defaults with respect to
any of the terms, provisions, conditions or covenants of this Lease, Lessors may
use or apply all or any part of the Security Deposit to cure such default.
Lessor shall not be required to apply all or any portion of the Security Deposit
with respect to any particular violation or default by Lessee. Lessee shall
reimburse Lessor for any portion of the Security Deposit that Lessor shall from
time to time apply with respect to any violation by Lessee hereunder promptly
upon written notice of such application by Lessor. Any portion of the Security
Deposit that has not be appropriated by Lessor in accordance with the provisions
hereof shall be returned to Lessee only after the expiration of the full stated
term of this Lease, notwithstanding that this Lease may have been terminated by
Lessor prior thereto in accordance with its provisions, since it is the
intention of the parties that such sum of money shall secure Lessor not only as
to defaults by Lessee prior to such termination but also for any deficiency or
Rent or other charges due to Lessor thereafter under the terms of this Lease.
2.3 Support Services Fee Schedule: Lessee recognizes that Lessor reserve
-----------------------------
the right to supply certain support services at such fees as are set forth in
Exhibit D, attached hereto.
ARTICLE 3
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USE OF PREMISES
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3.1 Lessee's Use: Lessee shall use the Premises solely for the Permitted
------------
Use set forth in Section 1.1(F) hereof and for no other purpose whatsoever.
3.2 Trade Name: Lessee will conduct business in the Premises only under the
----------
Trade Name specified in Section 1.1 (G), hereof.
3.3 Legal Operation of Premises: Lessee shall not use, or suffer or permit
---------------------------
the Premises, or any part hereof, to be used for any purpose or use in violation
of any law, ordinance or regulation of any governmental authority, or in any
manner that will constitute a nuisance or an unreasonable annoyance to any
occupant of the surrounding offices, or in a manner that will injure the
reputation of Lessor, or for any hazardous purpose or in any manner that will
violate, suspend, void or serve to increase the premium rate of or make
inoperative any policy or policies of insurance of any kind whatsoever at any
time carried on any property or improvements of Lessor, or any part thereof,
including the Premises.
3.4 Operating Rules and Regulations: Lessee shall abide by and adhere to
-------------------------------
the operating rules and regulations set forth in Exhibit C attached hereto and
any other rules and regulations as Lessor may from time to time institute. Any
default or breach of such rules and regulations shall be deemed a default under
this Lease and Lessor shall be entitled to exercise all rights and remedies
available to Lessor as set forth in Article 8 hereof.
3.5 Signs and Displays: Lessee's name or company name will be listed on the
------------------
building directory at Lessor's expense. Any other signage shall be at the
expense of Lessee and must be approved by Lessor in advance to meet the
specifications of Lessor's rules and regulations. Lessee shall not place, cause
or
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permit to be placed and maintained on the Premises any sign, awning or other
advertising matter and will not place or maintain any decoration, lettering or
advertising matter on the glass of any window or door of the Premises without
Lessor's prior written consent.
3.6 Alterations to Premises: Lessee shall not alter the interior or exterior
-----------------------
of the Premises including the signs, heating, ventilating,
air-conditioning or sprinkler systems, and shall not make any structural
alterations to the Premises or any part thereof. Lessee agrees that any
alterations made by it shall be performed only with the prior written approval
of Lessor and shall become the property of Lessor upon the termination of this
Lease and/or Lessee's right of possession. All alterations shall remain upon the
Premises, unless Lessor shall require the restoration of the Premises to its
original condition, in which event Lessee agrees to comply with such
requirements prior to the expiration or other termination of this Lease. Lessee
shall not (i) cut or drill into or secure any fixture, apparatus or equipment of
any kind to any part of the Premises (ii) paint or decorate any part of the
Premises or any part of the interior of the Premises, or (iii) change the
architectural treatment of the Premises without first obtaining Lessor's written
consent or taking such other action with reference thereto as Lessor may direct.
3.7 Substitution Space: Lessor shall have the right at any time during the
------------------
term of this Lease or renewal or extension hereof to require the Lessee to
relocate to other space hereinafter referred to as "Substitution Space". The
Substitution Space shall have approximately the same area as the leased
Premises.
If Lessor desires to exercise such right, it shall give Lessee at least sixty
(60) days prior written notification that Lessee is to relocate to another
space. Within ten (10) days of receipt of Lessor's notification, Lessee shall
then give Lessor written notice of Lessee's election to agree to relocate, or to
decline to relocate. Should Lessee fail to give Lessor written notice within ten
(10) days of receipt of Lessor's notification, then Lessee shall be deemed to
have elected to consent to relocation.
If the Lessee declines to relocate and gives Lessor the required written notice,
then within ten (10) days of receipt of the Lessee's election to decline, the
Lessor may a) give the Lessee notice of the Lessor's election to terminate the
Lease and require Lessee to vacate the Premises on the sixtieth (60th) day
following the date of the Lessor's initial notice requiring the Lessee to
relocate or b) elect to continue the Lease on the Premises in force in
accordance with its terms.
If Lessee elects to relocate to the Substitution Space, such relocation shall be
at the sole cost of Lessor including all costs and expenses related to improving
the space with leasehold improvements equal to those then in Lessee's Premise.
After such relocation, all terms, covenants, conditions, provisions, and
agreements of this Lease shall continue in full force and effect and shall apply
to the Substitution Space except that (a) if the then unexpired balance of the
term of this Lease shall be less than one year, the term of this Lease shall be
extended so that the unexpired balance of the term of this Lease shall be one
year from the date of the move and (b) if the Substitution Space contains more
square footage than the presently leased premises, the monthly rental shall be
increased proportionately (provided that such monthly rental increase shall not
be in excess of five percent (5%) of the monthly rental immediately preceding
such an increase).
If Lessee shall retain possession of the Premises or any part thereof following
the date set for relocation or termination, Lessee shall be liable to Lessor,
for each day of such retention, for double the amount of the daily rental for
the last period prior to the date of such expiration or termination, plus actual
damages incurred by Lessor resulting from delay by Lessee in surrendering the
Premises, including without limitation any claims made against Lessor by any
succeeding Lessee to the Premises and Lessor's costs in taking any action to
evict Lessee from the Premises.
ARTICLE 4
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3
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INSURANCE
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4.1 Lessee Insurance: Lessee shall keep in force at Lessee's expense during
----------------
the term hereof and during such other time as Lessee occupies the Premises or
any part thereof, a commercial general liability insurance including bodily
injury and property damage (which policy shall likewise include insurance
against all assumed or contractual liability of Lessee under this Lease),
covering the Premises and Lessee's use thereof, in companies rated A or A+ by
Best's rating service and in forms satisfactory to Lessor against claims for
"personal injury" liability, including but not limited to, bodily injury, death
or property damage with limits of not less than $300,000 per occurrence and
$100,000 for damage to property. Such insurance shall cover all risks arising
directly or indirectly out of Lessee's activities on the Premises.
Lessee shall deposit the policy or policies of such insurance or a certificate
or certificates thereof with Lessor no less than five (5) days prior to the
Commencement Date hereof and evidence of all renewals of same not less than ten
(10) days prior to the expiration date of such policy. Should Lessee fail to
carry or keep in force such insurance, Lessor may, but need not, cause such
insurance to be issued and in such event Lessee agrees to pay as Additional Rent
the premium for such insurance promptly upon Lessor's demand. Such insurance
coverage may be as a part of blanket coverage for all of Lessee's stores
provided that such coverage shall be specifically endorsed to cover the Premises
and shall otherwise be subject to the approval of Lessor, which approval shall
not be unreasonably withheld.
4.2 Increase in Insurance Premiums: Lessee shall not do or suffer to be
------------------------------
done, or keep or suffer to be kept, anything in, upon or about the Premises
which will contravene Lessor's insurance policies or which will prevent Lessor
from securing such policies in companies acceptable to Lessor. If anything
done, permitted to be done or suffered to be done by Lessee, or kept or suffered
by Lessee to be kept in, upon and about the Premises shall cause the rate of
all-risk insurance on the Premises in companies acceptable to Lessor to be
increased beyond the minimum rate from time to time applicable to the Premises
for the Permitted Use, Lessee shall pay as Additional Rent the amount of any
such increase promptly upon demand by Lessor and shall cease such action until
such payment is made.
ARTICLE 5
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SUBORDINATION
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5.1 Subordination: This Sublease contains all the terms, conditions and
-------------
agreements of the parties and shall be subordinate to the Master Lease dated
April 14, 1989, between Lessor and U.S.F. & G. - Centerpointe.
ARTICLE 6
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TRANSFERS, ASSIGNMENT AND SUBLETTING
------------------------------------
6.1 Covenant Not to Assign or Sublet Without Consent: Lessee covenants that
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it will not assign, mortgage, or encumber this Lease, nor sublease the Premises,
or permit the Premises to be used or occupied by others, without the prior
written consent of Lessor in each instance which shall not be unreasonably
withheld. The transfer of control or of a majority of the issued and outstanding
capital stock of any corporate Lessee or sublessee, however accomplished, and
whether in a single transaction or in a series of transactions, will be an
assignment of this Lease or of such Sublease requiring Lessor's prior written
consent in each instance. Notwithstanding anything contained in the preceding
sentence, the provisions of the preceding sentence shall not apply to any
corporate Lessee whose shares are traded on a nationally-recognized securities
exchange.
6.2 Conditions for Lessor's Consent: Lessor and Lessee hereby agree that
-------------------------------
the granting of consent by Lessor shall, at a minimum, be preconditioned upon
the fulfillment of the following requirements of Lessor, which Lessee has
reviewed and hereby agrees to be reasonable requirements of Lessor:
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<PAGE>
A. Lessor shall be provided with at least thirty (30) days' written
notice prior to any proposed assignment or subletting;
B. Lessee shall remain primarily liable under this Lease and shall
guarantee the Lease if Lessor so requests;
C. Any proposed assignee or sublessee shall assume, in written instrument
acceptable to Lessor, all of the obligations of Lessee hereunder;
D. No use shall be employed in connection with the Premises other than
the permitted use set forth in this Lease.
6.3 Assignment in Violation of Article: Any assignment or sublease in
----------------------------------
violation of this Article shall be deemed void ab initio. No occupancy by any
party other than Lessee or collection of rent by Lessor will be deemed (A) a
waiver of provisions of this Article, or (B) the acceptance of the assignee,
sublessee, or occupancy as Lessee, or (C) a release of Lessee from the further
performance by Lessee of covenants on the part of Lessee contained in this
Lease. The consent by Lessor to an assignment or sublease will not be construed
to relieve Lessee from obtaining Lessor's prior written consent in writing to
any further assignment or sublease. No permitted sublessee shall have the right
to assign or encumber its sublease or further sublease all or any portion of its
subleased space or otherwise permit the subleased space or any part of its
subleased space to be used or occupied by others.
6.4 No Claim for Damages: Lessee's sole remedy for Lessor's refusal to
--------------------
consent to a proposed assignee or sublessee of Lessee will be an action or
proceeding for specific performance, injunction or declaratory judgment.
ARTICLE 7
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INDEMNITY
---------
7.1 Lessee Indemnity: Lessee hereby indemnifies and holds Lessor, its agents
----------------
and employees, harmless from and against any and all claims, actions, damages,
liabilities and expenses resulting from or connected with any loss of life,
personal injury and/or damage to personal or real property, arising from or out
of the occupancy or use by Lessee of the Premises or any part thereof or
occasioned wholly or in part by any act or omission of Lessee, its officers,
agents, contractors, employees, licensees and invitees. Lessee further releases
Lessor, its agents and employees, from liability for any damages sustained by
Lessee or any other person claiming by, through or under Lessee due to the
Premises, or any part thereof or any appurtenances thereto becoming out of
repair, or due to the happening of any accident, including but not limited to
any damage caused by water, snow, windstorm, tornado, gas steam, electrical
wiring, sprinkler system, plumbing, heating and air conditioning apparatus and
from any acts or omissions of co-Lessees or other occupants. In no event shall
Lessee be required to release Lessor, its agents and employees, from liability
for losses resulting from affirmative acts of proven negligence solely on the
part of Lessor, its agents or employees, provided that in no event shall Lessor
be liable with respect to water damages of any nature whatsoever.
ARTICLE 8
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DEFAULT AND REMEDIES
--------------------
8.1 Default of Lessee/Remedies of Lessor: In the event that Lessee:
------------------------------------
(A) fails to pay all or any portion of any sum due from Lessee hereunder for
Rent or reimbursement for sums advanced by Lessor on Lessee's behalf hereunder
or pursuant to any exhibit hereto within five (5) days after the due date as set
forth in Article 1, section 1 (J); (B) fails to immediately cease all conduct
prohibited hereby immediately upon receipt of written notice from Lessor;
(C) fails to take such actions in accordance with the provisions of written
notice from Lessor as are required by Lessor to remedy Lessee's failure to
perform any of the terms, convenants, and conditions hereof; (D) commits waste
to the Premises or removes any improvements or betterments thereof; (E) fails
to conduct business in the Premises as required by this Lease or abandons
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the Premises or the Premises appear to be abandoned: (F) commits an act in
violation of the Lease which Lessor has previously notified Lessee to cease more
than once in that Lease Year; (G) becomes bankrupt or insolvent or files any
debtor proceeding or if Lessee shall take or have taken against Lessee any
petition of Bankruptcy, or if Lessee shall take action or have action taken
against Lessee for the appointment of a receiver for all or a portion of
Lessee's assets, or if Lessee shall file a petition for a corporate
reorganization, or shall make an assignment for the benefit of creditors, or if
in any other manner Lessee's interest hereunder shall pass to another by
operation of law (it being understood that any or all of such occurrences shall
be deemed a default on account of bankruptcy for the purposes hereof and that
such default on account of bankruptcy shall apply to and include any Guarantor
of this Lease); (H) is otherwise in default hereunder and shall not have cured
such default within twenty (20) days following written notice from Lessor,
Lessor may at its option and without further notice to Lessee, reenter and
resume possession of the Premises and/or declare this Lease terminated.
Notwithstanding such reentry by Lessor, Lessee hereby indemnifies and holds
Lessor harmless from and against any and all loss or damage which Lessee may
incur by reason of the termination of this Lease and/or Lessee's right to
possession hereunder including but not limited to the loss of Lessee's
inventory, fixtures and other property located within the Premises. No reentry
and/or reletting shall be construed as Lessor's election to terminate this Lease
unless Lessor has notified Lessee in writing of Lessor's election to so
terminate. Following reentry of the Premises by Lessor, Lessee shall continue to
pay all such Rents and reimbursements as same become due under the terms of this
Lease, together with all attorney's fees and other expenses incurred by Lessor
in regaining possession. Should the Premises be relet, Lessee shall pay to
Lessor all costs incurred or paid by Lessor in reletting, including, but not
limited to, the cost of alterations and repairs, attorney's fees, and brokerage
commissions. Upon reletting, sums received from such new Lessee by Lessor shall
be applied first to payment of all costs incident to reletting, including, but
not limited to, repair and alteration costs,legal and brokerage fees; any excess
shall then be applied to any indebtedness to Lessor from Lessee. The balance, if
any, shall be applied against the deficiency between all amounts reserved
hereunder and sums to be received by Lessor on reletting, which deficiency
Lessee shall pay to Lessor in full within five (5) days of notice of same from
Lessor. In no event shall Lessor be obligated to pay any excess sums to Lessee.
In the event Lessor elects to terminate this Lease by written notice thereof to
Lessee, Lessee shall pay to Lessor all arrearages in Rent and reimbursements,
plus interest thereon at the highest prevailing legal rate, not to exceed
eighteen percent (18%) per annum; attorney's fees and costs incurred as a
result of Lessee's default and the termination of this Lease; and the amount of
such Rent remaining to be paid for the balance of the unexpired Term of the
Lease. Such payment shall be considered liquidated damages and shall be in lieu
of any obligations that Lessee shall have for the performance of the terms and
conditions of this Lease for the full Term hereof. Such sums shall be due and
owing as of the date of Lessee's default hereunder.
8.2 Bankruptcy: If Lessor shall not be permitted to terminate this Lease as
----------
hereinabove provided because of the provisions of Title 11 of the United States
Code relating to Bankruptcy, as amended ("Bankruptcy Code"), then Lessee as a
debtor in possession or any trustee for Lessee agrees promptly, within no more
than fifteen (15) days upon request by Lessor to the Bankruptcy Court, to assume
or reject this Lease, and Lessee on behalf of itself and any trustee agrees not
to seek or request any extension or adjournment of any application to assume or
reject this Lease by Lessor with such Court. In such event, Lessee or any
trustee for Lessee may only assume this Lease if (A) it cures or provides
adequate assurance that the trustee will promptly cure any default hereunder,
(B) compensates or provides adequate assurance that Lessee will promptly
compensate Lessor for any actual pecuniary loss to Lessor resulting from
Lessee's defaults, and (C) provides adequate assurance of performance during the
fully stated Term hereof of all of the terms, covenants, and provisions of this
Lease to be performed by Lessee. In no event after the assumption of this Lease
shall any then-existing default remain uncured for a period in excess of the
earlier of ten (10) days or the time period set forth herein.
<PAGE>
8.3 Remedies Cumulative: All rights and remedies of Lessor herein created
-------------------
or remedies otherwise available (at law or in equity) to Lessor under the Laws
of the United States or Oregon, which Lessor may, at its option, invoke, are
cumulative and the exercise of one or more rights or remedies shall not be taken
to exclude or waive the right to the exercise of any other. All such rights and
remedies may be exercised and enforced concurrently and whenever and as often as
Lessor shall deem desirable.
ARTICLE 9
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SURRENDER OF PREMISES
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9.1 Surrender of Premises, Holding Over: Lessee, upon expiration or
---------------------
termination of this Lease, either by lapse of time or otherwise, agrees
peaceably to surrender to Lessor the Premises, including the alterations,
additions, improvements, changes, and fixtures other than Lessee's movable trade
fixtures, in good condition and in good repair, ordinary use and wear excepted;
provided, however, that Lessee shall be required to remove such alterations as
Lessor requires pursuant to Section 3.6 hereof. If Lessee fails to surrender the
Premises as provided above, Lessee agrees to pay Lessor, as liquidated damages,
a sum equal to twice the Rent to be paid by Lessee to the Lessor for all the
time Lessee shall so retain possession of the Premises or any part thereof;
provided, however, that Lessee shall be deemed to be a "Lessee at Sufferance"
and the exercise of Lessor's rights under this clause shall not be interpreted
as a grant of permission to Lessee to continue in possession.
ARTICLE 10
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ACCESS TO PREMISES
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10.1 Access to Premises: Lessee agrees that Lessor, its agents, employees,
------------------
or servants or any person authorized by Lessor may, at Lessor's sole discretion,
enter the Premises to inspect the condition of the same, to make such repairs,
additions, improvements, changes, or alterations to the Premises, to make and to
exhibit the same to prospective Lessees, without any such activity constituting
an eviction of Lessee in whole or in part, and the rent reserved shall in no way
abate by reason of loss or interruption of the business of Lessee or otherwise
while any such work is being done. If Lessee or Lessee's agents or employees
shall not be present or permit entry into the Premises when necessary or
permissible under this Lease, Lessor, or Lessor's agent or employees may enter
same by whatever lawful means necessary without liability therefor and without
in any manner affecting the obligations, covenants, terms, or conditions of this
Lease.
ARTICLE 11
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MISCELLANEOUS
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11.1 Notices: Notices and demands required or permitted to be given
-------
hereunder may be given by personal delivery to either party or any officer or
other representative of the party to be notified, or may be sent by recognized
overnight courier or certified mail, return receipt requested, addressed,
postage prepaid, to the address set forth in Section 1.1 herein. Notices and
demands shall be deemed to have been given upon the date of delivery provided
that if any party shall refuse delivery, notices shall be deemed given when
mailed or, if made by personal delivery or overnight courier, then upon the
delivery except that notice of change of address for notices shall not be deemed
made until received. Unless otherwise specified by Lessor, the payment of Rent
shall be to the first address of Lessor as set forth in Section 1.1 herein.
11.2 Holding Over: In the event of Lessee's continued occupancy of the
------------
Premises after the expiration of the Lease Term or any renewal or extension
thereof, or any earlier termination provided or permitted by this Lease, with
the consent of Lessor, such tenancy shall be from month-to-month and such
continued
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occupancy shall not defeat Lessor's right to possession of the Premises. All
other covenants, provisions, obligations and conditions of this Lease shall
remain in full force and effect during such month-to-month tenancy.
11.3 Successors and Assigns: All covenants, promises, conditions,
----------------------
representations, and agreements herein contained shall be binding upon, apply,
and inure to the parties hereto and their respective heirs, executors,
administrators, successors, and permitted assigns.
11.4 Representations and Entire Agreement: It is understood and agreed by
------------------------------------
Lessee that Lessor and Lessor's agents have made no representations or promises
with respect to the Premises or the making or entry into this Lease except as
expressly set forth in this Lease and that no claim or liability,or cause for
termination, shall be asserted by Lessee against Lessor for, and Lessor shall
not be liable by reason or breach of any representations or promises not
expressly stated in the Lease. This Lease and the Exhibits attached hereto
constitute the sole and exclusive agreement between the parties with respect to
the Premises. No amendments, modifications of or supplements of this Lease
shall be effective unless in writing and executed by Lessor and Lessee.
11.5 Late Charges: It is expressly agreed between the parties that a charge of
------------
1 1/2% per month will be assessed on any unpaid, overdue balance. All accounts
are subject to a LATE CHARGE on the unpaid balances at the rate of 1 1/2% PER
MONTH, which is an ANNUAL PERCENTAGE RATE of 18%. If Lessee shall fail to make
any payment of rentals, costs, additional rentals or other charges when due as
herein provided, then such sums shall bear interest at the highest legal rate
not to exceed 18% per annum calculated from said due date. In addition, Lessee
shall pay a late charge of ten percent of the rent or $25.00, whichever is
greater, for processing of late payments as Additional Rent within ten(10) days
of notice. If Lessee's account is placed in the hands of an attorney for
collection, Lessee promises and agrees to pay reasonable attorney fees and
collection costs, at trial and on appeal, and even though no action is filed.
11.6 Time is of the Essence: The time of the performance of all of the
----------------------
covenants, conditions, and agreements of this Lease is of the essence of this
Agreement.
11.7 Relationship of Parties: Nothing herein shall be construed so as to
-----------------------
constitute a joint venture or partnership between Lessor and Lessee. This
Lease shall not result in the creation of an estate for years in Lessee.
Accordingly, Lessee shall have only a license not subject to levy or sale. No
estate shall pass out of Lessor to Lessee hereunder, and Lessee shall not be
entitled to any award of whatsoever nature based on this Lease and/or Lessee's
right to occupy the Premises hereunder.
11.8 Waiver: One or more waivers of any covenant or condition by Lessor shall
------
not be construed as a waiver of a subsequent breach of the same or any other
covenant or condition, and the consent or approval by Lessor to or of any act by
Lessee requiring Lessor's consent or approval shall not be construed to waive or
render unnecessary Lessor's consent or approval to or of any subsequent similar
act by Lessee.
11.9 Governing Law: This Lease shall be construed under the laws of the State
-------------
of Oregon.
11.10 Partial Invalidity: If any provision of this Lease or the application
------------------
thereof to any person or circumstance shall to any extent be held invalid, then
the remainder of this Lease or the application of such provision to persons or
circumstances other than those as to which it is held invalid shall not be
affected thereby, and each provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
11.11 Keys to Premises: Lessee shall be issued one key for entry into Lessor's
----------------
building. Should Lessee enter Lessor's property other than normal business
hours as set forth in Exhibit C, Rules and Regulations, it will be Lessee's
responsibility to lock the doors upon leaving the building. Lessee will be
issued on key
<PAGE>
for Lessee's Premises. All keys issued to Lessee shall be returned to Lessor
upon termination of Sublease. There will be a $15.00 charge for each additional
key requested. Lost, stolen or nonreturned keys will be assessed a $50.00
replacement fee.
11.12 Interpretation: In interpreting the Lease in its entirety, the printed
--------------
provisions of this Lease and any additions written or typed thereon shall be
given equal weight, and there shall be no inference, by operation of law or
otherwise, that any provision of this Lease shall be construed against either
party hereto.
11.13 Annual Rent Increase: The monthly rental fee is subject to an annual
--------------------
increase of 6% commencing on January 1 of each year without further notice to
Lessee.
11.14 Survival of Obligations: The provisions of the Lease with respect to
-----------------------
any obligation of Lessee to pay any sum in order to perform any act required by
this Lease after the expiration or other termination of this Lease shall survive
the expiration or other termination of this Lease.
11.15 Headings, Captions and References: The section captions contained in
---------------------------------
this Lease are for convenience only and do not in any way limit or amplify any
term or provision hereof. The use of the terms "hereof," "hereunder" and
"herein" shall refer to this Lease as a whole, inclusive of the Exhibits, except
when noted otherwise. The use of the masculine or neuter genders herein shall
include the masculine, feminine and neuter genders and the singular form shall
include the plural when the context so requires.
11.16 Special Stipulations: Insofar as the Special Stipulations attached as
--------------------
Exhibit H, if any, conflict with any of the foregoing provisions, the Special
Stipulations shall control and apply.
11.17 Copy Machine: Lessor has provided a copy machine for the use of all
------------
Lessees. No other copy machines, whether owned or rented by Lessees, are
allowed on the Premises.
11.18 Janitor Services: Lessor agrees to provide janitorial services that
----------------
will include individual offices and all common areas 5 days per week.
11.19 Shower Room Facilities: Lessee shall not leave any clothing or
----------------------
personal articles unattended in the shower dressing room facilities. Lessor is
not responsible for any lost or stolen clothing or personal articles.
11.20 Support Staff: Lessor agrees to provide secretarial/staff services
-------------
Monday through Friday during normal working hours of 8:00am to 5:00pm,
holidays excluded. This shall include reception, secretarial and other
support services on a first-come, first-served basis. Fees and services are
more particularly described on the attached Exhibit D. All secretarial work
done in Lessor's Premises will be done by Five Centerpointe Executive Suites'
employees. Lessor agrees to complete all work in a professional and timely
manner.
11.21 Conversions: Lessee acknowledges the Five Centerpointe Executive
-----------
Suites has invested time and money into the careful selection and training of
its employees. Should Lessee desire to hire an employee of Five Centerpointe
Executive Suites, directly or indirectly, within 180 days from the date
employee last works for Five Centerpointe Executive Suites, Lessee will
notify Five Centerpointe Executive Suites within three (3) days of such
decision of hire. Lessee agrees to pay a service charge in the event it hires
Five Centerpointe Executive Suites employee. The service charge shall be
assessed at a fixed rate in the fee amount of $2000.00 per employee.
<PAGE>
IN WITNESS WHEREOF this Lease has been executed as of the day and year
first above written. EXHIBITS A, B, C, D, and E are attached.
LESSOR: LESSEE:
- ------ ------
FIVE CENTERPOINTE EXECUTIVE SUITES VIRTUAL MORTGAGE NETWORK
By: By: /s/ JOHN MURRAY
------------------------------- -------------------------------
Its Its CEO - CFO
------------------------------ ------------------------------
Date: Date: 10/3/96
----------------------------- -----------------------------
<PAGE>
EXHIBIT "A"
FLOOR PLAN
11
<PAGE>
POINTE FIVE, INCORPORATED
CENTERPOINTE (400) FLOOR PLAN
[FLOOR PLAN APPEARS HERE]
SUBLEASE-EXHIBIT
12
<PAGE>
EXHIBIT "B"
GUARANTY
13
<PAGE>
GUARANTY
- --------
In consideration of the letting of the Premises to lessee (all as defined
in the attached Lease) and the sum of One Dollar ($1.00) paid by Lessor to the
undersigned, the receipt whereof is hereby acknowledged, the undersigned
Guarantor agrees as follows:
1. To unconditionally guaranty to Lessor the full and prompt performance
and observance of all covenants, conditions and agreements provided in the Lease
to be performed and observed by Lessee, its successors and assigns.
2. That Guarantor's obligations hereunder shall not be terminated,
reduced or affected in any way by reason of the assertion by Lessor against
Lessee of any right or remedy for the enforcement of the obligations of Lessee
under the Lease, or by reason of the waiver by Lessor of, or its failure to
enforce, any of the terms, covenants or conditions of the Lease, or the granting
of any indulgence or extension of time to Lessee. In furtherance of the
foregoing, Guarantor waives notice of any of the foregoing and of default by
Lessee in payment of rent and any other sum of money required to be paid under
the Lease and breach by Lessee of any covenant, condition or agreement contained
in the Lease.
3. That its obligations hereunder shall apply with full force and effect
to any amendment, renewal or extension of the Lease, even though made without
notice thereof to Guarantor.
4. That its obligations hereunder shall remain in full force and effect
after any assignment or subletting even though made without notice to Guarantor,
which notice is hereby waived by Guarantor, whether made with Lessor's consent
if same is required under the lease or otherwise required by Lessor.
5. That its liability under this Guaranty shall be primary, and joint and
several, and that with respect to any right of action which shall accrue to
Lessor under the Lease, and that Lessor may, at its option, proceed against
Guarantor without having commenced any action or having obtained any judgment
against Lessee.
6. That its obligation to make payment in accordance with the terms of
this Guaranty shall not be impaired, modified, changed, released or limited in
any manner whatsoever by any impairment, modification, change, release or
limitation of the liability of Lessee or its estate in bankruptcy (including
without limitation any rejection of the lease by Lessee or by any trustee or
receiver in bankruptcy) resulting from the operation of any present or future
provision of the Bankruptcy Code, other similar statute, or from the decision of
any court. The liability of Guarantor shall not be affected by any repossession
of the Premises by Lessor.
7. That this Guaranty shall be binding upon the Guarantor, its successors
and assigns and shall inure to the benefit of Lessor, its successors and
assigns.
14
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this instrument
individually or through its authorized officers, as the case may be or required,
causing its respective seal to be hereto affixed and attended on the day and
year first above written.
WITNESS: CORPORATE GUARANTOR:
______________________________ By:______________________________
______________________________ Attest: _________________________
WITNESS: INDIVIDUAL GUARANTOR:
______________________________ By:______________________________
SUBSCRIBED AND SWORN to before me this ______ day of _________________, 1996.
By: _____________________________
Notary Public for Oregon
Commission expires: _________
15
<PAGE>
EXHIBIT "C"
RULES & REGULATIONS
16
<PAGE>
CENTERPOINTE BUILDING RULES AND REGULATIONS
1.) The sidewalks, entrances, halls, passages, elevators and stairway shall not
be obstructed by any of the tenants, their agents, contractors, employees or
visitors, or used by them for any other purpose than for ingress and egress to
and from their respective leased premises.
2.) Tenants, their agents, contractors, employees or visitors, shall not make
or commit any improper noise or disturbances of any kind in the building, or
mark or defile the lavatories, windows, elevators or doors of the building, or
interfere in any way with other tenants or those having business with them.
3.) The lavatories and their water apparatus shall not be used for any purpose
other than those for which they were constructed, and no sweeping, rubbish,
rags, ashes, chemicals or other refuse from unsuitable substance, shall be
thrown therein. Any damage from such misuse shall be borne by the Tenant by
whom or whose employee, contractors, agents or visitors it shall by caused.
4.) After permission to install telephone, call boxes, telecommunication wires
or other electric wires has been granted, Landlord will direct where and how the
same are to be placed. No wires shall be run in any part of the building
excepting by or under the direction of the Landlord. Attaching of wires to the
outside of the building is absolutely prohibited. It is understood that
telephones are installed solely for the use and benefit of Tenant and
accordingly, Tenant will save Landlord harmless for any damages thereto.
5.) The Landlord shall in all cases have the right to prescribe the weight and
proper position of safes, or other heavy objects in the building; and the
bringing in of said safes, all furniture, fixtures, fixtures or supplies, the
taking out of said articles, and moving about of said articles within the
building, shall only be at such times and in such manner as the Landlord shall
designate; and any damage caused by any of the before mentioned operations, or
by any of the said articles during the time they are in the building, shall be
repaired by Tenant at Tenant's expense.
6.) No additional locks shall be placed upon any doors without the written
consent of the Landlord, and the Tenant shall not permit any duplicate keys or
change of locks to be made. All necessary keys shall be furnished by the
Landlord, and the same shall be surrendered upon the termination of this Lease,
and the Tenant shall then give to the Landlord or his agents explanations of the
combination of all locks upon the doors of vaults.
7.) No bicycles or similar vehicles will be allowed in the building.
8.) No Tenant shall do or permit anything to be done in said premises, or bring
or keep anything therein which will in any way increase the rate of fire
insurance on said building or on property kept therein, or obstruct or interfere
with any of the rules and ordinances of the State Health Division. Tenant
understands and agrees that the vehicle of any Tenant obstructing any
unauthorized area, and particularly in areas designated by specially painted
curbs as fire lane areas, may be towed at owner's risk and expense.
9.) Tenants will see that the doors are securely locked before leaving the
building.
<PAGE>
10.) No animals or birds shall be brought into or kept in or upon the
premises, other than seeing eye dogs.
11.) No interference with the general building heat ventilating and air
conditioning system will be permitted. All regulating and adjusting will be
done by employees of Landlord.
12.) The use of office suites as sleeping apartments, for the preparation of
foods (other than hot drinks), or for any immoral or illegal purpose is
absolutely prohibited.
13.) No Tenant shall conduct, or permit any other person to conduct any
auction upon the premises, or store goods, wares, or merchandise upon the
premises or sell goods upon the premises without the prior written approval of
the Landlord except for the usual supplies and inventory to be used by the
Tenant in the conduct of his business.
14.) All glass, locks and trimmings, in or about the doors and windows of
the premises and all electric fixtures on the premises which belong to the
building shall be kept whole, and whenever broken by anyone, shall be
immediately replaced and repaired and put in order by the Tenant under the
direction and to the satisfaction of the Landlord and the same shall be left
whole and in good repair upon the termination of this Lease.
15.) Any and all damages to floors, walls or ceilings due to Tenant or
Tenant's employees failure to shut off running water or liquid, shall be paid by
Tenant.
16.) Landlord shall have the right, exercisable without notice and without
liability to any Tenant, to change the name or street address of the Building.
17.) Landlord establishes the hours of 7 a.m. to 6 p.m. of each weekday as
reasonable and usual business hours for the purposes. If Tenant requests
electricity of heat or air conditioning during any hours on Saturdays, Sundays
or legal holidays; or during the hours of 6 p.m. to 7 a.m. on any weekday, and
if Landlord is able to provide the same, Tenant shall pay Landlord such charges
as Landlord shall establish from time to time for providing such services during
such hours. Any such change which Tenant is obligated to pay shall by Tenant
within five (5) days after demand by Landlord. Any such failure by Tenant to
pay said amount said within five-day period shall be a default by Tenant under
the Lease Agreement.
18.) Landlord reserves the right to exclude from Building between the hours
of 5 p.m. and 6 a.m. and at all hours on Saturdays, Sundays, and legal holidays
all persons who do not present identification acceptable to Landlord. Each
Tenant shall provide Landlord with a list of all persons authorized by Tenant to
enter its premises and shall be liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement or other circumstances rendering such action
advisable in Landlord's opinion, Landlord reserves the right to prevent access
to the Building during the continuance of the same by such action as Landlord
may deem appropriate, including the closing of doors.
SUBLEASE - EXHIBIT C
18
<PAGE>
FIVE CENTERPOINTE EXECUTIVE SUITES
CENTERPOINTE (400) SUPPORT SERVICE FEE SCHEDULE
Answering Service
Our receptionist will receive your incoming phone calls according to your
written directions while you are away from your office. Answering service for
first line is not included in rental fee. Each Additional line will be $50.00
per month. Our receptionist will greet your clients for a fee of $50.00 per
month.
Intercom Service
Our receptionist will receive and screen all incoming phone calls according to
your written directions.
Line Installation
Telephone line and intercom installation is $100.00 per line per location.
Line Service
Monthly phone service for CentraNet 1000 is $45.00 per line per month.
Lessee has selected (2) telephone line(s) intercom(s) and agrees to pay $90.00
-----
for greeting service in addition to the rental fee on the first day of each
month.
ADDITIONAL SUPPORT SERVICES
Secretarial
Typing and/or data processing is $24.00 per hour of fraction thereof. Special
projects may be negotiated.
Facsimile
Incoming and/or outgoing is $2.00 per page up to a maximum of $80.00 (40 pages)
per office per month. After 40 pages in one month there is no charge.
Copier
First 500 copies per month are $.10 per page, copies over 500 are $.05 per page.
Courier
UPS and Federal Express pickup and delivery cost plus 20% handling.
Postage
Postage cost plus 20% handling.
Notary
Each document is $6.00.
Lessor has option to increase Support Service Fee.
All Support Service Fees are billed from the 20th to the 20th of each month.
These charges will be delinquent after the fifth of the month and are subject to
a late fee.
Lessee has hereby read the Support Service Fee Schedule--Exhibit D and agrees to
the telephone line and intercom selection. __________. initial
SUBLEASE--EXHIBIT D
22
<PAGE>
EXHIBIT "E"
SPECIAL
STIPULATIONS
23
<PAGE>
<PAGE>
EXHIBIT 10.9
Lease No. 12858
MASTER LEASE AGREEMENT ("Master Agreement") made as of July 20, 1995 between
--
DATA GENERAL CORPORATION, a Delaware corporation with a principal place of
business at 4400 Computer Drive, Westboro MA 01580 ("Lessor") and Virtual
Realty/Network Inc. with a principal place of business at 4590 MacArthur Blvd.
Newport Beach, CA 92660 ("Lessee")
1. LEASE. Lessor leases to Lessee, and Lessee hires from Lessor, the
equipment, software licenses and other tangible or intangible personal property
described in each Lease Schedule executed under this Master Agreement. All such
property is referred to as "Leased Property." When Leased Property is installed,
the parties shall promptly complete and execute a Lease Schedule in the form
attached as Schedule A.
2. SCHEDULES.
2.1 Each Lease Schedule shall evidence 3 separate "Lease Agreement"
covering the Leased Property described therein and incorporating the terms of
this Master Agreement and any additional terms agreed to in the Lease Schedule.
2.2 Each Lease Schedule shall be executed in one or more counterparts, each
bearing a unique number, only one of which shall be "Counterpart No. 1." Each
executed counterpart shall be deemed an original as between the parties, but if
and to the extent that a Lease Schedule constitutes "chattel paper" as defined
in the Uniform Commercial Code, no security interest in the Lease Schedule may
be created through the transfer or possession of any counterpart other than
Counterpart No. 1. This Master Agreement shall not itself be chattel paper.
3. TERM.
3.1 This Master Agreement shall take effect on the date when signed by both
parties, and shall continue in effect so long as any Lease Agreement made
hereunder remains in effect or, if no Lease Agreement is in effect, until either
party gives a notice of cancellation to the other.
3.2 The Lease Term of each Lease Agreement shall have the commencement date
and duration specified in the Lease Schedule. No Lease Agreement shall be
cancelable or terminable by Lessee before the end of its Lease Term except as
provided in this Master Agreement.
4. TITLE AND OWNERSHIP.
4.1 Supply Contracts. Lessor shall acquire Leased Property pursuant to the
sale and license terms ("Supply Contracts") of the respective suppliers. Except
while there is an uncured Event of Default, Lessor, to the extent of its power
to do so, assigns to Lessee, and Lessee shall have the benefit of, any
warranties, service agreements and patent and copyright indemnities given to
Lessor with respect to Leased Property under
1
<PAGE>
the Supply Contracts. Lessee's sole remedy for the breach of any such
warranty, service agreement or indemnity shall be against the manufacturer,
licensor or supplier by whom it was given (including, if applicable, Data
General Corporation in its capacity as manufacturer, licensor or supplier)
but not against Lessor, nor shall any such breach alter the respective
obligations of Lessor and Lessee under this Master Agreement or any Lease
Agreement.
4.2 Title. Lessee acknowledges Lessor's title to Leased Property.
Lessee has only a lessee's interest and no other right, title or interest in
Leased Property. Lessee shall not sell, mortgage, assign, transfer, sub-lease,
lend, relinquish possession of or encumber any Leased Property, or permit or
attempt any of the acts stated above, without Lessor's prior written consent.
4.3 Encumbrances. At Lessee's cost, Lessee shall protect and defend
Lessor's ownership against all claims, liens, charges and legal processes of
Lessee, its creditors and all other persons, and take such action as may be
necessary (a) to remove any such encumbrance, and (b) to prevent any third
party from acquiring any interest in Leased Property including, without
limitation, avoiding any action by which Leased Property may be deemed to be a
part of any real estate. At Lessor's request, Lessee shall obtain written
waiver of the right to secure a lien on Leased Property from the owner,
mortgagee and beneficiaries under deeds of trust of each Installation
Location.
4.4 Identification. Lessee shall, upon the request of Lessor and at
Lessee's expense, firmly affix to the Leased Property, in a conspicuous place,
such identification as Lessor may supply showing Lessor as owner and Lessor of
the Leased Property. Lessee shall not remove any logos, marks or other such
identification without the prior written consent of Lessor.
5. RENT AND PAYMENT OBLIGATIONS.
5.1 Payments. Lessee shall pay Lessor the rental amounts specified
in the pertinent Lease Schedule. The first rental payment shall be due and
payable on the payment date specified in the Lease Schedule. Subsequent rental
payments shall be due on the same day of each succeeding month of the Lease
Term, unless a longer interval is specified in the Lease Schedule. A pro-rata
rental payment shall be made with and in addition to the first rental payment
for the period, if any, from the acceptance date to the day preceding the
first rental payment date. All rents and other payments shall be made to
Lessor at the address specified in the Lease Schedule or at such other address
as may be designated to Lessee in writing by Lessor or by an assignee of
Lessor pursuant to Section 11.
5.2 Late Payments. Lessee agrees to pay a late charge on any
periodic payment not paid within ten (10) days after its due date, equal to
one and one-half percent (1.5%) of the overdue payment for each payment period
that the payment remains unpaid. Collection of a late payment charge shall not
prejudice any other remedies Lessor may have for default.
5.3 NET LEASE. EACH LEASE AGREEMENT SHALL BE A NET LEASE, AND
LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS WHEN DUE
<PAGE>
AND TO PERFORM ALL OTHER OBLIGATIONS UNDER EACH LEASE AGREEMENT SHALL BE
ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT,
REDUCTION, SET-OFF, DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR
RECOUPMENT FOR ANY REASON. No obligation of Lessee shall be affected by any
defect in or damage to or loss or destruction of all or any part of the Leased
Property from any cause whatsoever, or by any interference with Lessee's use
of the Leased Property by any person or for any cause whatsoever. Any claims
respecting the condition or operation of the Leased Property shall be made
solely against the manufacturers, licensors and suppliers of the Leased
Property, and Lessee shall nevertheless pay Lessor or its successors and
assigns all amounts due and payable under the Lease Agreement.
6. TAXES
6.1 Lessee shall pay when due or reimburse to Lessor, and shall
defend and indemnify Lessor on a net after tax basis, against all sales, use,
value add, excise and other taxes, fees, assessments and all other charges
(including interest and penalties) imposed by any governmental body or agency
upon the purchase, ownership, license, possession, leasing, operation, use or
disposition of any Leased Property, any Lease Agreement or the rentals or
other payments, excluding only taxes on or measured by Lessor's net income.
Lessee shall prepare and file promptly with the appropriate offices any and
all tax and similar returns required to be filed (sending copies to Lessor)
or, if requested by Lessor, shall notify Lessor of such requirement and
furnish Lessor with all information required by Lessor to effect such filing.
Lessee's obligation under this Sub-section shall commence with the Acceptance
Date of each Lease Agreement and shall survive the expiration or earlier
termination of such Lease Agreement.
6.2 Taxable Status. Lessor disclaims all liability arising from
Lessee's treatment of any Lease Agreement or rental payment for financial,
accounting or tax purposes. Lessee represents that it is relying solely on its
own legal counsel and accountants with respect to such matters.
7. MAINTENANCE; ALTERATIONS. Lessee, at its expense, shall keep all
Leased Property in good condition and working order, ordinary wear and tear
from proper use excepted. Lessee shall keep in force maintenance and support
agreements with the suppliers of Leased Property or other qualified service
vendors reasonably acceptable to Lessor. Lessee shall not make or suffer any
alteration or attachment which would violate the maintenance and support
agreements or relieve the service vendors of their obligations. Lessor's
consent shall be required for all alterations and attachments except those
which do not impair the commercial value or usefulness of the Leased Property
and which can be readily removed without causing damage. All attachments and
alterations requiring Lessor's consent shall be removed by Lessee before the
return of the Leased Property. All attachments and alterations not removed
shall constitute accessions to the Leased Property owned by Lessor.
8. USE AND LOCATION. Lessee shall use Leased Property only in the
ordinary conduct of its business, operated by qualified employees adhering to
instructions of the
<PAGE>
manufacturer applicable to operation, condition and maintenance of the Leased
Property. Lessee shall obtain all permits and licenses necessary for the
operation of the Leased Property and comply with all other applicable laws and
regulations. Lessee shall not relocate Leased Property from its Installation
Location, or part with possession or control of Leased Property, without
Lessor's prior written consent. Lessee shall be responsible for all charges
and expenses of such relocation. Lessor shall have the right to inspect Leased
Property during normal business hours any time after delivery.
9. DISPOSITION OF LEASED PROPERTY AT EXPIRATION OF TERM. At the
expiration of the Lease Term, if Lessee is not then in default, Lessee may
retain possession and use of the Leased Property indefinitely, subject to
payment to DGC of a monthly rental in the same amount as the monthly payment
previously made under the lease. Lessee may terminate this post-lease rental
arrangement as of the last day of any calendar month which occurs on or after
expiration of the lease, by written notice to DGC given not less than sixty
(60) days before the termination date stated in the notice. On or as of such
termination date, Lessee may purchase the former Leased Property at a mutually
agreeable price. If by such termination date the parties have failed to agree
on purchase terms, DGC shall take possession of the former Leased Property,
which Lessee agrees to deliver to DGC in the same condition as when received,
except for normal wear and tear, and free of any encumbrance made or suffered
by Lessee.
10. WARRANTIES; DISCLAIMER.
10.1 Quiet Enjoyment. Lessor warrants that so long as no event of
default has occurred, neither Lessor nor its successors or assigns nor anyone
claiming by, under or through Lessor will interfere with Lessee's quiet
enjoyment and use of Leased Property.
10.2 DISCLAIMER. LESSOR LEASES THE LEASED PROPERTY "AS IS." EXCEPT
FOR LESSOR'S WARRANTY OF QUIET ENJOYMENT, LESSOR MAKES NO WARRANTIES, EXPRESS
OR IMPLIED, CONCERNING THE LEASED PROPERTY, AND DISCLAIMS ANY WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE OR OF MERCHANTABILITY. LESSEE HEREBY WAIVES
ALL CLAIMS AGAINST LESSOR, INCLUDING ANY BASED ON STRICT OR ABSOLUTE LIABILITY
IN TORT, WHICH LESSEE MIGHT HAVE AGAINST LESSOR FOR ANY LOSS OR DAMAGES,
INCLUDING INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. LESSEE ASSUMES SOLE
RESPONSIBILITY FOR THE SELECTION OF LEASED PROPERTY AND THE SUPPLIERS THEREOF
(INCLUDING DATA GENERAL CORPORATION) BASED UPON ITS OWN JUDGMENT, AND
DISCLAIMS ANY RELIANCE ON STATEMENTS MADE BY DATA GENERAL CORPORATION OR ITS
AGENTS .
11. ASSIGNMENT. LESSOR'S RIGHTS, TITLE, AND INTEREST IN AND TO THIS
MASTER AGREEMENT, OR ANY LEASE AGREEMENT OR LEASED PROPERTY MAY BE TRANS-
FERRED AND ASSIGNED BY LESSOR WITHOUT
<PAGE>
NOTICE, AND LESSOR'S ASSIGNEE SHALL HAVE ALL THE RIGHTS, POWERS, PRIVILEGES
AND REMEDIES OF LESSOR UNDER THIS MASTER AGREEMENT. LESSEE ALSO AGREES AND
CONSENTS TO FURTHER ASSIGNMENTS OR SALES BY THE THEN ASSIGNEE.
LESSEE AGREES NOT TO ASSERT AGAINST ANY ASSIGNEE ANY DEFENSE, SET-
OFF, RECOUPMENT, CLAIM OR COUNTERCLAIM WHICH LESSEE MAY HAVE AGAINST LESSOR,
WHETHER ARISING UNDER A LEASE AGREEMENT OR OTHERWISE. LESSOR AND ALL SUCH
ASSIGNEES ARE INDEPENDENT CONTRACTORS AND NONE SHALL BE DEEMED TO BE THE
PRINCIPAL, AGENT, REPRESENTATIVE, PARTNER OR JOINT VENTURER OF THE OTHER.
LESSEE SHALL NOT BE ENTITLED TO TERMINATE, AMEND OR ASSIGN THIS
MASTER AGREEMENT OR ANY LEASE AGREEMENT WITHOUT THE WRITTEN CONSENT OF SUCH
ASSIGNEE.
12. ADDITIONAL ASSURANCES. At Lessor's request, Lessee shall execute,
acknowledge and deliver such documents and take such action as Lessor deems
necessary to more effectively evidence Lessor's title to the Leased Property
covered by each Lease Agreement and protect Lessor's interests therein, in
accordance with the Uniform Commercial Code or other applicable law including,
without limitation, the filing of financing and continuation statements. Where
permitted by law, Lessee authorizes Lessor to make such filings without
Lessee's signature.
13. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall fail to
perform its obligations under this Master Agreement or any Lease Agreement,
Lessor or any assignee of Lessor may, at its option, perform the obligation
for the account of Lessee without waiving the default and without discharging
Lessee from the obligation. All expenses paid or incurred by Lessor in such
performance shall be payable by Lessee on demand in addition to rental
payments, together with interest at the rate of one and a half percent (1.5%)
per month or the highest lawful rate, whichever is less.
14. REPORTS. Lessee agrees to deliver to Lessor, within ninety (90) days
of the close of each fiscal year of Lessee, Lessee's current Annual Report or
other financial statements satisfactory to Lessor, certified by certified
public accountants. Lessee represents such reports shall be a true and
complete statement of Lessee's financial condition which Lessor may show to
financial institutions of Lessor's choice on a confidential basis.
15. INDEMNITY. Lessee shall indemnify, defend and hold harmless Lessor
its successors and assigns from and against all losses, damages, injuries,
claims, fines, liabilities, demands, and expenses, including attorney's fees
and court costs, arising out of or pertaining to any Lease Agreement or Leased
Property, including the purchase, ownership, transportation, delivery,
installation, leasing, possession, use, operation, maintenance, storage and
return of the Leased Property, except any liability resulting from the gross
negligence or wilful misconduct of Lessor. Lessee and Lessor each agree
<PAGE>
<PAGE>
to give the other prompt written notice of any claim or liability indemnified
against. This indemnity shall survive the expiration or termination of this
Master Agreement or any Lease Agreement.
16. RISK OF LOSS. From the delivery of Leased Property until its return
pursuant to Section 9, Lessee shall bear the entire risk of loss, damage, theft
or destruction of Leased Property from any and every cause, and no such event
shall relieve Lessee of its obligation to pay rent or perform its other
obligations under any Lease Agreement. In the event of damage to Leased
Property, Lessee shall at its own expense repair the damage and restore the
Leased Property to its previous condition. If any Leased Property is lost,
stolen or damaged beyond repair, Lessee shall promptly notify Lessor and shall,
at Lessor's option, (a) replace the Leased Property with like property in good
condition and working order acceptable to Lessor, and transfer title to the
replacement property to Lessor, free and clear of all liens, claims and
encumbrances, which replacements shall then be subject to the applicable Lease
Agreement; or (b) pay Lessor an amount determined in accordance with Sub-section
19.5, whereupon the Lease Agreement shall terminate as to such Leased Property
and Lessor's interest therein shall pass to Lessee on an as-is, where-is basis,
without recourse or warranty.
17. INSURANCE. From the delivery of Leased Property until its return
pursuant to Section 9, Lessee shall at Lessee's expense carry and maintain the
coverages specified in paragraphs 17.1 and 17.2 with insurance companies
reasonably satisfactory to Lessor:
17.1 Property insurance providing "all risk" coverage in an amount not
less than the replacement cost of the Leased Property;
17.2 General liability insurance covering liability for damage to third
party property and bodily injury to third parties, in amounts satisfactory to
Lessor. Such insurance shall name Lessor (or any successor, assignee or secured
party of Lessor who requests it) as loss payee for the all risk coverage and as
an additional insured for the liability coverage, and provide thirty (30) days'
written notice of any lapse, cancellation or material change of coverage.
Lessee will promptly provide to Lessor evidence of insurance coverage at the
commencement of each Lease Agreement and annually thereafter. As long as no
Event of Default is uncured, Lessor shall remit all risk insurance proceeds to
Lessee when Lessee either provides satisfactory evidence of restoration or pays
Lessor the amount due upon an event of loss under Section 16. At Lessee's
option, coverage under a DGC Business Recovery On-Site Service Addendum will be
acceptable in lieu of the coverage required by Paragraph 17.1.
18. DEFAULT. Each of the following shall be deemed an Event of Default:
18.1 Lessee shall default in the payment when due of any rental payment or
other sums payable under any Lease Agreement; or
18.2 Lessee shall default in the observance or performance of any other
obligation in this Master Agreement or any Lease Agreement and such default
shall continue for a period of fifteen (15) days; or
<PAGE>
18.3 Lessee shall default in the performance of any obligation or in the
payment of any sum due to Lessor under any other agreement; or
18.4 Lessee (which term, for purposes of this Sub-section and Sub-
sections 18.5, 18.6 and 18.7 below shall mean Lessee and any guarantor or other
person liable upon Lessee's obligations under this Lease) shall dissolve or
become insolvent or bankrupt, commit any act of bankruptcy, make an assignment
for the benefit of creditors, suspend the transaction of its usual business or
consent to the appointment of a trustee or receiver, or a trustee or a receiver
shall be appointed for Lessee or for a substantial part of its property, or
bankruptcy, reorganization, insolvency or similar proceedings shall be
instituted by or against Lessee; or
18.5 An order, judgment or decree is entered against Lessee by a court of
competent jurisdiction and such order, judgment or decree shall continue unpaid
or unsatisfied and in effect for a period of sixty (60) days, or any execution
or writ or process shall be issued in connection with any action or proceeding
against Lessee or its property, by which Leased Property or any substantial part
of Lessee's property may be taken or restrained; or
18.6 An attachment, levy or execution is threatened or levied upon or
against Leased Property; or
18.7 Any warranty, representation or statement made in writing by Lessee,
is found to be incorrect or misleading in any material respect as of the date
made; or
18.8 Any insurance carrier cancels the insurance on the Leased Property
and Lessee fails to replace such coverage within the notice period specified in
Section 17; or
18.9 The Leased Property or any part of it is abused, illegally used, or
misused; or
18.10 Any indebtedness of Lessee for borrowed money shall become due and
payable by acceleration of its maturity.
In any such event, Lessor may, by written notice to Lessee, and to the
extent permitted by law, exercise any one or more of the remedies listed in
Section 19 below, as Lessor shall lawfully elect in order to protect the
interests and reasonably expected profits and bargains of Lessor.
19. REMEDIES. Lessor's remedies for the events of default listed in Section
18 are as follows:
19.1 Upon notice by Lessor, terminate any Lease Agreement, either in
its entirety or as to such items of Leased Property as Lessor shall specify in
the notice. Any Lease Agreement not terminated in its entirety shall continue in
effect as to the remaining items.
19.2 Declare immediately due and payable each and all rental payments
and other amounts due and to become due, including any renewal or purchase
obligations.
<PAGE>
19.3 Require Lessee, at its expense, to promptly return Leased
Property to Lessor, or Lessor may enter the premises where Leased Property
is located and take possession of or disable any part or all of the Leased
Property without demand or notice, without any court order or other process of
law and without liability for any damage occasioned by taking possession. Such
return or taking of possession shall not constitute a termination of any Lease
Agreement unless Lessor expressly so notifies Lessee in writing.
19.4 Proceed by appropriate court action or actions, either at law or
in equity, to enforce performance by Lessee of the applicable covenants of any
Lease Agreement or to recover damages for its breach.
19.5 With or without terminating any Lease Agreement, recover from
Lessee, not as a penalty, but as liquidated damages, an amount equal to the sum
of (i) any rent accrued and unpaid unpaid under the Lease Agreement as of the
date of entry of judgment in favor of Lessor plus interest at the rate of
eighteen percent (18%) per annum; (ii) the present value (discounted at 4%) of
all future rentals reserved in the Lease Agreement and contracted to be paid
over the unexpired term of the Lease Agreement; (iii) all commercially
reasonable costs and expenses, including reasonable attorney's fees and costs,
incurred by Lessor in any repossession, recovery, storage, or repair, sale,
re-lease or other disposition of the Leased Property in connection with or
otherwise resulting from Lessee's default; (iv) the estimated residual value of
the Leased Property as of the expiration of the Lease Agreement or any renewal
thereof; and (v) any indemnity, if then determinable, plus interest at eighteen
percent (18%) per annum.
19.6 In Lessor's sole discretion, re-lease or sell any or all of the
Leased Property at a public or private sale on such terms and notice as Lessor
shall deem reasonable and recover from Lessee, not as a penalty, but as
liquidated damages an amount equal to the sum of (i) any accrued and unpaid rent
as of the "Default Date" here defined as the later of the date of default or the
date that Lessor obtains possession of the Leased Property or such other date as
Lessee makes an effective tender of possession of the Leased Property back to
Lessor; plus rent at the rate provided for in the Lease Agreement for an
"Additional Period" here defined as the period commencing on the Default Date
and ending on the earlier of the date all the Leased Property is resold or
re-let by Lessor or the date of entry of judgment in favor of Lessor; (ii) the
present value (discounted at 4%) of all future rentals reserved in the Lease
Agreement and contracted to be paid over the unexpired term of the Lease
Agreement, and the present value (discounted at 4%) of the estimated residual
value of the Leased Property as of the expiration of the Lease Agreement or any
renewal thereof; (iii) all commercially reasonable costs and expenses, including
reasonable attorney's fees and costs, incurred by Lessor in any repossession,
recovery, storage, or repair, sale, re-lease or other disposition of the Leased
Property in connection with or otherwise resulting from Lessee's default; and
(iv) any indemnity, it then determinable,
<PAGE>
plus interest at eighteen percent (18%) per annum; LESS the amount received by
Lessor upon public or private sale or re-lease of the Leased Property, if any.
In any event, Lessee shall continue to be liable for all indemnities under
this Master Agreement and any Lease Agreement, and for all Lessor's legal fees
and other costs and expenses resulting from any event of default or incurred in
the enforcement of any right or remedy under this Master Agreement. No remedy
under this provision is intended to be exclusive, but each shall be cumulative
and in addition to any other remedy set forth herein or otherwise available to
Lessor at law or in equity.
20. MISCELLANEOUS.
20.1 Headings used in this Master Agreement or any Lease Schedule are
for reference purposes only and shall not be given any substantive effect.
20.2 Failure of a party to insist in any instance upon strict
performance by the other party of any of the provisions of any Lease Agreement
or this Master Agreement shall not be construed or deemed to be a permanent
waiver of that or any other provision.
20.3 All notices issued in connection with this Master Agreement or
any Lease Agreement shall be in writing (unless otherwise specifically provided
in the Lease Schedule) and shall be sent by (i) certified or registered mail,
postage prepaid; (ii) facsimile transmission; or (iii) overnight express courier
with receipted delivery.
Notices shall be addressed as follows:
If to Lessor: Data General Corporation
Attn: Director, Data General Leasing
4400 Computer Drive, Mail Stop E-111
Westboro, Massachusetts 01580
If to Lessee: Lessee's address as first noted above or the billing address
specified on the pertinent Lease Schedule.
Either party may change its address for notification purposes by notice
given to the other party. All notices shall be effective on the third business
day after issuance unless a different period is specified elsewhere in this
Master Agreement.
20.4 Each Lease Agreement and this Master Agreement shall be
construed in accordance with and governed by the laws of the Commonwealth of
Massachusetts excluding its conflict of law rules.
20.5 Any provison of this Master Agreement or any Lease Agreement
which is invalid under the law of any state shall to the extent of such
prohibition be ineffective in such state only, without invalidating the
remaining provisions of this Master Agreement in such state.
20.6 Each Lease Agreement, including this Master Agreement,
constitutes the complete and exclusive statement of the agreement of the parties
and supersedes all prior oral and written communications, agreements,
representations, statements, negotiations and undertakings between the parties
relating to the subject matter of that Lease Agreement. No modification,
termination, extension, renewal or waiver of any provision of this Master
Agreement or any Lease Agreement shall be
<PAGE>
binding upon a party unless made in writing and signed by an authorized
representative of that party. If more than one Lessee is named in this Master
Agreement, their liability shall be joint and several.
LESSOR AND LESSEE ACKNOWLEDGE THAT THEY HAVE READ THIS MASTER AGREEMENT,
UNDERSTAND IT, AND AGREE TO BE BOUND BY IT AS OF THE DATE FIRST ABOVE WRITTEN,
BUT ONLY AFTER ITS EXECUTION BY THEIR AUTHORIZED REPRESENTATIVES. LESSEE
FURTHER ACKNOWLEDGES RECEIPT FROM LESSOR OF A TRUE COPY OF THIS MASTER
AGREEMENT.
21. UCC ARTICLE 2A PROVISIONS.
Insofar as Article 2A of the Uniform Commercial Code ("UCC") may become
applicable to any Lease Agreement, Lessee hereby waives any rights and remedies
which may be given to Lessee by UCC Sections 2A-508 through 2A-522.
DATA GENERAL CORPORATION, Lessor LESSEE: Virtual Realty Network, Inc.
Signature: /s/ ROBERT MISELEN Signature: /s/ MICAHEL BARRON
-------------------------- --------------------------
Authorized Representative Authorized Representative
Title: /s/ MANAGER CONTRACTS/NEGOTIATION Title: PRES/CEO
--------------------------------- --------------------------
Date: Apr 2, 1995 Date: 7/20/95
-------------------------- --------------------------
Rev. 6/94
(VR)
/s/ Jane M. Weissman
JANE M. WEISSMAN
OPERATIONS MANAGER
DATA GENERAL LEASING
8/4/95
<PAGE>
EXHIBIT 10.10
PRIORITY CUSTOMER SUPPORT PLAN AGREEMENT
This Priority Customer Support Plan Agreement ("Agreement") is made and entered
into this 15th day of January, 1996 by and between Dynatek, Inc. ("Dynatek"), a
---- -------------
Michigan corporation with principal offices at 17197 N. Laurel Park Drive,
Livonia, Michigan 48152, and Virtual Mortgage Network, Inc. (hereinafter
------------------------------
"Customer"), a California corporation with principal offices at 4590 MacArthur
---------- --------------
Boulevard, Suite 175 Newport Beach CA 92660.
- -------------------------------------------
WITNESSETH:
WHEREAS, Dynatek ("Licensor") and Customer entered into that certain End-User
Agreement dated January 15, 1996 (the "License Agreement") under which Customer
---------------
obtained a non-transferable exclusive license to use certain computer software
in Object code form and related user documentation (the "Licensed Program")
within the terms and conditions listed below;
WHEREAS, Dynatek as the author of the Licensed Program has the source code and
other support documentation for the Licensed Program and desires to make and
offer to Customer the maintenance modifications, enhancements, and new releases
provided for herein; and
WHEREAS, Dynatek desires to offer Customer certain services with respect to the
Licensed Program on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises hereof, and the mutual
obligations herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1
DEFINITIONS
For the purposes of this Agreement, the following definitions shall apply to the
respective capitalized terms:
1.1 "LICENSED PROGRAM." The computer software described in the Exhibit hereto,
including any programming extracts from such software, derivative works
of the Licensed Program or collective works constituting such software
(such as subsequent Releases) to the extent offered to Customer under this
Agreement or the Licensed Agreement.
1.2 "AGREEMENT TERM." An initial period of one (1) year, commencing on the
first day following the date of this agreement. Thereafter, the Agreement
Term shall automatically renew for successive periods of one year each
unless and until terminated pursuant to Section 6 hereof. In no event,
however, shall the Agreement Term extend beyond the prescribed term of the
License Agreement.
-1-
<PAGE>
1.3 "ERROR." Any failure of the Licensed Program to conform in all material
respects to the functional specifications for the Licensed Program
published from time to time by Licensor, the current version of which has
been delivered to the Customer. However, any nonconformity resulting from
Customer's misuse or improper use of the Licensed Program or combining or
merging the Licensed Program with any hardware or software not approved by
Dynatek, or not authorized to be so combined or merged by Dynatek, shall
not be considered an Error. Dynatek shall provide written documentation
describing the recommended and approved hardware and software operating
environment.
1.4 "ERROR CORRECTION." Either a software modification or addition that, when
made or added to the Licensed Program, establishes material conformity of
the Licensed Program to the functional specifications, or a procedure or
routine that, when observed in the regular operation of the Licensed
Program, eliminates the practical adverse effect on Customer of such
nonconformity.
1.5 "ENHANCEMENT." Any modification or addition that, when made or added to the
Licensed Program, materially changes its utility, efficiency, functional
capability, or application, but that does not constitute solely an Error
Correction. Enhancements may be designated by Dynatek as minor or major,
depending on Dynatek's assessment of their value and of the function added
to the preexisting Licensed Program.
1.6 "NORMAL WORKING HOURS." The hours between 8 A.M. and 6 P.M. Eastern Time on
the days Monday through Friday, excluding regularly scheduled holidays of
Dynatek.
1.7 "RELEASES." New versions of the Licensed Program, which new versions may
include both Error Corrections and Enhancements.
SECTION 2
SCOPE OF SERVICES
2.1 During the Agreement Term, Dynatek shall render the following services in
support of the Licensed Program, during Normal Working Hours, subject to
the compensation fixed for each type of service in Dynatek's rate schedule
set forth in the Exhibit hereto.
a. Dynatek shall maintain a telephone hot-line that allows Customer to
report system problems and seek assistance in use of the Licensed Program.
The hot-line shall be in operation during Normal Working Hours. An
emergency hot-line shall be provided to report critical system problems
outside of Normal Working Hours. A response shall be given to all hot-line
requests within two (2) working hours. Problem reporting procedures are
listed in the Exhibit hereto.
b. Dynatek shall maintain a trained staff capable of rendering the
services set forth in this Agreement.
-2-
<PAGE>
C. Dynatek shall, as required by standard USA mortgage industry
regulations and standards, make maintenance adjustments and modifications
to the Licensed Program and deliver them to the Customer in the form of an
update. It shall be the responsibility of the Customer to verify the
accuracy of the update and to distribute it to the Customer's end users.
Dynatek shall provide reasonable assistance to help Customer install and
operate each new update. Customer, as an active mortgage originator, shall
assist Dynatek in the interpretation of industry regulations and keep
Dynatek informed of new and upcoming changes that will affect the Licensed
Program.
d. Dynatek shall be responsible for using all reasonable diligence in
correcting verifiable and reproducible Errors when reported to Dynatek in
accordance with Dynatek's standard reporting procedures. These procedures
are listed in the Exhibit hereto. Dynatek shall, within two (2) hours of
verifying that such an Error is present, initiate work in a diligent
manner toward development of an Error Correction. Following completion of
the Error Correction, Dynatek shall provide the Error Correction through a
"temporary fix" consisting of sufficient programming and operating
instructions to implement the Error Correction, and Dynatek shall include
the Error Correction in all subsequent Releases of the Licensed Program.
Dynatek shall not be responsible for correcting Errors in any version of
the Licensed Program other than the most recent Version of the Licensed
Program, provided that Dynatek shall continue to support prior Versions
superseded by recent Versions for a reasonable period sufficient to allow
Customer to implement the newest Versions not to exceed ninety (90) days.
e. Dynatek shall, from time to time, issue new Releases of the Licensed
Program to its customers generally, containing Error Corrections and minor
Enhancements. Dynatek shall provide Customer with one copy of each new
Release, without additional charge. Dynatek shall provide reasonable
assistance to help Customer install and operate each new Release.
f. Dynatek will provide an automated computer dial-up bulletin board
system (BBS) and a remote computer diagnostic support facility. The BBS
will serve to provide 24-hour access to Dynatek support files which include
updates, fixes, tips, minor enhancements, forms (laser documents), and
other critical support items. The remote diagnostic facility is a telephone
modem connection that attaches the Dynatek support group computer to the
Customer's computer. This allows the support personnel to view the actual
Customer programs and data causing the reported error. The error detection
and resolution can be performed immediately on-line. Remote diagnostic
assistance is available during normal working hours.
g. Dynatek may provide assistance at Customer's facility for any of the
support services included in this Agreement. This on-site support must be
pre-authorized by the Customer, and shall be subject to the charges set
forth in the Exhibit hereto. If Customer requests on-site assistance for
critical operational problem resolution, Dynatek will make every reasonable
effort to have a person on-site within forty eight (48) hours.
h. Dynatek will perform up to thirty (30) hours per year of minor custom
programming to the Licensed Program. This programming will be limited to
modifying the current release of the installed Licensed Program. Included
in this programming will be interface programming to third party software
such as loan servicing, credit reporting agencies and appraisal companies.
Other examples of minor custom programming are projects that are
adjustments to current features in the Licensed Program such as tailoring
reports or fine tuning a communication procedure.
-3-
<PAGE>
i. Dynatek will provide major custom project work with special
consideration given to pricing and scheduling. Requests will be given a
higher priority over projects from a customer who does not have a preferred
maintenance plan. Pricing will be based on a most favored customer basis.
j. Dynatek publishes a newsletter designed to keep its customers generally
informed about the use and operation of the Licensed Program, features on
new Releases and Enhancements, and current additional support offerings.
Dynatek shall provide Customer with one copy of the newsletter without
charge and make additional copies available for a reasonable charge.
k. Dynatek shall consider and evaluate the development of Enhancements for
the specific use of Customer and shall respond to Customer's requests for
additional services pertaining to the Licensed Program (including, without
limitation, data conversion, operating environment, new feature
programming, etc.), provided that such projects, if agreed to be provided,
shall be subject to supplemental charges mutually agreed to by Dynatek and
Customer.
SECTION 3
FEES AND CHARGES
3.1 Customer shall pay Dynatek its fees and charges based on the rate schedule
set forth in the Exhibit hereto. Dynatek reserves the right to change its
rate schedule from time to time, provided that no such change will be
effective until at least thirty (30) days after Dynatek has given Customer
written notice of such change. Such written notice may not occur within an
Agreement Term (one year). The Agreement fee shall not be increased more
than fifteen (15) percent of the previous year fee, provided that no
significant changes have occurred in the Licensed Program covered by this
Agreement.
3.2 Customer shall reimburse Dynatek for all travel expenses (i.e.
transportation, lodging, and meals) incurred by Dynatek in rendering
services to Customer. Dynatek shall conform to Customer's standard and
reasonable expense and reimbursement policy as amended from time to time.
All travel must be approved by Customer.
3.3 Dynatek shall invoice Customer at the beginning of each calendar month for
all fees and charges accrued, and all reimbursable expenses incurred,
during the previous month, and Customer shall pay the invoiced amount
immediately upon receipt of such invoice. Any amount not paid within forty
five (45) days after the invoice date shall bear interest at the lesser of
1.5 percent per month or the highest rate allowed by applicable law.
3.4 Customer shall be responsible for procuring, installing, and maintaining
all equipment, telephone lines, communications interfaces, and other
hardware (other than the hardware constituting the program control center
maintained at Dynatek's facilities) necessary to operate the Licensed
Software and to obtain from Dynatek the services called for by this
Agreement.
-4-
<PAGE>
SECTION 4
PROPRIETARY RIGHTS
4.1 To the extent that Dynatek may provide Customer with any Error Corrections
or Enhancements or any other software, including any new software programs
or components, or any compilations or derivative works prepared by Dynatek
(collectively, "Licensed Programs"), Customer may (i) install the Licensed
Programs, in the most current form provided by Dynatek, in Customer's own
facility; (2) use such software in connection with the Licensed Programs,
and in a manner consistent with the requirements of the License Agreement,
for purposes of serving Customer's internal business needs; and (3) make
copies of the Licensed Programs in machine-readable form for nonproductive
backup purposes only. Notwithstanding Section 6 hereof, Customer's rights
under this Section 4.1 shall remain in effect for so long as Customer is
authorized to use the Licensed Programs. Upon termination of such License
Agreement, Customer shall return or destroy the Licensed Programs, and
returning the Licensed Programs in the manner required by the License
Agreement shall be sufficient for such purpose.
4.2 The Licensed Programs are and shall remain the sole property of Dynatek,
regardless of whether Customer, its employees, or contractors may have
contributed to the conception of such work, joined in the effort of its
development, or paid Dynatek for the use of the work product. Customer
shall from time to time take any further action and execute and deliver any
further instrument, including documents of assignment or acknowledgment,
that Dynatek may reasonably request in order to establish and perfect its
exclusive ownership rights in such works. Customer shall not assert any
right, title, or interest in such works, except for the non-exclusive right
of use granted to Customer at the time of its delivery or on-site
development.
SECTION 5
DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY
5.1 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, DYNATEK EXPRESSLY
DISCLAIMS ANY AND ALL WARRANTIES CONCERNING THE LICENSED PROGRAM OR THE
SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING
(WITHOUT LIMITATION) ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
5.2 In no event shall Dynatek's cumulative liability for any claim arising in
connection with its Agreement exceed the lesser of the total fees and
charges paid to Dynatek by Customer within the last twelve (12) months or
the sum or $25,000.00. In no event shall Dynatek be liable for any
indirect, consequential, special, exemplary, or incidental damages of
whatever kind and however caused, even if Dynatek knew or should have known
of the possibility of such damages.
5.3 No action, whether based on contract, strict liability, or tort, including
any action based on negligence, arising out of the performance of services
under this Agreement, may be brought by either party more than five (5)
years after such cause of action accrued, except that an action for
nonpayment may be brought within two (2) years of the date of last payment.
-5-
<PAGE>
SECTION 6
TERMINATION
6.1 This Agreement may be terminated as follows:
a. This Agreement shall be immediately terminated upon the termination of
the License Agreement; or
b. This Agreement may be terminated by either party upon the expiration of
the then-current term of this Agreement, provided that at least sixty (60)
days' prior written notice is given to the other party; or
c. This Agreement may be terminated by either party upon thirty (30) days'
prior written notice if the other party has materially breached the
provisions of this Agreement and has not cured such breach within such
notice period.
6.2 Following termination of this Agreement, Dynatek shall immediately invoice
Customer for all accrued fees and charges and all reimbursable expenses,
and Customer shall pay the invoiced amount immediately upon receipt of such
invoice. Customer may continue to use any work supplied to Customer by
Dynatek for the remaining term of the License Agreement. Any amount not
paid within thirty (30) days after the invoice date shall bear interest at
the lesser of 1.5 percent per month or the highest rate allowed by
applicable law.
SECTION 7
MISCELLANEOUS
7.1 Each party acknowledges that it has read this Agreement, understands it,
and agrees to be bound by its terms. The parties further agree that this is
the complete and exclusive statement of the agreement of the parties with
respect to the subject matter hereof. This Agreement may not be modified
except by a written instrument duly executed by the parties hereto.
7.2 This Agreement and the parties' obligations hereunder shall be governed,
construed, and enforced in accordance with the laws of the State of
Michigan.
7.3 In the event that any provision of this Agreement is held invalid, illegal,
or unenforceable, the remaining provisions shall be enforced to the maximum
extent permitted by applicable law.
7.4 Neither party may assign its rights or duties under this Agreement without
the prior written consent of the other party, except to a successor of all
or substantially all of it business and properties.
7.5 The waiver by either party of any term or condition of this Agreement shall
not be deemed to constitute a continuing waiver thereof nor of any further
or additional right that such party may hold under this Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have ceased this Agreement to be executed by
their duly authorized representatives as set forth below.
<TABLE>
<CAPTION>
<S> <C>
Dynatek, Inc. End User: Virtual Mortgage Network, Inc.
17197 N. Laurel Park Drive 4590 MacArthur Boulevard
Suite 100 Suite 175
Livonia MI 48125 Newport Beach CA 92660
Signature: /s/ JACK D. LUHTANEN Signature: /s/ MICHAEL A. BARRON
----------------------- -------------------------------
Name: Jack D. Luhtanen Name: Michael A. Barron
--------------------------- -----------------------------------
Title: President Title: CEO
-------------------------- -----------------------------------
Date: 4/24/96 Date: 5/7/96
--------------------------- -----------------------------------
</TABLE>
-7-
<PAGE>
EXHIBIT
This Exhibit is attached and made a part of the Preferred Customer Support
Plan Agreement dated January 15, 1996.
----------------
1. LICENSED PROGRAM. Software as itemized in the Software License Agreement;
2. RATE SCHEDULE.
a. Agreement Fee - $25,000.00 per one year term./Payable in equal
monthly installments
b. Hourly Rates -
Programming $ 125.00
Forms coding 65.00
c. On-site Support -
Customer Request $650/day in the USA
3. EXPENSES. Actual and reasonable expenses incurred by Dynatek personnel
in the course of delivering the services contained in this Agreement.
4. TRAINING CLASS TUITION.
a. Daily Fee - $1,000 per student
5. ERROR REPORTING PROCEDURES.
a. Non-critical Errors.
1. Customer provides written description of error using
Dynatek problem reporting form. Form is faxed or mailed
to Dynatek.
2. Dynatek receives error report and logs it into automated
support call tracking system. Call is classified as
"Normal Priority".
3. Next available support person is assigned to call.
4. Error is resolved and correction is sent to Customer via
diskette or BBS.
5. Satisfactory resolution of problem is recorded.
b. Critical Errors.
1. Customer provides written description of error using
Dynatek problem reporting form. Form is faxed or
communicated verbally to Dynatek support staff.
2. Dynatek receives error report and logs it into automated
support call tracking system. Call is classified as
"High Priority".
3. Support person is immediately assigned to call.
4. Management is alerted to call with "High Priority"
status.
5. Error is resolved and correction is sent to Customer via
BBS or remote diagnostic facility.
6. Satisfactory resolution of problem is recorded.
c. Emergency Off-hours
Twenty-four hour voice beeper answering service will be
provided. This service is used with Customer's support
supervisor authority to avoid unauthorized access. The voice
beeper service is only available to Priority Support
customers.
<TABLE>
<CAPTION>
<S> <C>
Dynatek, Inc. End User: Virtual Mortgage Network, Inc.
17197 N. Laurel Park Drive 4590 MacArthur Boulevard
Suite 100 Suite 175
Livonia MI 48125 Newport Beach, CA 92660
Signature: /s/ JACK D. LUHTANEN Signature: /s/ MICHAEL A. BARRON
------------------------- ------------------------------
Name: JACK D. LUHTANEN Name: MICHAEL A. BARRON
----------------------------- -----------------------------------
Title: President Title: CEO
---------------------------- ----------------------------------
Date: 4/24/96 Date: 5/7/96
----------------------------- ----------------------------------
</TABLE>
-1-
<PAGE>
EXHIBIT 10.11
DYNATEK SOFTWARE LICENSE AGREEMENT
This Software License Agreement (Agreement), made this 23rd day of
----
AUGUST, 1995, by and between DYNATEK, Inc., a Michigan Corporation hereinafter
- ------ --
referred to as DYNATEK, and Virtual Realty, Inc., 4590 MacArthur Boulevard,
-----------------------------------------------
Suite 175, Newport Beach, CA 92660, a California Corporation hereinafter
- ------------------------------------ ----------
referred to as END USER.
WHEREAS, DYNATEK has developed proprietary computer software packages,
hereinafter referred to as SOFTWARE;
WHEREAS, END USER desires to purchase from DYNATEK a license to use the
SOFTWARE; and
WHEREAS, DYNATEK desires to grant the END USER a non-exclusive license to use
the SOFTWARE;
NOW, THEREFORE, DYNATEK grants and END USER accepts a non-transferable and
non-exclusive right and license to use the SOFTWARE upon the terms and
conditions set forth below:
1. LICENSE. This Agreement establishes a non-transferable non-exclusive License
-------
to permit the undersigned END USER to use the DYNATEK SOFTWARE described in
Exhibit 1, which Exhibit is incorporated herein by this reference. This
agreement does not transfer title or any ownership interest whatsoever in any of
the SOFTWARE or related materials.
2. TERM. This Agreement is effective from the date of its execution and shall
----
continue in effect until terminated in accordance with the provisions set forth
in this Paragraph. At any time following the execution of this Agreement, the
END USER may terminate this agreement by returning to DYNATEK all software,
programs, systems or related materials furnished pursuant to this Agreement,
and/or certifying to DYNATEK in writing that the END USER has destroyed all of
the materials transferred pursuant to this License and that no related materials
continue to be held in the possession of the END USER.
DYNATEK may terminate this Agreement after its execution upon the failure of the
END USER to comply with any of the terms or conditions set forth herein,
including, nonpayment of any sums due. DYNATEK shall so notify END USER in
writing, specifying in reasonable detail the term or condition and END USER
shall have the right to cure identified breaches for a period of thirty (30)
days after service of such notice. The intentional unauthorized transfer to any
other person, partnership or corporation of the materials supplied pursuant to
this License Agreement shall immediately terminate this License Agreement.
3. USE RESTRICTIONS. The original and any back up copies of the software
----------------
programs or documentation transferred pursuant to this License Agreement are to
be used only in connection with a single computer as specified in Exhibit 1. You
may physically transfer the SOFTWARE programs from one computer to another only
if the programs are used in connection with one computer at a time. You may not
transfer the SOFTWARE electronically from one computer to another over a network
unless the Networking option is specifically stated in Exhibit 1. The networking
option shall include use by all computers that are directly attached to the
network or remotely attached through a telephone modem to the network. Transfer
of the SOFTWARE or any portion of the SOFTWARE electronically or otherwise to
any other person or party automatically terminates this License Agreement. It is
the responsibility of the END USER to supervise and control the use of the
SOFTWARE and related materials furnished pursuant to this Agreement. This
includes assuring the proper machine configuration, program and installation
compatibility and/or operating methods specified in Exhibit 1. The END USER
agrees to develop and maintain adequate data back-up (copy) procedures to
satisfy the requirements of DYNATEK for security and accuracy of imput and
output as well as restart and recovery of data in the event of malfunctions.
Whereas DYNATEK may contract to supply support personnel for initial set up
purposes only, this is solely as an accommodation to the END USER for
implementation of this License Agreement. DYNATEK will not maintain your system
nor will DYNATEK certify that you have complied with the terms of this License.
4. PROPERTY RIGHT. DYNATEK represents that it is the owner or has the right to
--------------
enter into this Agreement for the SOFTWARE, and further warrants that the
SOFTWARE does not violate any property rights of any third party.
<PAGE>
5. LIMITATION OF WARRANTY. ALL PROGRAM MATERIALS ARE PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE SOFTWARE
PROGRAMS PROVIDED PURSUANT TO THIS AGREEMENT REST WITH THE END USER. IN NO
EVENT DOES DYNATEK WARRANT THE FUNCTIONS CONTAINED IN THE PROGRAM OR THAT THE
PROGRAM WILL MEET YOUR REQUIREMENTS OR THAT THE OPERATION OF THE PROGRAM WILL BE
UNINTERRUPTED OR ERROR FREE.
However, Licensor does warrant that the SOFTWARE will conform as to all
intended operational features, to Licensor's published specifications, when
installed, and will be free of defects which substantially effect system
performance. Licensor's published specification include but are not limited to
technical materials and product information supplied by DYNATEK.
SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES SO THE ABOVE
EXCLUSION MAY NOT APPLY TO YOU.
6. REPLACEMENT POLICY. Should the SOFTWARE program prove defective because of
------------------
failures related to defects in material or faulty workmanship involving the
magnetic diskette on which the program is recorded, DYNATEK will replace same
without charge to you. Your sole and exclusive remedy in the event of a defect
is expressly limited to the replacement of the program diskette. If the failure
of a diskette results from accident, abuse or misapplication of same, DYNATEK
will not be responsible for such a defect. The foregoing replacement policy is
not a warranty. Rather it is an attempt to assure good will by covering factors
beyond the control of either DYNATEK or the undersigned END USER.
7. LIMITATION OF REMEDIES. The exclusive remedy of the END USER under this
----------------------
Agreement shall be the replacement of any program diskette according to the
replacement policy outlined above.
DYNATEK WILL NOT BE LIABLE FOR ANY DAMAGES, INCLUDING ANY LOST PROFITS, LOST
SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR
INABILITY TO USE SOFTWARE MATERIALS PROVIDED UNDER THIS LICENSE EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH LOSS, OR FOR ANY CLAIMS BY ANY OTHER PARTIES.
SOME STATES DO NOT ALLOW THE LIMITATIONS OR EXCLUSION OF LIABILITY FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT
APPLY TO YOU.
8. GENERAL. THE END USER SHALL NOT sublicense, assign or transfer this license
-------
or the program materials transferred. This agreement shall be binding upon
DYNATEK's successors or assigns. This Agreement shall be governed by the laws
of the State of Michigan.
END USER ACKNOWLEDGES THAT HE/SHE HAS READ THIS AGREEMENT, UNDERSTANDS IT AND
AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS. END USER FURTHER AGREES THAT
IT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN US WHICH
SUPERSEDED AND PROPOSAL OR PRIOR AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER
COMMUNICATIONS BETWEEN US RELATING TO THE SUBJECT MATTER OR THIS AGREEMENT.
IN WITNESS WHERETO, DYNATEK and the END USER have caused this Agreement to be
executed by their duly authorized representatives:
DYNATEK, Inc. Software License Agreement Number 1471
----
17197 N. Laurel Park Drive
Suite 100
Livonia, Michigan 48152
Signature: /s/ Jack D. Lubtanen
------------------------
Name: Jack D. Lubtanen
------------------------
Title: President
------------------------
Date: 8/23/95
------------------------
END USER: Virtual Realty Inc.
Signature: /s/ Michael A. Baron
------------------------
Name: Michael A. Baron
------------------------
Title: President/CEO
------------------------
Date: 8/23/95
------------------------
<PAGE>
DYNATEK SOFTWARE LICENSE AGREEMENT
EXHIBIT 1
Software License Agreement Number: 1471
----
End User:
Name: Virtual Realty, Inc.
Address: 4590 MacArthur Blvd, Suite 175
City, State, ZIP: Newport Beach, CA 92660
Designated Machine Location: Same as above.
Licensed Software Program:
SOFTWARE Charge
------
MarVision 10 user Network version. $28,000
Remote Access Licensing $ 7,000
MarVision "Origination" and" Prequalification"
Visual Entry Loan Application
Prequalification
File Maintenance
Document View
Document Printing (Includes VMP/ELF Forms)
Control Screen (Status Check)
Cost per additional users on this network are $700 per user.
CUSTOM PROGRAMMING
MarVision Custom Programming $62,500
Complete custom programming as jointly defined and agreed upon by both parties.
Definition to be created jointly within the first two (2) weeks of this
agreement. It is estimated the custom programming will be completed thirty (30)
days from the day the final definition has been made. It is further declared
that Dynatek shall not remarket these custom program changes in their entirety
as have been defined by Virtual Realty Inc. However,, Dynatek shall not be
restricted from creating or marketing Software Programs that are similar to the
software being created for Virtual Realty Inc.
SOURCE CODE ESCROW DEPOSIT
Virtual Realty, Inc. will be registered as a Licensee of Dynatek's MarVision
Software. The source code will be on deposit at Fort Knox Escrow Service, Inc.
Fort Knox Escrow Services will provide a written acknowledgement of
registration to Virtual Realty, Inc.
<PAGE>
Dynatek, Inc.
17197 N. Laurel Park Dr.
Suite 100
Livonia, Michigan 48152
Signature: /s/ Jack D. Lubtanen
_______________________
Name: Jack D. Lubtanen
____________________________
Title: President
___________________________
Date: 8/23/95
____________________________
End user: Virtual Realty, Inc.
Signature: /s/ Michael Bareon
______________________
Name: Michael Bareon
___________________________
Title: President
__________________________
Date: 8/23/95
__________________________
<PAGE>
EXHIBIT 10.12
AGREEMENT
This agreement is made this 1st day of December, 1995, by and between Virtual
Mortgage, Inc., a Nevada corporation (the "Company"), and American Growth
Capital Corporation, a Nevada corporation ("AGCC").
WHEREAS the Company has issued a Confidential Private Placement Memorandum
(the "PPM") for its issue of One Million Shares of Series A Convertible
Preferred Stock (the "Stock"), and
WHEREAS the Company has asked for AGCC to assist the Company in marketing shares
of the Stock pursuant to the terms of the PPM,
THE PARTIES HEREBY AGREE that
AGCC shall be entitled to market shares of the Stock to investors who may
qualify to purchase those shares pursuant to the terms of the PPM.
AGCC shall receive, from the proceeds of any such sale of the Stock to any
investor who is introduced to the Stock by AGCC, a maximum fee equal to
TWENTY-THREE and ONE HALF PERCENT (23.5%) of the purchase price of all shares
sold to that investor.
This Agreement does not supersede any previous agreements between the parties
concerning the PPM. In the event of a question as to the party responsible for
introducing an investor to the Stock, written statements from the investor to
AGCC shall be conclusive evidence of AGCC's entitlement to the fee described
above.
The Company, not AGCC, is responsible for ensuring that the investor is an
Accredited Investor, as that term is described in the PPM, as is, therefore, a
suitable investor.
IN WITNESS WHEREOF, the parties have executed this agreement on the date first
written above.
The Company: American Growth Capital Corporation:
By: /s/ Michael Barron By: /s/ Donna Snyder
------------------------ ------------------------
Michael Barron Donna Snyder
Its: C.E.O. Its: President
-----------------------
<PAGE>
EXHIBIT 10.13
INVESTMENT AGREEMENT
This Investment Agreement between Virtual Realty Network, Inc. (hereinafter
referred to as the "Investee Company" and "VRN") with offices at 414 Old
Newport Boulevard, 3rd Floor, Newport Beach, CA 92663 and American Growth Fund I
LP, a California Limited Partnership (hereinafter referred to as "Investor")
is entered into this 21st day of March, 1995.
WHEREAS, the Investee Company owns and operates a certain business which
manufactures and markets mortgage banking related technology products and is
seeking financing and management expertise for the primary purpose of obtaining
an Initial Public Offering ("IPO"), and;
WHEREAS, the Investor is a Limited Partnership which offers such financing and
management expertise;
THEREFORE, IT IS AGREED between these parties as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF INVESTEE COMPANY
The Investee Company hereby represents and warrants to lnvestor as follows:
1.1 Execution of Agreement
----------------------
A. This Agreement has been duly executed and delivered by Investee
Company and is a legal, valid and binding obligation of Investee
Company in accordance with its terms.
1.2 Investee Company's Organization and Authority
---------------------------------------------
A. The lnvestee Company is a duly authorized Corporation originally
incorporated in the State of Nevada.
B. The Investee Company is a Corporation in good standing and has full
authority to enter into this Agreement.
C. Michael A. Barron, as the President of VRN, warrants all shares in the
Corporation are free from encumbrances, either current or pending and
has authorized the transaction outlined herein.
1
<PAGE>
1.3 Accuracy of Due Diligence Information
-------------------------------------
A. All due diligence information previously furnished to the Investor,
including but not limited to financial statements, tax returns,
accounting reports, legal opinions, marketing and sales information,
customer lists and banking information is true and correct and does not
misstate or omit a material fact in order to make the information false
or misleading.
1.4 Title to the Assets: Liens and Encumbrances
-------------------------------------------
A. Investee Company has good and marketable title to all of the Assets,
free and clear of all liens, claims, charges and encumbrances, other
than for those items listed on Exhibit B.
1.5 Agreement Not Subject to Encumbrances or Third Party Approval
-------------------------------------------------------------
A. The execution and delivery of this Agreement by Investee Company and
the consummation of the transactions contemplated hereunder will not
result in the creation or imposition of any valid lien, charge or
encumbrance on any of the Stock, Assets or Proprietary Rights of the
lnvestee Company and will not require the authorization, consent or
approval of any third party, including any government subdivision or
regulatory agency, except such consents as have been obtained prior to
closing.
1.6 No other Commitments
---------------------
A. With the exception of Intel Corporation, the Investee Company has made
no commitment and is under no obligation to obtain additional
financing or public underwriting during the term of this Agreement with
any third party.
1.7 Claims and Litigation
---------------------
A. The Investee Company represents that, to the best of the Investee
Company's knowledge, VRN is not subject to or involved in any claims,
litigation, arbitration or legal proceedings which might result in any
material adverse change in the condition, value, or title of the Stock
being conveyed hereunder.
2
<PAGE>
1.8 Covenant of Confidentiality
---------------------------
A. As the contents of this Agreement may be construed as potential "Inside
Information" by the Securities and Exchange Commission, the Investee
Company covenants and warrants that it will treat this Agreement as
confidential and will not disclose its contents at any time to any
person, business or corporate entity without express written permission
of the lnvestor. Written permission will be given by the Investor only
to those persons with a "need to know" basis.
B. Investee Company also covenants that it will not disclose to any third
party information on the Limited Partners of the Investor without the
express written permission of each Limited Partner.
1.9 Consents of Government Agencies
-------------------------------
A. Investee Company covenants and warrants that it will promptly take all
steps on its part necessary for it to obtain all consents of
governmental agencies required to be obtained by Investor prior to
closing for the transfer of the Stock and Issuance of the Note and will
cooperate with Investor in such respect.
1.10 Accuracy of Representations and Warranties
------------------------------------------
A. No representations made by Investee Company contains or will contain
any untrue statement of a material fact or omits or will omit or
misstate a material fact necessary in order to make the statement
contained therein not misleading, including, but not limited to,
Investee Company's ability to have available all those shares of Stock
and Warrants and the Corporate Promissory Note to issue the total
value of which it is obligated to transfer to Investor at closing.
1.11 Agreement will Not Cause Breach or Violation
--------------------------------------------
A. Investee Company covenants that the consummation of the transactions
contemplated by this Agreement will not result in or constitute any of
the following: (i) a breach of any term or provision of this
Agreement; (ii) a default or an event that, with notice or lapse of
time or both, would be a default, breach, or violation of the articles
of incorporation or bylaws of the Investee Company or any lease,
license, promissory note, conditional sales contract, commitment
indenture, mortgage, deed of trust, or other agreement, instrument, or
arrangement to which Investee Company is a party or by which their
property is bound; (iii) an event that would permit any party to
terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation of Investee
3
<PAGE>
Company; or (iv) the creation or imposition of any lien, charge, or
encumbrance on any of the assets of the Investee Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Investee Company as follows:
2.1 Execution of Agreement
----------------------
A. This Agreement has been duly executed and delivered by the lnvestor and
constitutes legal, valid and binding obligations of the Investor
enforceable in accordance with its terms. Those persons executing this
Agreement on behalf of the Investor have been duly authorized to do so.
2.2 Ability to Perform
------------------
A. lnvestor specifically warrants and represents that it has the present
ability to perform all Investor's obligations hereunder to Investee
Company.
2.3 Authority Granted
-----------------
A. Investor has granted to the person executing this Agreement on its
behalf the authority to do so and hereby consents to all of its terms.
2.4 Covenant of Confidentiality
---------------------------
A. As the contents of this Agreement may be construed as potential "Inside
Information" by the Securities and Exchange Commission, Investor
covenants and warrants that it will treat this Agreement and all Due
Diligence information on the Investee Company as confidential and will
not disclose its contents at any time to any person, business or
corporate entity without a "need to know" unless express written
permission is given by the Investee Company.
ARTICLE III
PERFORMANCE OBLIGATIONS OF INVESTOR
The Investor agrees and covenants to perform the following duties in accordance
with this Agreement
4
<PAGE>
3.1 Loan Amount
-----------
A. In exchange for the Note and Stock considerations outlined herein,
Investor will place on deposit cleared funds of $200,000 to be used by
the Investee Company for accounting, legal, investment banking and
other fees associated with further evaluation and procurement of a
Nasdaq listing and Initial Public Offering underwriting. Investee
company expenditures and releases of the funds must be approved by the
Investor prior to release of the funds.
3.2 Management Services
-------------------
A. Through American Growth Capital Corporation, the Managing General
Partner of the Investor, the Investor hereby agrees to provide Investee
Company with all appropriate management and guidance services required
by the Investee Company until the closing of the Investee Company's
Initial Public Offering or for five (5) years after the closing date of
this Agreement, whichever event occurs earlier.
ARTICLE IV
PERFORMANCE OBLIGATIONS OF INVESTEE COMPANY
The Investor agrees and covenants to perform the following duties in
accordance with this Agreement:
4.1 Note
----
A. Investee Company will deliver to Investor the Corporate Promissory Note
hereto attached as Exhibit "A" at the date of closing.
4.2 Shares
------
A. The Investee Company will transfer to the Investor's Limited Partners
250,000 shares of Class "A" Common Stock. within 9O days of the date of
closing, or as instructed by the Investor shares will be issued to each
Limited Partner in the pro-rata ownership percentage held by each
Limited Partner of Record. The Class "A" stock is "Piggybacked" and is
so designated as to have the first option of liquidation and/or
transfer at the time of the Initial or Secondary Public Offering,
subject to SEC and Underwriting restrictions placed at the time of the
Offering, and is non-dilutable and will consist of 5% of the Company's
equity. No additional issues of piggybacked shares or warrants will
have liquidation preference over the shares and warrants issued under
this agreement.
5
<PAGE>
4.3 Warrants
--------
A. The Investee Company will distribute to the Investor's United Partners
175,000 Class A Warrants Convertible to Class "A" Common @$.70 per
share. Warrants are exercisible for five (5) years from the date of
issue. The Class "A" stock is "Piggybacked" and is so designated as to
have the first option of liquidation and/or transfer at the time of the
Initial or Secondary Public Offering, subject to SEC and Underwriting
restrictions placed at the time of the Offering, and is non-dilutable
and will consist of 3.5% of the Company's equity. No additional issues
of piggybacked shares or warrants will have liquidation preference over
the share and warrants issued under this agreement.
4.4 Board Of Directors
------------------
A. Effective at the Closing Date, the Investee Company will increase its'
Board of Directors to five (5) members, one (1) of which shall be
appointed by the Investor for two non-revocable one (1) year term from
the Close of the Agreement.
4.5 Investment Banking Services
---------------------------
A. The Investee Company agrees to use American Growth Capital Corporation;
the Managing General Partner of the Investor, as its non-exclusive
investment banking consultant until the closing of the Investee
Company's Initial Public or Secondary Offering or for five (5) years
after the closing date of this Agreement, whichever event occurs
earlier.
B. PLACEMENT FEES ON ADDITIONAL FORMATION - If and only if AGCC shall have
---------------------------------------
produced a commitment of a lender or investor which shall have been
accepted in writing ("accepted commitment"), it being understood that
such acceptance is wholly within VRN's discretion and may be refused
for any reason whatsoever, then AGCC shall be deemed to have earned the
applicable placement fee(s), as set forth below, and VRN shall pay such
a fee to AGCC in cash on (i) the date it shall have received the
proceeds of such loan or investment ("funding date") or (ii) if VRN
shall for any reason whatsoever, fail to accept funding against an
accepted commitment, on the expiration date of the accepted commitment
If a funding against an accepted commitment shall not have occurred as
a result of withdrawal by a lender or investor, then VRN shall have no
obligation to pay the respective placement fee. This schedule is
exclusive of negotiated broker dealer fees and commissions.
6
<PAGE>
<TABLE>
<S> <C>
(a) Senior Term Debt: 1.5% (.015) of the face amount.
(b) Subordinate or Convertible Debt: 5.0% (.050) of the face amount.
(c) Preferred Stock: 6.0% (.060) of the subscribed
amount.
(d) Common Stock: 8.0% (.080) of the subscribed
amount.
</TABLE>
For purposes of this Agreement, "face amount" and "subscribed amount"
shall mean the initial committed amount of the loan/investment before
deduction or offset of any closing, legal or other professional fees
and costs.
C. ANNOUNCEMENT BY AGCC - If any financing involving proceeds to the
--------------------
Company of $1,000,000 or more is contemplated by this Agreement is
completed, AGCC may, at its option and expense, place a conventional
announcement in newspapers and periodicals of its choice stating that
AGCC has acted as financial advisor to VRN in respect of the
financing; provided that such announcement is in compliance with the
Securities Act of 1933.
D. NO AGENCY - AGCC understands and acknowledges that this letter shall
---------
not create or imply any agency agreement between the parties, and AGCC
shall not, nor shall AGCC have the right to, commit VRN, its officers,
directors and shareholders in any manner except as shall have been
specifically authorized in writing by VRN.
ARTICLE 5
CLOSING
5.1 Closing Date.
------------
A. Closing Date of this Agreement shall be March 22, 1995.
5.2 Obligations.
-----------
A. The obligation of Investor to complete the transaction contemplated
hereunder is subject to the satisfaction, at or before the closing, of
all the conditions set out below in this Article 5. Investor may waive
any or all of these conditions in
7
<PAGE>
whole or in part without prior notice; provided, however, that no such waiver of
a condition shall constitute a waiver by Investor of any of its other remedies,
at law or in equity, if Investee Company shall be in default of any of their
representations, warranties, or covenents under this Agreement.
8
<PAGE>
5.3 Accuracy of Investee Company's Representations and Warranties
-------------------------------------------------------------
A. Except as otherwise permitted by this Agreement, all representations
and warranties by the parties to this Agreement or in any written
statement that shall be delivered by either party to the other under
this Agreement shall be true on and as of the closing date as though
made at that time.
5.4 Performance by Investee Company
-------------------------------
A. Investee Company shall have performed, satisfied, and complied with all
covenents, agreements, and conditions required by this Agreement to be
performed or complied with by them on or before closing including
delivering possession of the Note, Stock and Warrants, in the same
condition existing as of the date of this Agreement.
5.5 Opinion of lnvestee Company's Counsel
-------------------------------------
A. Investor shall have received from counsel for the Investee Company, an
opinion dated the closing date, in form and substance satisfactory to
Investor and its counsel, that:
(i) Investee Company has all necessary corporate power to enter into
this Agreement and to operate its business as now operated.
(ii) This Agreement has been duly and validly authorized and, when
executed and delivered by Investee Company will be valid and
binding on Investee Company and enforceable in accordance with
its terms, except as limited by bankruptcy and insolvency laws
and by other laws affecting the rights of creditors generally;
(iii) Except as set forth in this Agreement, such counsel does not know
of any suit, action, arbitration, or legal, administrative, or
other proceeding or governmental investigation pending or
threatened against or affecting Investee Company, and
9
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 Survival of Representation
--------------------------
A. All representations, warranties, covenants by the parties to this
Agreement shall be applicable and effective thereafter.
6.2 Indemnities
-----------
A. Each party making a covenant, agreement, representation or warranty in
this Agreement, or any schedule, exhibit, or other document delivered
under this Agreement, shall indemnify and hold harmless any party for
whose benefit such covenant, agreement, representation or warranty is
made from and against any and all loss, damage, liability, tax, expense
(including without limitation, reasonable attorney's fees and court
costs) resulting from any breach, misrepresentation or non-performance
of any such covenant, agreement, representation or warranty. The
indemnity obligations set forth in this Section 6.2 shall survive the
closing date.
6.3 Notices
-------
A. All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly
given if mailed by certified or registered mail, return receipt
requested, postage prepaid as follows:
Investor: American Growth Capital Corporation for American Growth Fund
1 LP, 17280 Newhope Street, Fountain Valley, CA 92780
Investee Company: Virtual Realty Network, inc.
6.4 Multiple Originals
------------------
A. This Agreement may be executed in one or more counterparts and each
counterpart shall be deemed to be an original.
10
<PAGE>
6.5 Complete Agreement: Modification and Termination
------------------------------------------------
A. This Agreement together with all Exhibits hereto contains a complete
statement of the Investment Agreement between the parties and
supersedes any existing agreements between them and cannot be changed
or terminated except in writing.
6.6 Waiver
------
A. The failure of any party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered to be a waiver
or to deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver
must be in writing.
6.7 Assignment
----------
A. This Agreement shall be binding and inure to the benefit of the parties
to it, their heirs, successors, and assigns. This Agreement shall not
be assignable by any party without the written consent of the other but
such consent shall not be unreasonably withheld.
6.8 Governing Law and Venue
-----------------------
A. Irrespective of the place of execution or performance, the validity,
performance, construction and effect of this Agreement shall be
governed by, and construed in accordance with the laws of Orange
County in the State of California. Any controversy, claim or action
arising out of or related to this Agreement shall be brought in the
courts of the State of California for the County of Orange or the
United States District Court for the Central District of California,
the parties hereby waiving any other venue to which they may be
entitled by virtue of domicile, residence, or otherwise.
6.9 Severability
------------
A. If any provision of this Agreement is invalid, unenforceable or
inapplicable to any person or circumstance to which it is intended to
be applicable, such invalidity shall not affect the remainder of the
Agreement
11
<PAGE>
6.10 Attorney's Fees
---------------
A. Should either party hereto file suit to enforce the terms of this
Agreement or to be compensated in damages for the other party's breach
of Agreement, or for declaratory relief to determine the rights and
duties of parties under this Agreement, the prevailing party shall be
awarded reasonable attorney's fees in addition to all allowable costs
of bringing such action.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on
the date first above written.
INVESTOR:
- --------
American Growth Capital Corporation, Managing General Partner for American
Growth Fund I LP
By: /s/ DONNA SNYDER
-----------------------------
Donna Snyder, President
INVESTEE COMPANY:
- ----------------
Virtual Realty Network, Inc.
By: /s/ MICHAEL A. BARRON
-----------------------------
Michael A. Barron, President
12
<PAGE>
CORPORATE PROMISSORY NOTE
-----------------------------------
EXHIBIT "A" TO INVESTMENT AGREEMENT
March 22, 1995 $200,000
For value received as stated in the Investment Agreement, Virtual Realty Network
promises to pay to American Growth Fund I LP the sum of Two Hundred Thousand
($200,000) with interest from the date of this note on the unpaid principal to
be paid quarterly at an annual rate of two (2%) over Prime as reported by the
2nd District cost of funds.
American Growth Fund I LP reserves the right under this Note to file UCC-1's in
the appropriate jurisdictions to further secure the Promissory Note.
Principal payment on maturity is due upon the first closing of Virtual Realty
Network's proposed Initial or Secondary Public Offering or March 21, 1997,
whichever event occurs earlier.
This Note is additionally collateralized by those assets listed on Exhibit "B".
Virtual Realty Network, Inc.
/s/ MICHAEL A. BARRON
- ----------------------------
Michael A. Barron, President
13
<PAGE>
EXHIBIT "B"
ASSETS SECURED BY PROMISSORY NOTE DATED March 22, 1995
1. Software rights to "Software Today" software as owned by the Corporation and
as developed by James Meader, Jeanne Grade and Gary Edwards.
2. Accounts receivable, current and future.
14
<PAGE>
CORPORATE PROMISSORY NOTE
-----------------------------------
EXHIBIT "A" TO INVESTMENT AGREEMENT
March 22, 1995 $100,000
For value received as stated in the Investment Agreement, Virtual Realty
Network promises to pay to American Growth Fund I LP the sum of One Hundred
Thousand ($100,000) with interest from the date of this note on the unpaid
principal to be paid quarterly at an annual rate of two (2%) over Prime as
reported by the 2nd District cost of funds.
American Growth Fund I LP reserves the right under this Note to file UCC-1's in
the appropriate jurisdictions to further secure the Promissory Note.
Principal payment on maturity is due upon the first closing of Virtual Realty
Network's proposed Initial or Secondary Public Offering or March 21, 1997,
whichever event occurs earlier.
This Note is additionally collateralized by those assets listed on Exhibit "B".
Virtual Realty Network; Inc.
/s/ MICHAEL A. BARRON
- ----------------------------
Michael A. Barron, President
15
<PAGE>
Addendum
--------
To
--
Investment Agreement
---------- ---------
The following is an addendum to the Investment Agreement, dated March 21, 1995,
signed by the undersigned parties:
1. The Investment agreement is amended to provide American Growth Fund I
LP, a California Limited Partnership with the right to convey their
250,000 common shares and 175,000 warrants issued thereunder to Series A
Preferred Shares upon the same terms and conditions, basis and valuation as
lntel Corporation is making their investment in Virtual Realty Network, Inc.
2. All other terms and conditions of the Investment Agreement to remain the
same.
IN WITNESS WHEREOF, the parties have executed and delivered this addendum on
March 31, 1995.
INVESTOR:
- --------
American Growth Capital Corp, Managing General Partner for American Growth Fund
I LP
By: /s/ DONNA SNYDER
--------------------------------
Donna Snyder, President
INVESTEE:
- --------
Virtual Realty Network, Inc.
By: /s/ MICHAEL BARRON
-------------------------------
Michael Barron, President
16
<PAGE>
EXHIBIT 10.14
AMENDMENT
---------
TO
--
INVESTMENT AGREEMENT
--------------------
Dated March 21, 1995
THIS AMENDMENT to the Investment Agreement, dated March 21, 1995, with
an Addendum dated March 31, 1995, is hereby entered into by Virtual Realty
Network, Inc. ("Virtual Realty") and American Growth Fund I, ("American
Growth") a California Limited Partnership, by American Growth Capital Cor-
poration, Managing General Partner, with offices at 1455 East Tropicana,
Ste. 550B, Las Vegas, Nevada 89119, and the parties hereto agree as follows:
1. American Growth has purchased 250,000 shares of Series A
Preferred Stock on June 22, 1995. American Growth has received a copy of the
Purchase Agreement, the Rights Agreement (Exhibit E) and the Co-Sale and Right
of First Refusal Agreement (Exhibit F), including all of the Exhibits A-J
thereto. American Growth has read, understood and agreed to be bound by and
purchase the Series A Preferred Stock under the terms and conditions of those
agreements, including those exceptions to the Agreement (Exhibit C, attached
thereto). American Growth and Virtual Realty hereby agree that paragraphs 3.2
Management Services and 4.5 Investment Banking Services are null and void as of
- ------------------- ---------------------------
the date of the purchase of the Series A Preferred Stock, and all other terms
and conditions of the original investment dated March 21, 1995, and the
Addendum, dated March 31, 1995, remain in full force and effect. All future
Management Services and Investment Banking Services contemplated between the
parties will be negotiated and evidenced by separate written contract.
2. Virtual Realty had executed two (2) Corporate Promissory Notes
in the amounts of $200,000 and $100,000 respectively, on March 22, 1995,
attached as Exhibit "A" to the Investment Agreement. The parties agree that
these two (2) Corporate Promissory Notes in the amounts of $200,000 and $100,000
respectively, dated March 22, 1995, are hereby canceled and replaced by the one
(1) Corporate Promissory Notes in the
1
<PAGE>
amounts of $200,000, executed on June 30, 1995 by virtual Realty Applications
-------
Group, Inc., a subsidiary of Virtyal Realty Network, Inc. American Growth hereby
acknowldges receipt of the original Corporate Promissory Note on August 30,
---------
1995, a copy of which is attached hereto.
3. Pursuant to the Investment Agreement, Virtual Realty has issued
one certificate in the amount of 250,000 shares of common stock and one warrant
in the amount of 175,000 on March 22, 1995. Under the terms of paragraph 4.2
Shares, Virtual Realty issued common shares and warrants to each Limited Partner
of record. American Growth has agreed, and does hereby agree, to supply to
Virtual Realty with all pertinent information regarding such Limited Partners as
are now shareholders in Virtual Realty, including, but not limited to, their
full name, address, telephone numbers and type of ownership. Virtual Realty
agrees to retain such information received from American Growth as the company's
confidential shareholder list, and shall not use this information for any
purpose other than Virtual Realty's legitimate business purposes related to its
own shareholder relations.
IN WITNESS THEREOF, the parties have executed this Amendment to the Investment
Agreement, dated March 21, 1995, with an addendum dated March 31, 1995, on this
15th day of September, 1995.
- ----
VIRTUAL REALTY NETWORK, INC. AMERICAN GROWTH FUND I,
4590 MacArthur Blvd., Ste. 175 a California limited partnership
Newport Beach, CA 92660 By: American Growth Capital
Corp., Managing General Partner
By: /s/ Michael A. Barron, Pres. By: /s/ Donna Snyder, President
----------------------------- -------------------------------
MICHAEL A. BARRON, Pres. DONNA SNYDER, President
2
<PAGE>
EXHIBIT 10.15
SECOND AMENDMENT
----------------
TO
--
INVESTMENT AGREEMENT
--------------------
THIS SECOND AMENDMENT (this "Amendment") to the Investment Agreement,
dated March 21, 1995, by and between Virtual Realty Network, Inc., a Nevada
corporation now known as Virtual Mortgage Network, Inc. ("Investee Company" or
"VMN"), and American Growth Fund I, L.P., a California limited partnership
("Investor"), as amended by that certain Addendum to Investment Agreement, dated
March 31, 1995 (the "Addendum"), and that certain Amendment to Investment
Agreement, dated September 15, 1995 (the "Investment Agreement"), is hereby
entered into by VMN and Investor effective as of September 9, 1996, and the
parties hereto agree as follows:
1. All warrants to purchase capital stock of VMN that have been
issued to Investor or American Growth Capital Investments, Inc., a Nevada
corporation ("AGCI"), by VMN prior to and on the date hereof, other than (a)
that certain Warrant to purchase 175,000 shares of Common Stock of VMN, dated
March 22, 1995, and (b) that certain Bridge Warrant, dated July 8, 1996, but
including those warrants listed on Exhibit A attached hereto, shall have an
---------
exercise price of $1.00 per share. In consideration of such adjustment to the
exercise price, VMN agrees to issue to Investor an additional warrant to
purchase 6,083 shares of Common Stock of VMN at an exercise price of $1.00
-----
per share on the date hereof (the "Additional Warrant").
2. Section 3.2 of the Investment Agreement shall be reinstated and
shall read in full as follows:
3.2 Management Services
-------------------
A. Through American Growth Capital Corporation, the Managing General
Partner of the Investor ("AGCC"), the Investor and AGCC hereby
agree to provide Investee Company with all appropriate management
and guidance services required by the Investee Company until the
earlier of the closing of the
<PAGE>
Investee Company's Initial Public Offering or March 21, 2000.
3. Section 4.2 of the Investment Agreement shall be amended in its
entirety to read as follows:
4.2 Shares
------
A. Issuance; Registration Rights. The Investee Company will issue
-----------------------------
to Investor 250,000 shares of Common Stock, which the Investor
acknowledges is being acquired for Investor's own account, for
investment purposes only, and not with an intent to sell or
resale in connection with any public distribution of all or any
portion of the securities. The Investor agrees that it will not
transfer any of the securities other than in compliance with all
applicable state and federal securities laws, that the securities
will bear an appropriate and customary restrictive legend
regarding compliance with such laws and that stop transfer orders
may be placed with the Investee Company's transfer agent with
respect to the foregoing restrictions. Investor may, in the
future, distribute such shares of Common Stock to its limited
partners, provided that such distribution is done in compliance
with applicable state and federal securities laws, the securities
bear an appropriate and customary restrictive legend regarding
compliance with such laws and the Investee Company shall continue
to have the right to place stop transfer orders. Investor shall
be entitled to the registration rights granted to it under the
Virtual Mortgage Network, Inc. Master Registration Rights
Agreement, a copy of which is attached hereto and is incorporated
herein by reference.
4. Section 4.3 of the Investment Agreement shall be amended in its
entirety to read as follows:
4.3 Warrants
--------
A. Issuance: Registration Rights. The Investee Company will issue
-----------------------------
to Investor a warrant to purchase 175,000 shares of Common Stock
(the "Warrant"), which the Investor acknowledges is being
acquired for Investor's own account, for investment purposes
only, and not with an intent to sell or resale in connection with
any public distribution of all or any portion of the securities.
The Investor agrees that it will not transfer any of the
securities other than in
2
<PAGE>
compliance with all applicable state and federal securities laws,
that the securities will bear an appropriate and customary
restrictive legend regarding compliance with such laws and that
stop transfer orders may be placed with the Investee Company's
transfer agent with respect to the foregoing restrictions.
Investor may, in the future, distribute such Warrant rights to
its limited partners, provided that such distribution is done in
compliance with applicable state and federal securities laws and
the securities bear an appropriate and customary restrictive
legend regarding compliance with such laws and the Investee
Company shall continue to have the right to place stop transfer
orders. Investor shall be entitled to the registration rights as
to the Warrant that are granted to Investor under the Virtual
Mortgage Network, Inc. Master Registration Rights Agreement.
5. Section 4.4 of the Investment Agreement shall be amended in its
entirety to read as follows:
4.4 Board of Directors
------------------
A. Effective at the Closing Date and terminating immediately prior
to the filing by VMN of a registration statement on Form S-1 (or
a comparable form) for an Initial Public Offering, VMN will
increase its Board of Directors to five members, one of which
shall be appointed by the Investor for two non-revocable (except
as contemplated hereby) one (1) year terms.
6. The right of Investor to convert 250,000 shares of Common Stock
and 175,000 warrants to purchase Common Stock into Series A Preferred shares,
granted to Investor in the Addendum, is hereby terminated.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of this 9th day of September, 1996.
---
VIRTUAL MORTGAGE NETWORK, INC.
By: /s/ LEE W. SHOREY
--------------------------------
Name: LEE W. SHOREY
-------------------------------
Title: V.P. ADMINISTRATION
------------------------------
AMERICAN GROWTH FUND I, L.P.
By: AMERICAN GROWTH CAPITAL CORPORATION
Its: Managing General Partner
By: /s/ DONNA SYNDER
---------------------------------
Name: DONNA SNYDER
-------------------------------
Title: SEC/TREAS
------------------------------
AMERICAN GROWTH CAPITAL
INVESTMENT, INC.
By: /s/ DONNA SNYDER
----------------------------------
Name: DONNA SNYDER
--------------------------------
Title: PRES.
-------------------------------
4
<PAGE>
EXHIBIT A
---------
WARRANTS OUTSTANDING
<TABLE>
<CAPTION>
Date of Warrant Holder Number of Warrant Shares
- ----------------- ----------- ------------------------
<S> <C> <C>
1/19/96 AGCI 125,000
2/27/96 AGCI 50,000
3/29/96 Investor 7,500
</TABLE>
A-1
<PAGE>
EXHIBIT 10.16
SUBSCRIPTION AGREEMENT
Virtual Mortgage Network, Inc.
Board of Directors
4590 MacArthur Blvd., Suite #175
Newport Beach, CA 92660
Dear Members of the Board,
The undersigned hereby subscribes to purchase shares of Preferred stock,
$0.001 par value per share (the "Preferred Stock"), of Virtual Mortgage
Network, Inc., a Nevada corporation (the "Company"), in accordance with the
following paragraphs This subscription may be rejected by the Company in its
sole discretion. Any questions regarding this document or your investment should
be directed to your broker or Ms. Sandra Sawyer at 4590 MacArthur Blvd., Suite
#175, Newport Beach, CA 92660 (telephone 714-252-0700).
I. Purchase. Subject to the terms and conditions hereof, the undersigned
--------
hereby irrevocably agrees to purchase that quantity of Preferred Stock set
forth on the signature page hereto. The purchase price for such Preferred
Stock is $1.00 per share and the undersigned tenders herewith the
purchase price by means of a check (cashiers, certified, or personal),
money order, or wire transfer payable to: "Bank of America, Account
No. 710063033"
BANK OF AMERICA, AS MINISTERIAL CUSTODIAN FOR THIS OFFERING, DOES NOT
ENDORSE, RECOMMEND, OR GUARANTEE THIS OFFERING, AND HAS MADE NO
INVESTIGATION CONCERNING THE ISSUER OR THE OFFERING.
II. Representations and Warranties. The undersigned hereby makes the following
------------------------------
representations and warranties to the Company, and the undersigned agrees
to indemnify, hold harmless, and pay all judgments of the claims against
the Company and its officers and directors for any liability or injury,
including, but not limited to, that arising under federal or state
securities laws, incurred as a result of any misrepresentation herein or
any warranties made by the undersigned.
(A) The undersigned is the sole and true party in interest and is not
purchasing for the benefit of any other person;
(B) The undersigned has carefully read and analyzed, is familiar with and
has retained copies of this Subscription Agreement and other related
documents, copies of which were delivered to the undersigned. The
undersigned understands that all books, records, and documents of the
company relating to this investment have been and remain available for
inspection by the undersigned upon reasonable notice. The undersigned
confirms that all documents requested by the undersigned have been
made available, and that the undersigned has been supplied with all
of the additional information concerning this investment that has
been requested. The
1
<PAGE>
undersigned confirms that he has had the opportunity to obtain such
independent legal and tax advice and financial planning services as
the undersigned has deemed appropriate prior to making a decision to
subscribe for the Preferred Stock. In making a decision to purchase
the Preferred Stock, the undersigned has relied exclusively upon
information provided by the Company in writing or found in the
books, records, or documents of the Company;
(C) The undersigned has such knowledge and experience in financial and
business manners that the undersigned is capable of an evaluation of
the merits and risks of this investment;
(D) The undersigned is aware that an investment in the Company is highly
speculative and subject to substantial risks. The undersigned is
capable of bearing the high degree of economic risk and burdens of
this venture, including, but not limited to, the possibility of a
complete loss, the lack of a public market, and limited
transferability of the Preferred Stock, which may make the
liquidation of this investment impossible for the indefinite future.
The undersigned's overall commitment to investments that are not
readily marketable is not disproportionate to his or her net worth,
and his or her acquisition of the Preferred Stock will not cause such
overall commitment to become excessive. The undersigned has adequate
net worth and means of providing for his or her current needs and
personal contingencies and can sustain a complete loss of his or her
investment in the Preferred Stock;
(E) The offer to sell the Preferred Stock was directly communicated to
the undersigned by such a manner that the undersigned was able to ask
questions of and receive answers from the Company or a person acting
on its behalf concerning the terms and conditions of this
transaction. At no time was the undersigned presented with or
solicited by or through any leaflet, public promotional meeting,
television advertisement, or any other form of general advertising
otherwise than in connection and concurrently with such communicated
offer;
(F) The undersigned, if a corporation, partnership, trust, or other
entity, is authorized and duly empowered to purchase and hold the
Preferred Stock, has its principal place of business at the address
set forth on the signature page and has not been formed for the
specific purpose of acquiring the Preferred Stock;
(G) The Preferred Stock is being acquired solely for the undersigned's
own account, for investment, and are not being purchased with a view
to resale, distribution, subdivision, or fractionalization thereof;
(H) The undersigned understands that the Preferred Stock has not been
registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws, in reliance upon exemptions
from regulation for non-public offerings. The undersigned understands
that the Preferred Stock or any interest therein may not
2
<PAGE>
be, and agrees that the Preferred Stock or any interest therein will
not be, resold or otherwise disposed of by the undersigned unless the
Preferred Stock is subsequently registered under the Act and under
appropriate state securities laws or unless the Company receives an
opinion of counsel satisfactory to it that an exemption from
registration is available;
(I) The undersigned has been informed of and understands the
following:
(1) There are substantial restrictions on the transferability of
the Preferred Stock;
(2) No federal or state agency has made any finding or
determination as to the fairness for public investment, nor
any recommendation nor endorsement, of the Preferred Stock;
(J) None of the following information has ever been represented,
guaranteed, or warranted to the undersigned, expressly or by
implication by any broker, the Company, or agent or employee or
the foregoing, or by any other person:
(1) The approximate or exact length of time that the undersigned
will be required to remain as a shareholder in the Company;
(2) The percentage of profit and/or amount of type of
consideration, profit, or loss to be realized, if any, as a
result of an investment in the Company;
(3) That the past performance or experience of the management or
associates, agents, affiliates, or employees or any other
person will in any way indicate or predict economic results
in connection with the operation of the Company or the
return on the investment;
(K) The undersigned has not distributed any information relating to
this investment to anyone, and no other person except the
undersigned has used this information;
(L) The undersigned hereby agrees to indemnify the management of the
Company and holds the Company harmless from and against any and
all liability, damage, cost, or expense incurred on account of or
arising out of:
(1) Any inaccuracy in the declarations, representations, and
warranties hereinabove set forth;
(2) The disposition of any Preferred Stock of the undersigned,
contrary to the foregoing declarations, representations, and
warranties;
(3) Any action, suit, or proceeding based upon:
3
<PAGE>
(a) the claim that said declarations, representations, or
warranties were inaccurate or misleading or otherwise
cause for obtaining damages or redress from the Company
or its management; or
(b) the disposition of any of the Preferred Stock or any
part thereof.
III. Transferability. The undersigned agrees not to transfer or assign
---------------
the obligations or duties contained in this Subscription Agreement
or any of the undersigned's interest herein.
IV. Regulation D. Notwithstanding anything herein to the contrary,
------------
every person or entity who, in addition to or in lieu of the
undersigned, is deemed to be a "purchaser" pursuant to Regulation
D promulgated under the Securities Act of 1933, as amended, or
any state law, does hereby make and join in making all of the
covenants, representations, and warranties made by the
undersigned.
V. Understandings of the Purchaser. The undersigned acknowledges,
-------------------------------
understands, and agrees that:
(A) The Company reserves the right to reject all or any part of
this subscription in its sole discretion;
(B) The undersigned will be promptly notified by the Company
whether this subscription has been accepted, either in whole
or in part, and if not accepted in whole, agrees to accept
the return of a proportionate part of the funds tendered to
the Company as a refund or a return, and in either case
without interest or deduction;
(C) The Preferred Stock shall not be deemed issued to or owned by
the undersigned until the Company shall issue in the name
of the undersigned a certificate evidencing ownership of the
Preferred Stock.
VI. State Securities Laws. The offering and sale of the Preferred
---------------------
Stock is intended to be exempt from registration under the
securities laws of certain states.
VII. Acceptance. Execution and delivery of this Subscription Agreement
----------
and tender of the payment in accordance with Paragraph 1 above
shall constitute an irrevocable offer to purchase the Preferred
Stock indicated, which offer may be accepted or rejected by the
Company in its sole discretion for any cause or for no cause.
Acceptance of this offer by the Company shall be indicated by the
execution hereof by management.
VIII. Binding Agreement. The undersigned agrees that the undersigned
-----------------
may not cancel, terminate, or revoke this Subscription Agreement
or any agreement of the undersigned made hereunder, and that this
Subscription Agreement shall survive
4
<PAGE>
the death or disability of the undersigned and shall be binding upon
the heirs, successors, assigns, executors, administrators, guardians,
conservators, or personal representatives of the undersigned.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement
on the date set forth on the signature page.
The undersigned desires to take title in the Series A Convertible
Preferred Stock as follows (check one):
(a) Individual (one signature required on Page 5);
-----
(b) Husband and Wife as community property (one signature
----- required on Page 5 if interest held in one name (i.e.,
managing spouse); two signatures required on Page 5 if
interest held in both names);
(c) Joint Tenants with right of survivorship (both parties
----- must sign on Page 5);
(d) Tenants in common (both parties mast sign on Page 5);
-----
(e) Trust (Trustee(s) must sign on Page 6);
-----
X (f) Partnership (general partner(s) must sign on Page 7);
-----
(g) Corporation (authorized officer must sign on Page 8).
-----
The exact spelling of name(s) under which title to the Preferred Stock
shall be taken is (please print):
/s/ AMERICAN GROWTH FUND I LP
------------------------------------------------------
------------------------------------------------------
The exact location (including account number and receiving person, if
applicable) for delivery of Preferred Stock:
1455 E. Tropicana
-----------------------------------------------------
Las Vegas, NV 89119
-----------------------------------------------------
IX. Substitute W-9 Form (Must be submitted by all investors):
Are you subject to back-up withholding under Section 3406(a)(1)(c)
of the Internal Revenue Code? ( ) Yes (X) No
/s/ DONNA SNYDER 33-0603312
- -------------------------------- ------------------------------------
Signature Social Security or Tax ID Number
- --------------------------------- ------------------------------------
Joint Signature, if Applicable Social Security or Tax ID Number
6
<PAGE>
X. For Broker/Dealer Use Only
Broker/Dealer Firm Name
--------------------------------------------------
Address
-------------------------------------------------------------------
City State Zip
------------------------------ ------------ -----------------
Telephone Fax
------------------------- -----------------------------------
Registered Representative
------------------------------------------------
7
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
FOR INDIVIDUAL INVESTORS
------------------------
Total Preferred Stock subscribed:__________ $______________
<TABLE>
<S> <C>
INVESTOR #1 INVESTOR #2
- -------------------------------------- ------------------------------------
Signature Signature
- -------------------------------------- ------------------------------------
Social Security Number Social Security Number
- -------------------------------------- ------------------------------------
Print or Type Name Print or Type Name
Residence Address Residence Address
- ----------------- -----------------
- -------------------------------------- ------------------------------------
- -------------------------------------- ------------------------------------
- -------------------------------------- ------------------------------------
- -------------------------------------- ------------------------------------
</TABLE>
Executed at , ,this day of , 19 .
------------------------- ------- ------ ---------- ----
SUBSCRIPTION ACCEPTED:
BY:
---------------------------------
Authorized Representative
DATE:
-------------------------------
8
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
FOR TRUST INVESTORS
-------------------
Total Preferred Stock subscribed:__________ $______________
<TABLE>
<S> <C>
- -------------------------------------- ---------------------------------------
Name of Trust (please print or type) Date Trust was formed
- -------------------------------------- ----------------------------------------
Name of Trust (please print or type) Name of Co-trustee (please print or type)
- -------------------------------------- ----------------------------------------
Trustee's Signature Co-trustee's Signature
- -------------------------------------- ----------------------------------------
Social Security Number Social Security Number
Trustee's Address Co-trustee's Address
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
</TABLE>
Executed at , ,this day of , 19 .
------------------------- ------- ------ ---------- --
SUBSCRIPTION ACCEPTED:
BY:
---------------------------------
Authorized Representative
DATE:
-------------------------------
9
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
FOR PARTNERSHIP INVESTORS
-------------------------
Total Preferred Stock subscribed: 100,000 $100,000
----------- -------
AMERICAN GROWTH FUND I LP 33-0603312
- --------------------------------------------- ------------------------------
Name of Partnership (please print or type) Taxpayer Identification Number
By /s/ DONNA SNYDER
-------------------------------------------
Signature of General Partner
By
-------------------------------------------
Signature of Additional General Partner
(if required by partnership agreement)
By
-------------------------------------------
Signature of Additional General Partner
(if required by partnership agreement)
Partnership's Address: 1455 E. Tropicana #100
-----------------------------
Las Vegas, NV 89119
-----------------------------
-----------------------------
-----------------------------
Executed at Las Vegas, , this 15th day of March, 1996.
--------- ------ ---- ----- --
SUBSCRIPTION ACCEPTED:
BY: /s/ Lee W. Shorey
-------------------------
Authorized Signature
DATE: 3/22/96
-----------------------
10
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
FOR CORPORATE INVESTORS
-----------------------
Total Preferred Stock subscribed:_________ $___________
- ------------------------------------------
Name of Corporation (please print or type)
By
---------------------------------------
Signature of Authorized Agent
- ------------------------------------------
Title
- ------------------------------------------
Taxpayer Identification Number
Corporation's Address:
------------------------------
------------------------------
------------------------------
------------------------------
Executed at , , this day of , 19 .
--------- ----- ----- ------- --
SUBSCRIPTION ACCEPTED:
BY:
----------------------------
Authorized Representative
DATE:
--------------------------
11
<PAGE>
EXHIBIT 10.17
VIRTUAL REALTY NETWORK, INC.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
May 19, 1995
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
Table of Contents
1. AUTHORIZATION AND SALE OF SHARES.................................. 1
1.1 Authorization........................................... 1
1.2 Agreement to Purchase and Sell.......................... 1
2. CLOSING; DELIVERY................................................. 1
2.1 The First Closing....................................... 1
2.2 The Second Closing...................................... 2
2.3 Delivery................................................ 2
3. COMPANY REPRESENTATIONS AND WARRANTIES............................ 2
3.1 Organization, Good Standing and Qualification........... 2
3.2 Capitalization.......................................... 3
3.3 Subsidiaries............................................ 3
3.4 Due Authorization....................................... 4
3.5 Valid Issuance Stock.................................... 4
3.6 Liabilities............................................. 4
3.7 Title to Properties and Assets.......................... 5
3.8 Status of Proprietary Assets............................ 5
3.9 Material Contracts and Obligations...................... 6
3.10 Litigation.............................................. 7
3.11 Governmental Consents................................... 7
3.12 Compliance with Other Instruments....................... 7
3.13 Disclosure.............................................. 8
3.14 Registration Rights..................................... 8
3.15 Insurance............................................... 8
3.16 Financial Statements.................................... 8
3.17 Certain Actions......................................... 9
3.18 Activities Since Balance Sheet Date..................... 9
3.19 Tax Matters............................................. 10
3.20 Tax Elections........................................... 10
3.21 Invention Assignment and Confidentiality Agreement...... 11
3.22 Interested Party Transactions........................... 11
3.23 Stock Restriction Agreements............................ 11
3.24 Use of Proceeds......................................... 11
3.25 Business Plan........................................... 12
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.................. 12
4.1 Authorization........................................... 12
4.2 Investigation........................................... 12
4.3 Purchase for Own Account................................ 12
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.4 Exempt From Registration.................................... 12
4.5 Economic Risk............................................... 12
4.6 Restricted Securities....................................... 12
4.7 Restrictive Legends......................................... 13
5. CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT THE CLOSING.......... 13
5.1 Representations And Warranties Correct...................... 13
5.2 Performance Of Obligations.................................. 14
5.3 Compliance Certificate...................................... 14
5.4 Proceedings And Documents................................... 14
5.5 Securities Laws............................................. 14
5.6 Restated Articles Effective................................. 14
5.7 Opinion Of The Company's Counsel............................ 14
5.8 Board Of Directors.......................................... 15
5.9 Ownership Of Technology..................................... 15
5.10 Execution Of Rights Agreement............................... 15
5.11 Execution Of Co-sale Agreement.............................. 15
5.12 Minimum To Close............................................ 16
6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING................ 16
6.1 Representations And Warranties.............................. 16
6.2 Payment Of Purchase Price................................... 16
6.3 Restated Articles Effective................................. 16
6.4 Securities Exemptions....................................... 16
7. MISCELLANEOUS..................................................... 16
7.1 Governing Law............................................... 16
7.2 Survival.................................................... 17
7.3 Successors And Assigns...................................... 17
7.4 Entire Agreement............................................ 17
7.5 Notices..................................................... 17
7.6 Amendments And Waivers...................................... 17
7.7 Delays Or Omissions......................................... 18
7.8 Legal Fees.................................................. 18
7.9 Finder's Fees............................................... 18
7.10 Titles And Subtitles........................................ 18
7.11 Counterparts................................................ 19
7.12 Severability................................................ 19
7.13 Confidentiality............................................. 19
7.14 Public Announcements........................................ 19
</TABLE>
ii
<PAGE>
EXHIBITS
Exhibit A - Schedule Of Purchasers
Exhibit B - Amended And Restated Articles Of Incorporation
Exhibit C - Schedule Of Exceptions
Exhibit D - List Of Outstanding Security Holders
Exhibit E - Rights Agreement
Exhibit F - Co-sale And Right Of First Refusal Agreement
Exhibit G - List Of Material Contracts
Exhibit H - Unaudited Financial Statements
Exhibit I - Form Of Invention Assignment And Confidentiality Agreement
Exhibit J - Form Of Company Counsel Opinion
iii
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (the "Agreement") is made this
19th day of May, 1995 (the "Effective Date") by and between Virtual Realty
Network, Inc., a Nevada corporation (the "Company") and the persons and entities
listed on Exhibit A attached hereto (the "Purchasers").
In consideration of the mutual promises, covenants and conditions hereinafter
set forth, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES
1.1. Authorization.
As of the First Closing (as defined below) the Company will have
authorized the issuance, pursuant to the terms and conditions of this
Agreement, of up to 2,000,000 shares of the Company's Series A
Preferred Stock,with par value of $0.01 per share, having the rights,
preferences, privileges and restrictions set forth in the Restated
and Amended Articles of Incorporation of the Company attached to this
Agreement as Exhibit B (the "Amendment to the Ariticles of
Incorporation and Corporate Resolution").
1.2. Agreement to Purchase and Sell.
Subject to the terms and conditions hereof, each Purchaser agrees to
purchase at the Closing and the Company agrees to sell and issue to
each Purchaser at the Closing that number of shares of Series A
Preferred Stock set forth opposite each such Purchaser's name on
Exhibit A attached hereto at a purchase price of $1.00 per share. The
shares of Series A Preferred Stock issued to the Purchaser pursuant
to this Agreement shall be hereinafter referred to as the "Shares".
The purchase price for the Shares shall be paid by check payable to
the order of the Company, by wire transfer of funds to a designated
account of the Company, provided that wire transfer instructions are
delivered to the Purchasers at least one (1) business day prior to
each Closing, or by cancellation of indebtedness.
2. CLOSINGS; DELIVERY
2.1. The First Closing.
The purchase and sale of up to 500,000 Shares hereunder shall be held
at the offices of the Company, on May 19, 1995, or at such other time
<PAGE>
and place as the Company and the Purchasers agreeing to purchase a
majority of the Shares may mutually agree upon (the "First Closing").
2.2. The Second Closing.
The purchase and sale of the remaining unissued and unsold Shares
shall be held at the offices of the Company, at such time promptly
after and in a manner satisfactory to Intel Corporation ("Intel")
that the following has occurred: (i) at least 25 real estate offices
shall have subscribed for the Company's product (the "VRi System")
and key personnel in each office shall have been trained to use the
VRi System, (ii) at least 20 mortgage lenders shall be actively
offering their mortgage products on VRi System "network", be trained
on the use of the VRi System and be fully able to use Intel's
ProShare(TM) with the VRi System and interface with customers using
ProShare at the 25 real estate trial sites, and (iii) a customer
shall have obtained a loan from a lender participating on the VRi
System network for the purchase of real estate using the VRi System
resulting in the payment by the lender to the Company of 0.5% of the
value of the loan (the "Second Closing").
2.3 Delivery.
At each Closing, the Company will deliver to each Purchaser a
certificate representing the Shares to be purchased by such Purchaser
hereunder against payment of the full purchase price therefor by
check payable to the order of the Company or by wire transfer.
3. COMPANY REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Purchasers that, except
as set forth in the Schedule of Exceptions ("Schedule of Exceptions")
attached to this Agreement as Exhibit C (which Schedule of Exceptions shall
be deemed to be representations and warranties to Purchasers), the
statements in the following sections of this Section 3 are all true and
correct:
3.1 Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing and in
good standing under, and by virtue of, the laws of the State of
California and has all requisite corporate power and authority to own
its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted. The Company is
qualified to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material
adverse effect on its financial condition, business, prospects or
operations.
-2-
<PAGE>
3.2. Capitalization.
Immediately prior to the Closing, the authorized capital stock of the
Company will consist of the following:
(a) Common Stock. A total of 25,000,000 authorized shares of
------------
Common Stock ($.001 par value) of which 2,750,000 shares are
issued and outstanding.
(b) Preferred Stock. A total of 10,000,000 authorized shares of
---------------
Preferred Stock ($.001 par value), 2,000,000 of which will be
designated Series A Preferred Stock and none of which will be
issued and outstanding.
(c) Options, Warrants, Reserved Shares. The Company has reserved
----------------------------------
2,000,000 shares of its Common Stock for possible issuance upon
the conversion of the shares of Series A Preferred Stock to be
issued hereunder (the "Conversion Shares"). Except for (i) the
conversion privileges of the Series A Preferred Stock to be
issued hereunder, (ii) the 500,000 shares of Common Stock
reserved for issuance under the Company's 1995 Consultant and
Employees Stock Compensation Plan under which no shares are
outstanding and (iii) employee stock options of 50,000 shares
each contained in the various contracts contained in Exhibit G.
there are no options, warrants, conversion privileges or other
rights, or agreements with respect to the issuance thereof,
presently outstanding to purchase any of the capital stock of
the Company. Apart from the exceptions noted in this Section
3.2 (c), no shares (including the Shares and the Conversion
Shares) of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options
or other stock issuable by the Company, are subject to any
rights of first refusal or other rights to purchase such stock
(whether in favor of the Company or any other person), pursuant
to any agreement or commitment of the Company.
(d) Outstanding Security Holders. Attached to this Agreement as
----------------------------
Exhibit D is a complete list of all outstanding shareholders,
option holders and other security holders of the Company as of
the date set forth on such exhibit.
3.3 Subsidiaries.
The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity.
-3-
<PAGE>
3.4. Due Authorization.
All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization, execution
and delivery of, and the performance of all obligations of the
Company under, this Agreement, the Rights Agreement attached as
Exhibit E (the "Rights Agreement") and the Co-Sale and Right of First
Refusal Agreement attached as Exhibit F (the "Co-Sale Agreement") and
the authorization, issuance, reservation for issuance and delivery of
all of the Shares being sold under this Agreement and of the
Conversion Shares has been taken or will be taken prior to each
Closing. This Agreement is a valid and binding obligation of the
Company enforceable in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency,
moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles. The Shares are
not subject to any preemptive rights or rights of first refusal.
3.5 Valid Issuance of Stock.
(a) The Shares, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration provided for
herein, will be duly and validly issued, fully paid and non
assessable. The Conversion Shares have been duly and validly
reserved for issuance and, upon issuance in accordance with the
terms of the Restated Articles will be duly and validly issued,
fully paid and nonassessable.
(b) The outstanding shares of the capital stock of the Company are
duly and validly issued, fully paid and nonassessable, and such
shares of such capital stock, and all outstanding options and
other securities of the Company have been issued, in full
compliance with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the registration and qualification
requirements of all applicable state securities laws, or in
compliance with applicable exemptions therefrom, and all other
provisions of applicable federal and state securities laws,
including, without limitation, anti-fraud provisions.
3.6. Liabilities.
The Company has no indebtedness for borrowed money that the Company
has directly or indirectly created, incurred, assumed, or guaranteed,
or with respect to which the Company has otherwise become directly or
indirectly liable.
-4-
<PAGE>
3.7. Title to Properties and Assets.
The Company has good and marketable title to its properties and
assets held in each case subject to no mortgage, pledge, lien,
encumbrance, security interest or charge of any kind. 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.
3.8. Status of Proprietary Assets.
(a) Ownership. The Company has full title and ownership of, or has
---------
license to, all patents, patent applications, trademarks,
service marks, trade names, copyrights, moral rights,
maskworks, trade secrets, confidential and proprietary
information, compositions of matter, formulas, designs,
proprietary rights, know-how and processes (all of the
foregoing collectively hereinafter referred to as the
"Proprietary Assets") necessary to enable it to carry on its
business as now conducted and as presently proposed to be
conducted without any conflict with or infringement of the
rights of others. To the best of the Company's knowledge, no
third party has any ownership right, title, interest, claim in
or lien on any of the Company's Proprietary Assets and the
Company has taken, and in the future the Company will use its
best efforts to take, all steps reasonably necessary to
preserve its legal rights in, and the secrecy of, all its
Proprietary Assets, except those for which disclosure is
required for legitimate business or legal reasons.
(b) Licenses: Other Agreements. The Company has not granted, and,
--------------------------
to the best of the Company's knowledge, there are not
outstanding, any options, licenses or agreements of any kind
relating to any Proprietary Asset of the Company, nor is the
Company bound by or a party to any option, license or agreement
of any kind with respect to any of its Proprietary Assets. The
Company is not obligated to pay any royalties or other payments
to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any Proprietary
Asset or any other property or rights.
(c) No Infringement. To the best of the Company's knowledge, the
---------------
Company has not violated or infringed, and is not currently
violating or infringing, and the Company has not received any
communications alleging that the Company (or any of its
employees or consultants) has violated or infringed or, by
-5-
<PAGE>
conducting its business as proposed, would violate or infringe,
any Proprietary Asset of any other person or entity.
(d) 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 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. 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. At no time during the conception of
or reduction of any of the Company's Proprietary Assets to
practice was any developer, inventor or other contributor to
such patents operating under any grants from any governmental
entity or agency or private source, performing research
sponsored by any governmental entity or agency or private
source or subject to any employment agreement or invention
assignment or nondisclosure agreement or other obligation with
any third party that could adversely affect the Company's
rights in such Proprietary Assets.
3.9. Material Contracts and Obligations.
Attached hereto as Exhibit G is a list of all oral and written
agreements, contracts, leases, licenses, instruments, commitments,
indebtedness, liabilities and other obligations to which the Company
is a party or by which it is bound that are (i) material to the
conduct and operations of its business and properties; (ii) involve
any of the officers, consultants, directors, employees or
shareholders of the Company; or (iii) obligate the Company to share,
license or develop any product or technology. Copies of such
agreements and contracts and documentation evidencing such
liabilities and other obligations have been made available for
inspection by the Purchasers or the special counsel to the
Purchasers. For purposes of this Section 3.9, "material" shall mean
any agreement, contract, indebtedness, liability or other obligation
either: (i) having an
-6-
<PAGE>
aggregate value, cost or amount in excess of $25,000, or (ii) not
terminable upon thirty days notice.
3.10. Litigation.
There is no action, suit, proceeding, claim, arbitration or
investigation ("Action") pending (or, to the best of the Company's
knowledge, currently threatened) against the Company, its activities,
properties or assets or, to the best of the Company's knowledge,
against any officer, director or employee of the Company in
connection with such officer's, director's or employee's relationship
with, or actions taken on behalf of, the Company. To the best of the
Company's knowledge, there is no factual or legal basis for any such
Action that might result, individually or in the aggregate, in any
material adverse change in the business, properties, assets,
financial condition, affairs or prospects of the Company. By way of
example but not by way of limitation, there are no Actions pending
or, to the best of the Company's knowledge, threatened (or any basis
therefor known to the Company) relating to the prior employment of
any of the Company's employees or consultants, their use in
connection with the Company's business of any information, technology
or techniques allegedly proprietary to any of their former employers,
clients or other parties, or their obligations under any agreements
with prior employers, clients or other parties. The Company is not a
party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality and there is no Action by the Company currently
pending or which the Company intends to initiate.
3.11 Governmental Consents.
All consents, approvals, orders, authorizations, registrations,
qualifications, designations, declarations or filings with any U.S.,
federal or state governmental authority on the part of the Company
required in connection with the consummation of the transactions
contemplated herein shall have been obtained prior to and be
effective as of the Closing. Based in part on the representations of
the Purchasers set forth in Section 4 below, the offer, sale and
issuance of the Shares in conformity with the terms of this Agreement
are exempt from the registration and prospectus delivery requirements
of the Securities Act and applicable state securities laws.
3.12 Compliance with Other Instruments.
The Company is not in, nor will the conduct of its business as
proposed to be conducted result in, any violation, breach or default
of any term of the Restated Articles or the Company's Bylaws or in
any respect of any term or provision of any mortgage, indenture,
contract, agreement or
-7-
<PAGE>
instrument to which the Company is a party or by which it may be
bound, or of any provision of any foreign or domestic state or
federal judgment, decree, order, statute, rule or regulation
applicable to or binding upon the Company. The execution, delivery
and performance of and compliance with this Agreement and the
consummation of the transactions contemplated hereby will not result
in any such violation or default, or be in conflict with or
constitute, with or without the passage of time or the giving of
notice or both, either a default under the Company's Articles of
Incorporation or Bylaws, or any agreement or contract of the Company,
or to the best of the Company's knowledge, a violation of any
statute, law, regulation or order, or an event which results in the
creation of any lien, charge or encumbrance upon any asset of the
Company.
3.13 Disclosure.
No representation or warranty by the Company in this Agreement or in
any statement or certificate signed by any officer of the Company
furnished or to be furnished to the Purchasers pursuant to this
Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances in which they are made, not misleading.
3.14 Registration Rights.
Except as provided in the Rights Agreement, the Company has not
granted or agreed to grant 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
or any other governmental authority.
3.15 Insurance.
The Company has obtained, or will obtain (within 15 days after the
First Closing) and will maintain, fire and casualty 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.
3.16 Financial Statements.
Attached to this Agreement as Exhibit H is an unaudited balance sheet
of the Company dated April 1, 1995 (the "Balance Sheet Date"), an
unaudited income statement of the Company for the period ended
April 1, 1995 (all such financial statements being collectively
refereed to herein as the "Financial Statements"). Such Financial
Statements (i) are in
-8-
<PAGE>
accordance with the books and records of the Company, (ii) are true,
correct and complete and present fairly the financial condition of the
Company at the date or dates therein indicated and the results of
operations for the period or periods therin specified, and (iii) have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as to the unaudited financial
statements, for the omission of notes thereto and normal year-end audit
adjustments. Specifically, but not by way of limitation, the respective
balance sheets of the Financial Statements disclose all of the Company's
material debts, liabilities and obligations of any nature whether due or
to become due as of their respective dates (including, without limitation,
absolute liabilities, accrued liabilities, and contingent liabilities) to
the extent such debts, liabilities and obligations are required to be
disclosed in accordance with generally accepted accounting principles. The
Company has good and marketable title to all assets set forth on the
balance sheets of the Financial Statements, except for such assets as have
been spent, sold or transferred in the ordinary course of business since
their respective dates.
3.17 Certain Actions.
Since the Balance Sheet Date, the Company has not; (i) declared or paid
any dividends, or authorized or made any distribution upon or with respect
to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities
individually in excess of $10,000 or in excess of $25,000 in the
aggregate; (iii) made any loans or advances to any person, other than
ordinary advances for travel expenses; (iv) sold, exchanged or otherwise
disposed of any material assets or rights other than the sale of inventory
in the ordinary course of its business; or (v) entered into any
transactions with any of its officers, directors or employees or any
entity controlled by any of such individuals.
3.18 Activities Since Balance Sheet Date.
Since the Balance Sheet Date, there has not been:
(a) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company
(as presently conducted and as presently proposed to be conducted);
(b) any waiver by the Company of a valuable right or of a material debt
owed to it;
-9-
<PAGE>
(c) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the ordinary course
of business that is not material to the assets, properties,
financial condition, operating results or business of the
Company;
(d) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or pro-
perties is bound or subject, except for changes or amendments
which are expressly provided for or disclosed in this
Agreement;
(e) any material change in any compensation arrangement or
agreement with any present or prospective employee, contractor
or director not approved by the Company's Board of Directors;
or
(f) to the Company's knowledge, and other event or condition of any
character which would materially and adversely affect the
assets, properties, financial condition, operating results or
business of the Company.
3.19 Tax Matters.
The provisions for taxes in the Financial Statements are sufficient
for the payment of all accrued and unpaid federal, state, county and
local taxes of the Company, whether or not assessed or disputed as of
the date of each such balance sheet. There have been no examinations
or audits of any tax returns or reports by any applicable federal,
state or local governmental agency. The Company has duly filed all
federal, state, county and local tax returns required to have been
filed by it and paid all taxes shown to be due on such returns.
There are in effect no waivers of applicable statutes of limitations
with respect to taxes for any year.
3.20 Tax Elections.
The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as an "S" corporation or
a collapsible corporation pursuant to Section 341(f) or
Section 1362(a) of the Code, nor has it made any other elections pur-
suant to the Code (other than elections which relate solely to
matters of accounting, depreciation or amortization) which have a
material effect on the Company, its financial condition, its business
as presently conducted or presently proposed to be conducted or any
of its properties or material assets.
<PAGE>
<PAGE>
3.21 Invention Assignment and Confidentiality Agreement
Each employee, officer, consultant and contractor of the Company has
entered into and executed (and each such future employee, officer,
consultant and contractor of the Company will enter into and execute)
an Invention Assignment and Confidentiality Agreement in the form
attached to this Agreement as Exhibit I or an employment or
consulting agreement containing substantially similar terms.
3.22 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 1933 Act) of any such person has
had, 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.
3.23 Stock Restriction Agreements.
Each employee, director or consultant who holds any currently
outstanding shares of common stock or other securities of the Company
or any option, warrant or right to acquire such shares or other
securities, has entered into or is otherwise bound by, an agreement
granting the Company (i) the right to repurchase the shares for the
original purchase price, or to cancel the option, warrant or right,
in the event the holder's employment or services with the Company
terminate for any reason, subject to release of such repurchase or
cancellation right at a rate of 12/48ths after the first year of
employment or service and 1/48th per month thereafter, and (ii) a
right of first refusal with respect to all such shares. The Company
has furnished to special counsel to the Purchasers true and complete
copies of the forms of all such stock restriction agreements and/or
option agreements.
3.24 Use of Proceeds.
The Company shall use the proceeds from the sale of the Shares in the
First Closing for the trial launch of the VRi System with San
Fernando Valley Realtor's Association (the "Trial"). The Company
shall use the proceeds from the sale of the Shares in the Second
Closing to complete the Trial to launch the VRi System on a national
basis and to define the outstanding debt obligations owed to American
Growth Capital.
<PAGE>
3.25 Business Plan.
The business plan prepared by the Company and delivered to Intel at
or prior to the date hereof was prepared in good faith and is not
materially misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants to the Company as follows:
4.1 Authorization.
This Agreement when executed and delivered by Purchaser will
constitute a valid an legally binding obligation of Purchaser.
4.2 Investigation.
Purchaser acknowledges that it has had an opportunity to discuss the
business, affairs and current prospects of the Company with its
officers. Purchaser further acknowledges having had access to
information about the Company that it has requested.
4.3 Purchase for Own Account.
The Shares and the Conversion Shares will be acquired for its own
account, not as a nominee or agent, and not with a view to or in
connection with the sale or distribution of any part thereof.
4.4 Exempt from Registration.
Purchaser understands that the Shares and the Conversion Shares will
not be registered under the Securities Act, on the ground that the
sale provided for in this Agreement is exempt from registration under
of the Securities Act, and that the reliance of the Company on such
exemption is predicated in part on Purchaser's representations set
forth in this Agreement.
4.5 Economic Risk.
Purchaser acknowledges that is able to fend for itself in the
transactions contemplated by this Agreement and has the ability to
bear the economic risks of its investment pursuant to the Agreement.
4.6 Restricted Securities.
Purchaser understands that the Shares and the Conversion Shares being
purchased hereunder are restricted securities within the meaning of
Rule 144 under the Securities Act; that the Shares and the Conversion
Shares
-12-
<PAGE>
are not registered and must be held indefinitely unless they are
subsequently registered or an exemption from such registration is
available.
4.7 Restrictive Legends.
It is understood that each certificate representing (i) the Shares,
(ii) Conversion Shares, and (iii) any other securities issued in
respect of the Shares upon any stock split, stock dividend,
recapitalization, merger or similar event (unless no longer required
in the opinion of counsel for the Company) shall be stamped or
otherwise imprinted with a legend substantially in the following form
(in addition to any legend that may now or hereafter be required by
applicable state law):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS. PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
The legend set forth above shall be removed by the Company from any
certificate evidencing Shares or Conversion Shares upon delivery to
the Company of an opinion by counsel, reasonably satisfactory to the
Company, that a registration statement under the Securities Act is at
that time in effect with respect to the legended security or that
such security can be freely transferred in a public sale without such
a registration statement being in effect and that such transfer will
not jeopardize the exemption or exemptions from registration pursuant
to which the Company issued the Shares or Conversion Shares.
5. CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT THE CLOSING
The obligations of the Purchasers under this agreement to purchase the
Shares at the First and Second Closings are subject to the fulfillment, to
the satisfaction of special counsel to the Purchasers on or prior to each
Closing, of the following conditions:
5.1 Representations and Warranties Correct.
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 date of each Closing with the same force and effect
as if they had been made on and as of such date, subject, with
respect to the
<PAGE>
Second Closing, to the receipt by special counsel to the Purchasers
of a revised Schedule of Exceptions in a manner reasonably acceptable
to the Purchasers of a majority of the Shares to be sold and issued
in the Second Closing.
5.2 Performance of Obligations.
The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before each
Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchases and sales
described herein.
5.3 Compliance Certificate.
At the First Closing and the Second Closing, the Company shall
deliver to the Purchasers a certificate, dated the date of First
Closing and Second Closing, respectively, signed by the company's
President certifying that the conditions specified in Sections 5.1
and 5.2 have been fulfilled.
5.4 Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated hereby and all documents and instruments
incident to such transactions shall be satisfactory in substance and
form to special counsel to the Purchasers, and special counsel to the
Purchasers shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably
request.
5.5 Securities Laws.
The offer and sale of the Shares to the Purchasers pursuant to this
Agreement shall be exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements
of all applicable state securities laws.
5.6 Amended Articles Effective
The Restated Articles shall have been duly adopted by the company by
all necessary corporate action of its Board of Directors and
shareholders and shall have been duly filed with and accepted by the
Secretary of State of the State of Nevada.
5.7 Opinion of the Company's Counsel.
At the First Closing and the Second Closing, counsel to the Company
shall have delivered to special counsel to the Purchasers an opinion
<PAGE>
addressed to the Purchasers, dated the date of each such Closing
substantially in form of Exhibit J attached hereto and reasonably
acceptable to special counsel to the Purchasers.
5.8 Board of Directors.
The Company's Board of Directors on the date of the First Closing
shall consist of Michael A. Barron, Dianne D. David, Sandra S.
Sawyer, and Lee Shorey.
5.9 Ownership of Technology.
(a) General. Special counsel to the Purchasers shall have received
-------
from the Company all documents and other material requested by
special counsel to the Purchasers for the purpose of examining
and determining the Company's rights in and to any technology,
products and proprietary assets now used, proposed to be used
in, or necessary to, the Company's business as now conducted
and proposed to be conducted, and the status of the Company's
ownership rights in and to all such technology, products and
proprietary assets shall be reasonably satisfactory to special
counsel to the Purchasers.
(b) MortgageFlex and Software Today Licenses. The Company shall
----------------------------------------
have entered into the MortgageFlex Systems, Inc. License and
the Software Today, Inc. License and shall grant substantial
distribution and development rights. Such licenses shall be
reasonably satisfactory to special counsel to the Purchasers.
5.10 Execution of Rights Agreement.
On the date of the First Closing, the Company shall have executed
and delivered to the Purchasers the Rights Agreement in
substantially the form attached hereto as Exhibit E.
5.11 Execution of Co-Sale Agreement.
On the date of the First Closing, the Company shall have executed
and delivered to the Purchasers, the Co-Sale Agreement in
substantially the form attached hereto as Exhibit F.
-15-
<PAGE>
5.12 Minimum to Close
At the First Closing, the Purchasers shall have purchased not
less than 500,000 Shares, with gross proceeds to the Company of
not less than $500,000. At the Second Closing, the Purchasers
shall have purchased not less than 1,500,000 Shares, with gross
proceeds to the Company of not less than $1,500,000.
6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING
The obligations of the Company under this Agreement to issue and sell
the Shares at the First and Second Closings are subject to the
fulfillment on or prior to each Closing of the following conditions:
6.1 Representations and Warranties.
The representations and warranties of each Purchaser in Section
4 hereof shall be true as of the First and Second Closing,
respectively.
6.2 Payment of Purchase Price.
Each Purchaser shall have delivered to the Company the purchase
price in accordance with the provisions of Section 2.
6.3 Restated Articles Effective.
The Restated Articles shall have been duly adopted by the
Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with
and accepted by the Secretary of State of the State of
California.
6.4 Securities Exemptions.
The offer and sale of the Shares to the Purchasers pursuant to
this Agreement shall be exempt from the registration
requirements of the Securities Act, and the registration and/or
qualification requirements of all applicable state securities
laws.
7. MISCELLANEOUS
7.1 Governing Law.
This Agreement shall be governed in all respects by the laws of
the state of Delaware without regard to provisions regarding
choice of laws.
-16-
<PAGE>
7.2 Survival.
The representations, warranties, covenants and agreements made herein
shall survive any investigation made by any party hereto and the
closing of the transactions contemplated hereby.
7.3 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
whose rights or obligations hereunder are affected by such
amendments.
7.4 Entire Agreement.
This Agreement and the exhibits hereto which are hereby expressly
incorporated herein by this reference constitute the entire
understanding and agreement between the parties with regard to the
subjects hereof and thereof; provided, however that nothing in this
-----------------
Agreement shall be deemed to terminate or supersede the provisions of
any confidentiality and nondisclosure agreements executed by the
parties hereto prior to the date hereof, which agreements shall
continue in full force and effect until terminated in accordance with
their respective terms.
7.5 Notices.
Except as may be otherwise provided herein, all notices and other
communications required or permitted hereunder shall be in writing
and shall be hand delivered or mailed by registered or certified
first class mail, postage prepaid, addressed, (a) if to the
Purchasers, to each such Purchaser's address set forth on Exhibit A
attached hereto, or to such other address as such Purchaser or any of
its successors or assigns shall have furnished to the Company in
writing, or (b) if to the Company, to its address set forth below its
signature hereto, or to such other address as the Company shall have
furnished to the Purchasers or their successors or assigns in
writing. Notices hand delivered shall be effective upon delivery and
notices sent by first class mail shall be effective three days
following deposit in the United States mail.
7.6 Amendments and Waivers.
Any item of this Agreement may be amended and the observance of any
term of the Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Purchasers holding at
least a majority of the Shares.
<PAGE>
7.7 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing
to the Company or to the Purchasers, upon any breach or default of
any party hereto under this Agreement, shall impair any such right,
power or remedy of the Company, or the Purchasers, nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of any similar breach of default thereafter
occurring; nor shall any waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Company or the
Purchasers of any breach of default under this Agreement or any
waiver on the part of the Company or the Purchasers of any provisions
or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or be law or otherwise
afforded to the Company or the Purchasers shall be cumulative and not
alternative.
7.8 Legal Fees.
In the event of any action at law, suit in equity or arbitration
proceeding in relation to this Agreement or any Shares or other
securities of the Company issued or to be issued, the prevailing
party, shall be paid by the other party a reasonable sum for
attorney's fees and expenses for such prevailing party.
7.9 Finder's Fees.
Each party (a) represents and warrants to the other party hereto that
it has retained no finder or broker in connection with the
transactions contemplated by this Agreement, and (b) hereby agrees to
indemnify and to hold harmless the other party hereto from and
against any liability for any commission or compensation in the
nature of a finder's fee of any broker or other person or firm (and
the costs and expenses of defending against such liability or
asserted liability) for which the indemnifying party or any of its
employees or representatives are responsible.
7.10 Titles and Subtitles.
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in
construing this Agreement.
-18-
<PAGE>
7.11 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.
7.12 Severability.
Should any provision of this Agreement be determined to be illegal or
unenforceable, such determination shall not affect the remaining
provisions of this Agreement.
7.13 Confidentiality.
Each party hereto agrees that, except with the prior written
permission of the other party, it shall at all times keep
confidential and not divulge furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to
the business or financial affairs of the other parties to which such
party has been or shall become privy by reason of this Agreement,
discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of Shares
(or Conversion Shares) purchased hereunder. The parties hereto
further agree that there shall be no press release or other public
statement issued by either party relating to this Agreement or the
transactions contemplated hereby, unless the parties otherwise agree
in writing. The provisions of this Section 7.13 shall be in addition
to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto with respect
to the transactions contemplated hereby.
7.14 Public Announcements.
Neither the Company nor any Purchaser (other than Intel) shall use
Intel's name or refer to Intel directly or indirectly in connection
with Intel's relationship with the Company in any other manner,
unless otherwise required by law or with Intel's prior written
consent, which consent will generally not be granted. The parties
agree that there will be no press release or other public statement
issued by either party relating to the Agreement or the transactions
contemplated hereby unless required by law. If the Company determines
that is required by law to file this Agreement with the Securities
and Exchange Commission, it shall at reasonable time before making
any such filing, consult with Intel regarding such filing and seek
confidential
-19-
<PAGE>
treatment for such portions of the Agreement as may be requested by
Intel.
IN WITNESS WHEREOF, the parties hereto have executed this Series A Preferred
Stock Purchase Agreement as of the day and year herein above first written.
VIRTUAL REALTY NETWORK, INC.
4590 MacArthur Blvd., Suite 175
Newport Beach, CA 92660
By:
----------------------------
Title:
--------------------------
PURCHASERS:
INTEL CORPORATION
By: /s/ Randy Tinsley
----------------------------
Title:
--------------------------
<PAGE>
treatment for such portions of the Agreement as may be requested by
Intel.
IN WITNESS WHEREOF, the parties hereto have executed this Series A Preferred
Stock Purchase Agreement as of the day and year herein above first written.
VIRTUAL REALTY NETWORK, INC.
4590 MacArthur Blvd., Ste. 175
Newport Beach, CA 92660
By: /s/ Michael A. Barron
----------------------------
Title: President
--------------------------
PURCHASERS:
INTEL CORPORATION
By:
--------------------------
Title:
--------------------------
<PAGE>
Exhibit A
---------
Schedule of Purchasers
<TABLE>
First Closing Second Closing
------------- --------------
Purchasers Shares Amount Shares Amount
- ---------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Intel Corporation 500,000 $500,000 500,000 $500,000
2200 Mission College
Blvd.
Santa Clara, CA 95052
Attn:____________________
Total 500,000 $750,000 1,500,000 $1,250,000
</TABLE>
VRI Series A Purchase Agreement - PREFRD-A.PR2
Draft dated May 18, 1995
<PAGE>
Exhibit A
---------
Schedule of Purchasers
<TABLE>
<CAPTION>
First Closing Second Closing
------------- --------------
Purchasers Shares Amount Shares Amount
- ---------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Intel Corporation ______ $500,000 ______ $500,000
2200 Mission College
Blvd.
Santa Clara, CA 95052
Attn: _______________
American Growth Fund I
L.P.
17280 Newhope St.,
Ste. 1
Fountain Beach, CA
92708
Attn: Donna Snyder
$250,000 $500,000
---------- -------- --------- --------
$250,000
TOTAL $750,000 $1,250,000
---------- ---------
</TABLE>
<PAGE>
EXHIBIT "C" - SCHEDULE OF EXCEPTIONS
The following are the Exceptions to the statements contained in the
Virtual Realty Network, Inc. Series A Preferred Stock Purchase Agreement, by
reference to the Section Numbers therein:
1. Section 3.2(c) exceptions: There are options for 200,000 shares of
stock under the four (4) employment/consulting contract, copies of which are
shown under Exhibit G, and Investment Agreement, dated March 21, 1995, between
Virtual Realty Network, Inc. and American Growth Fund I LP, a California
Limited Partnership, and the Addendum to Investment Agreement, dated March 31,
1995, which contains a grant of warrant for 175,000 shares at $.70 per share.
2. Section 3.6 Liabilities - The Company has borrowed $50,000.00 from
James Meader and Jeanne Garde, evidenced by a Promissory Note dated March 22,
1995, attached as Exhibit G.
3. Section 3.8(b) Licenses: Other Agreements. The Company has entered
---------------------------
into an Agreement with MortgageFlex, dated April 21, 1995, attached in Exhibit
G, which deals with enchancement of existing programs, new ideas generated by
the agreement, and development of the VRI "Loanmaker" mark and methodology.
4. Section 3.8(d) No Breach by Employee. The Company acquired the
----------------------
ownership to the software program and source code for the program called "TIES",
which is a real estate office automation software. This software needs to be
completed, but is not needed for the operation of the Company.
5. Section 3.14 Registration Rights. The Investment Agreement, dated
March 21, 1995, between Virtual Realty Network, Inc. and American Growth Fund I
LP, a California Limited Partnership, and the Addendum to Investment Agreement,
dated March 31, 1995, contains "piggyback" rights to registration of the common
stock (250,000 shares) they obtained as collateral for their "loan" and warrants
(175,000 shares) to convert to common shares. American Growth Fund I L.P. has
agreed to convert their common shares to Series A Preferred Stock and
participate as a "Purchaser" along with Intel. See Exhibit "A".
6. Section 3.15 Insurance. The Company is receiving quotes from various
carriers regarding the fire, casualty and theft insurance, and will have
coverage in place within 15 days after the First Closing, or sooner.
7. Section 3.22 Interested Party Transactions. The Company has entered
into a Financial Consulting Agreement with Nexus Investments, Inc. for
<PAGE>
the services of Roger Luby, dated April 3, 1995, to provide $10 Million or more
in funding on an Initial Public Offering. Mr. Luby has subsequently become a
Director of the Company.
8. Section 3.23 Stock Restriction Agreements. The Company has entered into
Employee/Consultant Agreements, attached as Exhibits G, which provides for
options of 50,000 shares each, 12,500 shares vesting on the anniversary of each
year of employment, for a total of four (4) years.
9. Section 5.9 (b) MortgageFlex and Software Today Licenses. The
-----------------------------------------
Company has entered into an licensing, development, distribution and enhancement
agreement with MortgageFlex, dated April 21, 1995, attached as Exhibit G. The
Company has entered into a Purchase Agreement for Assets only from Software
Today, Inc., attached as Exhibit G.
10. Section 7.9 Finder's Fees. The Company has entered into an
Investment Agreement, dated March 21, 1995, with an Addendum, dated March 31,
1995, with American Growth Fund I L.P., a California Limited Partnership, which
contains a provision in paragraph 4.5 Investment Banking Services for the
payment of certain fees if they produce a lender or investor for an IPO or
Secondary Offering within five (5) years. They have agreed to become
Purchasers, along with Intel, of the Series A Preferred Shares. The Company has
entered into an agreement with Mr. Donald Erhlich to pay him five (5%) percent
of the cash procured by his introduction to American Growth Fund I L.P.
The following are the Exceptions to the statements contained in the Exhibit
"E" Rights Agreement attached to the Virtual Realty Network, Inc. Series A
Preferred Stock Purchase Agreement, by reference to the Section Numbers therein:
3.11 Limitations on Subsequent Registration Rights.
The Investment Agreement, dated March 21, 1995, between Virtual Realty
Network, Inc. and American Growth Fund I LP, a California Limited Partnership,
and the Addendum to Investment Agreement, dated March 31, 1995, which contains a
grant of warrant for 175,000 shares at $.70 per share, with the "piggyback"
registration rights. They have agreed to become Purchasers, along with Intel, of
the Series A Preferred Shares.
<PAGE>
EXHIBIT D
LIST OF OUTSTANDING SHAREHOLDERS
MICHAEL A. BARRON 1,250,000
DIANNE D. DAVID 750,000
SANDRA S. SAWYER 500,000
AMERICAN GROWTH
FUND I L.P.* 250,000
JAMES & JEANNE MEADOR
AND GARYLYN EDWARDS**
* The have a warrant for 175,000 shares at $.70/share
**Unissued shares escrowed pending audited determination of valuation of assets
purchased in exchange for stock.
-13-
<PAGE>
EXHIBIT 10.18
ADDENDUM
--------
TO
--
VIRTUAL REALTY NETWORK, INC.
----------------------------
SERIES A PREFERRED STOCK
------------------------
PURCHASE AGREEMENT
------------------
Dated May 19, 1995
THIS ADDENDUM to the Series A Preferred Stock Purchase Agreement, dated May 19,
1995, is hereby entered into by Virtual Realty Network, Inc. and American Growth
Fund I, ("American Growth") a California Limited Partnership, by American Growth
Capital Corporation, Managing General Partner, with offices at 17280 Newhope
Street, Ste. 1, Fountain Valley, California 92708, and the parties hereto agree
as follows:
1. American Growth desires to purchase 250,000 Series A Preferred Stock.
American Growth has received a copy of the Purchase Agreement, the Rights
Agreement (Exhibit E) and the Co-Sale and Right of First Refusal Agreement
(Exhibit F), including all of the Exhibits A-J thereto. American Growth has
read, understands and agrees to be bound by and purchase the Series A Preferred
Stock under the terms and conditions of those agreements, including those
exceptions to the Agreement (Exhibit C, attached thereto).
2. Virtual Realty agrees to sell 250,000 Shares under the terms and
conditions stated in the Series A Preferred Stock Purchase Agreement, dated May
19, 1995, to American Growth, which shall be evidenced by one share certificate
in that amount.
3. It is understood that all terms and conditions for the original
investment dated March 21, 1995, and the Amendment, dated March 31, 1995, remain
in place and are not superseded by this additional investment.
IN WITNESS THEREOF, the parties have executed this Addendum to the Series A
Preferred Agreement Purchase Agreement, dated May 19, 1995, this 14th day of
June, 1995.
VIRTUAL REALTY NETWORK, INC. AMERICAN GROWTH FUND I,
4590 MacArthur Blvd., Ste. 175 a California limited partnership
Newport Beach, CA 92660 By: American Growth Capital
Corp., Managing General Partner
By: /s/ Michael A. Barron By: /s/ Donna Snyder
----------------------------- --------------------------
MICHAEL A. BARRON, Pres. DONNA SNYDER, President
<PAGE>
<PAGE>
AMENDMENT
---------
TO
--
VIRTUAL REALTY NETWORK, INC.
----------------------------
SERIES A PREFERRED STOCK
------------------------
PURCHASE AGREEMENT
------------------
DATED MAY 19, 1995
THIS AMENDMENT to the Series A Preferred Stock Purchase Agreement, dated
May 19, 1995, is hereby entered into by Virtual Realty Network, Inc. ("VRNi"),
Intel Corporation ("Intel"), and American Growth Fund I, ("American Growth") a
California Limited Partnership, by American Growth Capital Corporation, Managing
General Partner, and the parties hereto agree as follows:
1. American Growth has purchased 250,000 shares of Series A Preferred
Stock and Intel has purchased 500,000. American Growth has read, understood and
agreed to be bound by and has purchased their shares under the terms and
conditions of the Series A Preferred Stock Purchase Agreement. All parties
hereto have voted at a Shareholders Meeting, held on August ___, 1995, to
increase the number of Series A Preferred shares from 2,000,000 to 2,250,000
shares.
2. The parties agree to the following changes, corrections, additions
and/or deletions to the Series A Preferred Stock Purchase Agreement:
a) 3.2 Capitalization (b) Preferred Stock. The number of shares of
----------------
Preferred Stock ($.001 par value) has been increased from 2,000,000 to 2,250,000
Series A Preferred, of which 750,000 shares have been sold.
b) 3.2 Capitalization (c) Options, Warrants, Reserved Shares. The
-----------------------------------
Company has reserved 2,250,000 shares of its Common Stock for possible issuance
upon the conversion of the shares of Series A Preferred Stock to be issued
thereunder. (iii) there are only three (3) employee stock options of 50,000
shares each outstanding, as the contract with GaryLyn Edwards has been canceled.
c) 3.2 Capitalization (d) Outstanding Security Holders. Exhibit D is
-----------------------------
updated as attached.
d) 3.3 Subsidiaries. The Company has three (3) wholly owned
subsidiaries: Virtual Realty Applications Group, Inc., Virtual Realty Licensing
Co., Inc., and Virtual Realty MLS Co., Inc. The Company is not currently using
these corporations but plans to put various software, and business contracts
into them, as may be appropriate. All three corporations are Nevada
corporations.
e) Section 3.6 Liabilities - The Company originally had borrowed
$50,000.00 from Jeanne Garde, evidenced by a Promissory Note dated March 22,
1995,
1
<PAGE>
which loan was re-written on May 17, 1995 in the principal amount of $50,390.41,
a copy of which is attached as Exhibit G.
f) Section 3.7 Title to Properties and Assets. On March 22, 1995,
the Company entered into a Purchase Agreement with Jeanne Garde, James Meador,
and Gary Edwards, to purchase certain software and hardware, wherein the sellers
warranted that they had good and marketable title to all assets, free and clear
of all liens, claims, charges and encumbrances. This agreement was terminated in
the week of August 18, 1995, as the title to the software was in dispute and the
program was not operational. The hardware is being returned.
g) Section 3.8(b) Licenses; Other Agreements. The Company had
--------------------------
entered into an Agreement with MortgageFlex, dated April 21, 1995, for the
software development of the VRI "Loanmaker" mark and methodology. That agreement
has been terminated as the Mortgageflex software was not operational. The
Company negotiating a software development and software license agreement with
Dynatek, Inc., a Michigan corporation.
h) Section 3.8(c) No Infringement. On July 5, 1995, the Company
---------------
received a letter for Attorney Gerald L. Berlin stating that his client, Mr.
John R. Friedmann, was the owner of the service mark "VIRTUAL REALTY" and
demanded that the Company cease using the name. After the Company responded to
this letter, Mr. Friedmann changed law firms. The Company is negotiating with
the new attorney for a license/agreement to use the name in our company name.
The Company received a letter dated June 22, 1995, from Aegis Technologies,
enclosing a copy of their U.S. patent no. 5,231,571, issued July 27, 1993 with
claims directed to an interactive system for providing personal financial
services over a computer network. No claims of patent infringement were made,
only a request for questions or comments.
i) Section 3.10 Litigation. There is no litigation pending, but
there was a demand to cease using our name, as stated above in Section 3.8
(paragraph h) above).
j) Section 3.23 Stock Restriction Agreement. At present, the
founders, Michael A. Barron and Dianne D. David, have not signed any agreement
with the Company which restricts their stock ownership although they are
negotiating with the Company to do so.
k) Section 3.23 Use of Proceeds. The Company had previously agreed
to use the proceeds of its first sale of Series A shares to pay off the
outstanding debt owed to American Growth. The promissory note has been
negotiated, as shown in Exhibit G, which eliminated the need to payoff the note.
2
<PAGE>
l) 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. The
Company is contemplating a Private Placement for the sale of 1,000,000 shares of
Series A Preferred to accredited investors who will be purchasing under
the terms and conditions of this Purchase Agreement, as amended herein.
m) Section 5.9(b) MortgageFlex and Software Today Licenses. The
------------------------------------------
Company had entered into an Agreement with Mortgage Flex, dated April 21, 1995,
for the software development of the VRI "Loanmaker" mark and methodology. That
agreement has been terminated as the Mortgageflex software was not operational.
On March 22, 1995, the Company entered into a Purchase Agreement with Jeanne
Garde, James Meador, and Gary Edwards, to purchase certain software and
hardware, wherein the sellers warranted that they had good and marketable title
to all assets, free and clear of all liens, claims, charges and encumbrances.
This agreement was terminated in the week of August 18, 1995, as the title to
the software as in dispute and the program was not operational. The hardware is
being returned.
n) Section 5.12 Minimum to Close. The number of shares of
Preferred Stock ($.001 par value) has been increased from 2,000,000 to 2,250,000
Series A Preferred, of which 750,000 shares have been sold. The Company is
contemplating a Private Placement for the sale of 1,000,000 shares of Series A
Preferred to accredited investors who will be purchasing under the terms and
conditions of this Purchase Agreement, as amended herein. The net proceeds to
the Company, after fees and costs, is estimated at $750,000.00. The balance of
the Series A Preferred of 500,000 shares is set aside for purchase by Intel.
o) Section 7.9 Finder's Fee. The Company is preparing to sell
1,000,000 shares of Series A Preferred in a Private Placement. Spectrum
Securities, Fountain Valley, CA will be paid 13.5% of amount raised for sales
commissions and marketing assistance fees and American Growth Capital
Corporation will be paid 11.5% of amount raised for Investment Banking Fees.
p) The Rights Agreement, dated May 19, 1995, attached as Exhibit E
of the Series A Preferred Stock Purchase Agreement, dated May 19, 1995, is
hereby amended as follows:
1. Paragraph 1.1.7 The term "Substantial Amount of Registrable
Securities" means at least sixty percent (60%) of the Registrable Securities
then outstanding that have not been resold to the public in a registered public
offering.
3
<PAGE>
IN WITNESS THEREOF, the parties have executed this Amendment to the Series
A Preferred Agreement Purchase Agreement, dated May 19, 1995, this 23rd day of
----
August, 1995.
VIRTUAL REALTY NETWORK, INC. AMERICAN GROWTH FUND I,
4590 MacArthur Blvd., Ste. 175 a California limited partnership
Newport Beach, CA 92660 By: American Growth Capital
Corp., Managing General Partner
By: By:
------------------------- -----------------------------
MICHAEL A. BARRON, Pres. DONNA SNYDER, President
INTEL CORPORATION
By: /s/ SALISH RISHI
-------------------------
4
<PAGE>
EXHIBIT 10.19
RIGHTS AGREEMENT
This Rights Agreement (the "AGREEMENT") is made this 19 day of May, 1995, by
--
and among Virtual Realty Network, Inc., a Nevada corporation (the "COMPANY"),
and the individuals and entities set forth on Exhibit A attached hereto (the
"HOLDERS").
RECITALS
--------
A. The Company and the Holders have entered into the Series A Preferred Stock
Purchase Agreement (the "PURCHASE AGREEMENT") of even date herewith,
pursuant to which the Company will issue and sell, and the Holders will
purchase, Series A Preferred Stock of the Company (the "SHARES").
B. It is a condition to the purchase of the Shares that the Company enter into
this Agreement with the Holders.
in consideration of the mutual promises and covenants hereinafter set,forth, the
parties agree as follows:
1. DEFINITIONS
1.1 The term "HOLDER" means any holder of outstanding Registrable
Securities or any person to which the rights provided for in this
Agreement shall have been properly assigned in accordance with
specific terms hereof.
1.2 The term "INITIATING HOLDERS" means any Holder or Holders making a
request for registration pursuant to the provisions of Section 3.1.
1.3 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.
1.4 The term "REGISTRABLE SECURITIES" means: (i) any Common Stock issued
or to be issued pursuant to conversion of any shares of Series A
Preferred Stock issued pursuant to this Agreement, (ii) any other
Common Stock issued as a dividend or other distribution with respect
to, or in exchange for or in replacement of, any shares of Series A
Preferred Stock issued pursuant to this Agreement or the shares of
Common Stock issued pursuant to conversion of such shares of Series A
Preferred Stock and (iii) any other Common Stock of the Company owned
or hereafter acquired by the Holders.
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1.5 The term "SEC" means the Securities and Exchange Commission.
1.6 The term "SECURITIES ACT" means the Securities Act of 1933, as
amended.
1.7 The term "SUBSTANTIAL AMOUNT OF REGISTRABLE SECURITIES" means at least
forty percent (40%) of the Registrable Securities then outstanding
that have not been resold to the public in a registered public
offering.
2. FINANCIAL STATEMENTS AND BOARD VISITATION RIGHTS
2.1 Reports.
For fiscal years ending after the date of this Agreement, the Company
agrees to deliver to each Holder:
(a) as soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, a balance sheet of
the Company as of the end of such fiscal year and a statement of
operations and a statement of sources and application of funds of
the Company for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the two
previous fiscal years, all in reasonable detail and audited by
independent public accountants selected by the Company; and
(b) within forty-five (45) days after the end of each of the first
three (3) quarters of each fiscal year, an unaudited consolidated
profit or loss statement for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter.
2.2 Annual Plan.
Within ten (10) days of adoption by the Board of Directors, but not
later than the beginning of each fiscal year of the Company, the
Company shall submit to each Holder of Registrable Securities (as
adjusted for stock splits, stock dividends or recapitalizations) an
annual plan for such year which shall include quarterly capital and
operating expense budgets, cash flow statements, manpower projections,
projected balance sheets, profit and loss projections and sales
projections for each month and for the end of such year itemized in
such detail as the Board may reasonably determine. Approval of such
budgets, statements and projections shall be required by at least a
majority of the Board of Directors of the Company. If the annual plan
is modified by the Board of Directors to reflect changes as a result
of operating results and other events that occur during the
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year covered by the annual plan, copies of such modification shall be
promptly submitted to the Holders.
2.3 Termination of Reports and Rights.
The Company shall deliver the reports and give the rights specified in
Sections 2.1 and 2.2 to each such Holder entitled to the same until
the earlier of such time as such Holder is no longer a shareholder or
until the closing of the first underwritten offering of the Company's
securities to the general public that is effected with the SEC under
the Securities Act.
2.4 Board Visitation Rights.
For so long as each Holder holds Registrable Securities (as adjusted
for stock splits, stock dividends or recapitalizations) such Holder
shall have the right, at such Holder's expense, to designate a
representative to attend all meetings of the Company's Board of
Directors in a non-voting observer capacity, and, in this respect, the
Company shall give such Holder copies of all notices, minutes,
consents and other materials that it provides to its directors;
provided, however, that such Holder and its representative shall agree
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to hold in confidence and trust all information so provided. Meetings
to be held by telephone conference and actions to be taken by consent
shall not be prohibited provided notice is given to such Holder.
3. REGISTRATION
3.1 Registration.
(a) Requested Registration. If at any time the Company shall receive
----------------------
from the Holders of a Substantial Amount of Registrable
Securities a written request that the Company effect any
registration, qualification or compliance with respect to all or
a part of the Registrable Securities, the Company will:
1. promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
2. as soon as practicable, use its diligent best efforts to
effect such registration, qualification and compliance
(including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualification under the applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued
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under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all
or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are
specified in a written notice given within fifteen (15) days
after receipt of such written notice from the Company,
except that the Company shall not be obligated to take any
action to effect any such registration, qualification or
compliance pursuant to this Section 3.1 after the Company
has effected three (3) registrations, qualifications or
compliances pursuant to request under this subsection 3.1
(a).
Subject to the foregoing provisions, the Company shall file a
registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, but in any
event within one hundred eighty (180) days after receipt of the
request or requests of the Initiating Holders.
(b) Underwriting. If the Initiating Holders intend to distribute the
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Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company. The Company and
the Initiating Holders shall mutually agree upon and shall
designate the underwriter or underwriters to be employed in
connection therewith as a part of their request made pursuant to
subsection 3.1(a). The Company shall include such information in
the written notice referred to in subsection 3.1(a)(1). In such
event, the right of any Holder to registration pursuant to this
Section 3.1 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise
mutually agreed by at least a majority in interest of the
Initiating Holders and such Holder) to the extent provided
herein. The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 3.1, if the underwriter
advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten,
the securities to be issued on behalf of the Company and the
securities of the Company (other than Registrable Securities)
held by officers or directors and by other shareholders shall be
excluded from such registration to the extent so required by such
limitation and if a limitation of the number of
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shares is still required, then the Initiating Holders shall so
advise all Holders of Registrable Securities that would otherwise
be registered and underwritten pursuant hereto, and the number of
shares included in the registration and underwriting shall be
allocated among the Holders of Registrable Securities requesting
registration in proportion, as nearly as practicable, to the
total number of Registrable Securities held by such Holders at
the time of filing of the registration statement and requested to
be included in the registration. If any Holder disapproves of the
terms of the underwriting, it may elect to withdraw therefrom by
written notice to the Company, the underwriter and the Initiating
Holders. The Registrable Securities so withdrawn shall also be
withdrawn from registration.
(c) Subject to the foregoing limitations set forth in Section 3.1(b),
the Company shall have the right to include in any registration
statement offering effected pursuant to this Section 3.1
securities to be sold on behalf of the Company.
(d) If the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that, in the good faith
judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for
such registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the
registration statement for a period of not more than 180 days
after the receipt of the request of the Holders under this
Section 3.1, except that the Company shall not utilize this
right more than once in any 12 month period.
3.2 Company Registration.
(a) Notice of Registration. If at any time or from time to time, the
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Company shall determine to register any of its securities, either
for its own account or the account of a security holder or
holders (other than a registration relating solely to employee
stock option or purchase plans or relating solely to an SEC Rule
145 transaction), the Company will:
1. promptly give to each Holder written notice thereof which
shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under
the applicable blue sky or other state securities laws;
2. 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
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specified in a written request or requests, made within
thirty (30) days after receipt of such written notice from
the Company, by any Holder or Holders, except as set forth
in subsection 3.2(b) below.
The Company represents that it has not and covenants that it will
not enter into any agreement with any Holder or other shareholder
of the Company giving such shareholder or Holder any right to
restrict the Company's registration of its securities pursuant to
Section 3.2 hereof or otherwise.
(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 subsection 3.2(a)(1). In
such event the right of any Holder to registration pursuant to
this Section 3.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent
provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the
Company and other holders distributing their securities through
such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for
such underwriting by the Company. Notwithstanding any other
provision of this Section 3.2, if the underwriter determines that
marketing factors require a limitation of the number of shares to
be underwritten, the securities of the Company (other than
Registrable Securities) held by officers or directors and by
other shareholders shall be excluded from such registration to
the extent so required by such limitation and if a limitation of
the number of shares is still required, then the underwriter may
limit the number of Registrable Securities to be included in the
registration and underwriting, provided that in connection with
any registered public offering no such reduction may reduce the
securities being offered by the Holders to less than 25% of the
total number of securities requested to be included in such
registration and underwriting. The Company shall advise all
Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto of any such
limitations, and the number of shares of Registrable Securities
that may be included in the registration. If any Holder
disapproves of the terms of any such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also
be withdrawn from registration.
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<PAGE>
3.3 Form S-3 Registration.
In case the Company shall receive from any Holder or Holders a written
request or requests that the Company effect a registration on Form S-3
(or any substantially equivalent registration form under the
Securities Act subsequently adopted by the SEC that permits inclusion
or incorporation by reference to other documents filed by the Company
with the SEC) and any related qualification or compliance with respect
to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as
would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities
as are specified in such request, together will all or such
portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written
notice from the Company, except that the Company shall not be
obligated to effect any such registration, qualification or
compliance, pursuant to this Section 3.3:
1. if Form S-3 is not available for such offering by the
Holders; or
2. if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that, in good
faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its
shareholders for such Form S-3 registration to be effected
at such time, in which event the Company shall have the
right to defer the filing of the Form S-3 registration
statement for a period of not more than 60 days after
receipt of the request of the Holder or Holders under this
Section 3.3, except that the Company shall not utilize this
right more than once in any twelve (12) month period; or
3. if the Company has, within the twelve (12) month period
preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this
Section 3.3.
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<PAGE>
Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 3.3 shall not be
counted as demands for registration or registrations effected
pursuant to Section 3.1 or 3.2, respectively.
3.4 Expenses of Registration.
All expenses incurred in connection with the registration,
qualification or compliance pursuant to Sections 3.1, 3.2 and 3.3,
respectively, including without limitation, all registration, filing
and qualification fees, printing expenses, fees and disbursements of
counsel for the Company, expenses of any special audits incidental to
or required by such registration and the fees and disbursements of one
counsel retained by the Holders of Registrable Securities covered by
such registration, qualification or compliance shall be borne by the
Company, except that:
(a) The Company shall not be required to pay for expenses of any
registration proceeding begun pursuant to Section 3.1, the
request of which has been subsequently withdrawn by the
Initiating Holders, in which case, such expenses shall be borne
by the Initiating Holders of securities (including Registrable
Securities) requesting or causing such withdrawal; and
(b) The Company shall not be required to pay underwriters' discounts,
commissions, or stock transfer taxes relating to Registrable
Securities.
3.5 Registration Procedures.
In the case of each registration, qualification or compliance effected
by the Company pursuant to Section 3, the Company will keep each
Holder participating therein advised in writing as to the initiation
of each registration, qualification and compliance and as to the
completion thereof. At its expense (except as otherwise provided in
Section 3.4 above) the Company will:
(a) keep such registration, qualification or compliance pursuant to
Sections 3.1, 3.2 or 3.3 effective for a period of one hundred
eighty (180) days or until the Holder or Holders have completed
the distribution described in the registration statement relating
thereto, whichever first occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
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<PAGE>
(c) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
with such registration statements 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;
(d) notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be
delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(e) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 3, on the date
that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant
to this Section 3, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statements with
respect to such securities becomes effective, (i) an opinion,
dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration
of Registrable Securities.
3.6 Indemnification.
(a) The Company will indemnify each Holder of Registrable Securities
with respect to which registration, qualification or compliance
has been effected pursuant to this Section 3, each of its
officers and directors, and each person controlling such Holder,
and each underwriter, if any, of such Registrable Securities and
each person who controls any such underwriter, against all
claims, losses, damages, costs, expenses and liabilities of any
nature whatsoever
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<PAGE>
(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 registration statement, prospectus, offering
circular or other documents (including any related registration,
statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the
Securities Act or any state securities law or of any rule or
regulation promulgated under the Securities Act or any state
securities law applicable to the Company and relating to action
or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse
each such Holder, each of its officers and directors, and each
person controlling such Holder, and each such underwriter and
each person who controls any such underwriter, for any legal and
other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, cost,
expense, liability or action, except that the Company will not be
liable in any such case to the extent that any such claim, loss,
damage, cost, expense, liability or action arises out of or is
based on any untrue statement or omission based upon written
information furnished to the Company in an instrument duly
executed by any Holder and stated to be specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by or issuable
to such Holder are included in the securities to which such
registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company
within the meaning of the Securities Act, and each other Holder,
each of such other Holder's officers and directors and each
person controlling such other Holder, against all claims, losses,
damages, costs, expenses and liabilities of any nature whatsoever
(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 documents (including any related
registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the
Company, such other Holders,
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<PAGE>
such directors, officers, persons or underwriters for any legal
or other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, cost,
expense, 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 in an instrument duly
executed by such Holder and stated to be specifically for use
therein; provided, however, that the indemnity agreement
contained in this subsection 3.6(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this
subsection 3.6(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Each party entitled to indemnification under this Section 3.6
(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. Failure of the Indemnified
Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 3.6,
unless the failure or delay in giving notice has a material
adverse impact on the ability of the Indemnifying Party to defend
against such claim. 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 that does not include as an unconditional term
thereof, the giving of a release from all liability in respect to
such claim or litigation. If any such Indemnified Party shall
have been advised by counsel chosen by it that there may be one
or more legal defenses available to such Indemnified Party that
are different from or additional to those available to the
lndemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of such
lndemnified Party and will reimburse such Indemnified
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Party and any person controlling such Indemnified Party for the
reasonable fees and expenses of any counsel retained by the
Indemnified Party, it being understood that the Indemnifying
Party shall not, in connection with any one action or separate
but similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable
for the reasonable fees and expenses of more than one separate
firm of attorneys for such Indemnified Party or controlling
person, which firm shall be designated in writing by the
Indemnified Party to the Indemnifying Party.
3.7 Information by Holder.
The Holder or Holders of Registrable Securities included in any
registration shall furnish to the Company such information regarding
such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may reasonably request in writing and as shall
be required in connection with any registration, qualification or
compliance referred to in this Section 3.
3.8 Termination of the Company's Obligations.
The Company shall have no obligations pursuant to Sections 3.1, 3.2 or
3.3 with respect to any request made by any Holder (i) after seven (7)
years following the consummation of the Company's initial sale of its
Common Stock in a bona fide, firm commitment underwriting pursuant to
a registration statement under the Securities Act (other than a
registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or
similar plan or a SEC Rule 145 transaction) or (ii) at such time
following the Company's initial public offering and for so long as
such Holder may sell all of such Holder's Registrable Securities in
any one three-month period pursuant to Rule 144 (or such successor
rule as may be adopted).
3.9 Rule 144 Reporting.
With a view to making available the benefits of certain rules and
regulations of the SEC which may permit the sale of Shares or
Registrable Securities to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration
filed by the Company that involves an underwritten sale of
securities of the Company to the general public;
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(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration
statement filed by the Company for the underwritten offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and
the Exchange Act; and
(d) furnish to each Holder so long as such Holder owns any Shares or
Registrable Securities forthwith upon written request a written
statement by the Company that it has complied with the reporting
requirements of such Rule 144 (at any time after ninety days
after the effective date of such first registration statement
filed by the Company), and of the Securities Act and the
Securities Exchange Act (at any time after it has become subject
to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested
in availing the Holder of any rule or regulation of the SEC
permitting the selling of any such securities without
registration.
3.10 Transfer of Registration Rights.
The rights to cause the Company to register securities granted by the
Company under Sections 3.1, 3.2 and 3.3 may be assigned by any Holder
to any transferee or assignee of the Shares or of Registrable
Securities, provided that such transfer may otherwise be and is
effected in accordance with applicable securities laws and provided
further that the Company is given written notice by such Holder at the
time of or within reasonable time after such transfer, stating the
name and address of such transferee or assignee and identifying the
securities with respect to which such registration rights are being
assigned.
3.11 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of at least a
majority of the Registrable Securities, enter into any agreement with
any holder or prospective holder of any securities of the Company
which would allow
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such holder or prospective holder of any securities of the Company the
right to require the Company to initiate any registration of any
securities of the Company. Any right given by the Company to any
holder or prospective holder of the Company's securities in connection
with the registration of securities shall be conditioned such that it
shall be consistent with the provisions of this Section 3 and with the
rights of the Holders provided in this Agreement. This Section 3 shall
not limit the right of the Company to enter into any agreements with
any holder or prospective holder of any securities of the Company
giving such holder or prospective holder the right to require the
Company, upon any registration of any of its securities, to include,
among the securities which the Company is then registering, securities
owned by such holder if such rights are subordinate to the rights of
the Holders.
4. ADDITIONAL RIGHTS.
4.1 Right of First Offer.
Subject to the terms and conditions specified in this Section 4.1,
the Company hereby grants to each Holder, a right of first offer with
respect to future sales by the Company of its New Securities (as
defined in subsection 4.1(d)(i)). For purposes of this Section 4.1,
the term Holder includes any partners, shareholders or affiliates of
the Holder. The Holder shall be entitled to apportion the right of
first offer hereby granted among itself and its partners, shareholders
and affiliates in such proportions as it deems appropriate.
(a) In the event the Company proposes to issue New Securities, it
shall give each Holder written notice (the "NOTICE") of its
intention stating (i) a description of the New Securities it
proposes to issue, (ii) the number of shares of New Securities it
proposes to offer, (iii) the price per share at which, and other
terms on which, it proposes to offer such New Securities and (iv)
the number of shares that the Holder has the right to purchase
under this Section 4.1, based on the Holder's Percentage (as
defined in Subsection 4.1(d)(ii)).
(b) Within thirty (30) days after the Notice is given (in accordance
with Section 6.4), the Holder may elect to purchase, at the price
specified in the Notice, up to the number of shares of the New
Securities proposed to be issued equal to the Holder's
Percentage. An election to purchase shall be made in writing and
must be given to the Company within such thirty (30) day period
(in accordance with Section 6.4). The closing of the sale of New
Securities by the
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Company to the participating Holder upon exercise of its rights
under this Section 4.1 shall take place simultaneously with the
closing of the sale of New Securities to third parties.
(c) The Company shall have ninety (90) days after the last date on
which the Holder's right of first offer lapsed to enter into an
agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within forty-five days from
the execution thereof) to sell the New Securities which the
Holders did not elect to purchase under this Section 4.1, at or
above the price and upon terms not materially more favorable to
the purchasers of such securities than the terms specified in the
initial Notice given in connection with such sale. In the event
the Company has not entered into an agreement to sell the New
Securities within such ninety (90) day period (or sold and issued
New Securities in accordance with the foregoing within thirty
(30) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities without first
offering such New Securities to the Holders in the manner
provided in this Section 4.1.
(d) (i) "NEW SECURITIES" shall mean any shares of, or securities
convertible into or exercisable for any shares of any class of
the Company's capital stock; provided that "New Securities" does
not include: (A) the Shares or the Common Stock issuable upon
conversion thereof; (B) securities issued pursuant to the
acquisition of another business entity by the Company by merger,
purchase of substantially all of the assets of such entity, or
other reorganization whereby the Company owns not less than a
majority of the voting power of such entity; (C) up to 500,000
shares of the Company's Common Stock and the shares of Common
Stock issuable upon exercise of such options, issued pursuant to
any arrangement approved by the Board of Directors to employees,
officers and directors of, or consultants, advisors or other
persons performing services for, the Company; (D) shares of the
Company's Common Stock or Preferred Stock of any series issued in
connection with any stock split, stock dividend or
recapitalization of the Company; (E) Common Stock issued upon
exercise of warrants, options or convertible securities if the
issuance of such warrants, options or convertible securities was
a result of the exercise of the right of first offer granted
under this Section 4.1 or was subject to the right of first offer
granted under this Section 4.1; (F) securities sold to the public
in an offering pursuant to a registration statement filed with
the SEC under the Securities Act.
-15-
<PAGE>
(ii) The applicable "PERCENTAGE" for each Holder shall be the
number of shares of New Securities calculated by dividing (A) the
total number of shares of Common Stock owned by the Holder
(assuming conversion of all outstanding shares of Preferred
Stock) by (B) the total number of shares of Common Stock
outstanding at the time the Notice is given (assuming conversion
of all outstanding shares of Preferred Stock).
(e) The right of first offer granted under this Section 4.1 shall not
apply to and shall expire upon the consummation of the Company's
sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the
Securities Act at the public offering price per share of not less
than $7.50 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization) and which results in
aggregate gross cash proceeds to the Company in excess of
$15,500,000 (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to
a stock option, stock purchase or similar plan or a SEC Rule 145
transaction).
(f) The right of first offer granted under this section may be
assigned by each Holder to a transferee or assignee of the
Holder's shares of the Company's stock. In the event that a
Holder shall assign its right of first offer pursuant to this
Section 4.1 in connection with the transfer of less than all of
its shares of the Company's stock, the Holder shall also retain
its right of first offer to the extent then applicable under this
Section 4.1.
4.2 Put Right Upon Failure to Use ProShare(TM).
(a) In the event that the Company uses a video conferencing solution
other than Intel's ProShare(TM) with its product, lntel shall
have the right, by delivering written notice (the "REDEMPTION
NOTICE") to the Company to cause the Company to purchase all
Intel Shares. The per share purchase price for the Intel Shares
shall be the higher of (i) the price Intel initially paid for the
Intel Shares plus the amount of any declared but unpaid dividends
thereon through the date of the Redemption Notice, plus 10% per
annum, compounded annually, of the price Intel initially paid for
the Intel Shares calculated from the date Intel purchased the
Shares through the date of the Redemption Notice; or (ii) the
then current Fair Market Value (as defined in Section 4.2(b)
below of the Intel Shares as of the date of the Redemption
Notice. The full purchase price for the Intel Shares shall be
paid to Intel in cash by wire transfer or
-16-
<PAGE>
certified check. The put right granted pursuant to this Section
4.2 shall not be assignable to any transferee of the Intel
Shares.
(b) If the Company has Common Stock publicly traded at the time of
such determination, "FAIR MARKET VALUE" of the Intel Shares (on a
fully converted basis) shall be equal to the average closing
price of such Common Stock on the primary exchange on which such
Common Stock is then traded (or the average of the closing bid
and asked prices for such Common Stock, if then primarily traded
on Nasdaq) over the 20 trading days prior to the date of the
Redemption Notice. If there is no active public market, the Fair
Market Value shall be the Fair Market Value thereof, as
determined in good faith by the Board of Directors of the
Company.
4.3 Employee and Other Stock Arrangements.
Each acquisition of any shares of capital stock of the Company or any
option or right to acquire any shares of capital stock of the Company
by an employee, consultant, officer or director of the Company will be
conditioned upon the execution and delivery by the Company and such
employee, consultant, officer or director of an agreement
substantially in the form approved by the Board of Directors of the
Company, providing, among other things, that such shares, when granted
to an employee, consultant, officer or director, shall be subject to
vesting at the rate of 12/48th of the shares granted after one year
from the date of grant and 1/48th of the shares granted monthly
thereafter.
5. MISCELLANEOUS
5.1 Governing Law.
This Agreement shall be governed in all respects by the laws of the
state of Delaware without regard to provisions regarding choice of
laws.
5.2 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
whose rights or obligations hereunder are affected by such amendments.
-17-
<PAGE>
5.3 Entire Agreement.
This Agreement and the exhibits hereto which are hereby expressly
incorporated herein by this reference constitute the entire
understanding and agreement between the parties with regard to the
subjects hereof and thereof; provided, however, that nothing in this
-----------------
Agreement shall be deemed to terminate or supersede the provisions of
any confidentiality and nondisclosure agreements executed by the
parties hereto prior to the date hereof, which agreements shall
continue in full force and effect until terminated in accordance with
their respective terms.
5.4 Notices.
Except as may be otherwise provided herein, all notices and other
communications required or permitted hereunder shall be in writing and
shall be hand delivered or mailed by registered or certified first
class mail, postage prepaid, addressed, (a) if to the Holders, to each
such Holder's address set forth on Exhibit A attached hereto, or to
such other address as such Holder or any of its successors or assigns
shall have furnished to the Company in writing, or (b) if to the
Company, to its address set forth below its signature hereto, or to
such other address as the Company shall have furnished to the Holders
or their successors or assigns in writing. Notices hand delivered
shall be effective upon delivery and notices sent by first class mail
shall be effective three days following deposit in the United States
mail.
5.5 Amendments and Waivers.
Any term of this Agreement may be amended and the observance of any
term of the Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least a
majority of the Registrable Securities.
5.6 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing
to the Company or to the Holders, upon any breach or default of any
party hereto under this Agreement, shall impair any such right, power
or remedy of the Company, or the Holders nor shall it be construed to
be a waiver of any such breach or default, or an acquiescence therein,
or of any similar breach of default thereafter occurring; nor shall
any waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or
character on the part of the Company or the Holders of any breach of
default under this
-18-
<PAGE>
Agreement or any waiver on the part of the Company or the Holders of
any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or be law or
otherwise afforded to the Company or the Holders shall be cumulative
and not alternative.
5.7 Legal Fees.
In the event of any action at law, suit in equity or arbitration
proceeding in relation to this Agreement, the prevailing party, shall
be paid by the other party a reasonable sum for attorney's fees and
expenses for such prevailing party.
5.8 Titles and Subtitles.
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in
construing this Agreement.
5.9 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.
5.10 Severability.
Should any provision of this Agreement be determined to be illegal or
unenforceable, such determination shall not affect the remaining
provisions of this Agreement.
5.11 Confidentiality.
Each party hereto agrees that, except with the prior written
permission of the other party, it shall at all times keep confidential
and not divulge, furnish or make accessible to anyone any confidential
information, knowledge or data concerning or relating to the business
or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement or the performance of its
obligations hereunder. The parties hereto further agree that there
shall be no press release or other public statement issued by either
party relating to this Agreement or the transactions contemplated
hereby, unless the parties otherwise agree in writing. The provisions
of this Section 5.11 shall be in addition to, and not in
substitution for, the provisions of any separate nondisclosure
-19-
<PAGE>
agreement executed by the parties hereto with respect to the
transactions contemplated hereby.
5.12 Public Announcements.
Neither the Company nor any Holder (other than Intel) shall use
Intel's name or refer to Intel directly or indirectly in connection
with Intel's relationship with the Company in any advertisement, news
release or professional or trade publication, or in any other manner,
unless otherwise required by law or with Intel's prior written
consent, which consent will generally not be granted. The parties
agree that there will be no press release or other public statement
issued by either party relating to this Agreement or the transactions
contemplated hereby unless required by law. If the Company determines
that it is required by law to file this Agreement with the SEC, it
shall at a reasonable time before making any such filing, consult with
Intel regarding such filing and seek confidential treatment for such
portions of the Agreement as may be requested by Intel.
[signature page follows]
-20-
<PAGE>
agreement executed by the parties hereto with respect to the
transactions contemplated hereby.
5.12 Public Announcements.
Neither the Company nor any Holder (other than Intel) shall use
Intel's name or refer to Intel directly or indirectly in connection
with Intel's relationship with the Company in any advertisement, news
release or professional or trade publication, or in any other manner,
unless otherwise required by law or with Intel's prior written
consent, which consent will generally not be granted. The parties
agree that there will be no press release or other public statement
issued by either party relating to this Agreement or the transactions
contemplated hereby unless required by law. If the Company determines
that it is required by law to file this Agreement with the SEC, it
shall at a reasonable time before making any such filing, consult with
Intel regarding such filing and seek confidential treatment for such
portions of the Agreement as may be requested by Intel.
5.13 Termination of Prior Rights.
Effective and contingent upon execution of this Agreement by American
Growth Fund I L.P. and upon the closing of the transactions
contemplated by the Purchase Agreement the Investment Agreement dated
March 21, 1995, and as amended by the Addendum dated March 31, 1995,
between American Growth Fund I L.P. and the Company (the "Investment
Agreement") is hereby declared null and void and is amended and
restated in its entirety to read as set forth in this Agreement.
[signature page follows]
-21-
<PAGE>
IN WITNESS WHEREOF, this parties hereto have executed this Agreement as of the
day and year herein above first written.
VIRTUAL REALTY, INC.
4590 MacArthur Blvd., Suite 175
Newport Beach, CA 92660
By:
----------------------------------------
Title:
-------------------------------------
HOLDERS:
INTEL CORPORATION
By: /s/ RANDY TINSLEY
---------------------------------------
Title:
------------------------------------
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<PAGE>
IN WITNESS WHEREOF, this parties hereto have executed this Agreement as of the
day and year herein above first written.
VIRTUAL REALTY NETWORK, INC.
4590 MacArthur Blvd., Ste. 175
Newport Beach, CA 92660
By: /s/ MICHAEL A. BARRON
---------------------------------------
Title: President
------------------------------------
HOLDERS:
INTEL CORPORATION
By:
---------------------------------------
Title:
------------------------------------
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<PAGE>
EXHIBIT A
------- -
HOLDERS
INTEL CORPORATION
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn:
-------------------------
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<PAGE>
EXHIBIT 10.20
CO-SALE AND RIGHT OF FIRST REFUSAL AGREEMENT
This Co-Sale and Right of First Refusal Agreement (this "AGREEMENT") is made
this 19th day of May, 1995 by and among the individuals listed on the signature
----
page attached hereto (the "FOUNDERS"), Virtual Realty Network, Inc., a
California corporation (the "COMPANY"), and the Investors listed on Exhibit A
(the "INVESTORS").
RECITALS
--------
A. The Investors have an interest in acquiring from the Company shares of
Series A Preferred Stock of the Company pursuant to a Series A Preferred
Stock Purchase Agreement of even date herewith by and among the Investors
and the Company (the "PURCHASE AGREEMENT").
B. The Founders and the Company wish to provide a further inducement to the
Investors to purchase the Series A Preferred Stock of the Company by
offering to the Investors the opportunity to participate, upon the terms
and conditions set forth in this Agreement, in subsequent sales by the
Founders of shares of the Company's Common Stock.
In consideration of the mutual covenants and agreements set forth herein and
certain other valuable consideration the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "FOUNDER SHARES" shall mean shares of the Company's Common Stock now
owned or subsequently acquired by the Founders.
1.2 "COMMON STOCK EQUIVALENTS" shall mean the Company's Common
Stock then outstanding plus the shares of Common Stock then issuable
upon conversion of the outstanding Preferred Stock.
2. NOTICE OF SALES
Should one or more of the Founders propose to sell or transfer any Founder
Shares in one or more related transactions (the "SELLING FOUNDER"), such
Founder shall promptly deliver a written notice (the "NOTICE") to the
Company and the Investors at least twenty (20) days prior to the closing of
such sale or transfer. The Notice shall describe in reasonable detail the
proposed sale or transfer including, without limitation, the number of
Founder Shares to be sold or
<PAGE>
transferred, the nature of such sale or transfer, the consideration to be
paid, and the name and address of each prospective purchaser or transferee.
In the event that the sale or transfer is being made pursuant to the
provisions of Section 5 hereof, the Notice shall state under which
subparagraph the sale or transfer is being made.
3. RIGHT OF FIRST REFUSAL
3.1 Right of First Refusal.
The Company shall have the right, exercisable upon written notice to
the Selling Founder, within fifteen (15) days after receipt of the
Notice, to have the first right to purchase or obtain Founder Shares,
upon the price and terms of payment designated in the Notice. If such
right by the Company is refused, the Company shall give notice of such
refusal to the Investors (which may be made by telephone if confirmed
in writing within two (2) days). The Investors shall have the right,
exercisable upon written notice to the Selling Founder within fifteen
(15) days after receipt of the notice from the Company, to purchase or
obtain such Founder Shares, upon the price and terms of payment
designated in the Notice. If the Notice provides for payment of non-
cash consideration, the Investors, at their option may pay the
consideration in cash equal to the present fair market value of the
non-cash consideration offered, which shall be determined by mutual
agreement between the parties.
3.2 Right of First Refusal Amount.
If the Company elects to exercise its right of first refusal option
pursuant to Section 3.1, it shall purchase all of the Founder Shares.
In the event the Company does not elect to exercise its right of first
refusal, each Investor may purchase pursuant to their right of first
refusal up to that number of Founder Shares of stock equivalent to the
product obtained by multiplying the aggregate number of Founder Shares
being sold or transferred in such transaction, by a fraction, the
numerator of which is the number of shares of Common Stock Equivalents
owned by such Investor at the time of the transaction and the
denominator of which is the total number of shares of Common Stock
Equivalents owned by all the Investors at the time of the transaction.
3.3 Overallotment Option.
If any Investor fails to elect to fully participate in a transaction
pursuant to this Section 3, the Investor shall promptly give notice of
such failure to the Company and the Company shall so notify the other
Investors who did so elect (the "RIGHT OF FIRST REFUSAL INVESTORS").
Such notice may be made
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<PAGE>
by telephone if confirmed in writing within two (2) days. The Right of
First Refusal Investors shall have five (5) days from the date such
notice was given to agree to purchase their pro rata share of the
unsold portion. For purposes of this paragraph, a "PRO RATA SHARE"
shall be equal to the product obtained by multiplying (i) the number of
shares in the unsold portion by (ii) a fraction, the numerator of which
is the number of shares of Common Stock Equivalents held by such Right
of First Refusal Investor and the denominator of which is the total
number of shares of Common Stock Equivalents held by all the Right of
First Refusal Investors.
3.4 No Adverse Effect.
The exercise or nonexercise of the rights of any Investor hereunder to
elect to exercise its rights of first refusal in one or more sales or
transfers of the Founder Shares shall not adversely affect such
Investor's rights to exercise its rights of first refusal in subsequent
sales or transfers of Founder Shares pursuant to this Agreement.
3.5 No Participation.
If the Company elects not to purchase the Founder Shares pursuant to
its right of first refusal and the Investors elect not to purchase all
or a portion of the Founder Shares designated in the Notice, then the
Selling Founder may consummate the sale of such Founder Shares referred
to in the Notice to the proposed purchaser, provided such transaction
(i) is completed within thirty (30) days after the expiration of the
Investors' right to purchase such Founder Shares and the Investors' co-
sale rights as set forth in Section 4, (ii) is made at the price and
terms designated in the Notice, and (iii) the proposed purchaser agrees
to be bound by the terms and provisions of this Agreement immediately
upon receipt of such Founder Shares. Any proposed transfer on terms and
conditions more favorable than those described in the Notice, as well
as any subsequent proposed transfer or sale of any of the Founder
Shares shall again be subject to the right of first refusal hereunder.
4. RIGHT OF CO-SALE
4.1 Co-Sale Right.
Each Investor shall have the right, exercisable within fifteen (15)
days after receipt of a written Notice, to participate in such
transaction described in such Notice on the same terms and conditions
specified in the Notice.
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<PAGE>
4.2 Co-Sale Amount.
To the extent the proposed purchaser is not willing to purchase all of
the shares as to which the Investors have requested participation
pursuant to Section 4.1, each Investor may sell in such a transaction
described in Section 4.1 that number of shares of stock equal to the
product obtained by multiplying the aggregate number of Founder Shares
being sold in such transaction, by a fraction, the numerator of which
is the number of shares of Common Stock Equivalents owned by such
investor at the time of the transaction and the denominator of which is
the total number of shares of Common Stock Equivalents owned by all the
Investors. The number of Founder Shares identified in the Notice to be
sold by such Selling Founder shall be reduced by the number of Investor
Shares to be sold pursuant to this Section 4.2.
4.3 Overallotment Option.
If any Investor fails to elect to fully participate in such co-sale
transaction pursuant to this Section 4, the Investor shall promptly
give notice of such failure to the Company and the Company shall so
notify the other Investors who did so elect (the "CO-SALE
PARTICIPANTS"). Such notice may be made by telephone if confirmed in
writing within two (2) days. The Co-Sale Participants shall have five
(5) days from the date such notice was given to agree to sell their pro
rata share of the unsold portion. For purposes of this paragraph, a Co-
Sale Participant's "PRO RATA SHARE" shall be equal to the product
obtained by multiplying (i) the number of shares in the unsold portion
by (ii) a fraction, the numerator of which is the number of shares of
Common Stock Equivalents held by such Co-Sale Participant and the
denominator of which is the total number of shares of Common Stock
Equivalents held by all the Co-Sale Participants.
4.4 Delivery.
Each Investor shall effect participation in the sale by promptly
delivering to the Selling Founder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer,
which represent:
(a) the type and number of shares of Common Stock which such
Investor elects to sell; or
(b) that number of shares of Series A Preferred Stock which is at
such time convertible into the number of shares of Common Stock
which such Investor elects to sell; provided, however, that if
the prospective purchaser objects to the delivery of Series A
Preferred Stock in lieu of Common Stock, such Investor shall
convert such
-4-
<PAGE>
Series A Preferred Stock into Common Stock and deliver Common
Stock as provided in subsection 4.4(a) above. The Company agrees
to make any such conversion concurrent with the actual transfer
of such shares to the purchaser.
4.5 Transfer.
The stock certificate or certificates that the Investors deliver to
the Selling Founder pursuant to Section 4.4 shall be transferred to
the prospective purchaser in consummation of the sale of the Common
Stock pursuant to the terms and conditions specified in the Notice,
and the Selling Founder shall concurrently therewith remit to the
Investors that portion of the sale proceeds to which the Investors are
entitled by reason of their participation in such sale. To the extent
that any prospective purchaser prohibits such assignment or otherwise
refuses to purchase shares or other securities from the Investors
exercising their rights of co-sale hereunder, the Selling Founder
shall not sell to such prospective purchaser or purchasers any Founder
Shares unless and until, simultaneously with such sale, the Selling
Founder shall purchase such shares or other securities from the
Investors.
4.6 No Adverse Effect.
The exercise or nonexercise of the rights of each Investor hereunder
to participate in one or more sales of Founder Shares made by a
Selling Founder shall not adversely affect such Investor's rights to
participate in subsequent sales of Founder Shares pursuant to this
Agreement.
4.7 No Participation.
If the Investors elect not to participate in the sale of the Founder
Shares designated in the Notice, then the Selling Founder may
consummate the sale or transfer of such Founder Shares referred to in
the Notice to the proposed purchaser, provided such transaction (i) is
completed within thirty (30) days after the expiration of the
Investors' right of co-sale and the Investors' right of first refusal
as set forth hereunder, (ii) is made at the price and terms designated
in the Notice, and (iii) the proposed purchaser agrees to be bound by
the terms and provisions of this Agreement and become a party to this
Agreement immediately upon receipt of such Founder Shares. Any
proposed transfer on terms and conditions more favorable than those
described in the Notice, as well as any subsequent proposed transfer
or sale of any of the Founder Shares shall again be subject to the co-
sale rights hereunder.
-5-
<PAGE>
5. PERMITTED TRANSACTIONS
The participation rights of the Investors hereto shall not pertain or
apply to:
(a) Any pledge of Founders Shares made by such Founder pursuant to a
bona fide loan transaction which creates a mere security
interest;
(b) Any bona fide gift;
(c) Any transfer to ancestors, siblings, in-laws, descendants or
spouse or to a trust for the benefit of such persons or such
Founder; or
(d) Any transfer to a transferee in which the rights of co-sale
and/or first refusal are not utilized and such non-utilization
is in accordance with the terms of this Agreement.
provided, that (i) the Selling Founder shall inform the Company and the
--------
Investors of such pledge, transfer or gift prior to effecting it in
accordance with Section 2.1 above and (ii) the pledgee, transferee or
donee (collectively, the "PERMITTED TRANSFEREES") shall furnish the Company
and the other Investors with a written agreement to be bound by and comply
with all provisions of this Agreement applicable to such transferor. Such
transferred Founder Shares shall remain Founder Shares hereunder and the
Permitted Transferee shall be treated as a "Founder" and be subject to all
obligations of a "Founder" for purposes of this Agreement.
6. PROHIBITED TRANSFERS
Any attempt to transfer shares of the Company in violation of Sections 3 or
4 hereof shall be void and the Company agrees it will not effect such a
transfer nor will it treat any alleged transferee as the holder of such
shares without the written consent of the Investors.
7. LEGENDED CERTIFICATES
7.1 Legend.
Each certificate representing shares of capital stock of the Company now or
hereafter owned by the Founders, or issued to any Permitted Transferee
pursuant to Section 5 shall be endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN CO-SALE AND
-6-
<PAGE>
RIGHT OF FIRST REFUSAL AGREEMENT DATED AS OF MAY___,1995 BY
AND AMONG THE CORPORATION AND CERTAIN HOLDERS OF CAPITAL
STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION.
7.2 Removal.
The Section 7.1 legend shall be removed upon termination of this
Agreement in accordance with the provisions of Section 8.1.
8. TERMINATION
This Agreement shall terminate upon the earliest to occur of any one of the
following events:
(a) after the effective date of a registration statement pertaining to the
Company's initial registered firm commitment underwritten public
offering at a price per share of at least $7.50 (as adjusted for stock
dividends, stock splits or recapitalizations) and with aggregate
proceeds to the Company in excess of $15,000,000, or
(b) the merger or other form of corporate reorganization in which the
shareholders of the Company do not own a majority of the outstanding
shares of the surviving corporation or the sale of all or
substantially all the assets of the Company.
9. MISCELLANEOUS
9.1 Governing Law.
This Agreement shall be governed in all respects by the laws of the
state of Delaware without regard to provisions regarding choice of
laws.
9.2 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
whose rights or obligations hereunder are affected by such amendments.
-7-
<PAGE>
9.3 Entire Agreement.
This Agreement and the exhibits hereto which are hereby expressly
incorporated herein by this reference constitute the entire
understanding and agreement between the parties with regard to the
subjects hereof and thereof; provided, however, that nothing in this
-----------------
Agreement shall be deemed to terminate or supersede the provisions of
any confidentiality and nondisclosure agreements executed by the
parties hereto prior to the date hereof, which agreements shall
continue in full force and effect until terminated in accordance with
their respective terms.
9.4 Notices.
Except as may be otherwise provided herein, all notices and other
communications required or permitted hereunder shall be in writing and
shall be hand delivered or mailed by registered or certified first
class mail, postage prepaid, addressed, (a) if to the Investors, to
each such Investor's address set forth on Exhibit A attached hereto,
or to such other address as such Investor or any of its successors or
assigns shall have furnished to the Company in writing, (b) if to the
Founders, to each such Founder's address as set forth on Exhibit A
attached hereto, or to such other address as such Founder or any of
its successors or assigns shall have furnished to the Company and the
Investors in writing, or (c) if to the Company, to its address set
forth below its signature hereto, or to such other address as the
Company shall have furnished to the Investors and Founders or their
successors or assigns in writing. Notices hand delivered shall be
effective upon delivery and notices sent by first class mail shall be
effective three (3) days following deposit in the United States mail.
9.5 Amendments and Waivers.
Any term of this Agreement may be amended and the observance of any
term of the Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only
with the written consent of the Company, the Investors and the
Founders.
9.6 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing
to the Company, the Founders or to the Investors upon any breach or
default of any party hereto under this Agreement, shall impair any
such right, power or remedy of the Company, the Founders or the
Investors nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of any similar breach of
default thereafter
-8-
<PAGE>
occurring; nor shall any waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Company, the
Founders or the Investors of any breach of default under this
Agreement or any waiver on the part of the Company, the Founders or
the Investors of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically
set forth in such writing. All remedies, either under this Agreement,
or be law or otherwise afforded to the Company, the Founders or the
Investors shall be cumulative and not alternative.
9.7 Legal Fees.
In the event of any action at law, suit in equity or arbitration
proceeding in relation to this Agreement, the prevailing party, shall
be paid by the other party a reasonable sum for attorney's fees and
expenses for such prevailing party.
9.8 Titles and Subtitles.
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in
construing this Agreement.
9.9 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.
9.10 Severability.
Should any provision of this Agreement be determined to be illegal or
unenforceable, such determination shall not affect the remaining
provisions of this Agreement.
9.11 Confidentiality.
Each party hereto agrees that, except with the prior written
permission of the other party, it shall at all times keep confidential
and not divulge, furnish or make accessible to anyone any confidential
information, knowledge or data concerning or relating to the business
or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement or the performance of its
obligations hereunder. The parties hereto further agree that there
shall be no press release or other public statement issued by either
party relating to this Agreement or the
-9-
<PAGE>
transactions contemplated hereby, unless the parties otherwise agree
in writing. The provisions of this Section 9.11 shall be in addition
to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
9.12 Public Announcements.
Neither the Company nor any Founder nor any Investor (other than
Intel) shall use Intel's name or refer to Intel directly or indirectly
in connection with Intel's relationship with the Company in any
advertisement, news release or professional or trade publication, or
in any other manner, unless otherwise required by law or with Intel's
prior written consent, which consent will generally not be granted.
The parties agree that there will be no press release or other public
statement issued by either party relating to this Agreement or the
transactions contemplated hereby unless required by law. If the
Company determines that it is required by law to file this Agreement
with the Securities and Exchange Commission, it shall at a
reasonable time before making any such filing, consult with Intel
regarding such filing and seek confidential treatment for such
portions of the Agreement as may be requested by Intel.
-10-
<PAGE>
IN WITNESS WHEREOF, this parties hereto have executed this Agreement as of the
day and year herein above first written.
VIRTUAL REALITY, INC.
4590 MacArthur Blvd., Suite 175
Newport Beach, CA 92660
By:
---------------------------------
Title:
------------------------------
INVESTORS:
INTEL CORPORATION
By: /s/ RANDY TINSLEY
---------------------------------
Title:
------------------------------
-11-
<PAGE>
IN WITNESS WHEREOF, this parties hereto have executed this Agreement as of the
day and year herein above first written.
VIRTUAL REALITY, INC.
4590 MacArthur Blvd, Ste. 175
Newport Beach, CA 92660
By: /s/ MICHAEL A. BARRON
--------------------------------
Title: President
----------------------------
INVESTORS:
INTEL CORPORATION
By:
--------------------------------
Title:
-----------------------------
-11-
<PAGE>
FOUNDERS:
[SIGNATURES]
/s/ MICHAEL A. BARRON
-----------------------------------
MICHAEL A. BARRON
/s/ DIANNE D. DAVID
-----------------------------------
DIANNE D. DAVID
/s/ SANDRA S. SAWYER
-----------------------------------
SANDRA S. SAWYER
-12-
<PAGE>
EXHIBIT A
---------
FOUNDERS: INVESTORS:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn:
-----------------------
/s/ MICHAEL A. BARRON
- ------------------------------
MICHAEL A. BARRON
/s/ DIANNE D. DAVID
- ------------------------------
DIANNE D. DAVID
/s/ SANDRA S. SAWYER
- ------------------------------
SANDRA S. SAWYER
-13-
<PAGE>
EXHIBIT 10.21
VIRTUAL REALTY NETWORK, INC.
1995 CONSULTANT AND EMPLOYEE
STOCK COMPENSATION PLAN
I. PURPOSE OF THE PLAN.
The purpose of this Plan is to further the growth of Virtual Realty
Network, Inc. hereinafter referred to as the "Company', by allowing the Company
to compensate officers, directors, consultants and certain other persons
providing bona fide services to the Company other than those services provided
in connection with the offer or sale of securities in a capital-raising
transaction, through the award of the Company's Common Stock.
II. DEFINITIONS.
Whenever used in this Plan, the following terms shall have the
meanings set forth in this Section:
1. "Award" means any grant of Common Stock made under this Plan.
2. "Board of Directors" means the Board of Directors of the Company.
3. "Code" means the Internal Revenue Code of 1986, as amended.
4. "Common Stock" means the common stock, par value $.001 per share,
of the Company.
5. "Date of Grant" means the day the Board of Directors authorizes
the grant of an Award or such later date as may be specified by
the Board of Directors as the date a particular Award will become
effective.
6. "Employee" means any person or entity that renders bona fide
services to the Company, including, without limitation, the
following: a person employed by the Company in a key capacity; an
officer or director of the Company or one or more of its
Subsidiaries; a person or company engaged by the Company as a
consultant; or a lawyer, law firm, accountant or accounting firm.
<PAGE>
7. "Subsidiary" means any corporation that is a subsidiary with
regard to the Company as that term is defined in Section 424(f)
of the Code.
III. EFFECTIVE DATE OF THE PLAN.
The effective date of this Plan is March 30, 1995.
IV. ADMINISTRATION OF THE PLAN.
The Board of Directors will be responsible for the administering of
this Plan, and will grant Awards under this Plan. Subject to the
express provisions of this Plan, the Board of Directors shall have
full authority and sole and absolute discretion to interpret this
Plan, to prescribe, amend and rescind rules and regulations relating
to it' and to make all other determinations which it believes to be
necessary or advisable in administering this Plan. The determinations
of the Board of Directors on the matters referred to in this Section
shall be conclusive. The Board of Directors shall have sole and
absolute discretion to amend this Plan. No member of the Board of
Directors shall be liable for any act or omission in connection with
the administration of this Plan unless it resulted from the member's
willful misconduct.
V. STOCK SUBJECT TO THE PLAN.
The maximum number of shares of Common Stock as to which Awards
may be granted under this Plan is 500,000 shares. The Common Stock which is
issued on grant of Awards may be authorized but unissued shares or shares which
have been issued and reacquired by the Company. The Board of Directors may
increase the maximum number of shares of Common Stock as to which Awards may be
granted as such time as it deems advisable.
VI. PERSONS ELIGIBLE TO RECEIVE AWARDS.
Awards may be granted only to Employees as defined herein.
VII. GRANTS OF AWARDS.
Except as otherwise provided herein, the Board of Directors shall have
complete discretion to determine when and to which Employees Awards are to be
granted, and the number of shares of Common Stock as to which Awards granted to
each Employee will relate. No grant will be made if,
2
<PAGE>
in the judgement of the Board of Directors, such a grant would constitute a
public distribution within the meaning of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations promulgated thereunder.
VIII. DELIVERY OF STOCK CERTIFICATES.
As promptly as practicable after authorizing the grant of an Award,
the Company shall deliver to the person who is the recipient of the Award, a
certificate or certificate registered in that person's name, representing the
number of share of Common Stock that were granted. If applicable, each
certificate shall bear a legend to indicate that the Common Stock represented by
the certificate was issued in a transaction which was not registered under the
Act.
IX. EMPLOYMENT
Nothing in this Plan or in the grant of an Award shall confer upon any
Employee the right to continue in the employ of the Company nor shall it
interfere with or restrict in any way the rights of the Company to discharge any
Employee at any time for any reason whatsoever, with or without cause.
X. LAWS AND REGULATIONS.
1. The obligation of the Company to sell and deliver shares of Common
Stock on the grant of an Award under this Plan shall be subject to the condition
that counsel for the Company be satisfied that the sale and delivery thereof
will not violate the Act or any other applicable laws, rules or regulations.
XI. WITHHOLDING OF TAXES.
If subject to withholding tax, the Company shall be authorized to
withhold from an Employee's salary or other cash compensation such
sums of money as are necessary to pay the Employee's withholding tax.
The Company may elect to withhold from the shares to be issued
hereunder a sufficient number of shares to satisfy the Company's
withholding obligations. If the Company becomes required to pay
withholding taxes to any federal, state or other taxing authority as a
result of the granting of an Award and the Employee fails to provide
the Company with the funds with which to pay that withholding tax, the
Company may withhold up to 50% of each payment of salary or bonus to
the Employee (which will be in addition to any other required
3
<PAGE>
or permitted withholding), until the Company has been reimbursed for
the entire withholding tax it was required to pay.
XII. RESERVATION OF SHARES.
The Company shall at all times keep reserved for issuance on grant of
Awards under this Plan authorized but unissued or reacquired shares of
Common Stock equal to the maximum number of shares the Company may be
required to be issued on the grant of Awards under this Plan.
XIII. TERMINATION OF THE PLAN.
The Board of Directors may suspend or terminate this Plan at any time
or from time to time, but no such action shall adversely affect the rights of a
person granted as Award under this Plan prior to that date.
XIV. DELIVERY OF PLAN.
A copy of this Plan shall be delivered to all participants, together
with a copy of the resolution or resolutions of the Board of Directors
authorizing the granting of the Award and establishing the terms, if any, of
participation.
XV. NUMBER OF PARTICIPANTS
The number of participants in the Plan shall be less than thirty five
(35) with no more than twelve participants in any one year under this Plan.
/s/ SANDRA S. SAWYER /s/ MICHAEL A. BARRON
- ----------------------------------- -----------------------------------
SANDRA S. SAWYER, Secretary MICHAEL A. BARRON, President
4
<PAGE>
EXHIBIT 10.22
VIRTUAL MORTGAGE NETWORK, INC.
1995 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. THE PLAN.............................................................. 1
1.2 Administration................................................ 1
1.3 Participation................................................. 2
1.4 Shares Available Under the Plan............................... 3
1.5 Grant of Awards............................................... 3
1.6 Exercise of Awards............................................ 3
1.7 Acceptance of Notes to Finance Exercise....................... 4
II. OPTIONS............................................................... 5
2.2 Option Price.................................................. 5
2.3 Option Period................................................. 5
2.4 Exercise of Options........................................... 6
2.5 Limitations on Grant of Incentive Stock Options............... 6
2.6 Non-Employee Director Awards.................................. 7
III. STOCK APPRECIATION RIGHTS............................................. 9
3.1 Grants........................................................ 9
3.2 Exercise of Stock Appreciation Rights......................... 9
3.3 Payment....................................................... 9
IV. RESTRICTED STOCK AWARDS............................................... 10
4.1 Grants........................................................ 10
4.2 Restrictions.................................................. 10
V. PERFORMANCE SHARE AWARDS.............................................. 11
5.1 Grants........................................................ 11
5.2 Special Performance-Based Share Awards........................ 11
VI. OTHER PROVISIONS...................................................... 13
6.1 Rights of Eligible Employees, Participants and Beneficiaries.. 13
6.2 Adjustments Upon Changes in Capitalization.................... 14
6.3 Termination of Employment..................................... 14
6.4 Acceleration of Awards........................................ 16
6.5 Government Regulations........................................ 17
6.6 Tax Withholding............................................... 17
6.7 Amendment, Termination and Suspension......................... 18
6.8 Privileges of Stock Ownership; Nondistributive Intent......... 18
6.9 Effective Date of the Plan.................................... 19
6.10 Term of the Plan.............................................. 19
6.11 Governing Law................................................. 19
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C>
6.12 Plan Construction............................................. 19
6.13 Non-Exclusivity of Plan....................................... 20
VII. DEFINITIONS........................................................... 20
7.1 Definitions................................................... 20
</TABLE>
ii
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC.
1995 STOCK OPTION PLAN
I. THE PLAN.
1.1 Purpose.
-------
The purpose of this Plan is to promote the success of the Company by
providing an additional means to attract, motivate and retain key personnel,
consultants, advisors and knowledgeable directors through the grant of Awards
that provide added long term incentives for high levels of performance and for
significant efforts to improve the financial performance of the Company.
Capitalized terms are defined in Article VII.
1.2 Administration.
--------------
(a) This Plan shall be administered by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the unanimous written consent of its members. In
the event action by the Committee is taken by written consent, the action shall
be deemed to have been taken at the time specified in the consent or, if none is
specified, at the time of the last signature. The Committee may delegate
administrative functions to individuals who are officers or employees of the
Company.
(b) Subject to the express provisions of this
Plan, the Committee shall have the authority
(i) to determine from among those persons eligible the particular
Eligible Employees who will receive any Awards;
(ii) to grant Awards to Eligible Employees, determine the price
at which securities will be offered or awarded and the amount of securities
to be offered or awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which such
Awards shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion of such Awards;
(iii) to approve the forms of Award Agreements (which need not
be identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under
this Plan, further define the
<PAGE>
terms used in this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Company's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Employees, subject to any required consent under
Section 6.7;
(vi) to accelerate or extend the exercisability or extend the
term of any or all such outstanding Awards within the maximum term
established by the Committee consistent with Section 2.3 in the case of
Options; and
(vii) to make all other determinations and take such other action
as contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) Any action taken by, or inaction of, the Company, any Subsidiary,
the Board or the Committee relating to this Plan shall be within the absolute
discretion of that entity or body. No member of the Board or Committee, or
officer of the Company or any Subsidiary, shall be liable for any such action or
inaction of the entity, of another person or, except in circumstances including
bad faith, of himself or herself, subject only to compliance with the express
provisions of this Plan, the Board and Committees may act in their absolute
discretion in matters within their authority related to this Plan.
(d) In making any determination or in taking or not taking any action
under this Plan, the Company, any Subsidiary, the Board or the Committee may
obtain and rely upon the advice of experts, including professional advisors to
the Company. No member of the Board or Committee, or officer or agent of the
Company or any Subsidiary, shall be liable for any such action or determination
made or omitted in good faith.
(e) Subject to the requirements of Section 7.1(h), the Board, at any
time it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of its
members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.
(f) The Committee may delegate ministerial non-discretionary function
to individuals who are officers or employees of the Company.
1.3 Participation.
-------------
Awards may be granted only to Eligible Employees. An Eligible
Employee who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee shall so determine. Except as provided in
Section 2.6 below, members of the Board who are not officers or employees of
the Company shall not be eligible to receive Awards.
2
<PAGE>
1.4 Shares Available Under the Plan.
-------------------------------
The capital stock that may be delivered under this Plan shall be
shares of the Company's authorized but unissued Common Stock and any shares of
its Common Stock held as treasury shares. The aggregate maximum number of
shares of Common Stock that may be issued or transferred pursuant to Awards
granted under this Plan shall not exceed the sum of 2,000,000 shares. The
maximum number of shares of Common Stock that may be delivered pursuant to
Incentive Stock Options granted under this Plan is 500,000 shares. The maximum
number of shares that may be delivered pursuant to Section 2.6 shall not exceed
200,000 shares. The maximum number of shares which may be subject to Options
and Stock Appreciation Rights that are granted during any calendar year to any
individual shall be limited to 500,000 shares and the maximum individual limit
on the number of shares in the aggregate subject to all Awards that during any
calendar year are granted under this Plan shall be 500,000 shares. Each of the
five foregoing limits is subject to adjustment as contemplated by Section 6.2.
If any Option and any related Stock Appreciation Right shall lapse or be
cancelled or terminate without having been exercised in full, or any Common
Stock subject to a Restricted Stock Award shall not vest or any Common Stock
subject to a Performance Share Award shall not have been transferred, the
unpurchased, unvested or nontransferred shares subject thereto shall again be
available for purposes of this Plan.
1.5 Grant of Awards.
---------------
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award and the
specific terms and conditions of Awards (which need not be identical). Each
Award shall be subject to the terms and conditions set forth in this Plan and
such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of this Plan. The grant of an
Award is made on the Award Date.
1.6 Exercise of Awards.
------------------
Any exercisable Award shall be deemed to be exercised when the
Secretary of the Company receives written notice of such exercise from the
Participant, together with payment of the purchase price made in accordance with
Section 2.2(a) or 2.6(d), as applicable, except to the extent payment may be
permitted to be made following delivery of written notice of exercise in
accordance with Section 2.2(b). Notwithstanding any other provision of this
Plan, the Committee may impose, by rule and in Awards Agreements, such
conditions upon the exercise of Awards (including, without limitation,
conditions limiting the time of exercise to specified periods) as may be
required to satisfy applicable regulatory requirements, including without
limitation Rule 16b-3 (or any successor rule) promulgated by the Commission
pursuant to the Exchange Act. Fractional share interests shall be disregarded,
but may be accumulated. The Committee may determine that cash, other securities
or other property will be paid or transferred in lieu of any fractional share
interests. Not less than 10 shares of Common Stock may be
3
<PAGE>
purchased at one time under an Award unless the number purchased is the total
number at the time available for purchase under the terms of the Award.
1.7 Acceptance of Notes to Finance Exercise.
---------------------------------------
The Company may, with the Committee's approval, accept one or more
notes from any Eligible Employee in connection with the exercise or receipt of
any outstanding Award; provided that any such note shall be subject to the
following terms and conditions:
(a) The principal of the note shall not exceed the amount required to
be paid to the Company upon the exercise or receipt of one or more Awards under
the Plan and the note shall be delivered directly to the Company in
consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the Committee;
provided that the term of the note, including extensions, shall not exceed a
- --------
period of five years.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less than the
interest rate necessary to avoid the imputation of interest under the Code.
(d) If the employment of the Participant terminates, the unpaid
principal balance of the note shall become due and payable on the 10th business
day after such termination; provided, however, that if a sale of such shares
would cause such Participant to incur liability under Section 16(b) of the
Exchange Act, the unpaid balance shall become due and payable on the 10th
business day after the first day on which a sale of such shares could have been
made without incurring such liability assuming for these purposes that there are
no other transactions (or deemed transactions in securities of this Company) by
the Participant subsequent to such termination.
(e) If required by the Committee or by applicable law, the note shall
be secured by a pledge of any shares or rights financed thereby in compliance
with applicable law.
(f) The terms, repayment provisions, and collateral release provisions
of the note and the pledge securing the note shall conform with applicable rules
and regulations of the Federal Reserve Board as then in effect.
II. OPTIONS.
2.1 Grants.
------
One or more Options may be granted to any Eligible Employee. Each
Option so granted shall be designated by the Committee as either a Nonqualified
Stock Option or an Incentive Stock Option; provided, however, that Incentive
Stock Options can only be granted to
4
<PAGE>
individuals who are employees of the Company and who satisfy the other
eligibility requirements of the Code.
2.2 Option Price.
------------
(a) The purchase price per share of Common Stock covered by each
Option shall be determined by the Committee, but in the case of Incentive Stock
Options shall not be less than 100% (110% in the case of a Participant who owns
more than 10% of the total combined voting power of all classes of stock of the
Company) of the Fair Market Value of the Common Stock on the date the Incentive
Stock Option is granted. The purchase price of any shares purchased shall be
paid in full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by check payable to the order of the Company,
(ii) if authorized by the Committee or specified in the Option being exercised,
by a promissory note made by the Participant in favor of the Company, upon the
terms and conditions determined by the Committee, and secured by the Common
Stock issuable upon exercise in compliance with applicable law (including,
without limitation, state corporate law and federal margin requirements) or
(iii) if authorized by the Committee or specified in the Option being exercised,
by shares of Common Stock of the Company already owned by the Participant;
provided, however, that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
(b) In addition to the payment methods described in subsection (a),
the Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a bank or broker to promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay the exercise price and, unless
otherwise allowed by the Committee, any applicable tax withholding under Section
6.6. The Company shall not be obligated to deliver certificates for the shares
unless and until it receives full payment of the exercise price therefor.
2.3 Option Period.
-------------
Each Option and all rights or obligations thereunder shall expire on
such date as shall be determined by the Committee, but not later than 10 years
after the Award Date, and shall be subject to earlier termination as hereinafter
provided.
2.4 Exercise of Options.
-------------------
(a) Subject to Sections 6.2 and 6.4, an Option may become exercisable
or vest, in whole or in part, on the date or dates specified in the Award
Agreement and thereafter shall remain exercisable until the expiration or
earlier termination of the Option. An Option may be exercisable or vest on the
Award Date.
5
<PAGE>
(b) Subject to Section 1.4 and Section 6.7 and the specific
limitations on Awards contained in this Plan, the Committee from time to time
may authorize, generally or in specific cases only, for the benefit of any
Eligible Employee any adjustment in the exercise or purchase price, the vesting
schedule, the number of shares subject to, the restrictions upon or the term of,
an Award granted under Section 2.1 by cancellation of an outstanding Award and a
subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment or
other action may result among other changes in an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original or
prior Award, provide for a greater or lesser number of shares subject to the
Award, or provide for a longer or shorter vesting or exercise period.
2.5 Limitations on Grant of Incentive Stock Options.
-----------------------------------------------
(a) To the extent that the aggregate fair market value of stock with
respect to which Incentive Stock Options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to Incentive Stock Options under all other plans of the Company, such
options shall be treated as Nonqualified Stock Options. For purposes of
determining whether the $100,000 limit is exceeded, the Fair Market Value of
stock subject to options shall be determined as of the date the options are
awarded. In reducing the number of Options treated as Incentive Stock Options
to meet the $100,000 limit, the most recently granted Options shall be reduced
first. To the extent a reduction of simultaneously granted Options is necessary
to meet the $100,000 limit, the Company may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be treated as
shares acquired pursuant to the exercise of an Incentive Stock Option.
(b) There shall be imposed in any Award Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in Section 422
of the Code.
(c) No Incentive Stock Option may be granted to any person who, at the
time the Incentive Stock Option is granted, owns shares of outstanding Common
Stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the exercise price of such Option is at least
110% of the Fair Market Value of the stock subject to the Option and such Option
by its terms is not exercisable after the expiration of five years from the date
such Option is granted.
2.6 Non-Employee Director Awards.
----------------------------
(a) Participation. Awards under this Section 2.6 shall be made only
-------------
to Non-Employee Directors.
(b) Option Grants. After approval by stockholders of the provisions
-------------
of this Section 2.6, as and when any person who is not then an officer or
employee of the Company or
6
<PAGE>
any of its Subsidiaries shall become a director of the Company or any of its
Subsidiaries, there shall be granted automatically (without any action by the
Board or the Committee) a Nonqualified Stock Option (the grant or award date of
which shall be the date such person takes office) to such person to purchase
3,000 shares of Common Stock if such person is the director of Company and 1,000
shares of Common Stock if such person is the director of a Subsidiary of the
Company. Each person who is a Non-Employee Director in office as a director of
the Company at the time that the provisions of this Section 2.6 are first
approved by stockholders shall be granted without further action a Nonqualified
Stock Option to purchase 3,000 shares of Common Stock (the grant date or award
date of which shall be the date of the meeting at which stockholders first
approve the provisions of this Section 2.6). Each person who is a Non-Employee
Director in office as a director of a Subsidiary of the Company at the time that
the amendments to this Section 2.6 are first approved by stockholders shall be
granted without further action a Nonqualified Stock Option to purchase 1,000
shares of Common Stock (the grant date or award date of which shall be the date
of the meeting at which stockholders of the Company first approve the amendments
to this Section 2.6).
(c) Subsequent Annual Options. In each calendar year during the term
-------------------------
of the Plan, commencing in 1996 for directors of the Company and in 1997 for
directors of a Subsidiary of the Company, there shall be granted automatically
(without any action by the Committee or the Board) (i) a Nonqualified Stock
Option to purchase 5,000 shares of Common Stock to each Non-Employee Director of
the Company who is re-elected as a director of the Company or who continues as a
director of the Company (the grant date or award date of which shall be the date
of the annual meeting of stockholders of the Company in each such year), and
(ii) a Nonqualified Stock Option to purchase 1,000 shares of Common Stock to
each Non-Employee Director of a Subsidiary of the Company who is re-elected as a
director of such Subsidiary of the Company or who continues as a director of
such Subsidiary of the Company (the grant date or award date of which shall be
the date of the annual meeting of stockholders of the Company in each such
year).
(d) Option Price. The purchase price per share of the Common Stock
------------
covered by each Option granted pursuant to this Section 2.6 shall be one hundred
percent of the Fair Market Value of the Common Stock on the Award Date. The
purchase price of any shares purchased shall be paid in full at the time of each
purchase in cash or by check or in shares of Common Stock valued at their Fair
Market Value on the business day next preceding the date of exercise of the
Option, or partly in such shares and partly in cash.
(e) Option Period. Each Option granted under this Section 2.6 and all
-------------
rights or obligations thereunder shall expire on the tenth anniversary of the
Award Date and shall be subject to earlier termination as provided below.
(f) Exercise of Options. Except as otherwise provided in Sections
-------------------
2.6(g) and 2.6(h), each Option granted under this Section 2.6 shall become
exercisable as to one-third of the covered shares twelve months after the Award
Date, as to an additional one-third of the covered shares twenty-four months
after the Award Date, and as to the remaining one-third of the covered shares
thirty-six months after the Award Date.
7
<PAGE>
(g) Termination of Directorship. If a Non-Employee Director
---------------------------
Participant's services as a member of the Board or a Subsidiary's Board, as the
case may be, terminate, each Option granted pursuant to Section 2.6(b) or (c)
hereof held by such Non-Employee Director Participant which is not then
exercisable shall terminate; provided, however, that if a Non-Employee Director
Participant's services as a member of the Board or a Subsidiary's Board, as the
case may be, terminate by reason of death or Total Disability, the Committee
may, in its discretion, consider to be exercisable a greater portion of any such
Option than would otherwise be exercisable, upon such terms as the Committee
shall determine. If a Non-Employee Director Participant's services as a member
of the Board or a Subsidiary's Board, as the case may be, terminate by reason of
death or Total Disability, any portion of any such Option which is then
exercisable may be exercised for one year after the date of such termination or
the balance of such Option's term, whichever period is shorter. If a Non-
Employee Director Participant's services as a member of the Board or a
Subsidiary's Board, as the case may be, terminate for any other reason, any
portion of any such Option which is then exercisable may be exercised for three
months after the date of such termination or the balance of such Option's term,
whichever period is shorter.
(h) Acceleration Upon an Event. Immediately prior to the occurrence
--------------------------
of an Event, in order to protect the holders of Options granted under this
Section 2.6, each Option granted under Section 2.6(b) or (c) hereof shall become
exercisable in full.
(i) Adjustments. The specific numbers of shares stated in the
-----------
foregoing provisions of Section 2.6(b) and (c) hereof and the consideration
payable for such shares shall be subject to adjustment in certain events as
provided in Section 6.2 of this Plan.
(j) Effective Date of Section 2.6. This Section 2.6 shall be
-----------------------------
effective as of the date of Board approval, subject to stockholder approval
within twelve months after such date.
III. STOCK APPRECIATION RIGHTS.
3.1 Grants.
------
In its discretion, the Committee may grant Stock Appreciation Rights
concurrently with the grant of Options. A Stock Appreciation Right shall extend
to all or a portion of the shares covered by the related Option. A Stock
Appreciation Right shall entitle the Participant who holds the related Option,
upon exercise of the Stock Appreciation Right and surrender of the related
Option, or portion thereof, to the extent the Stock Appreciation Right and
related Option each were previously unexercised, to receive payment of an amount
determined pursuant to Section 3.3. Any Stock Appreciation Right granted in
connection with an Incentive Stock Option shall contain such terms as may be
required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder. In its discretion, the Committee may also
grant Stock Appreciation Rights independently of any Option subject to such
conditions as the Committee may in its absolute discretion provide.
8
<PAGE>
3.2 Exercise of Stock Appreciation Rights.
-------------------------------------
(a) A Stock Appreciation Right granted concurrently with an Option
shall be exercisable only at such time or times, and to the extent, that the
related Option shall be exercisable and only when the Fair Market Value of the
stock subject to the related Option exceeds the exercise price of the related
Option.
(b) In the event that a Stock Appreciation Right granted concurrently
with an Option is exercised, the number of shares of Common Stock subject to the
related Option shall be charged against the maximum amount of Common Stock that
may be issued or transferred pursuant to Awards under this Plan. The number of
shares subject to the Stock Appreciation Right and the related Option of the
Participant shall also be reduced by such number of shares.
(c) If a Stock Appreciation Right granted concurrently with an Option
extends to less than all the shares covered by the related Option and if a
portion of the related Option is thereafter exercised, the number of shares
subject to the unexercised Stock Appreciation Right shall be reduced only if and
to the extent that the remaining number of shares covered by such related Option
is less than the remaining number of shares subject to such Stock Appreciation
Right.
3.3 Payment.
-------
(a) Upon exercise of a Stock Appreciation Right and surrender of an
exercisable portion of the related Option, the Participant shall be entitled to
receive payment of an amount determined by multiplying
(i) the difference obtained by subtracting the exercise price per
share of Common Stock under the related Option from the Fair Market Value
of a share of Common Stock on the date of exercise of the Stock
Appreciation Right, by
(ii) the number of shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) The Committee, in its sole discretion, may settle the amount
determined under paragraph (a) above solely in cash, solely in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right), or partly in such shares and partly in cash, provided that
the Committee shall have determined that such exercise and payment are
consistent with applicable law. In any event, cash shall be paid in lieu of
fractional shares. Absent a determination to the contrary, all Stock
Appreciation Rights shall be settled in cash as soon as practicable after
exercise. The exercise price for the Stock Appreciation Right shall be the
exercise price of the related Option. Notwithstanding the foregoing, the
Committee may, in the Award Agreement, determine the maximum amount of cash or
stock or a combination thereof which may be delivered upon exercise of a Stock
Appreciation Right.
9
<PAGE>
(c) Upon exercise of a Stock Appreciation Right granted independently
of any Option, the Participant shall be entitled to receive payment of an amount
based on a percentage, specified in the Award Agreement, of the difference
obtained by subtracting the Fair Market Value per share of Common Stock on the
Award Date from the Fair Market Value per share of Common Stock on the date of
exercise of the Stock Appreciation Right. Such amount shall be paid as
described in paragraph (b) above.
IV. RESTRICTED STOCK AWARDS.
4.1 Grants.
------
Subject to Section 1.4, the Committee may, in its discretion, grant
one or more Restricted Stock Awards to any Eligible Employee. Each Restricted
Stock Award agreement shall specify the number of shares of Common Stock to be
issued to the Participant, the date of such issuance, the price, if any, to be
paid for such shares by the Participant and the restrictions imposed on such
shares, which restrictions shall not terminate earlier than six months after the
Award Date.
4.2 Restrictions.
------------
(a) Shares of Common Stock included in Restricted Stock Awards may not
be sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until such shares have vested.
(b) Participants receiving Restricted Stock shall be entitled to
dividend and voting rights for the shares issued even though they are not
vested, provided that such rights shall terminate immediately as to any
forfeited Restricted Stock.
(c) In the event that the Participant shall have paid cash in
connection with the Restricted Stock Award, the Award Agreement shall specify
whether and to what extent such cash shall be returned upon a forfeiture (with
or without an earnings factor).
V. PERFORMANCE SHARE AWARDS.
5.1 Grants.
------
The Committee may, in its discretion, grant Performance Share Awards
to Eligible Employees based upon such factors as the Committee shall determine.
A Performance Share Award agreement shall specify the number of shares of Common
Stock subject to the Performance Share Award, the price, if any, to be paid for
such shares by the Participant and the conditions upon which issuance to the
Participant shall be based, which issuance shall not be earlier than six months
after the Award Date.
10
<PAGE>
5.2 Special Performance-Based Share Awards.
--------------------------------------
Without limiting the generality of the foregoing, and in addition to
Options and Stock Appreciation Rights granted under other provisions of this
Plan which are intended to satisfy the exception for "performance-based
compensation" under Section 162(m) of the Code (with such Awards hereinafter
referred to as a "Qualifying Option" or a "Qualifying Stock Appreciation Right,"
respectively), other performance-based awards within the meaning of Section
162(m) of the Code ("Performance-Based Awards"), whether in the form of
------------------------
restricted stock, performance stock, phantom stock, Cash-Based Awards, or other
rights, the grant, vesting, exercisability or payment of which depends on the
degree of achievement of the Performance Goals relative to preestablished
targeted levels for the Company or the Company and one or more of its
Subsidiaries, may be granted under this Plan. Any Qualifying Option or
Qualifying Stock Appreciation Right shall be subject only to the requirements of
subsections (a) and (c) below in order for such Awards to satisfy the
requirements for Performance-Based Awards under this Section 5.2. With the
exception of any Qualifying Option or Qualifying Stock Appreciation Right, an
Award that is intended to satisfy the requirements of this Section 5.2 shall be
designated as a Performance-Based Award at the time of grant.
(a) Eligible Class. The eligible class of persons for Performance-
--------------
Based Awards under this Section shall be the executive officers of the Company.
(b) Performance Goal Alternatives. The specific performance goals for
-----------------------------
Performance-Based Awards granted under this Section (other than Qualifying
Options and Qualifying Stock Appreciation Rights) shall be, on an absolute or
relative basis, one or more of the Performance Goals, as selected by the
Committee in its sole discretion. The Committee shall establish in the
applicable Award Agreement the specific performance target(s) relative to the
Performance Goal(s) which must be attained before the compensation under the
Performance-Based Award becomes payable. The specific targets shall be
determined within the time period permitted under Section 162(m) of the Code
(and any regulations issued thereunder) so that such targets are considered to
be preestablished and so that the attainment of such targets is substantially
uncertain at the time of their establishment. The applicable performance
measurement period may not be less than one nor more than 10 years.
(c) Maximum Performance-Based Award. Notwithstanding any other
-------------------------------
provision of the Plan to the contrary, the maximum number of shares of Common
Stock which may be delivered pursuant to options, stock appreciation rights,
restricted stock or other share-based awards that are granted as Performance-
Based Awards to any Participant in any calendar year shall not exceed 100,000
shares, either individually or in the aggregate, subject to adjustment as
provided in Section 6.2. Awards that are cancelled during the year shall be
counted against this limit to the extent required by Section 162(m) of the Code.
In addition, the aggregate amount of compensation to be paid to any Participant
in respect of any Cash-Based Awards that are granted during any calendar year as
Performance-Based Awards shall not exceed $1,000,000.
11
<PAGE>
(d) Committee Certification. Before any Performance-Based Award under
-----------------------
this Section 5.2 (other than Qualifying Options or Qualifying Stock Appreciation
Rights) is paid, the Committee must certify in writing that the Performance
Goal(s) and any other material terms of the Performance-Based Award were
satisfied; provided, however, that a Performance-Based Award may be paid without
regard to the satisfaction of the applicable Performance Goal in the event of an
Event.
(e) Terms and Conditions of Awards. The Committee will have the
------------------------------
discretion to determine the restrictions or other limitations of the individual
Awards granted under this Section 5.2 including the authority to reduce Awards,
payouts or vesting or to pay no Awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in its
authorizing resolutions or otherwise.
(f) Adjustments for Changes in Capitalization and other Material
------------------------------------------------------------
Changes. In the event of a change in corporate capitalization, such as a stock
- -------
split or stock dividend, or a corporate transaction, such as a merger,
consolidation, spinoff, reorganization or similar event, or any partial or
complete liquidation of the Company, or any similar event consistent with
regulations issued under Section 162(m) of the Code including, without
limitation, any material change in accounting policies or practices affecting
the Company and/or the Performance Goals or targets, then the Committee
may make adjustments to the Performance Goals and targets relating to
outstanding Performance-Based Awards to the extent such adjustments are made to
reflect the occurrence of such an event; provided, however, that adjustments
described in this subsection may be made only to the extent that the occurrence
of an event described herein was unforeseen at the time the targets for a
Performance-Based Award were established by the Committee.
VI. OTHER PROVISIONS.
6.1 Rights of Eligible Employees, Participants and Beneficiaries.
------------------------------------------------------------
(a) Status as an Eligible Employee shall not be construed as a
commitment that any Award will be granted under this Plan to any Eligible
Employee generally.
(b) Nothing contained in this Plan (or in Award Agreements or in any
other documents related to this Plan or to Awards) shall confer upon any
Eligible Employee or Participant any right to continue in the service or employ
of the Company or constitute any contract or agreement of service or employment,
or interfere in any way with the right of the Company to reduce such person's
compensation or other benefits or to terminate the services or employment of
such Eligible Employee or Participant, with or without cause, but nothing
contained in this Plan or any document related thereto shall affect any
independent contractual right of any Eligible Employee or Participant. Nothing
contained in this Plan or any document related hereto shall influence the
construction or interpretation of the Company's Certificate of Incorporation or
Bylaws regarding service on the Board.
12
<PAGE>
(c) Amounts payable pursuant to an Award shall be paid only to the
Participant or, in the event of the Participant's death, to the Participant's
Beneficiary or, in the event of the Participant's Total Disability, to the
Participant's Personal Representative or, if there is none, to the Participant.
Other than by will or the laws of descent and distribution, no benefit payable
under, or interest in, this Plan or in any Award shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any such attempted action shall be void and no such benefit or
interest shall be, in any manner, liable for, or subject to, debts, contracts,
liabilities, engagements or torts of any Eligible Employee, Participant or
Beneficiary. The Committee shall disregard any attempted transfer, assignment
or other alienation prohibited by the preceding sentence and shall pay or
deliver such cash or shares of Common Stock in accordance with the provisions of
this Plan. The designation of a Beneficiary hereunder shall not constitute a
transfer for these purposes.
(d) Awards payable under this Plan shall be payable in shares and no
special or separate reserve, fund or deposit shall be made to assure payment of
such Awards. No Participant, Beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock) of the Company by reason of any Award granted hereunder. Neither
the provisions of this Plan (or of any documents related hereto), nor the
creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive an Award hereunder, such right shall be
no greater than (and will be subordinate to) the right of any unsecured general
creditor of the Company.
6.2 Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) If the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the Common
Stock, through a reorganization or merger to which the Company is a party, or
through a combination, consolidation, recapitalization, reclassification, stock
split, stock dividend, reverse stock split, stock consolidation or other capital
change or adjustment, an appropriate adjustment shall be made in the number and
kind of shares or other consideration that is subject to or may be delivered
under this Plan and pursuant to outstanding Awards. A corresponding adjustment
to the consideration payable with respect to Awards granted prior to any such
change and to the price, if any, paid in connection with Restricted Stock Awards
or Performance Share Awards shall also be made. Any such adjustment, however,
shall be made without change in the total payment, if any, applicable to the
portion of the Award not exercised but with a corresponding adjustment in the
price for each share. Corresponding adjustments shall be made with respect to
Stock Appreciation Rights based upon the adjustments made to the Options to
which they are related or, in the case of Stock Appreciation Rights granted
independently of any Option, based upon the adjustments made to Common Stock.
13
<PAGE>
(b) In adjusting Awards to reflect the changes described in this
Section 6.2, or in determining that no such adjustment is necessary, the
Committee may rely upon the advice of independent counsel and accountants of the
Company, and the determination of the Committee shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
6.3 Termination of Employment.
-------------------------
(a) If the Participant's service to or employment by the Company
terminates for any reason other than Retirement, death or Total Disability, the
Participant shall have, subject to earlier termination pursuant to or as
contemplated by Section 2.3, thirty days or such shorter period as is provided
in the Award Agreements from the date of termination of services or employment
to exercise any Option to the extent it shall have become exercisable on the
date of termination of employment, and any Option not exercisable on that date
shall terminate. Notwithstanding the preceding sentence, in the event the
Participant is discharged for cause as determined by the Committee in its sole
discretion, all Options shall lapse immediately upon such termination of
services or employment.
(b) If the Participant's service to or employment by the Company
terminates as a result of Retirement or Total Disability, the Participant or
Participant's Personal Representative, as the case may be, shall have, subject
to earlier termination pursuant to or as contemplated by Section 2.3, 3 months
or such shorter period as is provided in the Award Agreements from the date of
termination of services or employment to exercise any Option to the extent it
shall have become exercisable by the date of termination of services or
employment and any Option not exercisable on that date shall terminate.
(c) If the Participant's service to or employment by the Company
terminates as a result of death while the Participant is rendering services to
the Company or is employed by the Company or during the 3 month period referred
to in subsection (b) above, the Participant's Option shall be exercisable by the
Participant's Beneficiary, subject to earlier termination pursuant to or as
contemplated by Section 2.3, during the 3 month period or such shorter period as
is provided in the Award Agreements following the Participant's death, as to all
or any part of the shares of Common Stock covered thereby to the extent
exercisable on the date of death (or if, earlier, termination from employment).
(d) Each Stock Appreciation Right granted concurrently with an Option
shall have the same termination provisions and exercisability periods as the
Option to which it relates. The termination provisions and exercisability
periods of any Stock Appreciation Right granted independently of an Option shall
be established in accordance with Section 3.2(d). The exercisability period of
a Stock Appreciation Right shall not exceed that provided in Section 2.3 or in
the related Award Agreement and the Stock Appreciation Right shall expire at the
end of such exercisability period.
14
<PAGE>
(e) In the event of termination of services to or employment with the
Company for any reason, (i) shares of Common Stock subject to the Participant's
Restricted Stock Award shall be forfeited in accordance with the provisions of
the related Award Agreement to the extent such shares have not become vested on
that date; and (ii) shares of Common Stock subject to the Participant's
Performance Share Award shall be forfeited in accordance with the provisions of
the related Award Agreement to the extent such shares have not been issued or
become issuable on that date.
(f) In the event of termination of services to or employment with the
Company for any reason, other than discharge for cause, the Committee may, in
its discretion, increase the portion of the Participant's Award available to the
Participant, or Participant's Beneficiary or Personal Representative, as the
case may be, upon such terms as the Committee shall determine.
(g) If an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 6.3 to be a termination of services or
employment of each consultant or employee of that entity who does not continue
as a consultant or as an employee of another entity within the Company.
(h) Upon forfeiture of a Restricted Stock Award pursuant to this
Section 6.3, the Participant, or his or her Beneficiary or Personal
Representative, as the case may be, shall transfer to the Company the portion of
the Restricted Stock Award not vested at the date of termination of services or
employment, without payment of any consideration by the Company for such
transfer unless the Participant paid a purchase price in which case repayment,
if any, of that price shall be governed by the Award Agreement. Notwithstanding
any such transfer to the Company, or failure, refusal or neglect to transfer, by
the Participant, or his or her Beneficiary or Personal Representative, as the
case may be, such nonvested portion of any Restricted Stock Award shall be
deemed transferred automatically to the Company on the date of termination of
services or employment. The Participant's original acceptance of the Restricted
Stock Award shall constitute his or her appointment of the Company and each of
its authorized representatives as attorney(s)-in-fact to effect such transfer
and to execute such documents as the Company or such representatives deem
necessary or advisable in connection with such transfer.
6.4 Acceleration of Awards.
----------------------
(a) Unless prior to an Event the Board determines that, upon its
occurrence, there shall be no acceleration of Awards or determines those
selected Awards which shall be accelerated and the extent to which they shall be
accelerated, upon the occurrence of an Event (i) each Option and each related
Stock Appreciation Right shall become immediately exercisable to the full extent
theretofore not exercisable, (ii) Restricted Stock shall immediately vest free
of restrictions and (iii) the number of shares covered by each Performance Share
Award shall be issued to the Participant; subject, however, to compliance with
applicable regulatory requirements, including without limitation Rule 16b-3
promulgated by the Commission pursuant
15
<PAGE>
to the Exchange Act and Section 422 of the Code. For purposes of this section
only, the Board shall mean the Board as constituted immediately prior to the
Event.
(b) If any Option or other right to acquire Common Stock under this
Plan has been fully accelerated as permitted by Section 6.4(a) but is not
exercised prior to (i) a dissolution of the Company, (ii) an event described in
Section 6.2(a) that the Company does not survive, or (iii) the consummation of
an event described in Section 6.4(a) that results in an Event approved by the
Board, such Option or right shall thereupon terminate, subject to any provision
that has been expressly made by the Committee for the survival, substitution,
exchange or other settlement of such Option or right.
6.5 Government Regulations.
----------------------
This Plan, the granting and vesting of Awards under this Plan and the
issuance or transfer of shares of Common Stock (and/or the payment of money)
pursuant thereto are subject to all applicable federal and state laws, rules and
regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Awards may be granted under this Plan, and no shares shall be issued by the
Company, pursuant to or in connection with any such Award, unless and until, in
each such case, all legal requirements applicable to the issuance or payment
have, in the opinion of counsel to the Company, been complied with. In
connection with any stock issuance or transfer, the person acquiring the shares
shall, if requested by the Company, give assurances and representations
satisfactory to counsel to the Company in respect of such matters as the Company
may deem desirable to assure compliance with all applicable legal requirements.
6.6 Tax Withholding.
---------------
(a) Upon the disposition by a Participant or other person of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of the
Code, or upon the exercise of a Nonqualified Stock Option, the exercise of a
Stock Appreciation Right, the vesting of a Restricted Stock Award or the payment
of a Performance Share Award the Company shall have the right to (i) require
such Participant or such other person to pay by cash or check payable to the
Company, the amount of any taxes which the Company may be required to withhold
with respect to such transactions or (ii) deduct from amounts paid in cash the
amount of any taxes which the Company may be required to withhold with respect
to such cash amounts. The above notwithstanding, in any case where a tax is
required to be withheld in connection with the issuance or transfer of shares of
Common Stock under this Plan, the Participant may elect, pursuant to such rules
as the Committee may establish, to have the Company reduce the number of such
shares issued or transferred by the appropriate number of shares to accomplish
such withholding; provided, the Committee may impose such conditions on the
payment of any withholding obligation as may be required to satisfy applicable
regulatory requirements.
16
<PAGE>
(b) The Committee may, in its discretion, permit a loan from the
Company to a Participant in the amount of any taxes which the Company may be
required to withhold with respect to shares of Common Stock received pursuant to
a transaction described in subsection (a) above. Such a loan will be for a
term, at a rate of interest and pursuant to such other terms and rules as the
Committee may establish.
6.7 Amendment, Termination and Suspension.
-------------------------------------
(a) The Board may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan (or any part hereof). In addition, the
Committee may, from time to time, amend or modify any provision of this Plan
except Section 6.4 and, with the consent of the Participant, make such
modifications of the terms and conditions of such Participant's Award as it
shall deem advisable. No modification of any other term or provision of any
Option which is amended in accordance with the foregoing shall be required,
although the Committee may, in its discretion, make such further modifications
of any such Option as are not inconsistent with or prohibited by this Plan. No
Awards may be granted during any suspension of this Plan or after its
termination.
(b) If an amendment would materially (i) increase the benefits
accruing to Participants, (ii) increase the aggregate number of shares which may
be issued under this Plan, or (iii) modify the requirements of eligibility for
participation in this Plan, the amendment shall be approved by the Board and, to
the extent then required by Rule 16b-3 under the Exchange Act, Section 425 of
the Code or any successor provisions, rules or statutes thereto, by a majority
of the stockholders.
(c) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of the Plan shall not, without specific action of the Board or the
Committee and the consent of the Participant, in any way modify, amend, alter or
impair any rights or obligations under any Award previously granted under the
Plan.
6.8 Privileges of Stock Ownership; Nondistributive Intent.
-----------------------------------------------------
A Participant shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to him or her.
Upon the issuance and transfer of shares to the Participant, unless a
registration statement is in effect under the Securities Act and applicable
state securities law, relating to such issued and transferred Common Stock and
there is available for delivery a prospectus meeting the requirements of Section
10 of the Securities Act, the Common Stock may be issued and transferred to the
Participant only if he or she represents and warrants in writing to the Company
that the shares are being acquired for investment and not with a view to the
resale or distribution thereof. No shares shall be issued and transferred
unless and until there shall have been full compliance with any then applicable
regulatory requirements (including those of exchanges upon which any Common
Stock of the Company may be listed).
17
<PAGE>
6.9 Effective Date of the Plan.
--------------------------
This Plan shall be effective upon its approval by the Board, subject
to approval by the stockholders of the Company within twelve months from the
date of such Board approval.
6.10 Term of the Plan.
----------------
Unless previously terminated by the Board, this Plan shall terminate
ten years after the effective date of the Plan, and no Awards shall be granted
under it thereafter, but such termination shall not affect any Award theretofore
granted.
6.11 Governing Law.
-------------
This Plan and the documents evidencing Awards and all other related
documents shall be governed by, and construed in accordance with, the laws of
the State of California. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue to be fully effective.
6.12 Plan Construction.
-----------------
It is the intent of the Company that the Plan satisfy and be
interpreted in a manner that in the case of Participants who are or may be
subject to Section 16 of the Exchange Act satisfies the applicable requirements
of the applicable Rule 16b-3 so that such persons will be entitled to the
benefits of such rule or other exemptive rules under Section 16 of the Exchange
Act and will not be subjected to avoidable liability thereunder in respect of
benefits intended by the Plan. In furtherance of such intent and the Company's
intent to satisfy any applicable state securities laws, the Awards granted under
all of the provisions of the Plan, in the discretion of the Committee, may be
deemed granted under a separate plan if so required, notwithstanding the
designation of this document as a single plan for convenience of reference and
to establish certain provisions and limitations applicable to all authorized
Awards. If any provision of the Plan or of any Award would frustrate or
otherwise conflict with the intent expressed above, that provision to the extent
possible shall be interpreted and deemed amended so as to avoid such conflict,
but to the extent of any remaining irreconcilable conflict with such intent as
to such persons in the circumstances, such provision shall be deemed void.
18
<PAGE>
It is the further intent of the Company that, following the
commencement of trading of the Company's Common Stock on a national securities
exchange, Options or Stock Appreciation Rights with an exercise or base price
not less than Fair Market Value on the date of grant that are granted to or held
by a Participant who is subject to Section 16 shall qualify as performance-based
compensation under Section 162(m) of the Code, and this Plan shall be
interpreted consistent with such intent.
6.13 Non-Exclusivity of Plan.
-----------------------
Nothing in this Plan shall limit or be deemed to limit the authority
of the Board to grant options, stock awards or authorize any other compensations
under any other plan or authority.
VII. DEFINITIONS.
7.1 Definitions.
-----------
(a) "Award" means an award of any Option, Stock Appreciation Right,
-----
Restricted Stock Award or Performance Share Award, or any combination thereof,
authorized by and granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the
---------------
terms of an Award.
(c) "Award Date" means the date upon which the Committee took the
----------
action granting an Award or such later date as is prescribed by the Committee
or, in the case of Options granted under Section 2.6, the date specified in such
Section 2.6.
(d) "Beneficiary" means the person, persons, trust or trusts entitled
-----------
by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death.
(e) "Board" means the Board of Directors of the Company.
-----
(f) "Cash-Based Awards" shall mean Awards that, if paid, must be paid
-----------------
in cash and that are neither denominated in nor have a value derived from the
value of, nor an exercise or conversion privilege at a price related to, shares
of Common Stock.
(g) "Cash Flow" shall mean cash and cash equivalents derived from
---------
either (i) net cash flow from operations or (ii) net cash flow from operations,
financings and investing activities, as determined by the Committee at the time
an Award is granted.
19
<PAGE>
(h) "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time.
(i) "Commission" means the Securities and Exchange Commission.
----------
(j) "Committee" shall mean the Board or the Compensation Committee
---------
appointed by the Board which Committee shall be comprised of two or more Board
members or such greater number as may be required under applicable law, each of
whom, (i) in respect of any decision at a time when the Participant affected by
the decision may be subject to Section 162(m) of the Code, shall be "outside"
within the meaning of Section 162(m) of the Code, and (ii) in respect of any
decision at a time when the Participant affected by the decision may be subject
to Section 16 of the Exchange Act, shall be a "non-employee director" within the
meaning of Rule 16b-3.
(k) "Common Stock" means the Common Stock of the Company.
------------
(l) "Company" means Virtual Mortgage Network, Inc., a Nevada
-------
corporation, and its successors.
(m) "Director" means a member of the Board or any person performing
--------
similar functions with respect to the Company.
(n) "Eligible Employee" means an officer or key employee of the
-----------------
Company or any Subsidiary of the Company who has not served on the Committee
within the preceding twelve months and any consultant or agent to the Company or
any Subsidiary of the Company (whether or not such consultant is an employee)
who renders bona fide services (other than services in connection with a capital
raising transaction) to the Company or one of its Subsidiaries who is selected
to participate in the Plan by the Committee.
(o) "EPS" shall mean earnings per common share on a fully diluted
---
basis determined by dividing (i) net earnings, less dividends on preferred stock
of the Company by (ii) the weighted average number of common shares and common
shares equivalents outstanding.
(p) "Event" means any of the following:
-----
(i) Approval by the stockholders of the Company of the
dissolution or liquidation of the Company;
(ii) Approval by the stockholders of the Company of an agreement
to merge or consolidate, or otherwise reorganize, with or into one or more
entities other than Subsidiaries, as a result of which less than 50% of the
outstanding voting securities of the surviving or resulting entity are, or
are to be, owned by former stockholders of the Company; or
20
<PAGE>
(iii) Approval by the stockholders of the Company of the sale of
substantially all of the Company's business assets to a person or entity
which is not a Subsidiary.
(iv) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, but excluding (x) any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder, and (y) any
person having beneficial ownership of more than 5% of the outstanding
voting power at the time of adoption of this Plan) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities entitled
to then vote generally in the election of directors of the Company; or
(v) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the Board cease
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's stockholders, of each new Board
member was approved by a vote of at least majority of the Board members
then still in office who were Board members at the beginning of such period
(including for these purposes (but, in the case of a successor, without
duplication) any new members whose election or nomination was so approved).
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(r) "Fair Market Value" means (i) if the stock is listed or admitted
-----------------
to trade on a national securities exchange, the closing price of the stock on
the Composite Tape, as published in the Western Edition of The Wall Street
---------------
Journal, of the principal national securities exchange on which the stock is so
- -------
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD; or (iv) if the stock is not listed or
admitted to trade on a national securities exchange, is not reported on the
National Market Reporting System and if bid and asked prices for the stock are
not furnished by the NASD or a similar organization, the values established by
the Committee for purposes of the Plan.
(s) "Incentive Stock Option" means an option which is intended, as
----------------------
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions and is made
under such circumstance and to such persons as may be necessary to comply with
that section.
21
<PAGE>
(t) "Non-Employee Director" means a member of the Board or a
---------------------
Subsidiary's Board who is not an officer or employee of the Company or a
Subsidiary.
(u) "Non-Employee Director Participant" means a Non-Employee Director
---------------------------------
who has been granted an Option under Section 2.6.
(v) "Nonqualified Stock Option" means an Option which is designated as
-------------------------
a Nonqualified Stock Option and shall include any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any Option granted under this Plan that is not designated as an
Incentive Stock Option shall be deemed to be designated as a Nonqualified Stock
Option.
(w) "Officer" means a president, vice-president, secretary, treasurer
-------
or principal financial officer, comptroller or principal accounting officer and
any person routinely performing corresponding functions with respect to the
Company.
(x) "Option" means an option to purchase Common Stock under this Plan.
------
An Option shall be designated by the Committee as a Nonqualified Stock Option or
an Incentive Stock Option.
(y) "Participant" means an Eligible Employee who has been granted an
-----------
Award and a Non-Employee Director who has been granted an Option under
Section 2.6.
(z) "Performance Goals" shall mean EPS or ROE or Cash Flow or Total
-----------------
Stockholder Return, and "Performance Goals" means any combination thereof.
(aa) "Performance Share Award" means an award of shares of cash or
-----------------------
Common Stock, the issuance of which is contingent upon attainment of performance
objectives specified by the Committee.
(ab) "Personal Representative" means the person or persons who, upon
-----------------------
the disability or incompetence of a Participant, shall have acquired on behalf
of the Participant by legal proceeding or otherwise the power to exercise the
rights and receive the benefits specified in this Plan.
(ac) "Plan" means the Virtual Mortgage Network, Inc. 1995 Stock Option
----
Plan.
(ad) "QDRO" means an order requiring the transfer of an Award or
----
portion thereof pursuant to a state domestic relations law to the spouse, former
spouse, child or other dependent of a Participant. Such order must be in a form
substantially identical to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended.
22
<PAGE>
(ae) "Restricted Stock" means those shares of Common Stock issued
----------------
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.
(af) "Restricted Stock Award" means an award of a fixed number of
----------------------
shares of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
(ag) "Retirement" means retirement from employment by or providing
----------
services to the Company or any Subsidiary after age 65 and, in the case of
employees, in accordance with the retirement policies of the Company then in
effect.
(ah) "ROE" shall mean consolidated net income of the Company (less
---
preferred dividends), divided by the average consolidated common stockholders
equity.
(ai) "Rule 16b-3" means Rule 16b-3 as promulgated by the Commission
----------
pursuant to the Exchange Act as amended from time to time.
(aj) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(ak) "Stock Appreciation Right" means a right to receive a number of
------------------------
shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in Section 3.3 (a).
(al) "Subsidiary" means any corporation or other entity a majority or
----------
more of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.
(am) "Subsidiary's Board" means the Board of Directors of a Subsidiary
------------------
of the Company.
(an) "Total Disability" means a "permanent and total disability"
----------------
within the meaning of Section 22(e)(3) of the Code.
(ao) "Total Stockholder Return" shall mean with respect to the Company
------------------------
or other entities (if measures on a relative basis), the (i) change in the
market price of its common stock (as quoted in the principal market on which it
is traded as of the beginning and ending of the period) plus dividends and other
distributions paid, divided by (ii) the beginning quoted market price, all of
which is adjusted for any changes in equity structure, including but not limited
to stock splits and stock dividends.
23
<PAGE>
EXHIBIT 10.23
VIRTUAL MORTGAGE NETWORK, INC.
1997 PERFORMANCE AWARD PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. THE PLAN................................................................. 1
1.1 Purpose............................................................ 1
1.2 Administration and Authorization; Power and Procedure.............. 1
1.3 Participation...................................................... 3
1.4 Shares Available for Awards; Share Limits.......................... 3
1.5 Grant of Awards.................................................... 4
1.6 Award Period....................................................... 4
1.7 Limitations on Exercise and Vesting of Awards...................... 4
1.8 Acceptance of Notes to Finance Exercise............................ 5
1.9 No Transferability; Limited Exception to Transfer Restrictions..... 6
2. OPTIONS.................................................................. 7
2.1 Grants............................................................. 7
2.2 Option Price....................................................... 7
2.3 Limitations on Grant and Terms of Incentive Stock Options.......... 8
2.4 Limits on 10% Holders.............................................. 8
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions... 8
2.6 Effects of Termination of Employment; Termination of Subsidiary
Status; Discretionary Provisions................................... 9
3. STOCK APPRECIATION RIGHTS
(INCLUDING LIMITED STOCK APPRECIATION RIGHTS)......................... 10
3.1 Grants............................................................. 10
3.2 Exercise of Stock Appreciation Rights.............................. 11
3.3 Payment............................................................ 11
3.4 Limited Stock Appreciation Rights.................................. 12
4. RESTRICTED STOCK AWARDS.................................................. 12
4.1 Grants............................................................. 12
4.2 Restrictions....................................................... 13
4.3 Return to the Corporation.......................................... 13
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES............................... 13
5.1 Grants of Performance Share Awards................................. 13
5.2 Special Performance-Based Share Awards............................. 14
5.3 Grants of Stock Bonuses............................................ 15
5.4 Deferred Payments.................................................. 15
5.5 Cash Bonus Awards.................................................. 16
6. OTHER PROVISIONS......................................................... 16
6.1 Rights of Eligible Persons, Participants and Beneficiaries......... 16
6.2 Adjustments; Acceleration.......................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.3 Effect of Termination of Employment.......................... 19
6.4 Compliance with Laws......................................... 19
6.5 Tax Withholding.............................................. 20
6.6 Plan Amendment, Termination and Suspension................... 21
6.7 Privileges of Stock Ownership................................ 21
6.8 Effective Date of the Plan................................... 21
6.9 Term of the Plan............................................. 22
6.10 Governing Law/Construction/Severability...................... 22
6.11 Captions..................................................... 23
6.12 Effect of Change of Subsidiary Status........................ 23
7. DEFINITIONS...................................................... 23
8. NON-EMPLOYEE DIRECTOR OPTIONS.................................... 28
8.1 Participation................................................ 28
8.2 Annual Option Grants......................................... 28
8.3 Option Price................................................. 29
8.4 Option Period and Exercisability............................. 29
8.5 Termination of Directorship.................................. 29
8.6 Adjustments.................................................. 29
8.7 Acceleration Upon a Change in Control Event.................. 30
</TABLE>
ii
<PAGE>
VIRTUAL MORTGAGE NETWORK, INC.
------------------------------
1997 PERFORMANCE AWARD PLAN
1. THE PLAN
1.1 Purpose. The purpose of this Plan is to promote the success of the Company
-------
and the interests of its stockholders by attracting, motivating, retaining
and rewarding key employees, including officers, whether or not directors,
of the Company and other eligible persons with awards and incentives for
high levels of individual performance and improved financial performance of
the Company and to attract, motivate and retain experienced and
knowledgeable independent directors through the benefits provided under
Section 8. "Corporation" means Virtual Mortgage Network, Inc. and
"Company" means the Corporation and its Subsidiaries, collectively. These
terms and other capitalized terms are defined in Section 7.
1.2 Administration and Authorization; Power and Procedure.
-----------------------------------------------------
1.2.1 Committee. This Plan will be administered by and all Awards to
---------
Eligible Persons will be authorized by the Committee. Action of the
Committee with respect to the administration of this Plan will be
taken pursuant to a majority vote or by written consent of its
members.
1.2.2 Plan Awards; Interpretation; Powers of Committee. Subject to the
------------------------------------------------
express provisions of this Plan, the Committee will have the
authority to:
(a) determine the particular Eligible Persons who will receive
Awards;
(b) grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such
Awards consistent with the express limits of this Plan, and
establish the installments (if any) in which such Awards will
become exercisable or will vest, or determine that no delayed
exercisability or vesting is required, and establish the events
of termination or reversion of such Awards;
1
<PAGE>
(c) approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
(d) construe and interpret this Plan and any agreements defining the
rights and obligations of the Company and Participants under this
Plan, further define the terms used in this Plan, and prescribe,
amend and rescind rules and regulations relating to the
administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Persons, subject to any
required consent under Section 6.6;
(f) accelerate or extend the exercisability or extend the term of any
or all such outstanding Awards within the maximum ten-year term
of Awards under Section 1.6; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for
the administration of this Plan and the effectuation of its
purposes.
Provided, however, that the provisions of Section 8 relating to Non-
Employee Director Awards will be automatic and, to the maximum extent
possible, self-effectuating, and the discretion of the Committee will
not extend to such Awards in any manner that would be impermissible
under Rule 16b-3(c)(2).
1.2.3 Binding Determinations. Any action taken by, or inaction of, the
----------------------
Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan will be within the absolute discretion of that
entity or body and will be conclusive and binding upon all persons.
No member of the Board or Committee, or officer of the Corporation or
any Subsidiary, will be liable for any such action or inaction of the
entity or body, of another person or, except in circumstances
involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee
may act in their absolute discretion in matters within their authority
related to this Plan.
1.2.4 Reliance on Experts. In making any determination or in taking or
-------------------
not taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Corporation. No
2
<PAGE>
director, officer or agent of the Company will be liable for any
such action or determination taken or made or omitted in good faith.
1.2.5 Delegation. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or employees
of the Company.
1.3 Participation. Awards may be granted by the Committee only to those
-------------
persons that the Committee determines to be Eligible Persons. An Eligible
Person who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee so determines.
1.4 Shares Available for Awards; Share Limits.
-----------------------------------------
1.4.1 Shares Available. Subject to the provisions of Section 6.2, the
----------------
capital stock that may be delivered under this Plan will be shares
of the Corporation's authorized but unissued Common Stock and any
shares of its Common Stock held as treasury shares. The shares may
be delivered for any lawful consideration.
1.4.2 Share Limits. The maximum number of shares of Common Stock that may
------------
be delivered pursuant to Awards granted to Eligible Persons under
this Plan will not exceed 1,000,000 shares (the "Share Limit"). The
maximum number of shares subject to those options and Stock
Appreciation Rights that are granted during any calendar year to any
one individual will be limited to 250,000 and the maximum number of
shares in the aggregate subject to all Awards that during any
calendar year are granted to any one individual under this Plan will
be 250,000. The maximum number of shares of Common Stock that may be
delivered pursuant to Options qualified as Incentive Stock Options
granted under Section 2 is 1,000,000 shares. The maximum number of
shares of Common Stock that may be delivered under the provisions of
Section 8 is 250,000 shares. Each of the foregoing numerical limits
will be subject to adjustment as contemplated by this Section 1.4
and Section 6.2.
1.4.3 Share Reservation; Replenishment and Reissue of Unvested Awards. No
---------------------------------------------------------------
Award may be granted under this Plan unless, on the date of grant,
the sum of (a) the maximum number of shares issuable at any time
pursuant to such Award, plus (b) the number of shares that have
previously been issued pursuant to Awards granted under this Plan,
other than reacquired shares available for reissue consistent with
any applicable legal limitations, plus (c) the maximum number of
shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does
3
<PAGE>
not exceed the Share Limit. Shares that are subject to or underlie
Awards that expire or for any reason are cancelled or terminated, are
forfeited, fail to vest, or for any other reason are not paid or
delivered under this Plan, as well as reacquired shares, will again,
except to the extent prohibited by law, be available for subsequent
Awards under the Plan. Except as limited by law, if an Award is or
may be settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.
1.5 Grant of Awards. Subject to the express provisions of this Plan, the
---------------
Committee will determine the number of shares of Common Stock subject to
each Award, the price (if any) to be paid for the shares or the Award and,
in the case of performance share awards, in addition to matters addressed
in Section 1.2.2, the specific objectives, goals and performance criteria
(such as an increase in sales, market value, earnings or book value over a
base period, the years of service before vesting, the relevant job
classification or level of responsibility or other factors) that further
define the terms of the performance share award. Each Award will be
evidenced by an Award Agreement signed by the Corporation and, if required
by the Committee, by the Participant.
1.6 Award Period. Any Option, SAR, warrant or similar right shall expire and
------------
any other Award shall either vest or be forfeited not more than 10 years
after the date of grant; provided, however, that any payment of cash or
delivery of stock pursuant to an Award may be delayed until a future date
if specifically authorized by the Committee in writing.
1.7 Limitations on Exercise and Vesting of Awards.
---------------------------------------------
1.7.1 Provisions for Exercise. Unless the Committee otherwise expressly
-----------------------
provides, no Award will be exercisable or will vest until at least
six months after the initial Award Date, and once exercisable an
Award will remain exercisable until the expiration or earlier
termination of the Award.
1.7.2 Procedure. Any exercisable Award will be deemed to be exercised
---------
when the Corporation receives written notice of such exercise from
the Participant, together with any required payment made in
accordance with Section 2.2.2 or 8.4, as the case may be, and
payment or provision for any required tax withholding in accordance
with Section 6.5.
1.7.3 Fractional Shares/Minimum Issue. Fractional share interests will be
-------------------------------
disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Persons that cash, other
4
<PAGE>
securities, or other property will be paid or transferred in lieu of
any fractional share interests. No fewer than 100 shares may be
purchased on exercise of any Award at one time unless the number
purchased is the total number at the time available for purchase under
the Award.
1.8 Acceptance of Notes to Finance Exercise. The Corporation may, with the
---------------------------------------
Committee's express approval, accept one or more notes from any Eligible
Person in connection with the exercise or receipt of any outstanding Award;
but any such note will be subject to the following terms and conditions:
1.8.1 Principal. The principal of the note will not exceed the amount
---------
required to be paid to the Corporation upon the exercise or receipt
of one or more Awards under the Plan and the note will be delivered
directly to the Corporation in consideration of such exercise or
receipt.
1.8.2 Term. The initial term of the note will be determined by the
----
Committee; but the term of the note, including extensions, will not
exceed a period of five years.
1.8.3 Recourse; Security. The note will provide for full recourse to the
------------------
Participant and will bear interest at a rate determined by the
Committee but not less than the interest rate necessary to avoid the
imputation of interest under the Code. If required by the Committee
or by applicable law, the note will be secured by a pledge of any
shares or rights financed thereby in compliance with applicable law.
The terms, repayment provisions, and collateral release provisions
of the note and the pledge securing the note will conform with
applicable rules and regulations of the Federal Reserve Board as
then in effect.
1.8.4 Termination of Employment. If the employment of the Participant
-------------------------
terminates, the unpaid principal balance of the note will become due
and payable on the 10th business day after such termination; but if
a sale of such shares would cause such Participant to incur
liability under Section 16(b) of the Exchange Act, the unpaid
balance will become due and payable on the 10th business day after
the first day on which a sale of such shares could have been made
without incurring such liability assuming for these purposes that
there are no other transactions (or deemed transactions in
securities of this Corporation) by the Participant after such
termination.
5
<PAGE>
1.9 No Transferability; Limited Exception to Transfer Restrictions.
--------------------------------------------------------------
1.9.1 Limit On Exercise and Transfer. Unless otherwise expressly provided
------------------------------
in (or pursuant to) this Section 1.9, by applicable law and by the
Award Agreement, as the same may be amended, (a) all Awards are non-
transferable and will not be subject in any manner to sale,
transfer, anticipation, alienation, assignment, pledge, encumbrance
or charge; Awards will be exercised only by the Participant; and (b)
amounts payable or shares issuable pursuant to an Award will be
delivered only to (or for the account of) the Participant.
1.9.2 Exceptions. The Committee may permit Awards to be exercised by and
----------
paid only to certain persons or entities related to the Participant
pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer will be subject to the condition
that the Committee receive evidence satisfactory to it that the
transfer is being made for estate and/or tax planning purposes and
without consideration (other than nominal consideration). Incentive
Stock Options and Restricted Stock Awards, however, will be subject
to any and all additional transfer restrictions under the Code.
1.9.3 Further Exceptions to Limits On Transfer. The exercise and transfer
----------------------------------------
restrictions in Section 1.9.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers to
or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will
or the laws of descent and distribution,
(c) transfers pursuant to a QDRO if approved or ratified by the
Committee,
(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by the
Participant's legal representative, or
(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the
purpose of (or who otherwise facilitate) the exercise of Awards
consistent with applicable laws and the express authorization
of the Committee.
6
<PAGE>
2. OPTIONS
2.1 Grants. One or more Options may be granted under this Section 2 to any
------
Eligible Person. Each Option granted will be designated in the applicable
Award Agreement, by the Committee as either an Incentive Stock Option,
subject to Section 2.3, or a Non-Qualified Stock Option.
2.2 Option Price.
------------
2.2.1 Pricing Limits. The purchase price per share of the Common Stock
--------------
covered by each Option will be determined by the Committee at the
time of the Award, but in the case of Incentive Stock Options will
not be less than 100% (110% in the case of a Participant described
in Section 2.4) of the Fair Market Value of the Common Stock on the
date of grant and in all cases will not be less than the par value
thereof.
2.2.2 Payment Provisions. The purchase price of any shares purchased on
------------------
exercise of an Option granted under this Section will be paid in
full at the time of each purchase in one or a combination of the
following methods: (a) in cash or by electronic funds transfer; (b)
by certified or cashier's check payable to the order of the
Corporation; (c) if authorized by the Committee or specified in the
applicable Award Agreement, by a promissory note of the Participant
consistent with the requirements of Section 1.8; (d) by notice and
third party payment in such manner as may be authorized by the
Committee; or (e) by the delivery of shares of Common Stock of the
Corporation already owned by the Participant, but the Committee may
in its absolute discretion limit the Participant's ability to
exercise an Award by delivering such shares, and any shares
delivered that were initially acquired upon exercise of a stock
option must have been owned by the Participant at least six months
as of the date of delivery. Shares of Common Stock used to satisfy
the exercise price of an Option will be valued at their Fair Market
Value on the date of exercise. Without limiting the generality of
the foregoing, the Committee may provide that the Option can be
exercised and payment made by delivering a properly executed
exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Corporation the amount of sale proceeds
necessary to pay the exercise price and, unless otherwise prohibited
by the Committee or applicable law, any applicable tax withholding
under Section 6.5. The Corporation will not be obligated to deliver
certificates for the shares unless and until it receives full
payment of the exercise price therefor and any related withholding
obligations have been satisfied.
7
<PAGE>
2.3 Limitations on Grant and Terms of Incentive Stock Options.
---------------------------------------------------------
2.3.1 $100,000 Limit. To the extent that the aggregate "Fair Market
--------------
Value" of stock with respect to which incentive stock options first
become exercisable by a Participant in any calendar year exceeds
$100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock
options under all other plans of the Company or any parent
corporation, such options will be treated as Nonqualified Stock
Options. For this purpose, the "Fair Market Value" of the stock
subject to options will be determined as of the date the options
were awarded. In reducing the number of options treated as incentive
stock options to meet the $100,000 limit, the most recently granted
options will be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000
limit, the Committee may, in the manner and to the extent permitted
by law, designate which shares of Common Stock are to be treated as
shares acquired pursuant to the exercise of an Incentive Stock
Option.
2.3.2 Option Period. Subject to Section 1.6, each Option and all rights
-------------
thereunder will expire no later than 10 years after the Award Date.
2.3.3 Other Code Limits. Incentive Stock Options may only be granted to
-----------------
Eligible Employees of the Corporation or a Subsidiary that satisfy
the other eligibility requirements of the Code. There will be
imposed in any Award Agreement relating to Incentive Stock Options
such other terms and conditions as from time to time are required in
order that the Option be an "incentive stock option" as that term is
defined in Section 422 of the Code.
2.4 Limits on 10% Holders. No Incentive Stock Option may be granted to any
---------------------
person who, at the time the Option is granted, owns (or is deemed to own
under Section 424(d) of the Code) shares of outstanding Common Stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Corporation, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five
years from the date such Option is granted.
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions. Subject
----------------------------------------------------------------
to Section 1.4 and Section 6.6 and the specific limitations on Awards
contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person
any adjustment in the exercise or purchase price, the vesting
8
<PAGE>
schedule, the number of shares subject to, the restrictions upon or the
term of, an Award granted under this Section by cancellation of an
outstanding Award and a subsequent regranting of an Award, by amendment, by
substitution of an outstanding Award, by waiver or by other legally valid
means. Such amendment or other action may result among other changes in an
exercise or purchase price that is higher or lower than the exercise or
purchase price of the original or prior Award, provide for a greater or
lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
2.6 Effects of Termination of Employment; Termination of Subsidiary Status;
-----------------------------------------------------------------------
Discretionary Provisions.
------------------------
2.6.1 Options - Resignation or Dismissal. If the Participant's employment
----------------------------------
by (or other service specified in the Award Agreement to) the
Company terminates for any reason (the date of such termination
being referred to as the "Severance Date") other than Retirement,
Total Disability or death, or "for cause" (as determined in the sole
discretion of the Committee), the Participant will have, unless
otherwise provided in the Award Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or 6.2,
three months after the Severance Date to exercise any Option to the
extent it has become exercisable on the Severance Date. In the case
of a termination "for cause" and notwithstanding anything else
herein to the contrary, the Option will terminate on the Severance
Date. In all cases, the Option, to the extent not exercisable on the
Severance Date, will terminate.
2.6.2 Options - Death or Disability. If the Participant's employment by
-----------------------------
(or specified service to) the Company terminates as a result of
Total Disability or death, the Participant, Participant's Personal
Representative or the Participant's Beneficiary, as the case may be,
will have, unless otherwise provided in the Award Agreement and
subject to earlier termination pursuant to or as contemplated by
Section 1.6 or 6.2, until 12 months after the Severance Date to
exercise any Option to the extent it will have become exercisable by
the Severance Date. Any Option to the extent not exercisable on the
Severance Date will terminate.
2.6.3 Options - Retirement. If the Participant's employment by (or
--------------------
specified service to) the Company terminates as a result of
Retirement, the Participant, Participant's Personal Representative
or the Participant's Beneficiary, as the case may be, will have,
unless otherwise provided in the Award Agreement and subject to
earlier termination pursuant to or as contemplated by Section 1.6 or
6.2,
9
<PAGE>
until 12 months after the Severance Date to exercise any
Nonqualified Stock Option (three months after the Severance Date in
the case of an Incentive Stock Option) to the extent it will have
become exercisable by the Severance Date. The Option, to the extent
not exercisable on the Severance Date, will terminate.
2.6.4 Certain SARs. Any SAR granted concurrently or in tandem with a
------------
Option will have the same post-termination provisions and
exercisability periods as the Option to which it relates, unless the
Committee otherwise provides.
2.6.5 Other Awards. The Committee will establish in respect of each other
------------
Award granted hereunder the Participant's rights and benefits (if
any) if the Participant's employment is terminated and in so doing
may make distinctions based upon the cause of termination and the
nature of the Award.
2.6.6 Committee Discretion. Notwithstanding the foregoing provisions of
--------------------
this Section 2.6, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other
than discharge for cause, the Committee may increase the portion of
the Participant's Award available to the Participant, or
Participant's Beneficiary or Personal Representative, as the case
may be, or, subject to the provisions of Section 1.6, extend the
exercisability period upon such terms as the Committee determines
and expressly sets forth in or by amendment to the Award Agreement.
2.7 Options and Rights in Substitution for Stock Options Granted by Other
---------------------------------------------------------------------
Corporations. Options and Stock Appreciation Rights may be granted to
------------
Eligible Persons under this Plan in substitution for employee stock options
granted by other entities to persons who are or who will become Eligible
Persons in respect of the Company, in connection with a distribution,
merger or reorganization by or with the granting entity or an affiliated
entity, or the acquisition by the Company, directly or indirectly, of all
or a substantial part of the stock or assets of the employing entity.
3. STOCK APPRECIATION RIGHTS
(INCLUDING LIMITED STOCK APPRECIATION RIGHTS)
3.1 Grants. The Committee may grant to any Eligible Person Stock Appreciation
------
Rights either concurrently with the grant of another Award or in respect of
an outstanding Award, in whole or in part, or independently of any other
Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option will contain such terms as may be required to
10
<PAGE>
comply with the provisions of Section 422 of the Code and the regulations
promulgated thereunder, unless the holder otherwise agrees.
3.2 Exercise of Stock Appreciation Rights.
-------------------------------------
3.2.1 Exercisability. Unless the Award Agreement or the Committee
--------------
otherwise provides, a Stock Appreciation Right related to another
Award will be exercisable at such time or times, and to the extent,
that the related Award will be exercisable.
3.2.2 Effect on Available Shares. To the extent that a Stock Appreciation
--------------------------
Right is exercised, only the actual number of delivered shares of
Common Stock will be charged against the maximum amount of Common
Stock that may be delivered pursuant to Awards under this Plan. The
number of shares subject to the Stock Appreciation Right and the
related Option of the Participant will, however, be reduced by the
number of underlying shares as to which the exercise related, unless
the Award Agreement otherwise provides.
3.2.3 Stand-Alone SARs. A Stock Appreciation Right granted independently
----------------
of any other Award will be exercisable pursuant to the terms of the
Award Agreement but in no event earlier than six months after the
Award Date, except in the case of death or Total Disability.
3.2.4 Proportionate Reduction If an SAR extends to less than all the
-----------------------
shares covered by the related Award and if a portion of the related
Award is thereafter exercised, the number of shares subject to the
unexercised SAR shall be reduced only if and to the extent that the
remaining number of shares covered by such related Award is less
than the remaining number of shares subject to such SAR.
3.3 Payment.
-------
3.3.1 Amount. Unless the Committee otherwise provides, upon exercise of a
------
Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant will be
entitled to receive subject to Section 6.5 payment of an amount
determined by multiplying
(a) the difference obtained by subtracting the exercise price per
share of Common Stock under the related Award (if applicable)
or the initial share value specified in the Award from the Fair
Market Value of a share of Common Stock on the date of exercise
of the Stock Appreciation Right, by
11
<PAGE>
(b) the number of shares with respect to which the Stock Appreciation
Right has been exercised.
3.3.2 Form of Payment. The Committee, in its sole discretion, will
---------------
determine the form in which payment will be made of the amount
determined under Section 3.3.1 above, either solely in cash, solely
in shares of Common Stock (valued at Fair Market Value on the date of
exercise of the Stock Appreciation Right), or partly in such shares
and partly in cash, but the Committee will have determined that such
exercise and payment are consistent with applicable law. If the
Committee permits the Participant to elect to receive cash or shares
(or a combination thereof) on such exercise, any such election will
be subject to such conditions as the Committee may impose.
3.4 Limited Stock Appreciation Rights. The Committee may grant to any Eligible
---------------------------------
Person Stock Appreciation Rights exercisable only upon or in respect of a
change in control or any other specified event ("Limited SARs") and such
Limited SARs may relate to or operate in tandem or combination with or
substitution for Options, other SARs or other Awards (or any combination
thereof), and may be payable in cash or shares based on the spread between
the base price of the SAR and a price based upon or equal to the Fair
Market Value of the Shares during a specified period or at a specified time
within a specified period before, after or including the date of such
event.
4. RESTRICTED STOCK AWARDS
4.1 Grants. The Committee may grant one or more Restricted Stock Awards to any
------
Eligible Person. Each Restricted Stock Award Agreement will specify the
number of shares of Common Stock to be issued to the Participant, the date
of such issuance, the consideration for such shares (but not less than the
minimum lawful consideration under applicable state law) by the
Participant, the extent (if any) to which and the time (if ever) at which
the Participant will be entitled to dividends, voting and other rights in
respect of the shares prior to vesting, and the restrictions (which may be
based on performance criteria, passage of time or other factors or any
combination thereof) imposed on such shares and the conditions of release
or lapse of such restrictions. Such restrictions will not lapse earlier
than six months after the Award Date, except to the extent the Committee
may otherwise provide. Stock certificates evidencing shares of Restricted
Stock pending the lapse of the restrictions ("Restricted Shares") will bear
a legend making appropriate reference to the restrictions imposed hereunder
and will be held by the Corporation or by a third party designated by the
Committee until the restrictions on such shares have lapsed and the shares
have vested in
12
<PAGE>
accordance with the provisions of the Award and Section 1.7. Upon issuance
of the Restricted Stock Award, the Participant may be required to provide
such further assurance and documents as the Committee may require to
enforce the restrictions.
4.2 Restrictions.
------------
4.2.1 Pre-Vesting Restraints. Except as provided in Sections 4.1 and 1.9,
----------------------
restricted shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until the
restrictions on such shares have lapsed and the shares have become
vested.
4.2.2 Dividend and Voting Rights. Unless otherwise provided in the
--------------------------
applicable Award Agreement, a Participant receiving a Restricted
Stock Award will be entitled to cash dividend and voting rights for
all shares issued even though they are not vested, but such rights
will terminate immediately as to any Restricted Shares which cease
to be eligible for vesting.
4.2.3 Cash Payments. If the Participant has been paid or received cash
-------------
(including any dividends) in connection with the Restricted Stock
Award, the Award Agreement will specify whether and to what extent
such cash will be returned (with or without an earnings factor) as
to any restricted shares that cease to be eligible for vesting.
4.3 Return to the Corporation. Unless the Committee otherwise expressly
-------------------------
provides, Restricted Shares that remain subject to restrictions at the time
of termination of employment or are subject to other conditions to vesting
that have not been satisfied by the time specified in the applicable Award
Agreement will not vest and will be returned to the Corporation in such
manner and on such terms as the Committee provides.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES
5.1 Grants of Performance Share Awards. The Committee may grant Performance
----------------------------------
Share Awards to Eligible Employees based upon such factors as the Committee
deems relevant in light of the specific type and terms of the award. An
Award Agreement will specify the maximum number of shares of Common Stock
(if any) subject to the Performance Share Award, the consideration (but not
less than the minimum lawful consideration) to be paid for any such shares
as may be issuable to the Participant, the duration of the Award and the
conditions upon which delivery of any shares or cash to the Participant
will be based. The amount of cash or shares or other
13
<PAGE>
property that may be deliverable pursuant to such Award will be based upon
the degree of attainment over a specified period of not more than 10 years
(a "performance cycle") as may be established by the Committee of such
measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may
provide for full or partial credit, prior to completion of such performance
cycle or the attainment of the performance achievement specified in the
Award, in the event of the Participant's death, Retirement, or Total
Disability, a Change in Control Event or in such other circumstances as the
Committee (consistent with Section 6.10.3(b), if applicable) may determine.
5.2 Special Performance-Based Share Awards. Options or SARs granted with an
--------------------------------------
exercise price not less than Fair Market Value at the applicable date of
grant for Section 162(m) purposes to Eligible Employees which otherwise
satisfy the conditions to deductibility under Section 162(m) of the Code
are deemed "Qualifying Awards." Without limiting the generality of the
foregoing, and in addition to Qualifying Awards granted under other
provisions of this Plan, other performance-based awards within the meaning
of Section 162(m) of the Code ("Performance-Based Awards"), whether in the
form of restricted stock, performance stock, phantom stock or other rights,
the vesting of which depends on the performance of the Company on a
consolidated, segment, subsidiary, division, or station basis with
reference to revenue growth, net earnings (before or after taxes or before
or after taxes, interest, depreciation, and/or amortization), cash flow,
return on equity or on assets or on net investment, or cost containment or
reduction, or any combination thereof (the "business criteria") relative to
preestablished performance goals, may be granted under this Plan. To the
extent so defined, these terms are used as applied under generally accepted
accounting principles and in the Company's financial reporting. The
applicable business criterion or criteria and the specific performance
goals must be approved by the Committee in advance of applicable deadlines
under the Code and while the performance relating to such goals remains
substantially uncertain. The applicable performance measurement period may
be not less than one (except as provided in Section 1.6) nor more than 10
years. Other types of performance and non-performance awards may also be
granted under the other provisions of this Plan. The following provisions
relate to all Performance-Based Awards (other than Qualifying Awards)
granted under this Plan.
5.2.1 Eligible Class. The eligible class of persons for Awards under this
--------------
Section is executive officers of the Corporation.
5.2.2 Maximum Award. Subject to Section 1.4.2, in no event will grants in
-------------
any calendar year to any one individual under this Section 5.2
14
<PAGE>
relate to more than 250,000 shares or (if payable solely in cash) a
cash amount of more than $1,000,000.
5.2.3 Committee Certification. To the extent required by Section 162(m),
-----------------------
before any Performance-Based Award under this Section 5.2 is paid,
the Committee must certify that the material terms of the
Performance-Based Award were satisfied.
5.2.4 Terms and Conditions of Awards. The Committee will have discretion
------------------------------
to determine the restrictions or other limitations of the individual
Awards under this Section 5.2 (including the authority to reduce
Awards, payouts or vesting or to pay no Awards, in its sole
discretion, if the Committee preserves such authority at the time of
grant by language to this effect in its authorizing resolutions or
otherwise).
5.2.5 Stock Payout Features. In lieu of cash payment of an Award, the
---------------------
Committee may require or allow all or a portion of the Award to be
paid in the form of stock, Restricted Shares, an Option, or another
Award.
5.2.6 Adjustments for Material Changes. Performance goals or other
--------------------------------
features of an Award under this Section 5.2 may provide that they
(a) shall be adjusted to reflect a change in corporate
capitalization, a corporate transaction (such as a reorganization,
combination, separation, or merger) or a complete or partial
corporate liquidation, or (b) shall be calculated either without
regard for or to reflect any change in accounting policies or
practices affecting the Company and/or the business criteria or
performance goals or targets, or (c) shall be adjusted for any other
circumstance or event, or (d) any combination of (a) through (c),
but only to the extent in each case that such adjustment or
determination in respect of Performance-Based Awards would be
consistent with the requirements of Section 162(m) to qualify as
performance-based compensation.
5.3 Grants of Stock Bonuses. The Committee may grant a Stock Bonus to any
-----------------------
Eligible Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the
Committee. The number of shares so awarded will be determined by the
Committee. The Award may be granted independently or in lieu of a cash
bonus.
5.4 Deferred Payments. The Committee may authorize for the benefit of any
-----------------
Eligible Person the deferral of any payment of cash or shares that may
15
<PAGE>
become due or of cash otherwise payable under this Plan, and provide for
accredited benefits thereon based upon such deferment, at the election or
at the request of such Participant, subject to the other terms of this
Plan. Such deferral will be subject to such further conditions,
restrictions or requirements as the Committee may impose, subject to any
then vested rights of Participants.
5.5 Cash Bonus Awards.
-----------------
5.5.1 Performance Goals. The Committee may establish a program of annual
-----------------
incentive awards that are payable in cash to Eligible Persons based
upon the extent to which performance goals are met during the
performance period. The performance goals may depend upon the
performance of the Company on a consolidated, subsidiary division
basis with reference to revenues, net earnings (before or after
interest, taxes, depreciation, or amortization), cash flow, return
on equity or on assets or net investment, cost containment or
reduction, or achievement of strategic goals (or any combination of
such factors). In addition, the award may depend upon the Eligible
Employee's individual performance.
5.5.2 Maximum Annual Amount. In no event may awards payable in cash for
---------------------
any single year's performance by any Eligible Employee exceed $5
million.
5.5.3 Payment in Restricted Stock. In lieu of cash payment of an Award,
---------------------------
the Committee may require or allow all or a portion of the award to
be paid in the form of a Restricted Stock or other Award.
6. OTHER PROVISIONS
6.1 Rights of Eligible Persons, Participants and Beneficiaries.
----------------------------------------------------------
6.1.1 Employment Status. Status as an Eligible Person will not be
-----------------
construed as a commitment that any Award will be made under this
Plan to an Eligible Person or to Eligible Persons generally.
6.1.2 No Employment Contract. Nothing contained in this Plan (or in any
----------------------
other documents related to this Plan or to any Award) will confer
upon any Eligible Person or other Participant any right to continue
in the employ or other service of the Company or constitute any
contract or agreement of employment or other service, nor will
interfere in any way with the right of the Company to otherwise
change such person's compensation or other benefits or to
16
<PAGE>
terminate the employment of such person, with or without cause, but
nothing contained in this Plan or any related document will
adversely affect any independent contractual right of such person
without the Participant's consent.
6.1.3 Plan Not Funded. Awards payable under this Plan will be payable in
---------------
shares or from the general assets of the Corporation, and (except as
provided in Section 1.4.3) no special or separate reserve, fund or
deposit will be made to assure payment of such Awards. No
Participant, Beneficiary or other person will have any right, title
or interest in any fund or in any specific asset (including shares
of Common Stock, except as expressly otherwise provided) of the
Company by reason of any Award hereunder. Neither the provisions of
this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan will create, or be construed to create, a
trust of any kind or a fiduciary relationship between the Company
and any Participant, Beneficiary or other person. To the extent that
a Participant, Beneficiary or other person acquires a right to
receive payment pursuant to any Award hereunder, such right will be
no greater than the right of any unsecured general creditor of the
Company.
6.2 Adjustments; Acceleration.
-------------------------
6.2.1 Adjustments. The following provisions will apply if any
-----------
extraordinary dividend or other extraordinary distribution occurs in
respect of the Common Stock (whether in the form of cash, Common
Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a stock
split in the form of a stock dividend), reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-
off, combination, repurchase, or exchange of Common Stock or other
securities of the Corporation, or any similar, unusual or
extraordinary corporate transaction (or event in respect of the
Common Stock) or a sale of substantially all the assets of the
Corporation as an entirety occurs. The Committee will, in such
manner and to such extent (if any) as it deems appropriate and
equitable
(a) proportionately adjust any or all of (i) the number and type of
shares of Common Stock (or other securities) that thereafter
may be made the subject of Awards (including the specific
maxima and numbers of shares set forth elsewhere in this Plan),
(ii) the number, amount and type of shares of Common Stock (or
other securities or property) subject to any or all outstanding
Awards,(iii) the grant, purchase, or exercise price
17
<PAGE>
of any or all outstanding Awards, (iv) the securities, cash or
other property deliverable upon exercise of any outstanding
Awards, or (v) the performance standards appropriate to any
outstanding Awards, or
(b) in the case of an extraordinary dividend or other distribution,
recapitalization, reclassification, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange,
or spin off, make provision for a cash payment or for the
substitution or exchange of any or all outstanding Awards or the
cash, securities or property deliverable to the holder of any or
all outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock of the
Corporation upon or in respect of such event. In each case, with
respect to Awards of Incentive Stock Options, no such adjustment
will be made that would cause the Plan to violate Section 424(a)
of the Code or any successor provisions without the written
consent of holders materially adversely affected thereby. In any
of such events, the Committee may take such action sufficiently
prior to such event if necessary to permit the Participant to
realize the benefits intended to be conveyed with respect to the
underlying shares in the same manner as is available to
stockholders generally.
6.2.2 Acceleration of Awards Upon Change in Control. Unless prior to a
---------------------------------------------
Change in Control Event the Committee determines that, upon its
occurrence, benefits under any or all Awards will not accelerate or
determines that only certain or limited benefits under any or all
Awards will be accelerated and the extent to which they will be
accelerated, and/or establishes a different time in respect of such
Event for such acceleration, then upon the occurrence of a Change in
Control Event
(a) each Option and Stock Appreciation Right will become immediately
exercisable,
(b) Restricted Stock will immediately vest free of restrictions, and
(c) each Performance Share Award will become payable to the
Participant.
The Committee may override the limitations on acceleration in this
Section 6.2.2 by express provision in the Award Agreement and may
accord any Eligible Person a right to refuse any acceleration, whether
pursuant to the Award Agreement or otherwise, in such
18
<PAGE>
circumstances as the Committee may approve. Any acceleration of
Awards will comply with applicable legal requirements.
6.2.3 Possible Early Termination of Accelerated Awards. If any Option or
------------------------------------------------
other right to acquire Common Stock under this Plan (other than under
Section 8) has been fully accelerated as required or permitted by
Section 6.2.2 but is not exercised prior to (a) a dissolution of the
Corporation, or (b) an event described in Section 6.2.1 that the
Corporation does not survive, or (c) the consummation of an event
described in Section 6.1 involving a Change of Control approved by the
Board, such Option or right will terminate, subject to any provision
that has been expressly made by the Committee through a plan of
reorganization approved by the Board or otherwise for the survival,
substitution, assumption, exchange or other settlement of such Option
or right.
6.2.4 Golden Parachute Limitations. Unless otherwise specified in an
----------------------------
Award Agreement, no Award be accelerated under this Plan to an extent
or in a manner that would not be fully deductible by the Company for
federal income tax purposes because of Section 280G of the Code, nor
will any payment hereunder be accelerated if any portion of such
accelerated payment would not be deductible by the Company because of
Section 280G of the Code. If a holder would be entitled to benefits
or payments hereunder and under any other plan or program that would
constitute "parachute payments" as defined in Section 280G of the
Code, then the holder may by written notice to the Company designate
the order in which such parachute payments will be reduced or modified
so that the Company is not denied federal income tax deductions for
any "parachute payments" because of Section 280G of the Code.
6.3 Effect of Termination of Employment. The Committee will establish in
-----------------------------------
respect of each Award granted to an Eligible Person the effect of a
termination of employment on the rights and benefits thereunder and in so
doing may make distinctions based upon the cause of termination.
6.4 Compliance with Laws. This Plan, the granting and vesting of Awards under
--------------------
this Plan and the offer, issuance and delivery of shares of Common Stock
and/or the payment of money under this Plan or under Awards granted
hereunder are subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities law, federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in connection
therewith. Any securities delivered under this Plan will be subject to
such
19
<PAGE>
restrictions, and to any restrictions the Committee may require to preserve
a pooling of interests under generally accepted accounting principles, and
the person acquiring such securities will, if requested by the Corporation,
provide such assurances and representations to the Corporation as the
Corporation may deem necessary or desirable to assure compliance with all
applicable legal requirements.
6.5 Tax Withholding.
---------------
6.5.1 Provision for Tax Withholding Offset. Upon any exercise, vesting,
------------------------------------
or payment of any Award or upon the disposition of shares of Common
Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section
422 of the Code, the Company shall have the right at its option to
(i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of
the amount of any taxes which the Company may be required to
withhold with respect to such Award event or payment or (ii) deduct
from any amount payable in cash the amount of any taxes which the
Company may be required to withhold with respect to such cash
payment. In any case where a tax is required to be withheld in
connection with the delivery of shares of Common Stock under this
Plan, the Committee may in its sole discretion (subject to Section
6.4) grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject
to such conditions as the Committee may establish, to have the
Corporation reduce the number of shares to be delivered by (or
otherwise reacquire) the appropriate number of shares valued at
their then Fair Market Value, to satisfy such withholding
obligation.
6.5.2 Tax Loans. If so provided in the Award Agreement, the Company may,
---------
to the extent permitted by law, authorize a loan to an Eligible
Person in the amount of any taxes that the Company may be required
to withhold with respect to shares of Common Stock received (or
disposed of, as the case may be) pursuant to a transaction described
in Section 6.5.1. Such a loan will be for a term, at a rate of
interest and pursuant to such other terms and conditions as the
Company, under applicable law may establish and such loan need not
comply with the provisions of Section 1.8.
20
<PAGE>
6.6 Plan Amendment, Termination and Suspension.
------------------------------------------
6.6.1 Board Authorization. The Board may, at any time, terminate or, from
-------------------
time to time, amend, modify or suspend this Plan, in whole or in
part. No Awards may be granted during any suspension of this Plan or
after termination of this Plan, but the Committee will retain
jurisdiction as to Awards then outstanding in accordance with the
terms of this Plan.
6.6.2 Stockholder Approval. No amendment to this Plan shall be subject to
--------------------
stockholder approval, except to the extent then required under
Sections 422 and 424 of the Code or any other applicable law, or
deemed necessary or advisable by the Board.
6.6.3 Amendments to Awards. Without limiting any other express authority
--------------------
of the Committee under but subject to the express limits of this
Plan, the Committee by agreement or resolution may waive conditions
of or limitations on Awards to Eligible Persons that the Committee
in the prior exercise of its discretion has imposed, without the
consent of a Participant, and may make other changes to the terms
and conditions of Awards that do not affect in any manner materially
adverse to the Participant, the Participant's rights and benefits
under an Award.
6.6.4 Limitations on Amendments to Plan and Awards. No amendment,
--------------------------------------------
suspension or termination of this Plan or change of or affecting any
outstanding Award will, without written consent of the Participant,
affect in any manner materially adverse to the Participant any
rights or benefits of the Participant or obligations of the
Corporation under any Award granted under this Plan prior to the
effective date of such change. Changes contemplated by Section 6.2
will not be deemed to constitute changes or amendments for purposes
of this Section 6.6.
6.7 Privileges of Stock Ownership. Except as otherwise expressly authorized by
-----------------------------
the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not actually
delivered to and held of record by the Participant. No adjustment will be
made for dividends or other rights as a stockholder for which a record date
is prior to such date of delivery.
6.8 Effective Date of the Plan. This Plan will be effective as of the date it
--------------------------
is approved by the Board, subject to approval of the stockholders of the
Corporation.
21
<PAGE>
6.9 Term of the Plan. No Award will be granted under this Plan after more than
----------------
ten years after the effective date of this Plan (the "termination date").
Unless otherwise expressly provided in this Plan or in an applicable Award
Agreement, any Award granted prior to the termination date may extend
beyond such date, and all authority of the Committee with respect to Awards
hereunder, including the authority to amend an Award, will continue during
any suspension of this Plan and in respect of Awards outstanding on the
termination date.
6.10 Governing Law/Construction/Severability.
---------------------------------------
6.10.1 Choice of Law. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents will be governed by, and
construed in accordance with the laws of the state of
California.
6.10.2 Severability. If a court of competent jurisdiction holds any
------------
provision invalid and unenforceable, the remaining provisions
of this Plan will continue in effect.
6.10.3 Plan Construction.
-----------------
(a) Rule 16b-3. It is the intent of the Corporation that the Awards
----------
hereunder satisfy and be interpreted in a manner that, in the
case of Participants who are or may be subject to Section 16 of
the Exchange Act, satisfies the applicable requirements of Rule
16b-3 so that such persons (unless they otherwise agree) will
be entitled to the benefits of Rule 16b-3 or other exemptive
rules under Section 16 of the Exchange Act in respect of those
transactions and will not be subjected to avoidable liability
thereunder. If any provision of this Plan or of any Award would
otherwise frustrate or conflict with the intent expressed
above, that provision to the extent possible will be
interpreted as to avoid such conflict. If the conflict remains
irreconcilable, the Committee may disregard the provision if it
concludes that to do so furthers the interest of the
Corporation and is consistent with the purposes of this Plan as
to such persons in the circumstances.
(b) Section 162(m). It is the further intent of the Company that
--------------
Options or SARs with an exercise or base price not less than
Fair Market Value on the date of grant and performance awards
under Section 5.2 of this Plan that are granted to or held by a
person subject to Section 162(m) of the Code will qualify as
performance-based compensation under
22
<PAGE>
Section 162(m) of the Code, and this Plan will be interpreted
consistent with such intent.
6.11 Captions. Captions and headings are given to the sections and subsections
--------
of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision thereof.
6.12 Effect of Change of Subsidiary Status. For purposes of this Plan and any
-------------------------------------
Award hereunder, if an entity ceases to be a Subsidiary a termination of
employment and service will be deemed to have occurred with respect to each
Eligible Person in respect of such Subsidiary who does not continue as an
Eligible Person in respect of another entity within the Company.
6.13 Non-Exclusivity of Plan. Nothing in this Plan will limit or be deemed to
-----------------------
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
7. DEFINITIONS
"Award" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"Award Agreement" means any writing setting forth the terms of an Award that has
been authorized by the Committee.
"Award Date" means the date upon which the Committee took the action granting an
Award or such later date as the Committee designates as the Award Date at
the time of the Award or, in the case of Awards under Section 8, the applicable
dates set forth therein.
"Award Period" means the period beginning on an Award Date and ending on the
expiration date of such Award.
"Beneficiary" means the person, persons, trust or trusts designated by a
Participant or, in the absence of a designation, entitled by will or the laws of
descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
23
<PAGE>
"Board" means the Board of Directors of the Corporation.
"Change in Control Event" means any of the following:
(a) Approval by the stockholders of the Corporation of the dissolution or
liquidation of the Corporation;
(b) Approval by the stockholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or
more entities that are not Subsidiaries or other affiliates, as a
result of which less than 50% of the outstanding voting securities of
the surviving or resulting entity immediately after the reorganization
are, or will be, owned, directly or indirectly, by stockholders of the
Corporation immediately before such reorganization (assuming for
purposes of such determination that there is no change in the record
ownership of the Corporation's securities from the record date for
such approval until such reorganization and that such record owners
hold no securities of the other parties to such reorganization), but
including in such determination any securities of the other parties to
such reorganization held by affiliates of the Corporation);
(c) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a
person or entity that is not a Subsidiary or other affiliate; or;
(d) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act but excluding any person described in and satisfying the
conditions of Rule 13d-1(b)(1) thereunder) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing more than
50% of the combined voting power of the Corporation's then outstanding
securities entitled to then vote generally in the election of
directors of the Corporation; or
(e) During any period not longer than two consecutive years, individuals
who at the beginning of such period constituted the Board cease to
constitute at least a majority thereof, unless the election, or the
nomination for election by the Corporation's stockholders, of each new
Board member was approved by a vote of at least three-fourths of the
Board members then still in office who were Board members at the
beginning of such period (including for these purposes, new members
whose election or nomination was so approved).
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
24
<PAGE>
"Commission" means the Securities and Exchange Commission.
"Committee" means the Board or a committee appointed by the Board to administer
this Plan, which committee will be comprised only of two or more directors or
such greater number of directors as may be required under applicable law, each
of whom, in respect of any decision involving a Participant affected by the
decision who may be subject to Section 162(m) of the Code, will be
Disinterested. In acting on any transaction with or for the benefit of a
Section 16 Person, all acting members of the Committee shall be Non-Employee
Directors within the meaning of Rule 16b-3.
"Common Stock" means the Common Stock of the Corporation and such other
securities or property as may become the subject of Awards, or become subject to
Awards, pursuant to an adjustment made under Section 6.2 of this Plan.
"Company" means, collectively, the Corporation and its Subsidiaries.
"Corporation" means Virtual Mortgage Network, Inc., a Nevada corporation, and
its successors.
"Disinterested" means a disinterested director or an "outside director" within
the meaning of any mandatory legal or regulatory requirements, including Section
162(m) of the Code.
"Eligible Employee" means an officer (whether or not a director) or key employee
of the Company.
"Eligible Person" means an Eligible Employee, or any Other Eligible Person, as
determined by the Committee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Fair Market Value" on any date means (a) if the stock is listed or admitted to
trade on a national securities exchange, the closing price of the stock on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on such
date, then the closing price of the stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such shares; (b) if the
stock is not listed or admitted to trade on a national securities exchange, the
last price for the stock on such date, as furnished by the National Association
of Securities
25
<PAGE>
Dealers, Inc. ("NASD") through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such information; (c) if
the stock is not listed or admitted to trade on a national securities exchange
and is not reported on the National Market Reporting System, the mean between
the bid and asked price for the stock on such date, as furnished by the NASD or
a similar organization; or (d) if the stock is not listed or admitted to trade
on a national securities exchange, is not reported on the National Market
Reporting System and if bid and asked prices for the stock are not furnished by
the NASD or a similar organization, the value as established by the Committee at
such time for purposes of this Plan.
"Incentive Stock Option" means an Option that is designated and intended as an
incentive stock option within the meaning of Section 422 of the Code, the award
of that contains such provisions (including but not limited to the receipt of
stockholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
"Nonqualified Stock Option" means an Option that is designated as a Nonqualified
Stock Option and will include any Option intended as an Incentive Stock Option
that fails to meet the applicable legal requirements thereof. Any Option
granted hereunder that is not designated as an incentive stock option will be
deemed to be designated a nonqualified stock option under this Plan and not an
incentive stock option under the Code.
"Non-Employee Director" means a member of the Board of Directors of the
Corporation who is not an officer or employee of the Company.
"Option" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
"Other Eligible Person" means any Non-Employee Director or any individual
consultant or advisor who or (to the extent provided in the next sentence) agent
who renders or has rendered bona fide services (other than services in
---- ----
connection with the offering or sale of securities of the Company in a capital
raising transaction) to the Company, and who is selected to participate in this
Plan by the Committee. If the Corporation's officers and directors are or
become subject to Section 16 of the Exchange Act, a Non-Employee Director will
not thereafter be selected as an Other Eligible Person. A non-employee agent
providing bona fide services to the Company (other than as an eligible advisor
---- ----
or consultant) may also be selected as an Other Eligible Person if such agent's
participation in this Plan would not adversely affect (a) the Corporation's
eligibility to use Form S-8 to register under the Securities Act of 1933, as
amended, the offering of shares
26
<PAGE>
issuable under this Plan by the Company or (b) the Corporation's compliance with
any other applicable laws.
"Participant" means an Eligible Person who has been granted an Award under this
Plan and any Non-Employee Director who has been granted an Award under Section
8.
"Performance Share Award" means an Award of a right to receive shares of Common
Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of that
is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"Personal Representative" means the person or persons who, upon the disability
or incompetence of a Participant, has acquired on behalf of the Participant, by
legal proceeding or otherwise, the power to exercise the rights or receive
benefits under this Plan by virtue of having become the legal representative of
the Participant.
"Plan" means this Virtual Mortgage Network, Inc. 1997 Performance Award Plan, as
amended from time to time.
"QDRO" means a qualified domestic relations order.
"Restricted Shares" or "Restricted Stock" means shares of Common Stock awarded
to a Participant under this Plan, subject to payment of such consideration, if
any, and such conditions on vesting (which may include, among others, the
passage of time, specified performance objectives or other factors) and such
transfer and other restrictions as are established in or pursuant to this Plan
and the related Award Agreement, for so long as such shares remain unvested
under the terms of the applicable Award Agreement.
"Retirement" means retirement with the consent of the Company or, from active
service as an employee or officer of the Company on or after attaining age 55
with ten or more years of service or age 65.
"Rule 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to the
Exchange Act, as amended from time to time, but subject to any applicable
transition rules.
"Section 16 Person" means a person subject to Section 16(a) of the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
27
<PAGE>
"Stock Appreciation Right" or "SAR" means a right authorized under this Plan to
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"Stock Bonus" means an Award of shares of Common Stock granted under this Plan
for no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"Subsidiary" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"Total Disability" means a disability where Participant is unable to effectively
engage in the material activities required for Participant's position with the
Company by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a period of 90 consecutive days or for shorter periods aggregating 180
days in any consecutive 12 month period.
8. NON-EMPLOYEE DIRECTOR OPTIONS
8.1 Participation. Awards under this Section 8 will be made only to Non-
-------------
Employee Directors and will be evidenced by Award Agreements substantially
in the form of Exhibit A.
8.2 Annual Option Grants.
--------------------
8.2.1 Time of Initial Award. Persons who are Non-Employee Directors in
---------------------
office at the time this Plan is first approved by the stockholders
of the Corporation will be granted without further action a
Nonqualified Stock Option to purchase 20,000 shares of Common Stock.
After approval of this Plan by the stockholders of the Corporation,
if any person who is not then an officer or employee of the Company
becomes a director of the Corporation, such person will
automatically be granted (without any action by the Board or
Committee) a Non-qualified Stock Option (the Award Date of which
will be the date such person takes office) to purchase 20,000 shares
of Common Stock.
8.2.2 Subsequent Annual Awards. Subject to Section 8.2.3, at the close of
------------------------
trading on the day of the annual stockholders meeting in each
28
<PAGE>
year during the term of the Plan commencing in 1998, there will be
granted automatically (without any action by the Committee or the
Board) a Nonqualified Stock Option (the Award Date of which will be
such date) to each Non-Employee Director then continuing in office
to purchase 10,000 shares of Common Stock.
8.2.3 Maximum Number of Shares/Options. Annual grants that would
--------------------------------
otherwise exceed the maximum number of shares under Section 1.4.1
will be prorated within such limitation. A Non-Employee Director
will not receive more than one Nonqualified Stock Option under this
Section 8.2 in any calendar year, nor more than 200,000 shares on
exercise of all Options awarded under this Section 8.2.
8.3 Option Price. The purchase price per share of the Common Stock covered by
------------
each Option granted pursuant to Section 8.2 will be 100 percent of the Fair
Market Value of the Common Stock on the Award Date. The exercise price of
any Option granted under this Section will be paid in full at the time of
each purchase in cash or by check or in shares of Common Stock valued at
their Fair Market Value on the date of exercise of the Option, or partly in
such shares and partly in cash, but any such shares used in payment must be
owned by the Participant at least six months prior to the date of exercise.
8.4 Option Period and Exercisability. Each Option granted under this Section 8
--------------------------------
and all rights or obligations thereunder will expire ten years after the
Award Date and will be subject to earlier termination as provided below.
Each Option granted under Section 8.2 will become exercisable at the rate
of 20% per annum commencing on the day before the first anniversary of the
Award Date and each of the next four anniversaries thereof.
8.5 Termination of Directorship. If a Non-Employee Director's services as a
---------------------------
member of the Board of Directors terminate by reason of death, Disability
or Retirement, an Option granted pursuant to this Section 8 held by such
Participant will immediately become and will remain exercisable for two
years after the date of such termination or until the expiration of the
stated term of such Option, whichever first occurs. If a Non-Employee
Director's services as a member of the Board of Directors terminate for any
other reason, any portion of an Option granted pursuant to this Section
that is not then exercisable will terminate and any portion of such Option
that is then exercisable may be exercised for six months after the date of
such termination or until the expiration of the stated term whichever first
occurs.
8.6 Adjustments. Options granted under this Section 8 will be subject to
-----------
adjustments, accelerations and terminations as provided in Section 6.2, but
only to the extent that such adjustment and any Board or Committee action
29
<PAGE>
in respect thereof in the case of a Change in Control Event is effected
pursuant to the terms of a reorganization agreement approved by
stockholders of the Corporation, or is otherwise consistent with
adjustments to Options held by persons other than executive officers or
directors of the Corporation (or, if there are none, consistent in respect
of the underlying shares with the effect on stockholders generally).
8.7 Acceleration Upon a Change in Control Event. Upon the occurrence of a
-------------------------------------------
Change in Control Event and acceleration under Section 6.2.2, each Option
granted under Section 8.2 hereof will become immediately exercisable in
full. To the extent that any Option granted under this Section 8 is not
exercised prior to (a) a dissolution of the Corporation or (b) a merger or
other corporate event that the Corporation does not survive, and no
provision is (or consistent with the provisions of Section 8.7 can be) made
for the assumption, conversion, substitution or exchange of the Option, the
Option will terminate upon the occurrence of such event.
30
<PAGE>
Exhibit A
---------
VIRTUAL MORTGAGE NETWORK, INC.
ELIGIBLE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of _____________, ____, is between Virtual
Mortgage Network, Inc., a Nevada corporation (the "Corporation"), and
________________ (the "Director"). The Corporation and the Director agree to
the terms and conditions set forth herein as required by the terms of the Plan.
BACKGROUND
A. The Corporation has adopted and the stockholders of the Corporation
have approved the Virtual Mortgage Network, Inc. 1997 Performance Award Plan
(the "Plan").
B. Pursuant to the Plan, the Corporation has granted an option (the
"Option") to the Director upon the terms and conditions evidenced hereby, as
required by the Plan, which Option is not intended as and will not be deemed to
be an incentive stock option within the meaning of Section 422 of the Code.
1. Option Grant. This Agreement evidences the grant to the Director, as of
------------
___________, ____ (the "Option Date"), of an Option to purchase an aggregate of
_____ shares of the Corporation's Common Stock under Section 8 of the Plan,
subject to the terms and conditions and to adjustment as set forth herein or in
pursuant to the Plan.
2. Exercise Price. The Option entitles the Director to purchase (subject to
--------------
the terms of Sections 3 through 5 below and to the extent exercisable) all or
any part of the Option shares at a price per share of $_______, which represents
the Fair Market Value of the shares on the Option Date.
3. Option Exercisability and Term. Subject to adjustment pursuant to the Plan,
------------------------------
the Option will first become and remain exercisable as to ______________ of the
shares on ___________________ and as to an additional _________ shares on each
of the following dates: ______________, ____, __________, ____ _____________,
____, and _____________, ____, in each case subject to adjustments and
acceleration under Section 8.6 of the Plan. The Option will
Exhibit A - 1
<PAGE>
terminate on ____________, ____,* unless earlier terminated in accordance with
the terms of the Plan.
4. Service and Effect of Termination of Service. The Director agrees
--------------------------------------------
to serve as a director in accordance with the provisions of the Corporation's
Certificate of Incorporation, bylaws and applicable law. If the Director's
services as a member of the Board terminate, this Option will terminate at the
times and to the extent set forth in the Plan.
5. General Terms. The Option and this Agreement are subject to, and
-------------
the Corporation and the Director agree to be bound by, the provisions of the
Plan that apply to the Option. Such provisions are incorporated herein by this
reference. The Director has received a copy of the Plan and has read its
applicable provisions. Capitalized terms not otherwise defined herein have the
meaning set forth in the Plan.
The parties have signed this Agreement as of the date on page 1.
Virtual Mortgage Network, Inc.
(a Nevada corporation)
By:
--------------------------------------
Title:
-----------------------------------
Optionee Director
-----------------------------------------
(Signature)
-----------------------------------------
(Print Name)
-----------------------------------------
(Address)
-----------------------------------------
(City, State, Zip Code)
------------------------------------------
(Social Security Number)
- ------------------------------
*insert day before tenth anniversary of date of grant.
Exhibit A - 2
<PAGE>
Spousal Consent
In consideration of the execution of the foregoing Eligible Director
Nonqualified Stock Option Agreement by Virtual Mortgage Network, Inc., I,
____________________________, the spouse of the Director named therein, agree to
be bound by all of the terms and provisions thereof and of the Plan.
DATED: ______________, ____.
------------------------------------------
Signature of Spouse
Exhibit A - 3
<PAGE>
EXHIBIT 10.24
VIRTUAL MORTGAGE NETWORK, INC.
MASTER REGISTRATION RIGHTS AGREEMENT
THIS MASTER REGISTRATION RIGHTS AGREEMENT (this "Agreement") which
shall be effective as of September 9, 1996, is made and entered into by and
among Virtual Mortgage Network, Inc., a Nevada corporation (the "Company"), and
the investors whose names and addresses are set forth on the signature pages
hereto (the "Investors"). In consideration of the mutual covenants and
agreements herein contained, the parties, intending to be legally bound, hereby
agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) the term "AGF Common Stock" means the 250,000 shares of
Common Stock issued to American Growth Fund I, LP, a California limited
partnership ("AGF"), on March 21, 1995;
(b) the term "AGF Warrants" refers to the warrant to purchase
175,000 shares of Common Stock granted to AGF on March 21, 1995;
(c) the term "bona fide public offering" means an underwritten
---- ----
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended ("1933 Act"), covering the offer and
sale of Common Stock of the Company in which aggregate proceeds to the
Company and the Investors exceed $10,000,000;
(d) the term "Common Stock" means the Company's authorized
voting common stock, $.001 par value, and any class of securities issued in
exchange for the Common Stock or into which the Common Stock is converted;
(e) the term "Holder" means any person owning of record
Registrable Securities or any permitted assignee thereof in accordance with
Section 11 hereof;
(f) the term "Initiating Holders" means the Holders of 60% or
more of the Registrable Securities then outstanding;
(g) the term "Registrable Securities" means: (i) the shares of
Common Stock owned by Holders; (ii) any Common Stock issued or to be issued
pursuant to
<PAGE>
conversion of any shares of Series A Preferred Stock; (iii) any Common
Stock issued or to be issued upon exercise of the AGF Warrants and (v) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Common Stock, Series A Preferred Stock or AGF Warrants, excluding in all
cases, however, any Series A Preferred Stock, the AGF Warrants and any
shares of Common Stock issued upon exercise of the AGF Warrants or upon
conversion of the Series A Preferred Stock that are sold by a Holder in a
transaction in which its rights under this Agreement are not assigned or
which may be freely sold without registration under the 1933 Act and
without regard to any restrictions set forth in Rule 144 under the 1933
Act;
(h) the term "Registration Expenses" means all reasonable fees
and disbursements of one counsel to the Holders (as a group) and all
expenses incurred by the Company in complying with Sections 2, 3 and 14
hereof, including, without limitation, all registration and filing fees,
underwriters' expense allowances, printing expenses, fees and disbursements
of counsel for the Company, blue sky fees and expenses, and the expense of
any special audits incident to or required by any such registration (but
not including the compensation of regular employees of the Company which
shall be paid in any event by the Company);
(i) the terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration
statement or similar document in compliance with 1933 Act, and the declara-
tion or ordering of the effectiveness of such registration statement or
document by the Securities and Exchange Commission;
(j) the term "Selling Expenses" means all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities
and the fees and disbursements of any counsel, other than the primary
counsel to the Holders, engaged by the Holders;
(k) the term "Series A Preferred Stock" refers to the Company's
authorized Series A Preferred Stock, $.001 par value; and
(l) the number of shares of Registrable Securities "then
outstanding" shall be the number of
2
<PAGE>
shares of Common Stock outstanding which are, and the number of shares of
Common Stock which upon issuance of then exercisable or convertible
securities will be, Registrable Securities.
2. Demand Registration Rights.
--------------------------
(a) Notwithstanding any other provision of this Agreement, the
holders of AGF Common Stock and the AGF Warrants (or shares of Common Stock
issued upon exercise of the AGF Warrants) shall not be entitled to demand
registration rights under this Section 2 or Section 14 and shall not be
deemed Holders for purposes of this Section 2 and Section 14, and the AGF
Common Stock and the shares of Common Stock issuable upon exercise of the
AGF Warrants shall be excluded from the definition of Registrable
Securities for purposes of this Section 2 and Section 14.
(b) If the Company shall receive, at any time commencing after
the consummation of the initial bona fide public offering, a written
---- ----
request from the Initiating Holders with respect to the Registrable
Securities, that the Company file a registration statement under the 1933
Act covering the registration of at least 60% of the Registrable Securities
then out standing (or any lesser percentage if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$5,000,000), the Company shall promptly give written notice of such request
(together with a list of the jurisdictions in which the Initiating Holders
intend to attempt to qualify such securities under applicable state
securities laws) to all Holders and shall as soon as practicable, subject
to the limitations of this Section 2, effect the registration under the
1933 Act of all such Registrable Securities which the Initiating Holders
request to be registered, together with all of the Registrable Securities
of any other Holder or Holders who so request by notice to the Company
which is given within 30 days after the notice from the Company described
above. Notwithstanding the foregoing, if the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would
be seriously detrimental to the Company for a registration statement to be
filed in the near future, then the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a period not
to exceed 180 days; provided, however, that the Company shall not obtain
such a deferral more than once in any 12-month period.
3
<PAGE>
(c) If the Initiating Holders intend to distribute the
Registrable Securities covered by their re quest by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to this Section 2 and the Company shall include such in-
formation in the written notice referred to in Section 2(b). In such
event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders, by the underwriter, by the Company, and
by such Holder) to the extent provided herein.
(d) All Holders proposing to distribute their securities through
such underwriting (together with the Company as provided in Section 4(e))
shall enter into an underwriting agreement in customary form with the
representative of the underwriter or under writers selected for such
underwriting by a majority in interest of the Initiating Holders and
reasonably acceptable to the Company. Notwithstanding any other provisions
of this Section 2, if the underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of
shares to be underwritten, the Initiating Holders 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 thereof pro rata based on the number of
shares for which registration was requested. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. 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 underwriter and, unless otherwise provided, the Initiating Holders.
The securities so withdrawn shall also be withdrawn from registration. If
the under writer has not limited the number of Registrable Securities to be
underwritten, the Company may include its securities for its own account in
such registration if the underwriter so agrees and if the number of
Registrable Securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(e) The Company is obligated to effect only two demand
registrations for the Holders pursuant to this Section 2.
4
<PAGE>
3. Piggy-back Registration Rights. If, at any time, the Company
------------------------------
proposes to register (including for this purpose a registration effected by the
Company for other stockholders other than at the time of the Company's initial
public offering) any of its securities under the 1933 Act in connection with the
public offering of such securities solely for cash (other than a registration
form relating to: (i) a registration of a stock option, stock purchase or
compensation or incentive plan or of stock issued or issuable pursuant to any
such plan, or a dividend investment plan; (ii) a registration of securities
proposed to be issued in exchange for securities or assets or in connection with
a merger or consolidation; or (iii) a registration of securities proposed to be
issued in exchange for or upon exercise or conversion of other securities of the
Company), the following provisions apply:
(a) If such registration is made in connection with the initial
public offering of the Company's Common Stock in a bona fide public
---- ----
offering, the Company shall promptly give each Holder of the AGF Common
Stock and the AGF Warrants written notice of such registration together
with a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under applicable state securities laws. Upon the
written request of any Holder of the AGF Common Stock or the AGF Warrants
within 30 days after receipt of such written notice from the Company in
accordance with Section 18, the Company shall, subject to the provisions of
Section 7 (in the case of an underwritten offering), cause to be registered
under the 1933 Act all of the Registrable Securities relating to the AGF
Common Stock and the Common Stock issuable upon exercise of the AGF
Warrants that each such Holder has requested to be registered.
(b) If such registration is made following the consummation of
the initial public offering of the Company's Common Stock in a bona fide
---- ----
public offering, the Company shall, each such time, promptly give each
Holder (including each Holder of the AGF Common Stock and the AGF Warrants
that were not sold in connection with the initial public offering of the
Company's Common Stock, if any) written notice of such registration
together with a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under applicable state securities laws.
Upon the written request of any Holder given within 30 days after receipt
of such written notice from the Company in accordance with Section 18, the
Company shall, subject to the provisions of Section 7 (in the case of an
underwritten offering), cause to be
5
<PAGE>
registered under the 1933 Act all of the Registrable Securities that each
such Holder has requested to be registered.
4. Obligations of the Company. Whenever required under this
--------------------------
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration
statement effective for up to 180 days;
(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 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as the Company believes shall be reasonably appropriate for
the distribution of the securities covered by the registration statement
and such jurisdictions as the Holders participating in the offering shall
reasonably request, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such jurisdiction,
and further provided that (anything in this Agreement to the contrary
notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in
that jurisdiction be borne by selling stockholders and provided there is
no exemption from such requirement by reason of the
6
<PAGE>
Company's obligation to pay such expenses pursuant to the foregoing
provisions of this Section 4, such expenses shall be payable by the selling
Holders pro rata, to the extent required by such jurisdiction; and
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
5. Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
6. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of shares so registered.
7. Underwriting Requirements. The right of any Holder to
-------------------------
"piggyback" in an underwritten public offering of the Company's securities
pursuant to Section 3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of Section 3 and this Section 7, if the
under writer determines that marketing factors require a limitation of the
number of shares to be underwritten, and
(a) if such registration is the first registered offering of the
sale of the Company's securities to the public, the underwriter may exclude
some or all of the Registrable Securities from such
7
<PAGE>
registration and underwriting, provided that the securities of the Company
held by officers or directors and by stockholders (other than the Holders
of the AGF Common Stock and the Common Stock issuable upon exercise of the
AGF Warrants ("Priority Holders")) shall be excluded from such registration
to the extent so required, and if a limitation of the number of shares is
still required, such shares held by the Priority Holders shall be excluded.
The persons that are permitted to sell Common Stock following such
limitation shall be permitted to sell their Common Stock in proportion, as
nearly as practicable, to the total number of shares held by such persons
at the time of the filing of the registration statement and requested to be
included in the registration, and
(b) if such registration is other than the first registered
offering of the sale of the Company's securities to the public, the
underwriter may exclude some or all Registrable Securities from such
registration and underwriting, provided, that the underwriter may only
exclude Registrable Securities if no other stockholder of the Company is
participating in the registration and underwriting. Any reduction in the
number of Registrable Securities included in such registration shall be
borne first by any officers or directors and by stockholders other than the
Priority Holders to the extent so required, and if a limitation of the
number of shares is still required, such shares held by the Priority
Holders shall be excluded. The persons that are permitted to sell Common
Stock following such limitation shall be permitted to sell their Common
Stock in proportion, as nearly as practicable, to the total number of
shares held by such persons at the time of the filing of the registration
statement and requested to be included in the registration
If any Holder disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
8. Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
8
<PAGE>
9. Indemnification. If any Registrable Securities are included in
---------------
a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), against any losses, claims, damages, or liabilities
(joint or several) to which they or any of them may become subject under
the 1933 Act, the 1934 Act or any other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereof) arise from or are based upon any of the following statements,
omissions or violations (collectively a "Violation") (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto; (ii)
the 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 (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state
securities law; and the Company will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investi-
gating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section 9
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
prior written consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that
it arises from or is based upon a violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the
9
<PAGE>
Company, each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, any underwriter (within the meaning of
the 1933 Act) for the Company, any person who controls such underwriter,
any other Holder selling securities in such registration statement or any
of its directors or officers or any person who controls such Holder against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, or under writer
or other such Holder or director, officer or controlling person may become
subject, under the 1933 Act, the 1934 Act or any other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise from or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person,
underwriter or controlling person, other Holder, officer, director or
controlling person in connection with investigation or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 9 shall not apply to amounts
paid in settlement of any such loss, claim damage, liability or action if
such settlement is effected without the prior written consent of the Holder
which consent shall not be unreasonably withheld.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9
is applicable but for any reason is held to be unavailable from the Company
or any Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claims asserted) to which the Company and the
participating Holders may be subject in such proportion so that the
participating Holders are responsible for that portion of the foregoing
amount represented by the ratio of the proceeds received by the
participating Holders in the offering to the total proceeds received from
the offering by the Company and all selling stockholders, and the Company
shall be responsible for the portion represented by the ratio of
10
<PAGE>
proceeds received by the Company to the total proceeds received by the
Company and all selling stockholders; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this
Section 9(c), each person, if any, who controls the Company or any Holder
within the meaning of the 1933 Act, each officer of the Company who shall
have signed the registration statement and each director of the Company
shall have the same rights to contribution as the Company.
(d) No settlement shall be effected without the prior written
consent of the Holders participating in a registration unless (i) the
obligations of the Company for indemnification or contribution pursuant to
this Agreement survive and are not extinguished by reason of the settlement
and remain in full force and effect under applicable federal and state
laws, rules, regulations and orders or (ii) all claims and actions against
the participating Holders and each person who controls a participating
holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act are extinguished by the settlement and the indemnifying party
obtains a full release of all claims and actions against the participating
Holders and each such control person, which release shall be to the
reasonable satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commence ment of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 9,
notify the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party
within a reasonable time of the commencement of any such action, to the
extent prejudicial to its ability to defend such action, shall
11
<PAGE>
relieve such indemnifying party of any liability to the indemnified party
under this Section 9, but the omission so to notify the indemnifying party
will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under this
Section 9 shall survive through exercise of the AGF Warrants, the
conversion of the Series A Preferred Stock, the completion of any offering
of Registrable Securities in a registration statement made under the terms
of this Agreement and otherwise.
10. Reports Under the 1934 Act. With a view of making available to
--------------------------
the Holders the benefits of Rule 144 promulgated under the 1933 Act and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are under stood and defined in SEC Rule 144, at
all times beginning 90 days after the effective date of the first
underwritten public offering of equity securities of the Company;
(b) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the 1933 Act
and the 1934 Act;
(c) furnish to any Holder so long as the Holder owns any
Registrable Securities, forthwith upon request: (i) a written statement
by the Company that it has complied with the reporting requirements of
Rule 144 (at any time beginning 90 days after the effective date of the
first underwritten public offering of equity securities of the Company),
the 1933 Act and the 1934 Act (at any time after it has become subject to
such reporting requirements) or that it qualifies as a registrant where
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies); (ii) a copy of the most recent annual or quarterly report of
the Company and all other reports and documents filed by the Company with
the SEC; and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration; and
12
<PAGE>
(d) take such action, including the voluntary registration of its
common stock under Section 12 of the 1934 Act, as is necessary to enable
the Holders to use Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal
year in which the first registration statement filed by the Company for the
offering of its equity securities to the general public is declared
effective.
11. Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Agreement may be
assigned by a Holder to a transferee or assignee of such securities if
(a) the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned and
(b) such transfer is effected in accordance with applicable securities laws;
provided, however, no such assignment shall be effective if, immediately
following the transfer, the transferee is free to dispose of all of such
securities without registration under the 1933 Act and without regard to any
restrictions set forth in Rule 144 under the 1933 Act.
12. Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not (other than as contemplated by
Section 26 hereof), without the prior written consent of the Holders of at least
a majority of the then outstanding Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
which would: (a) allow such holder or prospective holder to include such
securities in any registration filed under Section 2 hereof if such inclusion
would adversely affect the rights of any Holder of Registrable Securities
hereunder; or (b) permit such holder or prospective holder to require the
Company to initiate any registration of any securities of the Company prior to
the earliest date upon which the Holders may demand registration pursuant to
Section 2; or (c) not provide for the conversion of such other holders from
demand registration to a piggyback registration in the event the Holders elect
to demand registration under this Agreement within 30 days after a demand by
such other holders; or (d) permit such holder or prospective holder to
"piggyback" in a public offering of the Company's securities, except where such
"piggyback" rights are, in all respects, junior to the rights of the Holders.
13
<PAGE>
13. "Market Stand-off" Agreement. Each Holder hereby agrees that it
----------------------------
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during the 180-day
period following the effective date of a registration statement of the Company
filed under the 1933 Act; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on
its behalf to the public in an underwritten offering and to any
registration in which any of the Holders of Registrable Securities have
rights to participate under the terms of this Agreement (provided that such
agreement shall not apply to any shares which are included in any such
registration); and
(b) all officers, directors and significant stockholders (i.e.,
----
those stockholders who beneficially own greater than 5% of the Company's
outstanding stock) of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such 180-day period.
14. Form S-3 Registration. In case the Company shall receive request
---------------------
or requests from the Initiating Holders that the Company effect a registration
on Form S-3 (or any similar successor form) and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the pro posed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliance as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of
such Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such as are specified in a written
request given within 15 days after receipt of such written notice from the
Company; provided,
14
<PAGE>
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 14: (i)
if the Company is not qualified as a registrant entitled to use Form S-3
(or the applicable successor form); or (ii) if the Holders, together with
the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and any other
securities at an aggregate price to the public of less than $1,000,000; or
(iii) if the Company has, within the 12-month period preceding the date of
such request, already effected two registrations on Form S-3 (or applicable
successor form) for the Holders pursuant to this Section 14; or (iv) in any
particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
Subject to the foregoing, the Company shall file a registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
15. Adjustments Affecting Registrable Securities. The Company will
--------------------------------------------
not take any action with respect to the Registrable Securities which would
adversely affect the ability of the Holders of Registrable Securities to include
such Registrable Securities in a registration undertaken pursuant to this
Agreement or which would adversely affect the marketability of such Registrable
Securities in any such registration, except when such adjustments are otherwise
required by law, including disclosure obligations under federal securities laws.
16. Cross-References. All cross-references in this Agreement, unless
----------------
specifically directed to another agreement or document, refer to provisions
within this Agreement.
17. Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities
15
<PAGE>
are being sold pursuant to a registration statement and which does not directly
or indirectly affect the rights of other holders of Registrable Securities may
be given by the holders of a majority of the Registrable Securities being sold;
provided, however, that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
18. Notices. All notices, demands and requests required by this
-------
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent, when
sent by professional overnight courier service from and to locations within the
continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or an Investor at his, her or its address set forth on the signature
pages hereof. Any party hereto may from time to time by notice in writing served
upon the others as provided herein, designate a different mailing address or a
different person to which such notices or demands are thereafter to be addressed
or delivered.
19. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, including, without limitation and without
the need for an express assignment, subsequent holders of Registrable Securities
to which the registration rights granted by this Agreement have been assigned as
permitted herein.
20. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
21. Captions. Captions are provided herein for convenience only and
--------
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
22. Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Delaware
applicable to agreements made and to be performed wholly within the State of
Delaware. In the event a judicial or other proceeding is necessary to resolve
any
16
<PAGE>
dispute hereunder, the sole forum for resolving disputes arising under or
relating to this Agreement shall be the Municipal and Superior Courts for the
County of Orange, State of California, or the federal district court for the
district of California associated with such county and all related appellate
courts and the parties hereby consent to the jurisdiction of such courts, and
that venue shall be in such county.
23. Severability. The provisions of this Agreement are severable.
------------
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If
one or more provisions hereof shall be declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions of this
Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
24. Entire Agreement. This Agreement contains the entire
----------------
understanding among the parties hereto with respect to the subject matter hereof
and supersedes all prior written and oral agreements, understandings, commit
ments and practices between the parties, including all prior agreements with
respect to registration rights. In particular, that certain Rights Agreement,
dated May 19, 1995, by and among the Company and the Holders listed therein, is
hereby terminated and shall be of no further force or effect.
25. Attorneys' Fees. In the event any party to this Agreement
---------------
initiates any action, suit, motion, application or other proceeding which
concerns the interpretation or enforcement of this Agreement, the prevailing
party in such action, suit, motion, application or proceeding, or judgment
creditor, shall be entitled to recover its costs and reasonable attorneys' fees
from the non-prevailing party or judgment debtor, including costs and fees on
appeal, if any.
26. Bridge Financing. Each of the parties hereto hereby consents to
----------------
(and waives any preemptive rights it may have with respect to) the consummation
by the Company of one or more bridge financings involving promissory notes in an
aggregate amount not to exceed $5.5 million. The bridge financing will be used
to satisfy the Company's working capital needs prior to the time it consummates
its initial public offering (the "Offering") and will include the
17
<PAGE>
issuance by the Company of warrants to acquire Common Stock with a value equal
to the amount of the bridge financing based upon (i) the price of the Common
Stock in the Offering if the Offering occurs prior to March 7, 1997 or (ii)
$4.00 per share if the Offering does not occur prior to March 7, 1997. The
Common Stock issuable upon exercise of the warrants will be registered at the
time of the Offering.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Master
Registration Rights Agreement with the intent and agreement that the same shall
be effective as of the day and year first above written.
THE COMPANY:
VIRTUAL MORTGAGE NETWORK, INC.,
a Nevada corporation
By: /s/ JOHN MURRAY
-------------------------------------------------
Title: CEO
-------------------------------------------------
Address: 4590 MacArthur Boulevard
Suite 175
Newport Beach, CA 92660
INVESTORS:
AMERICAN GROWTH FUND I, L.P.,
a California limited partnership
by: American Growth Capital Corporation
its: Managing General Partner
By: /s/ DONNA SNYDER
---------------------------------------------------
Donna Snyder, President
Address: 1455 East Tropicana Avenue
Suite 1100
Las Vegas, NV 89119
INTEL CORPORATION
By: /s/ RANDY TINSLEY
---------------------------------------------------
Title:
------------------------------------------------
Address: 2200 Mission College Blvd.
Santa Clara, CA 95052
S-1
<PAGE>
RICHARD P. AZWELL
By: /s/ Richard P. Azwell
-----------------------------------------------
Title: Investor, IRA
--------------------------------------------
Address: 5131 SW 87th Avenue
Cooper City, Florida 33328
TODD BAXTER
By: /s/ Todd Baxter
-----------------------------------------------
Title: Investor
--------------------------------------------
Address: 2552 Redwood Drive
Aptos, California 95003
SAMUEL Y. BROOKS
By: /s/ Samuel Y. Brooks
-----------------------------------------------
Title: Series A. Preferred Stockholder
--------------------------------------------
Address: 4444 Westheimer Road, #308
Houston, Texas 77027
DAMON F. BROWN
By:
-----------------------------------------------
Title:
--------------------------------------------
Address: 8687 Graton Road
Sebastopol, California 95472
CATHERINE BUSSINGER
By: /s/ Catherine Bussinger
-----------------------------------------------
Title:
--------------------------------------------
Address: 1224 Spruce
Berkeley, California 94709
S-2
<PAGE>
Address: 1224 Spruce
Berkeley, California 94709
MICHAEL CANEPA
By: /s/ Michael Canepa
------------------------------------------------
Title:
---------------------------------------------
Address: 149 Carmel Riviera Drive
Carmel, California 93923
SHIN CHUNG CHIU
By: /s/ Shin Chung Chiu
------------------------------------------------
Title:
--------------------------------------------
Address: 803 Columbia Street
So. Pasadena, California 91030
YONG WUN CHUNG
By: /s/ Yong Wun Chung
-----------------------------------------------
Title:
--------------------------------------------
Address: 10211 Brier Lane
Santa Ana, California 92705
SEUNG JA CHUNG
By: /s/ Seung Ja Chung
-----------------------------------------------
Title:
--------------------------------------------
Address: 10211 Brier Lane
Santa Ana, California 92705
YONG WUN CHUNG
By: /s/ Yong Wun Chung
-----------------------------------------------
S-3
<PAGE>
Title:
--------------------------------------------
Address: 2621 So. Bristol Street, #101
Santa Ana, California 92704
HENRY LEE EVANS
By: /s/ Henry Lee Evans
------------------------------------------------
Title: Sales Specialist
---------------------------------------------
Address: 1106 Ridgecrest Circle
Denton, Texas 76205
ALFRED B. GIBSON
By: /s/ Alfred B. Gibson
------------------------------------------------
Title: Owner
---------------------------------------------
Address: 8584 Creekview Dr.
Frisco, Texas 75034
ROBERT B. HAYES
By: /s/ Robert B. Hayes
------------------------------------------------
Title: AGF L.P.
---------------------------------------------
Address: 57546 Redondo Street
Yucca Valley, California 92284
JEANE E. HAYES
By: /s/ Jeane E. Hayes
------------------------------------------------
Title: AGF L.P.
---------------------------------------------
Address: 57546 Redondo Street
Yucca Valley, California 92284
S-4
<PAGE>
THE LISS TRUST
By: /s/ Jack R. & Janis D. Liss
-----------------------------------------------
Title:
--------------------------------------------
Address: 7051 Seal Circle
Huntington Beach, CA 92648
FRED MARTEL
By: /s/ Fred Martel
-----------------------------------------------
Title:
--------------------------------------------
Address: 23714 Vilena
Mission Viejo, California 92692
JOHN K. MERTZ
By: /s/ John K. Mertz
-----------------------------------------------
Title:
--------------------------------------------
Address: 26760 Adams Road
Los Gatos, California 95030
VALERIE J. EMERY
By: /s/ Valerie J. Emery
-----------------------------------------------
Title:
--------------------------------------------
Address: 26760 Adams Road
Los Gatos, California 95030
ERNESTO G. PAMPLONA
By:
----------------------------------------------
Title:
-------------------------------------------
Address: 13250 Rose Street
S-5
<PAGE>
Cerritos, California 90703
WILLIAM FORD PERSONS
By: /s/ William Ford Persons
--------------------------------------------
Title:
-----------------------------------------
Address: 245 3rd Avenue
Venice, California 90291
JAMES S. RO
By:
--------------------------------------------
Title:
-----------------------------------------
Address: 9 Mallard
Irvine, California 92714
ROBERT R. ROUTH, JR.
By: /s/ Robert R. Routh, Jr.
--------------------------------------------
Title:
-----------------------------------------
Address: 3605 Country Club Drive
Los Angeles, California 90019
VIVIENNE M. ROUTH, JR.
By: /s/ Vivienne M. Routh, JR.
-------------------------------------------
Title:
----------------------------------------
Address: 3605 Country Club Drive
Los Angeles, California 90019
TED H. ROWCLIFFE
By: /s/ Ted S. Rowcliffe
-------------------------------------------
Title:
----------------------------------------
S-6
<PAGE>
Address: 357 North Humphreys Way
Glendora California 91741
GILBERT SANGARI
By: /s/ Gilbert Sangari
---------------------------------------------
Title:
------------------------------------------
Address: 6572 Stonehill Drive
San Jose, California 95120
CARLYE C. WATTIS
By: /s/ Carlye C. Wattis
---------------------------------------------
Title:
------------------------------------------
Address: 2800 S. University Blvd. #108
Denver, Colorado 80210
FLORENCE SINGER WHALEN
By: /s/ Florence Singer Whalen
---------------------------------------------
Title: General Partner
------------------------------------------
Address: 26039 Chambers Avenue
Sun City, California 92586
DONALD B. BAXTER
By: /s/ Donald B. Baxter
---------------------------------------------
Title:
------------------------------------------
Address: 98 East 2050 North
Centerville, Utah 84014
Baker Revocable Trust #1
By: /s/ Robert Baker, TTEE
--------------------------------------------
Title: Trustee
-----------------------------------------
S-7
<PAGE>
Address: 177 Calle Bella Vista
Camarillo, California 93010
BAKER REVOCABLE TRUST, NO.1
By: /s/ Mildred Baker
------------------------------------------------
Title: Trustee
---------------------------------------------
Address: 177 Calle Bella Vista
Camarillo, California 93010
DONALD BROWN
By: /s/ Donald Brown
------------------------------------------------
Title:
---------------------------------------------
Address: 70 Via Chepparo
Greenbrae, California 94904
JOHN J. COURTLEY
By: /s/ John J. Courtley
------------------------------------------------
Title:
---------------------------------------------
Address: 1920 Michels Drive NE
Palm Bay, Florida 32905
CHRIS FRIES
By: /s/ Chris Fries
------------------------------------------------
Title: Vice President
---------------------------------------------
Address: 22626 Susana Ave.
Torrance, California 90505
S-8
<PAGE>
PATRICIA HAIGHT
By: /s/ Patricia Haight
------------------------------------------------
Title:
---------------------------------------------
Address: 20606 Pacific Coast Highway
Malibu, California 90265
ARUNA RAO
By: /s/ Aruna Rao
------------------------------------------------
Title:
---------------------------------------------
Address: 2381 Tiger Tail Lane
Palm Springs, California 92264
NARASYIMHA RAO
By: /s/ Narasyimha Rao
------------------------------------------------
Title:
---------------------------------------------
Address: 2381 Tiger Tail Lane
Palm Springs, California 92264
DEWAYNE REDING
By: /s/ Dewayne Reding
------------------------------------------------
Title:
---------------------------------------------
Address: 1251 Monticello Road
Napa, California 94588
JAMES GLOCKNER
By: /s/ James Glockner
------------------------------------------------
Title: Principal
---------------------------------------------
Address: 1454 California St. #1
S-9
<PAGE>
San Francisco, California 94109
ANTHONY SEMON
By: /s/ Anthony Semon
------------------------------------------------
Title:
---------------------------------------------
Address: 1274 Stanyan Street
San Francisco, California 94117
JOHN WELLS
By: /s/ John Wells
------------------------------------------------
Title:
---------------------------------------------
Address: 320 California St.
San Francisco, California 94109
LOIS FROST
By: /s/ Lois Frost
------------------------------------------------
Title:
---------------------------------------------
Address: 26590 Rancho San Carlos Rd.
Carmel, California 93923
S-10
<PAGE>
MICHAEL BAXTER
By: /s/ Michael Baxter
------------------------------------------------
Title: Investor
---------------------------------------------
Address: 1725 Eastbrook Court
Santa Cruz, California 95062
ZOGUB FAMILY BUSINESS TRUST
By: /s/ Ronald L. Bartholomew
------------------------------------------------
Title: Trustee
---------------------------------------------
Address: 20 Corporate Park, Suite 260
Irvine, CA 92606-9998
S-11
<PAGE>
ROBERT DOLAN
By: /s/ Robert Dolan
------------------------------------------------
Title:
---------------------------------------------
Address: 1541 N. Lindendale Ave
Fullerton, California 92361
FRANK RAAB
By: /s/ Frank Raab
------------------------------------------------
Title:
---------------------------------------------
Address: 1280 Monte Cielo Drive
Beverly Hills, California 90210
LEO KWAN, M.D.
By: /s/ Leo Kwan, MD
------------------------------------------------
Title:
---------------------------------------------
Address: 4132 Salacia Drive
Irvine, California 92720
BEVERLY S. MAMEY
By: /s/ Beverly S. Mamey
------------------------------------------------
Title: Stockholder
---------------------------------------------
Address: 1820 Tahuna Terrace
Corona Del Mar, California 92625
S-12
<PAGE>
JOHN F. EADES
By: /s/ John F. Eades
------------------------------------------------
Title:
---------------------------------------------
Address: 225 NW 11th Street
Del Ray Beach, Florida 33444
ALBERT E. BONTE TRUST W/A/D 10/15/82
By: /s/ Albert E. Bonte, TTEE
------------------------------------------------
Title: Trustee
---------------------------------------------
Address: 200 SE Four Winds Dr. #211
Stuart, Florida 34996
MARY-LUCILLE BONTE TRUST W/A/D 10/15/82
By: /s/ Albert E. Bontee, TTEE
------------------------------------------------
Title: Trustee
---------------------------------------------
Address: 200 SE Four Winds Dr. #211
Stuart, Florida 34996
JOSE L. VELAZQUEZ
By: /s/ Jose L. Velazquez
------------------------------------------------
Title:
---------------------------------------------
Address: 935 Pine Hill Rd.
Palm Harbor, Florida 34683
JOSE DAVID VELAZQUEZ
By: /s/ Jose David Velazquez
------------------------------------------------
Title:
---------------------------------------------
Address: 935 Pine Hill Rd.
S-13
<PAGE>
Palm Harbor, Florida 34683
AMERICAN GROWTH CAPITAL
By: /s/ Donna Synder
------------------------------------------------
Title: President
---------------------------------------------
Address: 1455 E. Tropicana Ste. 100
Las Vegas, Nevada 89119
NANNETTE KEARNEY
By: /s/ Nannette Kearney
------------------------------------------------
Title:
---------------------------------------------
Address: 240 El Dorado Parkway
Plantation, Florida 33317
RUPERT 1993 FAMILY TRUST
By: /s/ R. C. Rupert
------------------------------------------------
Title: Trustee
---------------------------------------------
Address: 2896 Via Victoria
Palos Verdes, California 90274
S-14
<PAGE>
ROBERT D. CURRIER
By: /s/ Robert D. Currier
------------------------------------------------
Title:
---------------------------------------------
Address: 1485 English Drive
San Jose, California 95129
ANNETTE L. CURRIER
By: /s/ Annette L. Currier
------------------------------------------------
Title:
---------------------------------------------
Address: 1485 English Drive
San Jose, California 95129
JAMES WENKER
By: /s/ James Wenker
------------------------------------------------
Title:
---------------------------------------------
Address: 802 El Redondo
Redondo Beach, California 90277
BETTY WENKER
By: /s/ Betty Wenker
------------------------------------------------
Title:
---------------------------------------------
Address: 802 El Redondo
S-15
<PAGE>
Redondo Beach, California 90277
STEPHAN HEROLD
By: /s/ Stephan Herold
------------------------------------------------
Title: President
---------------------------------------------
Address: 4685 South Ash
Tempe, Arizona 85282
MARK BUZBY
By: /s/ Mark Buzby
------------------------------------------------
Title:
---------------------------------------------
Address: 2131 Beta Court
Orange Park, FL 32073
JULIE WALTHER-VINCENT
By: /s/ Julie Walther-Vincent
------------------------------------------------
Title:
---------------------------------------------
Address: 8894 Las Montanas
Las Vegas, Nevada 89117
MARY JEAN WALTHER
By: /s/ Mary Jean Walther
------------------------------------------------
Title:
---------------------------------------------
Address: 8894 Las Montanas
Las Vegas, Nevada 89117
ROBERT WALTHER
By: /s/ Robert Walther
------------------------------------------------
Title:
---------------------------------------------
Address: 8894 Las Montanas
Las Vegas, Nevada 89117
S-16
<PAGE>
DR. GARY LUDI
By: /s/ Gary Ludi, MD
------------------------------------------------
Title:
---------------------------------------------
Address: 2035 Azalea Drive
Roswell, Georgia 30075
PETER SCHICK
By: /s/ Peter Schick
------------------------------------------------
Title:
---------------------------------------------
Address: 3654 Goodland Ave.
Studio City, California 91604
VIET Q. NGUYEN
By: /s/ Viet Q. Nguyen
------------------------------------------------
Title:
---------------------------------------------
Address: 2616 S. Fern Street
Arlington, Virginia 22202
S-17
<PAGE>
San Francisco, California 94109
JAMES I. BETSON
By: /s/ JAMES I. BETSON
------------------------------------------------
Title:
---------------------------------------------
Address: 9631 Dundawan Road
Baltimore, Maryland 21236
DOROTHY E. BETSON
By: /s/ DOROTHY E. BETSON
------------------------------------------------
Title:
---------------------------------------------
Address: 9631 Dundawan Road
Baltimore, Maryland 21236
CLARK W. DAVIS
By: /s/ CLARK W. DAVIS
------------------------------------------------
Title:
---------------------------------------------
Address: 4543 Gullane Circle
Dayton, Ohio 45429
IRIS B. DAVIS
By: /s/ IRIS B. DAVIS
------------------------------------------------
Title:
---------------------------------------------
Address: 4543 Gullane Circle
Dayton, Ohio 45429
S-18
<PAGE>
HERBERT FRISKE
By: /s/ HERBERT FRISKE
------------------------------------------------
Title: Beneficiary
---------------------------------------------
Address: 9833 Rupp
Petoskey, Michigan 49770
JOAN FRISKE
By: /s/ JOAN FRISKE
------------------------------------------------
Title: Beneficiary
---------------------------------------------
Address: 9833 Rupp
Petoskey, Michigan 49770
HUBERT M. REID
By: /s/ HUBERT M. REID
------------------------------------------------
Title:
---------------------------------------------
Address: 1509 Kalmia Road, N.W.
Washington, DC 20012
RICHARD C. LARISON
By: /s/ RICHARD C. LARISON
------------------------------------------------
Title:
---------------------------------------------
Address: 129 Moose Lane
Las Vegas, NV 89128
S-19
<PAGE>
THE GILBERT AND ROSALINDA STRANGE 1988 LIVING TRUST OF
9/23/88
By: /s/ Gilbert Strange
------------------------------------------------
Title: Trustee
---------------------------------------------
Address: 5610 S. Evangeline Court
Las Vegas, Nevada 89120
JOSE R. CRUZ
By: /s/ Jose R. Cruz
------------------------------------------------
Title: Technology Support Manager
---------------------------------------------
Address: 12715 SW 33rd Terrace
Miami, Florida 33175
S-20
<PAGE>
CONRAD P. SEGHERS
By: /s/ Conrad P. Seghers
------------------------------------------------
Title:
---------------------------------------------
Address: 6157 Crestmont
Dallas, Texas 75214
WINIFRED B. SEGHERS
By: /s/ Winifred B. Seghers
------------------------------------------------
Title: Financial Analyst
---------------------------------------------
Address: 6157 Crestmont
Dallas, Texas 75214
DAVID H. FREDERICK
By: /s/ David H. Frederick
------------------------------------------------
Title: Trustee
---------------------------------------------
Address: 3102 Red Fox Run
Kissimmee, Florida 34746
<PAGE>
EXHIBIT 10.25
AGREEMENT
Agreement made December 20, 1996, and effective October 1, 1996, by and between
Virtual Mortgage Network, Inc., a Nevada corporation, 4590 MacArthur Boulevard,
Suite 175, Newport Beach, California 92660 ("Virtual") and Interealty Corp., a
Colorado corporation, 1951 Kidwell Drive, Vienna, Virginia 22182 ("Interealty").
Background
----------
Virtual represents that it has developed and owns a mortgage loan origination
system currently known as the LoanMaker System which assists buyers of real
estate in their efforts to obtain mortgages through an interactive
video-teleconference system. Virtual has determined that, in order to be
successful, such system must be located in the offices of real estate
professionals. Interealty provides systems and services to real estate
professionals throughout the United States, and, by virtue thereof, is capable
of providing sales, marketing and promotion services which Virtual deems as
essential for its success, and which, as a start-up company, Virtual cannot
itself perform. Further, the parties wish to replace and supersede (as set forth
in the "Supersession" section of this Agreement) all prior agreements between
the parties including without limitation a Marketing and Consulting Agreement
dated November 8, 1995, as amended.
Now, therefore, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and with the intent to be legally bound, the
parties agree as follows:
1. Definitions
-----------
a. "LoanMaker" means an interactive video-teleconference computerized
mortgage loan origination software system currently known as the
LoanMaker System which assists Realtors and buyers of real estate in
their efforts to obtain mortgages.
b. "Virtual Software" means all computer software promoted, marketed,
licensed and/or sold by Virtual, including without limitation LoanMaker,
and all upgrades, updates, modifications, enhancements, improvements,
revisions and new versions thereof.
c. "Territory" means the United States of America and Canada.
d. "Entity" means any person, firm, corporation, limited liability company,
partnership, board of Realtors, association of Realtors, real estate
broker, real estate agent, government, institution, trade association,
joint venture, consortium or any other entity of any nature.
e. "Potential Sites" means those locations at which there is potential that
Virtual Software may be successfully installed and operated.
-1-
<PAGE>
f. "Effective Date" means October 1, 1996.
g. "Operational Term" means the period commencing on the Effective Date
and ending December 31, 2000, unless sooner terminated or extended
pursuant to Section 5 hereof.
2. Interealty Services
-------------------
Interealty agrees to provide the following services within the Territory:
a. Marketing and Promotional Services
----------------------------------
In the effort to assist Virtual in gaining market recognition for
itself and the Virtual Software, Interealty shall, during the period
from January 2, 1997 until the end of the Operational Term, perform the
following marketing and promotional services:
(1) Meet and confer with Virtual within 30 days after the date of
execution of this Agreement by both parties, with the goal of
preparing and reaching agreement on a marketing plan with
respect to activities and events during the course of the next
ensuing 12-month period to promote Virtual and Virtual
Software.
(2) Advertise and promote Virtual and virtual Software though
development and dissemination of brochures and collateral material
and by generally communicating the capabilities and advantages of
Virtual and Virtual Software to the real estate brokerage
community.
(3) Provide Virtual with relevant information in the possession of
Interealty regarding the market activities which may assist
Virtual in gaining market name recognition for itself and the
Virtual Software.
(4) Promote Virtual and Virtual Software at relevant meetings,
seminars, trade shows, conventions, written and oral
communications, and print, audio and video media.
(5) Consult with Virtual regarding marketing and public relations for
promotion approaches with respect to Virtual Software.
(6) Introduce Virtual at Interealty meetings, seminars, trade shows
and conventions.
(7) Promote Virtual on Interealty's Internet home page, providing a
link to Virtual's Internet home page.
(8) Provide Virtual with periodic assessments of the level of
satisfaction of Virtual's broker customers within the Territory,
including noted specific areas of improvement, if any.
-2-
<PAGE>
(9) Periodically contact Entities which have obtained licenses to Virtual
Software in the Territory by telephone to determine whether they are
satisfied with the Virtual Software they have licensed and whether
they are having operational problems with such Virtual Software.
b. Sales Services
--------------
In the effort to assist Virtual in licensing Virtual Software to Entities
for their use, Interealty shall, during the Operational Term, do the
following:
(1) Assist Virtual in identifying Potential Sites.
(2) Meet with owners/operators of Potential Sites regarding their
obtaining licenses to use the Virtual Software.
(3) In those cases where Interealty is seeking to assist Virtual in
licensing LoanMaker, obtain relevant information on qualification
forms provided by Virtual regarding the likelihood that LoanMaker
would be successful.
(4) Perform such other services as reasonably requested by Virtual in the
effort to license Virtual Software to Entities.
(5) Assist Virtual in training Entities which have obtained licenses to
Virtual Software in the use thereof.
(6) Visit Entities in the Territory which have obtained licenses to
Virtual Software, as deemed necessary to determine Customer
satisfaction and issues, if any, preventing the effective use of the
Virtual Software.
c. Other Services
--------------
Interealty shall provide such other services as may be from time to time
agreed upon in writing by Interealty and Virtual.
3. Compensation/Terms of Payment
-----------------------------
In consideration of the services performed by Interealty under Section 2
hereof until the end of the Operational Term --
a. Virtual shall pay Interealty 2% of Virtual's total gross revenues after
December 31, 1996; provided, however, that, despite the amount of such
gross revenues, the total amount payable to Interealty shall be no less
than $200,000.00 per year. Amounts payable under this Section 3.a. shall
be paid as follows: At the end of each quarterly period, Virtual shall
-3-
<PAGE>
calculate its gross revenues for such quarter, and shall, within 30 days
after the end of such quarter pay Interealty 2% of such amount or
$50,000, whichever is greater. With each such payment, Virtual shall
furnish Interealty with a written certification from Virtual's Chief
Financial Officer indicating the amount of Virtual's gross revenues
for such quarter and certifying that (i) the gross revenues for such
quarter were calculated in accordance with generally accepted
accounting practices consistently applied, and (ii) the amount of such
gross revenues is true and correct in all material respects.
b. Virtual shall pay Interealty the following: With respect to each
occasion Virtual Software is installed in a location approved by
Virtual, $900; $300 of which shall be paid within 30 days after such
installation, and $600 of which shall be paid within 30 days after the
end of the sixth month following such installation.
4. Financial Information/Audit/Reports.
-----------------------------------
a. Virtual agrees that, immediately following the end of each fiscal year,
it shall have conducted by an independent certified public accounting
firm an annual audit of its financial condition and financial results
for such fiscal year. Within 90 days after the end of each of its fiscal
years, Virtual shall furnish to Interealty, Virtual's audited financial
statements or a special report from such firm reporting the accuracy of
the gross revenues reported to Interealty by Virtual with respect to
such fiscal year in a form customary to the accounting profession.
b. Virtual shall submit monthly written reports to Interealty regarding
Virtual Software installations and locations upon which payments under
Section 3(b) are based. Interealty or its representatives shall, upon
reasonable prior notice to Virtual, have the right to review any and all
Virtual records and documents relating to System installations and
locations.
5. Operational Term Termination/Extension
--------------------------------------
a. The Operational Term may be terminated as follows:
(1) The parties may terminate the Operational Term by written agreement
executed by both parties.
(2) Either party (the "Nonbreaching Party") may terminate the Operational
Term by written notice if the other party materially breaches any of
its obligations under this Agreement and, within 30 days after
receiving written notice thereof from the Nonbreaching Party, fails
to cure such breach or commence diligent efforts toward curing such
breach.
(3) Either party may terminate the Operational Term by written notice if
any of the other party's warranties or representations under this
Agreement is materially untrue.
(4) Either party may terminate the Operational Term by written notice
following the
-4-
<PAGE>
occurrence of any of the following events: (i) the other party
ceases doing business; (ii) the other party files for bankruptcy
or reorganization, or a petition for bankruptcy or reorganization
is filed against it and not dismissed within 60 days after such
filing; (iii) the other party makes an assignment for the benefit
of its creditors; or (iv) a receiver, conservator or trustee is
appointed for all or substantially all of the other party's
assets.
(5) Either party may terminate the Operational Term by written
notice if there is a significant change in the executive
management of the other party and subsequent to such change either
(i) the marketing or sales performance of Interealty has
materially deteriorated (when compared to performance in the
twelve-month period prior to such change) in the six-month period
subsequent to such change or (ii) the revenue of Virtual in the
six-month period subsequent to such change deteriorates materially
when compared to the revenue generation rates in the twelve-month
period prior to the change.
(6) Virtual may terminate the Operational Term by providing notice
thereof to Interealty within 30 days after the end of the
applicable period specified below, if Virtual has not, as to such
period, installed the applicable number of LoanMaker systems
specified below.
<TABLE>
<CAPTION>
Period New LoanMaker Installations
------ ---------------------------
<S> <C>
As of June 30, 1997 200
July 1, 1997 through June 30, 1998 280
July 1, 1998 through June 30, 1999 380
July 1, 1999 through June 30, 2000 420
</TABLE>
b. The parties may extend the Operational Term by written agreement
executed by both parties.
6. Warranties and Representations
------------------------------
a. Virtual warrants and represents the following:
(1) It was duly incorporated and organized and is validly existing as
a corporation in good standing under the laws of the State of
Nevada.
(2) It is qualified to do business in each other State where its
activities or other reason requires such qualification.
(3) It has obtained and holds all material permits, licenses and
approvals from governmental authorities and has made all material
notifications, reports and applications to
-5-
<PAGE>
governmental authorities which are legally required for the
operation of its business and/or for the legal and rightful
operation of LoanMaker for its intended purpose, including without
limitation any mortgage brokerage licenses (the "Permits").
Virtual is in compliance with all material requirements of all
Permits.
(4) The business of Virtual is not being conducted in violation of
any law, ordinance, rule, regulation or other legal requirement,
which would have a material adverse effect on Virtual's
operations, financial condition or prospects.
(5) Virtual developed the Virtual Software and solely and exclusively
owns good and marketable title thereto, free and clear of all
liens, encumbrances, claims, restrictions and conditions except
security interests established as part of Virtual's debt
financing.
(6) Virtual solely and exclusively owns and possesses all patents,
trademarks, service marks, trade names, trade secrets, copyrights
and other property rights associated with the Virtual Software
including without limitation the "LoanMaker" name.
(7) By entering into this Agreement and performing hereunder, Virtual
shall not be violating or breaching any other contract, agreement,
commitment, promise, understanding or arrangement, or any law,
rule or regulation.
b. Interealty warrants and represents the following:
(1) It was duly incorporated and organized and is validly existing
as a corporation in good standing under the laws of the State of
Colorado.
(2) It is qualified to do business in each other State where its
activities or other reason requires such qualification.
(3) The business of Interealty is not being conducted in violation of
any law, ordinance, rule, regulation or other legal requirement,
which would have a material adverse effect on Interealty's
operations, financial condition or prospects.
(4) By entering into this Agreement and performing hereunder,
Interealty shall not be violating or breaching any other contract,
agreement, commitment, promise, understanding or arrangement, or
any law, rule or regulation.
7. Covenants
---------
a. Each party agrees that, at all times during the Operational Term --
(1) It shall comply with all applicable laws, rules, regulations and
other legal requirements, which noncompliance would have a
material adverse affect on it or its performance.
-6-
<PAGE>
hereunder.
(2) It shall not enter into any contract, agreement, commitment,
promise, understanding or arrangement or perform any services
which conflict with this Agreement or would prevent or hinder its
performance hereunder or create an actual or potential conflict of
interest.
(3) It will not, during the Basic Term, enter into any business in
direct competition with the other party's business (as described
in the immediately following sentence). With respect to the
immediately preceding sentence--(i) Virtual's "business" is
licensing, installing and operating a video-teleconferencing
electronic mortgage loan origination, mortgage brokerage and
mortgage banking system marketed to real estate brokerages, home
builders and relocation companies; and (ii) Interealty's
"business" is the sale/license and operation of real estate
multiple listing systems through private networks and through the
Internet.
b. Interealty covenants that it shall not, during the Operational Term and
for 12 months thereafter, develop or distribute a real estate mortgage
loan origination software system which assists buyers of real estate in
their efforts to obtain mortgages through an interactive video-
teleconference system and which competes against the System within the
Territory. Further, as to each Entity to whom Interealty has been
compensated under Section 3(b) hereunder as a result of such Entity
obtaining a license to LoanMaker, Interealty shall not, during the
Operational Term and for a period of 36 months thereafter, provide or
offer to provide a video-teleconferencing and electronic document
transfer loan origination system in competition with LoanMaker or
Virtual's "business" (as defined in Section 7.a(3) hereinabove.
c. Virtual covenants that, as to LoanMaker, it will not, during the
Operational Term, enter into any contract, agreement, commitment,
promise, understanding, arrangement or relationship which has the same
or similar purpose, intent or subject matter as this Agreement;
provided, however, that the duration of such restriction upon Virtual
shall be the Operational Term and the one-year period thereafter as to
any such contract, agreement, commitment, promise, understanding,
arrangement, or relationship by Virtual, directly or indirectly, with
any Entity which competes with Interealty's "business" (as defined in
Section 7.a.(3) hereinabove).
8. Confidential Information
------------------------
a. "Confidential Information" means any information, data, computer
software, invention, design, idea, concept, specification, formula,
device, equipment, plan, process, document or material, whether
tangible or intangible in any form or format (including, without
limiting the generality of the foregoing, information relating to
strategic information, marketing strategies or plans, and pricing
policies or plans) including without limitation all complete and
partial originals, reproductions, copies (handwritten or otherwise),
notes and other items (including
-7-
<PAGE>
photographs), which is a trade secret or confidential or proprietary in
nature and which is (i) disclosed in writing or other tangible form by
the Disclosing Party to the Receiving Party and such writing or other
tangible form is designated thereon as "confidential" or (ii) disclosed
by the Disclosing Party to the Receiving Party other than in writing or
other tangible form and such disclosure is reduced to a writing or
other tangible form which is designated thereon as "confidential" and
delivered to the Receiving Party within 10 days after such disclosure;
provided, however, that Confidential Information does not include the
following: (1) Information which is or becomes part of the public
domain through no fault of the Receiving Party; (2) Information which
is in the possession of the Receiving Party, without binder of secrecy,
prior to receipt from the Disclosing Party; (3) Information received
from a third party without binder of secrecy; (4) Information developed
by the Receiving Party independent of the information received from the
Disclosing Party; and (5) Information which must be disclosed by the
Receiving Party by virtue of court order, subpoena, law, rule or
regulation, provided, however, that the Receiving Party shall promptly
notify the Disclosing Party of such requirement and shall, at the
request and expense of the Disclosing Party, assist the Disclosing
Party in its efforts to prevent such disclosure.
b. "Disclosing Party" means a party to this Agreement which discloses
Confidential Information to the Receiving Party. "Receiving Party"
means a party to this Agreement which receives Confidential Information
from the Disclosing Party.
c. For a period of five years after the date of receipt from a Disclosing
Party - (1) the Receiving Party shall treat all Confidential
Information received from the Disclosing Party in a secret and
confidential manner; (2) the Receiving Party shall use Confidential
Information only for the specific purpose for which it was furnished to
the Receiving Party by the Disclosing Party; (3) except as permitted
under this Section, the Receiving Party shall not, directly or
indirectly, without the prior written consent of the Disclosing Party,
reproduce, copy, disseminate, publish, furnish, disclose, provide or
otherwise make available to any person, firm, corporation, government
agency, department or other unit, partnership, association, institution
or other entity, any Confidential Information; and (4) the Receiving
Party shall provide such reasonable assistance as may be requested by
the Disclosing Party, in the effort to maintain the secrecy and
confidentiality of Confidential Information.
d. Immediately upon the request of the Disclosing Party, the Receiving
Party shall furnish to the Disclosing Party all complete and partial
originals and copies of the Confidential Information.
e. All Confidential Information, including all originals, copies,
reproductions and/or summaries thereof, shall remain the property of
the Disclosing Party. The Disclosing Party retains all rights and
remedies afforded it under patent, copyright, trade secret, trademark,
other intellectual property rights and other laws of the United States
and the states thereof, and any applicable foreign countries, including
without limitation any laws designed to protect proprietary or
confidential information. No Confidential Information shall be,
directly or indirectly, exported from the United States by the
Receiving Party or furnished to anyone
-8-
<PAGE>
who may export it from the United States.
9. Indemnification
---------------
a. Virtual shall indemnify, defend and hold harmless Interealty and its
affiliates, successors and assigns, from and against any and all
claims, demands, actions, causes of actions, damages, liabilities,
costs and expenses (including attorney fees and costs) arising from or
connected with any claim or allegation that Virtual Software or any
warranty, representation, covenant or agreement of Virtual hereunder,
in whole or in part, conflicts with, violates or infringes any (i)
patent, copyright, trade secret, trade name, trademark, service mark or
other property right of any Entity or (ii) contract, agreement,
promise, commitment or arrangement of any nature that Virtual, has or
may have with any other Entity.
b. Interealty shall indemnify, defend and hold harmless Virtual and its
affiliates, successors and assigns, from and against any and all
claims, demands, actions, causes of actions, damages, liabilities,
costs and expenses (including attorney fees and costs) arising from or
connected with any claim or allegation that Interealty has, during its
marketing and promotion efforts under this Agreement, intentionally and
wrongfully made material misrepresentations to Entities regarding the
operation and capabilities of Virtual Software.
10. No Agency
---------
Nothing herein is intended to render either party an employee or agent of
the other party; and neither party shall have any right, power or authority
to make, create or negotiate any commitment, promise, obligation, warranty,
liability, agreement, contract, offer or proposal of any kind whatsoever,
express or implied, on behalf of the other party and shall not, at any
time, represent, suggest or imply that it is an agent or employee of the
other party or has any such right, power or authority.
11. Solicitation of Employees
-------------------------
During the Operational Term and for a period of one year thereafter,
neither party shall in any way, directly or indirectly, employ or retain
any employee of the other party or discuss the possibility of such
employment or retention without the prior written consent of the other
party.
12. Force Majeure
-------------
Neither party shall be liable for any failure or delay in performance under
this Agreement resulting from any cause beyond its reasonable control
including, but not limited to: acts of God; acts, errors or omissions of
civil or military authority; acts, errors or omissions of the other party;
fires; floods; epidemics; quarantine restrictions; unusually severe
weather; strikes or other labor disputes; acts, errors or omissions of any
government; wars; political strife; riots; sabotage; or compliance with any
federal, state or local laws, rules, regulations or orders.
-9-
<PAGE>
13. Notices
-------
All notices hereunder or arising herefrom shall be in writing and shall
be delivered personally or sent prepaid by first class mail, certified
mail/return receipt requested, fax, telegram, mailgram or overnight
delivery service (including without limitation FedEx and UPS), addressed
as follows (or to such other address as the party may designate by
written notice in the manner aforesaid):
If to Interealty: Interealty Corp.
Attention: James Sherry
1951 Kidwell Drive
Vienna, Virginia 22182
If to Virtual: Virtual Mortgage Network, Inc.
Attention: Michael Barron
4590 MacArthur Boulevard, Suite 175
Newport Beach, California 92660
14. Assignment
----------
Neither party may assign, sell, transfer, subcontract or convey this
Agreement or any of its obligations, responsibilities or liabilities
hereunder without the prior written consent of the other party. Any
such assignment, sale, transfer, subcontract or conveyance made without
such written consent shall be void.
15. Waiver
------
The failure of either party to enforce at any time any provision of this
Agreement shall not constitute a waiver of such provision in any way or
the right of such party at any time to exercise such remedies as such
party may have for any breach or breaches of such provision.
16. Headings
--------
The section headings appearing in this Agreement are for convenience of
reference only and shall not control or affect in any way the scope,
intent or interpretation of any provision of this Agreement.
17. Remedies
--------
No remedy conferred by any provision of this Agreement is intended or
shall be construed to be exclusive of any other remedy. Each and every
remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or existing at law or in equity; and the election
by a party of one or more remedies shall not constitute a waiver of the
party's right to pursue any other available remedies.
-10-
<PAGE>
18. Supersession
------------
As of the commencement of the Operational Term, this Agreement supersedes
and replaces all prior agreements between the parties including without
limitation the Marketing and Consulting Agreement dated November 8, 1995,
except, however, that any amounts owing to Interealty by Virtual thereunder
as of the commencement of the Operational Term shall be paid to Interealty
in accordance with the provisions thereof.
19. Arbitration: Governing Law
--------------------------
Any claim, controversy or dispute between the parties with respect to the
construction or application of this Agreement, or arising out of the breach
of this Agreement, shall be resolved by arbitration in Orange County,
California in accordance with the rules of the American Arbitration
Association then in effect. This Agreement shall be governed by the
substantive and procedural laws of the State of California. The arbitrator
or arbitrators may award attorney fees and costs to the prevailing party in
the arbitration.
20. Litigation
----------
Suit in federal or state court may be brought by a party to this Agreement
only if: (i) arbitration is unavailable, (ii) a party to this Agreement is
not complying with Section 19 hereof, which requires submission of disputes
to arbitration, or (iii) necessary to enforce an arbitration award.
21. Attorney Fees and Costs
-----------------------
In the event of any dispute arising out of this Agreement or the
transactions contemplated hereunder, the prevailing party shall be entitled
to recover its reasonable attorney fees and costs from the other party.
22. Approval by Boards of Directors
-------------------------------
This Agreement is subject to the approval by the respective Boards of
Directors of Interealty and Virtual; however, unless a party, on or before
December 29, 1996, receives written notice from the other party that such
other party's Board of Directors either disapproves this Agreement or
wishes to have this Agreement modified, it shall, as of December 30, 1996,
be conclusively deemed that such other party's Board of Directors has duly
approved this Agreement exactly as set forth herein.
-11-
<PAGE>
23. Entire Agreement: Amendments
----------------------------
This Agreement constitutes the entire and integrated agreement between the
parties, and supersedes any prior or contemporaneous agreements,
understandings or contracts regarding the subject matter hereof. This
Agreement may be amended only by written instrument executed by Interealty
and Virtual.
IN WITNESS WHEREOF, the parties hereunto set their hands as of the date first
above written.
Interealty Corp. Virtual Mortgage Network, Inc.
By: /s/ JAMES SHERRY By: /s/ MICHAEL A. BARRON
---------------- ---------------------
James Sherry Michael A. Barron
Title: President & CEO Title: Chairman & CEO
-12-
<PAGE>
EXHIBIT 10.26
AGREEMENT
Agreement made and effective December 20, 1996, by and between Virtual Mortgage
Network, Inc., a Nevada corporation, 4590 MacArthur Boulevard, Suite 175,
Newport Beach, California 92660 ("Virtual") and Interealty Corp., a Colorado
corporation, 1951 Kidwell Drive, Vienna, Virginia 22182 ("Interealty").
Background
----------
Interealty has performed valuable marketing and promotion services for Virtual,
and as compensation therefor, Virtual wishes to issue capital stock to
Interealty, and Interealty is willing to accept such capital stock as full
payment for such services.
Now, therefore, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and with the intent to be legally bound, the
parties agree as follows:
1. Purchase and Sale of Shares
---------------------------
Virtual agrees to sell, assign, transfer and deliver to Interealty, and
Interealty agrees to purchase, acquire and accept from Interealty, 200,000
shares of Virtual common capital stock (the "Shares") which Virtual
warrants and represents equates to 3.53% of all of the currently issued and
outstanding shares of common capital stock of Virtual, for the
consideration set forth in Section 2.
2. Consideration for Shares
------------------------
Virtual accepts as full consideration for the Shares, services performed by
Interealty prior to December 20, 1996, and Interealty agrees that issuance
of the Shares to it shall constitute full payment for such services:
3. Delivery of Shares
------------------
Virtual shall, within 10 days after the date of this Agreement, deliver to
Interealty one or more stock certificates representing the Shares.
4. Warranties and Representations
------------------------------
Virtual warrants and represents to Interealty the following:
a. By entering into this Agreement and performing hereunder, Virtual shall
not be violating or breaching any other contract, agreement,
commitment, promise, understanding or arrangement, or any law, rule or
regulation.
1
<PAGE>
b. Subject to the required confirmation in Section 11 below, Virtual has
the power, right, capacity and authority to sell, assign, transfer and
deliver to Interealty the Shares in accordance with this Agreement, and
has obtained all approvals required for its entering into this
Agreement and selling, assigning, transferring and delivering the
Shares to Interealty in accordance with this Agreement.
c. Upon receiving the certificate(s) representing the Shares, Interealty
shall own the Shares, free and clear of all liens, encumbrances,
security interests and agreements, equities, options, claims, charges
and restrictions.
5. Option to Purchase Additional Shares
------------------------------------
If, during the 180-day period following the date of this Agreement, Virtual
successfully consummates a "private placement" of its capital stock,
Interealty, News Holdings Corp. (Interealty's parent corporation) and any
of the shareholders of News Holdings Corp. (collectively and severally, the
"Option Holder") shall have the option to acquire in the aggregate a total
of 100,000 shares of such capital stock at a price per share equal to the
"private placement" price per share plus two percent. In order to exercise
----
such option, the Option Holder shall, within 30 days after such
consummation, provide Virtual with written notice of its so exercising such
option, which notice shall include the number of shares that such Option
Holder wishes to obtain.
6. Notices
-------
All notices hereunder or arising herefrom shall be in writing and shall be
delivered personally or sent prepaid by first class mail, certified
mail/return receipt requested, fax, telegram, mailgram or overnight
delivery service (including without limitation FedEx and UPS), addressed as
follows (or to such other address as the party may designate by written
notice in the manner aforesaid):
If to Interealty: Interealty Corp.
Attention: James Sherry
1951 Kidwell Drive
Vienna, Virginia 22182
If to Virtual: Virtual Mortgage Network, Inc.
Attention: Michael Barron
4590 MacArthur Boulevard, Suite 175
Newport Beach, California 92660
7. Assignment
----------
Neither party may assign, sell, transfer, subcontract or convey this
Agreement or any of its
2
<PAGE>
obligations, responsibilities or liabilities hereunder without the prior
written consent of the other party. Any such assignment, sale, transfer,
subcontract or conveyance made without such written consent shall be
void.
8. Waiver
------
The failure of either party to enforce at any time any provision of this
Agreement shall not constitute a waiver of such provision in any way or the
right of such party at any time to exercise such remedies as such party may
have for any breach or breaches of such provision.
9. Headings
--------
The section headings appearing in this Agreement are for convenience of
reference only and shall not control or affect in any way the scope, intent
or interpretation of any provision of this Agreement.
10. Approval by Boards of Directors
-------------------------------
This Agreement is subject to the approval by the respective Boards of
Directors of Interealty and Virtual; however, unless a party receives
written notice from the other party that such other party's Board of
Directors either disapproves this Agreement or wishes to have this
Agreement modified on or before December 29, 1996, it shall, as of December
30, 1996, be conclusively deemed that such other party's Board of Directors
has duly approved this Agreement exactly as set forth herein.
11. Entire Agreement: Amendments
----------------------------
This Agreement constitutes the entire and integrated agreement between the
parties, and supersedes any prior or contemporaneous agreements,
understandings or contracts regarding the subject matter hereof. This
Agreement may be amended only by written instrument executed by Interealty
and Virtual.
IN WITNESS WHEREOF, the parties hereunto set their hands as of the date first
above written.
Interealty Corp. Virtual Mortgage Network, Inc.
By: /s/ JAMES SHERRY By: /s/ MICHAEL A. BARRON
-------------------------- ---------------------------
James Sherry Michael A. Barron
Title: President & CEO Title: Chairman & CEO
3
<PAGE>
EXHIBIT 10.27
FIRST AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
BY AND AMONG
VIRTUAL MORTGAGE NETWORK, INC.,
as Buyer
ARTHUR H. SUTTER,
as Seller
and
SUTTER MORTGAGE CORPORATION,
the Company
June 6, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES................................. 1
1.1 Sale and Delivery........................................... 1
1.2 Purchase Price.............................................. 1
1.3 Certain Other Payments...................................... 2
ARTICLE II STRUCTURE OF THE TRANSACTION................................ 3
2.1 Company to be a Wholly-Owned Subsidiary of Buyer............ 3
2.2 Divestiture by Company of Certain Business Before Closing... 3
ARTICLE III CLOSING MATTERS............................................. 4
3.1 Closing..................................................... 4
3.2 Deliveries by Stockholder................................... 4
3.3 Deliveries by Buyer......................................... 5
3.4 Simultaneous Delivery....................................... 5
3.5 Delivery of Closing Documents............................... 5
3.6 No Equitable Conversion..................................... 5
ARTICLE IV REPRESENTATIONS AND WARRANTIES
CONCERNING STOCKHOLDER...................................... 6
4.1 Ownership of Shares......................................... 6
4.2 Delivery of Good Title...................................... 6
4.3 Execution and Delivery...................................... 6
4.4 No Conflicts................................................ 6
4.5 Investment Intent........................................... 7
4.6 Securities Law Compliance................................... 7
ARTICLE V REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY...................................... 7
5.1 Organization and Good Standing.............................. 7
5.2 No Conflicts................................................ 8
5.3 Capitalization.............................................. 8
5.4 Financial Statements........................................ 8
5.5 Title to Property: Encumbrances............................. 9
5.6 Accounts Receivable......................................... 11
5.7 Corporate Acts and Proceedings.............................. 11
5.8 Trademarks, Patents, Etc.................................... 11
5.9 Banking and Insurance....................................... 11
5.10 Indebtedness................................................ 12
5.11 Judgments, Orders and Decrees; Litigation................... 13
5.12 Income and Other Taxes...................................... 13
5.13 Questionable Payments....................................... 14
5.14 Employee Benefit Matters.................................... 15
5.15 No Undisclosed Liabilities.................................. 15
5.16 Permits, Licenses, Etc...................................... 15
5.17 Regulatory Filings.......................................... 16
5.18 Consents.................................................... 16
5.19 Material Contracts; No Defaults............................. 16
5.20 Absence of Certain Changes.................................. 18
5.21 Employees and Labor Matters................................. 19
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
5.22 Affiliations................................................ 19
5.23 Environmental Compliance.................................... 20
5.24 Disclosure.................................................. 22
ARTICLE VI REPRESENTATIONS AND WARRANTIES CONCERNING
MORTGAGE LOANS AND SERVICING RIGHTS......................... 22
6.1 Mortgage Loans as Described................................. 22
6.2 Ownership................................................... 23
6.3 No Untrue Information and Servicing Agreements.............. 23
6.4 No Inquiries................................................ 23
6.5 Agency Requirements......................................... 23
6.6 Compliance with Insurance Contracts......................... 24
6.7 No Outstanding Charges...................................... 24
6.8 Mortgage Terms Unmodified................................... 24
6.9 No Recourse................................................. 25
6.10 Hazard Insurance............................................ 25
6.11 Coinsurance Claims.......................................... 25
6.12 Compliance with Applicable Laws............................. 26
6.13 Pools....................................................... 26
6.14 Limitations on Mortgage Loan Characteristics................ 26
6.15 Custodial and Escrow Accounts Current....................... 26
6.16 PMI Policy.................................................. 27
6.17 Title Insurance............................................. 27
6.18 No Defaults................................................. 27
6.19 Acceptable Investment....................................... 27
6.20 Collection Practices; Escrow Deposits....................... 27
6.21 Notice of Relief Requested Pursuant to the Soldiers and
Sailors Relief Act of 1940 or Similar Laws.................. 28
6.22 Tax Service Contracts....................................... 28
6.23 Approved Seller/Servicer.................................... 28
6.24 Adjustable Rate Mortgage Loan Errors........................ 28
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF BUYER..................... 28
7.1. Organization and Good Standing.............................. 28
7.2. Corporate Acts and Proceedings.............................. 29
7.3. No Conflicts................................................ 29
7.4. Shares of VMN Common Stock.................................. 29
7.5. Securities Laws............................................. 29
7.6. Capital Stock............................................... 29
7.7. Disclosure.................................................. 30
7.8. Investment Intent........................................... 30
ARTICLE VIII COVENANTS OF STOCKHOLDER AND THE COMPANY.................... 30
8.1. Access...................................................... 30
8.2. Obtaining Approvals......................................... 31
8.3. Permits..................................................... 31
8.4. Insurance................................................... 31
8.5. Supplements to Schedules.................................... 32
8.6. New Transactions............................................ 32
8.7 Payment of Liabilities and Waiver of Claims................. 32
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
8.8 Financial Statements Pending Closing;
Cooperation With Offering................................... 32
8.9 Best Efforts................................................ 33
8.10 Due Care in Servicing; Examination of Records............... 33
8.11 Agency Consent.............................................. 33
8.12 Mortgage Insurance Consents................................. 33
ARTICLE IX COVENANTS OF BUYER.......................................... 34
9.1 Compliance with Legal Requirements.......................... 34
9.2 Obtaining Approvals......................................... 34
9.3 Best Efforts................................................ 34
ARTICLE X CONDUCT OF THE COMPANY'S BUSINESS PENDING CLOSING........... 35
10.1 Organization; Qualification................................. 35
10.2 Ordinary Course............................................. 35
10.3 Dividends; Capital Stock.................................... 35
10.4 Accounting.................................................. 36
10.5 Indebtedness................................................ 36
10.6 Compliance with Legal Requirements.......................... 36
10.7 Competing Offers; Merge or Liquidate........................ 36
10.8 Disposition of Assets....................................... 36
10.9 Executive Compensation...................................... 37
10.10 Employee Benefit Arrangements............................... 37
10.11 Claims; Discharge; Litigation............................... 37
10.12 Modification or Breach of Agreements; New Agreements........ 37
10.13 Inconsistent Action......................................... 37
ARTICLE XI CONDITIONS PRECEDENT TO CLOSING............................. 38
11.1 Conditions of Buyer......................................... 38
11.2 Conditions of Stockholder................................... 41
ARTICLE XII OTHER AGREEMENTS............................................ 42
12.1 Registration and Disposition of VMN Common Stock............ 42
12.2 Pledge and Security Agreement............................... 42
12.3 Lock-up Agreement........................................... 43
12.4 Press Releases; Public Announcements........................ 43
ARTICLE XIII TERMINATION, AMENDMENT AND WAIVER........................... 43
13.1 Termination................................................. 43
13.2 Effect...................................................... 44
13.3 Amendment................................................... 44
13.4 Waiver...................................................... 44
ARTICLE XIV GENERAL PROVISIONS; INDEMNIFICATION; ESCROW................. 45
14.1 Survival of Representations and Warranties.................. 45
14.2 Indemnification............................................. 45
14.3 Indemnification Escrow...................................... 48
14.4 Complete Agreement.......................................... 48
14.5 Expenses.................................................... 49
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
14.6 Fees........................................................ 49
14.7 Further Action.............................................. 49
14.8 Notices..................................................... 49
14.9 Limited Assignment.......................................... 50
14.10 Governing Law............................................... 50
14.11 Partial Invalidity.......................................... 51
</TABLE>
iv
<PAGE>
FIRST AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
THIS FIRST AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (this
"Agreement") is made and entered into as of June 6, 1997 by and among Virtual
Mortgage Network, Inc., a Nevada corporation ("Buyer"), Sutter Mortgage
Corporation, a California corporation (the "Company"), and Arthur H. Sutter, an
individual and the sole stockholder of the Company ("Stockholder"), and
evidences that, for and in consideration of the mutual covenants and agreements
set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Sale and Delivery. On the terms and subject to the conditions
-----------------
set forth in this Agreement, Stockholder agrees to sell and deliver to Buyer,
and Buyer agrees to purchase and accept from Stockholder, on and as of the
Closing Date (as defined in Section 3.1 hereof) for the Total Purchase Price
described in Section 1.2 hereof, all of the outstanding shares (692,000 shares)
of Common Stock, par value $.4259 per share, of the Company ("Company Common
Stock"). The shares of Company Common Stock to be sold and purchased pursuant
to this Agreement are sometimes collectively referred to herein as the "Shares"
and Buyer's purchase of the Shares is sometimes referred to herein as the
"Acquisition."
1.2 Purchase Price. The aggregate consideration to be paid by Buyer
--------------
to Stockholder pursuant to this Agreement (the "Total Purchase Price") shall
consist of:
(a) The number of whole shares of Common Stock, par value $.001 per
share, of Buyer which has a value (based upon the per share price to the public
of Buyer's Common Stock as set forth in the final prospectus (the "Closing Fair
Market Value") of Buyer used in connection with the initial public offering (the
"Offering") of Buyer's Common Stock) most closely approximating $971,152 (the
"Target Value of the VMN Common Stock") subject to downward adjustment in
accordance with Section 1.3(b) (the "VMN Common Stock") (which shares shall be
subject to the provisions of Section 12.3 hereof); and
(b) An aggregate cash payment to Stockholder of $4 million, subject to
downward adjustment in accordance with Sections 1.3 and 2.2 hereof (the "Cash
Payment"), $2.5 million of such Cash Payment (subject to downward adjustment in
accordance with Sections 1.3 and 2.2 hereof) shall be due and payable at the
closing of the Acquisition (the "Closing") which is expected to occur
substantially concurrent with the closing of the Offering
<PAGE>
and $1.5 million of such Cash Payment shall be pledged as collateral pursuant to
Sections 12.2, 14.1, 14.2 and 14.3 hereof.
1.3 Certain Other Payments.
----------------------
(a) Upon the delivery of the disclosure schedules of the Company and
Stockholder contemplated by Articles V and VI of this Agreement (the "Disclosure
Schedules Delivery Date"), Buyer shall make a payment in the amount of $100,000
to the Company to defray certain of the Company's costs relating to the
Acquisition. This payment shall be non-refundable except in the case of fraud
perpetrated on Buyer by the Company or Stockholder, in which case the $100,000
shall be refunded promptly by the Company to Buyer. Buyer also shall pay to
Stockholder a $50,000 deposit upon the Disclosure Schedules Delivery Date. If
the Acquisition closes, the $50,000 deposit will reduce the amount of the Cash
Payment due at Closing on a dollar-for-dollar basis. If the Acquisition does
not close for any reason not attributable to the Company or Stockholder, the
$50,000 deposit shall be non-refundable, except as set forth below. If the
Acquisition fails to close for any reason attributable to the Company or
Stockholder, Stockholder shall refund promptly the $50,000 deposit to Buyer.
The $50,000 deposit also shall be refunded promptly upon any termination of this
Agreement by Buyer pursuant to Section 13.1(e). If the Acquisition does not
close for any reason attributable to Buyer (other than a termination pursuant to
Section 13.1(e)), Buyer shall pay to Stockholder within five business days of
the termination of this Agreement a break-up fee equal to $50,000 (the "Break-up
Fee"), and the receipt of the Break-up Fee shall be the Company's and
Stockholder's sole remedy under any legal theory whatsoever against Buyer and
its officers, directors, employees, advisors, agents and other representatives
in connection with this Agreement or otherwise.
(b) The Company, Stockholder and Buyer hereby agree that (i) pending
the Closing of the Acquisition, it is anticipated that the Company may have
negative cash flow from its operations and be in need of additional working
capital and (ii) on August 1, 1997 and on the first day of each month thereafter
until the Closing Date or the termination of this Agreement, the Company and
Buyer shall confer as to the cash and working capital positions of the Company
and, to the extent the Company deems it reasonably necessary to the working
capital position of the Company and to fund any negative cash flow from the
operations of the Company, Buyer shall pay to the Company up to $50,000 within
two business days of receipt of the Company's written request for any such
payment. Any and all such payments shall be nonrefundable except in the case of
fraud perpetrated on Buyer by the Company or Stockholder and shall not be
applied to reduce the Cash Payment due at Closing. In addition, the Company,
Stockholder and Buyer agree that (i) a decrease in the Stand-Alone Book Value of
the Company at May 31, 1997 (as defined in
2
<PAGE>
Section 2.2 of this Agreement) at the time of Closing as a result of operating
losses of the Company shall not be deemed to constitute a "material and adverse
effect" on the Company for purposes of Section 11.1(l) or Section 5.20(viii) of
this Agreement and (ii) any decrease in the Stand-Alone Book Value of the
Company at May 31, 1997 in excess of $200,000 at the time of Closing shall
result in a reduction in the Target Value of the VMN Common Stock on a dollar-
for-dollar basis to the extent of such excess, resulting in fewer shares of VMN
Common Stock being issued to Stockholder at Closing. Upon any reduction in the
Target Value of the VMN Common Stock to $0, any additional excess amounts shall
be applied to reduce the Cash Payment due at Closing on a dollar-for-dollar
basis.
ARTICLE II
STRUCTURE OF THE TRANSACTION
2.1 Company to be a Wholly-Owned Subsidiary of Buyer. Buyer and
------------------------------------------------
Stockholder intend for the Company to become a wholly-owned subsidiary of Buyer,
and on a post-Closing basis to maintain ownership of all of its licenses,
permits and other regulatory clearances and filings.
2.2 Divestiture by Company of Certain Business Before Closing.
---------------------------------------------------------
Buyer and Stockholder agree that the Acquisition pursuant to this Agreement
shall not include (i) the commercial loan business now being conducted by the
Company (the "Commercial Loan Business"), nor (ii) the stock, assets, or
business operations of Better Homes Realty, Inc. ("Better Homes"), Sutter
Financial Corporation ("Sutter Financial"), or Western States Servicing
Corporation ("Western States Servicing" and together with the Commercial Loan
Business, Better Homes and Sutter Financial, the "Divested Businesses"). At or
prior to the Closing, the Company shall either sell to a third party or transfer
to Stockholder the Divested Businesses; provided, however, that if such transfer
causes a decline in the book value of the Company in an amount greater than the
net investment in such assets currently recorded on the Company's financial
statements as of May 31, 1997 (such book value minus the net investment in such
assets being the "Stand-Alone Book Value of the Company at May 31, 1997"), then
the amount of the Cash Payment shall be reduced by the amount of such excess on
a dollar-for-dollar basis. The offer, sale or transfer of the Divested
Businesses shall not be deemed to be a violation of Sections 5.5, 5.20, 8.6,
10.2, 10.7, 10.8 or 10.12 hereof. In connection with the disposition of the
Divested Businesses, all intercompany transactions and accounts between the
Company and such businesses shall be eliminated on or prior to the Closing Date.
3
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ARTICLE III
CLOSING MATTERS
3.1 Closing. The Closing of the purchase and sale of the Shares and
-------
the consummation of the other transactions contemplated by this Agreement shall
occur on the later of (i) the closing of the Offering or (ii) the date all
conditions precedent to the Closing shall be fulfilled or waived, in either
case, at 10:00 a.m., California time, at the offices of O'Melveny & Myers LLP in
Newport Beach, California, or at such other hour or place or on such other date
as shall be agreed upon among Stockholder, the Company and Buyer the actual date
being herein generally referred to as the "Closing Date." If the Closing fails
to occur by October 31, 1997, or by such later date to which the Closing may be
extended as provided above, Buyer shall have until December 31, 1997 to close
the Acquisition by effecting a private placement of its securities in lieu of
the Offering, and if the Closing has not occurred by the end of such time, this
Agreement shall automatically terminate, and except as expressly provided
herein, neither Stockholder, the Company nor Buyer shall have any further
obligations hereunder. If the Offering does not occur, the Total Purchase Price
shall be paid in cash and Stockholder shall pledge $1.5 million of such cash as
security for its obligations under Sections 12.2, 14.2 and 14.3 of this
Agreement.
3.2 Deliveries by Stockholder. At the Closing, Stockholder shall
-------------------------
deliver or cause to be delivered to Buyer the following instruments, in form and
substance reasonably satisfactory to Buyer and Buyer's counsel, against delivery
of the items specified in Section 3.3:
(i) Certificates representing the Shares, duly endorsed in blank
or having affixed thereto stock powers executed in blank, and in proper
form for transfer, with all requisite stock transfer stamps, if any,
affixed to such certificates;
(ii) The closing certificates referred to in Sections 11.1(e),
(f) and (g);
(iii) The Sutter Noncompetition Agreement and the Morck
Employment Agreement referred to in Section 11.1(h) executed by Stockholder
and Ronald Morck ("Morck"), respectively;
(iv) Any governmental or other third party approvals, permits,
authorizations, consents or notices required to be obtained before
consummation of the Acquisition;
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(v) The written resignations of such officers and directors of
the Company as may be requested by Buyer; and
(vi) The Pledge and Security Agreement referred to in Section
12.2 together with $1.5 million in cash.
3.3 Deliveries by Buyer. At the Closing, Buyer shall deliver to
-------------------
Stockholder the following instruments, in form and substance reasonably
satisfactory to Stockholder, and Stockholder's counsel, against delivery of the
items specified in Section 3.2:
(i) The Total Purchase Price, as adjusted in accordance with the
provisions hereof;
(ii) The Certificate of Chief Executive Officer of Buyer referred
to in Section 11.2(e); and
(iii) Any governmental approvals, permits, authorizations or
notices required to be obtained before consummation of the Acquisition.
3.4 Simultaneous Delivery. All acts with respect to the Closing
---------------------
shall be considered as having taken place simultaneously, and no delivery or
payment shall be considered as having been made until all deliveries, payments
and Closing transactions have been accomplished.
3.5 Delivery of Closing Documents. Each party shall cooperate with
-----------------------------
the other to the fullest extent possible in exchanging instruments and documents
required to be delivered at or before the Closing, or drafts thereof, in
sufficient time in advance of the Closing to provide to the other party a
reasonable opportunity to examine such documents or drafts thereof.
3.6 No Equitable Conversion. Before the Closing, neither the
-----------------------
execution of this Agreement nor the performance of any provision contained
herein shall cause Buyer to become liable for (i) the operations of the Company
or the business of the Company; (ii) the condition of the Company's assets;
(iii) the cost of any labor or materials furnished to any such property; (iv)
compliance with any laws, requirements, or regulations of, or taxes, or
assessments or other charges now or hereafter due to, any governmental
authority; or (v) for any other charges or expenses whatsoever pertaining to the
conduct of the Company's business or the ownership, title, possession, use or
occupancy of the property of the Company.
5
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
CONCERNING STOCKHOLDER
Stockholder hereby represents and warrants to Buyer that:
4.1 Ownership of Shares. Stockholder owns of record and
-------------------
beneficially the Shares, and has, and immediately before the Closing will have,
good and valid title to the Shares free and clear of all liens, trusts
(constructive and other), encumbrances, equities and claims other than the
agreements and commitments contained herein or contemplated hereby.
4.2 Delivery of Good Title. All consents, approvals, authorizations
----------------------
and orders necessary for the sale and delivery of the Shares to be sold by
Stockholder hereunder have been obtained, and Stockholder has, and immediately
before the Closing will have, full right, power, authority and capacity to sell,
assign, transfer and deliver the Shares pursuant to this Agreement. Upon
delivery of the Shares by Stockholder hereunder and payment of the consideration
therefor pursuant to this Agreement, good and valid title to the Shares, free
and clear of all liens, trusts (constructive and other), encumbrances, equities
and claims, will pass to Buyer.
4.3 Execution and Delivery. All consents, approvals, authorizations
----------------------
and orders necessary for the execution and delivery by Stockholder of this
Agreement have been obtained, and Stockholder has full right, power, authority
and capacity to enter into and perform fully under this Agreement. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder enforceable against
Stockholder in accordance with its terms.
4.4 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any term or provision of, or
(with or without notice or passage of time, or both) constitute a default under,
any indenture, mortgage, deed of trust, trust (constructive or other), loan
agreement or other agreement or instrument to which Stockholder is a party or by
which Stockholder or the Shares are bound, or violate the provisions of any
statute, or any order, rule or regulation of any governmental body or agency or
instrumentality thereof, or any order, writ, injunction or decree of any court
or any arbitrator, having jurisdiction over Stockholder or the property of
Stockholder nor will such action result in the creation or imposition of any
lien, encumbrance, claim or charge upon the Shares.
6
<PAGE>
4.5 Investment Intent. Stockholder has such knowledge and experience
-----------------
in financial and business matters as to be capable of evaluating the risks and
merits of his investment in the VMN Common Stock. Stockholder hereby
acknowledges that the VMN Common Stock may not be resold by him except pursuant
to a registration statement effective under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an exemption from registration
thereunder, and in compliance with all other securities laws. Stockholder is
acquiring the shares of VMN Common Stock for investment purposes only, for his
own account and not as a nominee or agent for any other person, and not with a
view to or for resale in connection with any distribution thereof within the
meaning of the Securities Act.
4.6 Securities Law Compliance. Based in part upon the
-------------------------
representations and warranties of Buyer contained in Section 7.8 hereof, no
consent, authorization, approval, permit or order of or filing with any
governmental or regulatory authority is required under current laws and
regulations in connection with the execution and delivery of this Agreement or
the offer, issuance, sale or delivery of the Company Common Stock other than the
qualification thereof, if required, under applicable state securities laws,
which qualification has been or will be effected as a condition of these sales.
Under the circumstances contemplated hereby, the offer, issuance, sale and
delivery of the Company Common Stock will not under current laws and regulations
require compliance with the prospectus delivery or registration requirements of
the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
Stockholder and the Company hereby jointly and severally represent and
warrant to Buyer that:
5.1 Organization and Good Standing. The Company has been duly
------------------------------
organized and is existing as a corporation in good standing under the laws of
its jurisdiction of incorporation with full power and authority (corporate and
other) to own or lease its properties and to conduct its business as currently
conducted, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
jurisdiction set forth on Schedule 5.1 hereto, such jurisdictions comprising all
jurisdictions in which the Company owns or leases property or conducts any
business so as to require such qualification. Other than Better Homes, Sutter
Financial and Western States Servicing, the Company does not own or control, or
have any other equity investment in, directly or indirectly, any corporation,
joint venture, partnership, association or other entity.
7
<PAGE>
5.2 No Conflicts. Except as set forth on Schedule 5.2, the
------------
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or result in a
breach or violation of any term or provision of, or (with or without notice or
passage of time, or both) constitute a default under, or otherwise give any
person a basis for nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which the Company is a party or by which the Company is bound or to which any of
the property or assets of the Company is subject, nor will such action result in
the violation of the provisions of the Articles of Incorporation or Bylaws of
the Company or any statute, or any order, rule or regulation of any governmental
body or agency or instrumentality thereof, or any order, writ, injunction or
decree of any court or any arbitrator, having jurisdiction over the Company or
any of its property, nor will such action result in the creation or imposition
of any lien, encumbrance, claim or charge upon any property or asset of the
Company or otherwise adversely affect the contractual or other legal rights,
licenses, permits, approvals or other privileges of the Company.
5.3 Capitalization. The authorized capital stock of the Company
--------------
consists of 1,500,000 shares of Company Common Stock (the "Capital Stock").
There are a total of 692,000 shares of Company Common Stock issued and
outstanding. No shares of Capital Stock other than the Shares are issued and
outstanding, and the Shares have been duly authorized and validly issued and are
outstanding and are fully paid and nonassessable. There are no existing
options, warrants, rights, calls or commitments of any character relating to the
shares of Capital Stock and there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Capital Stock and no
commitments to issue any securities or instruments whatsoever. All Shares have
been offered, issued and sold in compliance with applicable law.
5.4 Financial Statements.
--------------------
(a) Schedule 5.4(a) hereto contains true and complete copies of the
audited consolidated balance sheets of the Company at December 31, 1995 and
December 31, 1996 and the related audited consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 (collectively, the "Audited Financial Statements"). The
Audited Financial Statements (including the related notes thereto) present
fairly the consolidated financial condition of the Company as of the dates
indicated therein and the consolidated results of operations and changes in
financial position of the Company for the periods specified therein, have been
prepared in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods covered thereby and have been
8
<PAGE>
derived from the accounting records of the Company and represent only actual,
bona fide transactions. The Audited Financial Statements are true and correct
in all material respects.
(b) Schedule 5.4(b) hereto contains true and complete copies of the
unaudited consolidated balance sheet of the Company (the "Balance Sheet") at May
31, 1997 (the "Balance Sheet Date") and the related unaudited consolidated
statements of operations, stockholders' equity and cash flows for the four
months ended on the Balance Sheet Date (the Balance Sheet and the related
unaudited consolidated statements are sometimes referred to herein collectively
as the "Interim Financial Statements"). The Interim Financial Statements
present fairly the consolidated financial condition of the Company as of the
Balance Sheet Date and the results of operations and changes in financial
position of the Company for the four-month period then ended, have been prepared
in conformity with GAAP applied on a basis consistent with that of the Audited
Financial Statements and have been derived from the accounting records of the
Company and represent only actual, bona fide transactions and are true and
correct in all material respects.
5.5 Title to Property: Encumbrances.
-------------------------------
(a) The Company has, and immediately before the Closing the Company
will have, good and valid title in fee simple to all real property and all
personal property reflected on the Balance Sheet as owned by the Company and all
real property and personal property acquired by the Company since the Balance
Sheet Date, in each case free and clear of all Liens (as hereinafter defined)
except (i) as set forth on Schedule 5.5(a) hereto, (ii) for sales and other
dispositions in the usual and ordinary course of business since the Balance
Sheet Date, (iii) permitted liens (as hereinafter defined) and (iv) such other
ordinary and customary imperfections of title, easements, restrictions and
encumbrances, if any, as do not, individually or in the aggregate, detract from
the value of the property subject thereto and do not interfere with the use made
and proposed to be made of such property by the Company. The term "Liens," as
used in this Agreement, shall mean all liens, mortgages, security interests,
pledges, deeds of trust, options or other charges and encumbrances (including,
without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof as to which the Company is the buyer or lessee, any
sale of receivables with recourse against the seller or any other person except
the account debtor, any filing or agreement to file a financing statement as a
debtor under the Uniform Commercial Code or any similar statute to reflect
ownership by a third party of property leased to the Company under a lease that
is not in the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of any person). The term "Permitted Liens,"
as used in this Agreement, shall mean liens for ad valorem, real or personal
property taxes or assessments
9
<PAGE>
accrued since the Balance Sheet Date not at the time due and liens in respect of
pledges or deposits under workers' compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
liens, accrued since the Balance Sheet Date if the obligations secured by such
liens are not then delinquent.
(b) Schedule 5.5(b) hereto contains a true and complete list and legal
description of each parcel of real property owned by the Company. Stockholder
shall furnish to Buyer on or before the Closing true and complete copies of all
deeds, other instruments of title and policies of title insurance indicating and
describing the Company's ownership of such real property. Schedule 5.5(b) also
contains a list of all tangible personal property having a cost or fair market
value in excess of Two Thousand Dollars ($2,000) owned by the Company (other
than personal property held by the Company as lessee under a personal property
lease).
(c) All leases and licenses pursuant to which the Company leases or
licenses from others real or personal property are valid, and in all material
respects subsisting and effective in accordance with their respective terms, and
there is not, under any real property lease, license or material personal
property lease, any existing default or event of default (or event that, with
notice or passage of time, or both, would constitute a default, or would
constitute a basis of force majeure or other claim of excusable delay or
nonperformance). Schedule 5.5(c) hereto contains a list of all real property
leases, licenses and material personal property leases under which the Company
is the lessee or licensee together with the location and nature of each of the
leased or licensed properties (including a legal description of all real
property leased by the Company), the termination date of each such lease or
license, the name of the lessor or licenser and any rental and other payments
made or required to be made. True and complete copies of all real property
leases, licenses and material personal property leases listed on Schedule 5.5(c)
shall be delivered to Buyer on or before the Closing. Except as specifically
identified in Schedule 5.5(c), no such lease or license will require the consent
of the lessor or licensor to or as a result of the consummation of the
transactions contemplated by this Agreement.
(d) The Company is not in violation of, or default under, any law,
ordinance, order, regulation, authorization, permit or certificate pertaining to
its owned or leased properties that remains uncured or that has not been
dismissed. All personal property owned by the Company and all personal property
held by the Company pursuant to personal property leases is in good operating
condition and repair, subject only to ordinary wear and tear, and is suitable
and appropriate for the use thereof made and proposed to be made by the Company
in its business and operations. The real property
10
<PAGE>
and personal property described in Sections 5.5(a) and 5.5(b) hereto and the
real property and personal property held by the Company pursuant to the leases
and licenses described in Schedule 5.5(c) hereto comprise all of the real
property and personal property (other than personal property held by the Company
pursuant to personal property leases that are not material personal property
leases) used in the conduct of the Company's business.
5.6 Accounts Receivable. Schedule 5.6 hereto contains a true and
-------------------
complete list of the Company's accounts receivable as of May 31, 1997.
5.7 Corporate Acts and Proceedings. This Agreement has been duly
------------------------------
authorized by all necessary corporate action on behalf of the Company, and has
been duly executed and delivered by authorized officers of the Company and
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms. All corporate action
necessary on the part of the Company, Better Homes, Sutter Financial and Western
States Servicing for the consummation of the matters described herein has been
taken by such parties, or will be taken by such parties on or before the Closing
Date.
5.8 Trademarks, Patents, Etc. Except as set forth on Schedule 5.8
------------------------
hereto, the Company does not have any right or license to any letters patent,
patent applications, trade names, trademarks, service marks, trademark and
service mark registrations and applications, copyrights, copyright registrations
and applications, grants of licenses or rights to the Company with respect to
the foregoing.
5.9 Banking and Insurance. Schedule 5.9(a) hereto contains a true
---------------------
and complete list of the names and locations of all financial institutions at
which the Company maintains a checking account, deposit account, securities
account, safety deposit box or other deposit or safekeeping arrangement, the
numbers or other identification of all such accounts and arrangements and the
names of all persons authorized to draw against any funds therein. Schedule
5.9(b) hereto contains a true and complete list of all insurance policies and
bonds and self insurance arrangements currently in force that cover or purport
to cover risks or losses to or associated with the Company's business,
operations, premises, properties, assets, employees, agents and directors and
sets forth, with respect to each such policy, bond and self insurance
arrangement a general description of the insured loss coverage, the expiration
date and time of coverage, the dollar limitations of coverage, a general
description of each deductible feature and principal exclusions and the premiums
paid and to be paid before expiration. The insurance policies, bonds and
arrangements described on Schedule 5.9(b) provide such coverage against such
risk of loss and in such amounts as are customary for corporations of
established
11
<PAGE>
reputation engaged in the same or similar business and similarly situated. The
Company has no obligation, liability or other commitment relating to any
contract of insurance containing a provision for retrospective rating or
adjustment of the Company's premium obligation. To the knowledge of
Stockholder, no facts or circumstances exist that would cause the Company to be
unable to renew its existing insurance coverage as and when the same shall
expire upon terms at least as favorable as those currently in effect, other than
possible increases in premiums that do not result from any act or omission of
the Company or Stockholder.
5.10 Indebtedness. The Company has no liability or obligation for
------------
Indebtedness (as hereinafter defined) other than as set forth on Schedule 5.10
hereto and true and complete copies of all instruments and documents evidencing,
creating, securing or otherwise relating to such Indebtedness have been
delivered to Buyer heretofore. The aggregate amount of Indebtedness as of the
date of this Agreement is set forth on Schedule 5.10 hereto. Except as
described in Schedule 5.10, no event or condition has occurred that constitutes
or, with notice or passage of time, or both, would constitute a default or a
basis of force majeure or other claim of excusable delay or nonperformance by
the Company, or, to the knowledge of Stockholder, any other person under any
instrument or document relating to or evidencing Indebtedness that would entitle
any person to require the Company to pay any portion of the principal amount of
such Indebtedness before the scheduled maturity thereof. Except as set forth in
Schedule 5.10, no instrument or document evidencing, creating, securing or
otherwise relating to Indebtedness will require the consent of any person to or
as a result of the consummation of the transactions contemplated by this
Agreement.
The term "Indebtedness," as used in this Agreement, shall mean (i) any
liability of the Company created or assumed by the Company (A) for borrowed
money, (B) evidenced by a bond, note, debenture or similar instrument (including
a purchase money obligation, deed of trust or mortgage) given in connection with
the acquisition of, or exchange for, any property or assets (other than
inventory or similar property acquired and consumed in the ordinary course of
the Company's business), including securities and indebtedness, (C) in respect
of letters of credit issued for the Company's account and "swaps" of interest
and currency exchange rates (and other interest and currency exchange rate
hedging agreements) to which the Company is a party or (D) for the payment of
money as lessee under leases that should be, in accordance with GAAP, recorded
as capital leases for financial reporting purposes; (ii) any liability of others
described in the preceding clause (i) guaranteed as to payment of principal by
the Company or in effect guaranteed by the Company through a contingent
agreement to purchase or pay the related indebtedness; (iii) all liabilities or
obligations secured by a Lien upon property owned by the Company and upon which
liabilities or obligations the Company customarily pays interest
12
<PAGE>
or principal, although the Company has not assumed or become liable for the
payment of such liabilities or obligations; and (iv) any amendment, renewal,
extension, revision or refunding of any such liability or obligation; provided,
however, that Indebtedness shall not include any liability for compensation of
Company employees or for inventory or similar property acquired and consumed in
the ordinary course of the Company's business or for services.
5.11 Judgments, Orders and Decrees; Litigation. Neither the Company
-----------------------------------------
nor, to the best knowledge of the Company, the officers or directors of the
Company is subject to any outstanding judgment, order, writ, injunction, decree,
stipulation, determination of award of, or agreement with, any court,
governmental body or agency or instrumentality thereof or any arbitrator
limiting, restricting or adversely affecting the conduct, condition, operating
results or prospects of the Company's business or the ability of such officers
or directors to perform diligently their duties to the Company, other than as
described in Schedule 5.11 hereto, and, other than as described in Schedule
5.11, no proceeding is pending or threatened by or before any court,
governmental body or agency or instrumentality thereof or any arbitrator, nor is
there any basis for the institution of any proceeding that could lead to any
such judgment, order, writ, injunction, decree, stipulation, determination,
award or agreement.
5.12 Income and Other Taxes.
----------------------
(a) Except as set forth in Schedule 5.12, the Company has (i) properly
completed and filed when due (taking extensions into account) with the
appropriate federal, state, local, foreign and other governmental agencies all
tax returns, declarations, estimates, reports, statements, and other documents
(collectively "Returns" and each a "Return") required to be filed by it with
respect to Taxes (as hereinafter defined), and (ii) paid when due and payable
any required federal, state, local or foreign taxes, levies, imposts, duties,
licenses and registration fees, and charges of any nature whatsoever including,
without limitation, unemployment and social security taxes, interest, penalties,
and additions to tax with respect thereto ("Taxes") or has accrued or otherwise
adequately reserved in accordance with GAAP for the payment of all Taxes.
Complete and accurate copies of all such Returns have been made available to
Buyer.
(b) There are no Taxes, assessed or asserted in writing in respect of
any Returns filed by the Company or claimed in writing to be due by the Internal
Revenue Service (the "IRS") or any other tax authority (whether foreign or
domestic) (collectively "Tax Authorities" and each a "Tax Authority"), that are
not accrued or adequately reserved for in accordance with GAAP. No Return of
the Company is currently being audited by any Tax Authority, and the Company has
not executed or filed with any
13
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Tax Authority any agreement, waiver or other document extending, or having the
effect of extending, the period for assessment or collection of any Taxes, which
extension or waiver is still in effect. All final adjustments made by the IRS
with respect to any federal Return of the Company have been reported to the
relevant Tax Authorities to the extent required by law. No request for any
extension, ruling or determination letter filed by the Company is pending with
any Tax Authority.
(c) The Company has not filed a consent pursuant to Section 341(f) of
the Internal Revenue Code of 1986, as amended (the "Code"), or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by it. No
property of the Company is property that the Company is or will be required to
treat as being owned by another person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately before the enactment of the Tax Reform Act of 1986, or is tax-exempt
use property, within the meaning of Section 168(h)(1) of the Code. The Company
has not agreed to and is not required to make any adjustment pursuant to Section
481(a) of the Code by reason of a change in the accounting method initiated by
the Company, and the Company has no knowledge that the IRS has proposed any such
adjustment or change in accounting method.
(d) The Company has not made any material payments, nor is it
obligated to make any material payments, nor is it a party to any agreement that
under certain circumstances could obligate it to make any material payments that
would constitute an "excess parachute payment" or would otherwise not be
deductible under Section 280G of the Code. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. Except as set forth on Schedule 5.12(d), the Company is not a
party to any tax allocation or sharing agreement.
5.13 Questionable Payments. Neither the Company nor any director,
---------------------
officer, agent, employee or other person associated with or acting on behalf of
the Company has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, made
any direct or indirect unlawful payments to government officials or employees
from corporate funds, established or maintained any unlawful or unrecorded fund
of corporate monies or other assets, made any false or fictitious entries on the
books of account of the Company, made or received any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment, or made any other
payment, favor or gift not fully deductible for federal income tax purposes.
14
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5.14 Employee Benefit Matters. Except as set forth in Schedule 5.14,
------------------------
the Company does not have any employee welfare benefit plan (as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently maintained by the Company or any corporation or other trade
or business under common control (within the meaning of Section 414 of the Code)
with the Company (an "affiliate") or to which the Company or any affiliate
contributes or is required to contribute. The Company does not maintain any
employee pension benefit plan (as defined in Section 3(2) of ERISA) to which the
Company or any affiliate contributes or is required to contribute.
5.15 No Undisclosed Liabilities. Except (i) to the extent set forth
--------------------------
or provided for in the Balance Sheet or the notes thereto, (ii) as set forth on
Schedule 5.15 hereto, (iii) for current liabilities incurred since the Balance
Sheet Date in the usual and ordinary course of business not in excess of Five
Thousand Dollars ($5,000), or (iv) for liabilities and commitments arising in
the ordinary course (and not as a result of a breach or similar failure on the
part of the Company) pursuant to existing contracts or other agreements as
disclosed to Buyer in accordance with Section 5.19 hereof or pursuant to
regulatory filings to be made, or other regulatory obligations to be satisfied,
in the ordinary course of business, as of the date hereof, the Company has no
liabilities, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether the amounts thereof are readily ascertainable or not,
or any unrealized or anticipated losses from any commitments of a contractual
nature, including taxes with respect to or based upon the transactions or events
occurring at or before the Closing.
5.16 Permits, Licenses, Etc. The Company possesses, and is operating
----------------------
in material compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of governmental bodies, agencies and
instrumentalities thereof necessary to conduct its business as currently
conducted and as proposed to be conducted and for which the failure to obtain,
individually or in the aggregate, would be adverse to the business or financial
condition, profitability, prospects or operations of the Company (collectively,
the "Permits"). Schedule 5.16 contains a true and complete list of all Permits.
Each Permit has been lawfully and validly issued, and no proceeding is pending
or threatened looking toward the revocation, suspension or limitation of any
Permit. The consummation of the transactions contemplated by this Agreement
will not result in the revocation, suspension or limitation of any Permit.
Except as set forth in Schedule 5.16, no Permit requires the consent of its
issuing authority to or as a result of the consummation of the transactions
contemplated hereby.
15
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5.17 Regulatory Filings. The Company has made all required
------------------
registrations and filings with and submissions to federal, state and local
regulatory authorities relating to the operations of the Company as currently
conducted and as proposed to be conducted and for which the failure to obtain,
individually or in the aggregate, would be adverse to the business or financial
condition, profitability, prospects or operations of the Company, including,
without limitation, any such regulatory authorities having jurisdiction over any
matters pertaining to conservation or protection of the environment or the use,
handling or disposal of toxic or hazardous substances. All such registrations,
filings and submissions were in material compliance with applicable law when
filed, no material deficiencies have been asserted by any such authority with
respect to such registrations, filings or submissions and no facts or
circumstances exist which would indicate that a material deficiency may be
asserted by any such authority with respect to any such registration, filing or
submission. There is no environmental litigation or other proceedings pending
or threatened by any governmental body or agency or instrumentality thereof with
respect to the Company's business or operations.
5.18 Consents. All consents, authorizations and approvals of any
--------
court, governmental body or agency or instrumentality thereof or any arbitrator
or any other person to, or as a result of the consummation of the transactions
contemplated by, this Agreement that are necessary in connection with the
operations and business of the Company as currently conducted and as proposed to
be conducted, or for which the failure to obtain the same might have,
individually or in the aggregate, an adverse effect on the business or financial
condition, prospects or operations of the Company, have been obtained by the
Company, except as described in Schedule 5.18 hereto. All consents,
authorizations and approvals described in Schedule 5.18 will be obtained before
the Closing.
5.19 Material Contracts; No Defaults.
-------------------------------
(a) Schedule 5.19(a) hereto contains a true and complete list and
description of all outstanding purchase orders and purchase commitments of the
Company having a gross indicated value in excess of Five Thousand Dollars
($5,000) in the aggregate from any single party. All outstanding purchase
orders and purchase commitments of the Company have been incurred in the usual
and ordinary course of business of the Company, and no purchase order or
purchase commitment of the Company is in excess of the normal, ordinary and
usual requirements of the business of the Company or at an excessive price. The
Company is not a party to any outstanding sales, sales agency, sales
representative or similar contract or agreement.
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<PAGE>
(b) Neither Stockholder, the Company nor any of its officers,
directors or key employees is obligated under any non-competition agreement or
covenant. The Company is not restricted by any agreement from carrying on its
business or engaging in any other activity anywhere in the world, and no such
officer, director, key employee or Stockholder is a party to or otherwise bound
or affected by any agreement, covenant or other arrangement or understanding
that would restrict or impair his or its ability to perform diligently his or
its duties to the Company. There are no non-competition agreements or covenants
in favor of the Company.
(c) Schedule 5.19(c) hereto contains a true and complete list and
description of all contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company with any officer, director,
consultant, key employee or affiliate of the Company or with any associate,
affiliate, or key employee of any affiliate of the Company, other than those
disclosed in Schedule 5.21(a) hereto, in each case a true and complete copy of
such written contract, agreement, understanding, arrangement or commitment or a
true and complete summary of such oral contract, agreement, understanding,
arrangement or commitment shall be delivered to Buyer before the Closing.
(d) Schedule 5.19(d) hereto contains a true and complete list and
description of all other material contracts, agreements, understandings,
arrangements and commitments, written or oral, of the Company by which it or its
properties, rights or assets are bound that are not otherwise disclosed in this
Agreement or the Schedules hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments and true and
complete summaries of such oral contracts, agreements, understandings,
arrangements and commitments have been previously delivered to Buyer. For the
purposes of this paragraph 5.19(d), "material" means any contract, agreement,
understanding, arrangement or commitment that (i) involves performance by any
party more than thirty (30) days from the date hereof, (ii) involves payments or
receipts by the Company in excess of Fifteen Thousand Dollars ($15,000) or (iii)
otherwise materially affects the condition (financial or other), properties, or
business of the Company.
(e) Except as described in Schedule 5.19(e) hereto, no event or
condition has occurred or is alleged to have occurred that constitutes or, with
notice or the passage of time, or both, would constitute a default or a basis of
force majeure or other claim of excusable delay or nonperformance by the Company
or, to the knowledge of Stockholder, any other person under any contract,
agreement, arrangement, commitment or other understanding, written or oral,
described above in this Section 5.19, or described or otherwise disclosed
pursuant to this Agreement, the delay or nonperformance of which may have an
adverse effect on the business or financial condition,
17
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properties, profitability, prospects or operations of the Company. Except as
set forth on Schedule 5.19(e), no person with whom the Company has such a
contract, agreement, arrangement, commitment or other understanding is in
default thereunder or has failed to perform fully thereunder by reason of force
majeure or other claim of excusable delay or nonperformance thereunder, the
delay or nonperformance of which, or a default under which, has had or may have
an adverse effect on the business or financial condition, properties,
profitability, prospects or operations of the Company.
5.20 Absence of Certain Changes. Since the Balance Sheet Date as to
--------------------------
clauses (i), (ii), (iii) and (iv) and since December 31, 1996 as to clauses (v)
through (xv), except as disclosed in Schedule 5.20 hereto, the Company has not:
(i) incurred any debts, obligations or liabilities (absolute, accrued,
contingent or otherwise), other than current liabilities incurred in the usual
and ordinary course of business; (ii) subjected to or permitted a Lien (other
than a Permitted Lien) upon or otherwise encumbered any of its assets, tangible
or intangible; (iii) sold, transferred, licensed or leased any of its assets or
properties except in the usual and ordinary course of business; (iv) discharged
or satisfied any Lien other than a Lien securing, or paid any obligation or
liability other than, current liabilities shown on the Balance Sheet and current
liabilities incurred since the Balance Sheet Date, in each case in the usual and
ordinary course of business; (v) cancelled or compromised any debt owed to or by
or claim of or against it, or waived or released any right of material value;
(vi) suffered any physical damage, destruction or loss (whether or not covered
by insurance) adversely affecting its business or financial condition,
profitability, properties, prospects or operations; (vii) entered into any
material transaction or otherwise committed or obligated itself to any capital
expenditure other than in the usual and ordinary course of business; (viii)
suffered or experienced any adverse change in, or event or condition adversely
affecting, its condition (financial or other), properties, assets, liabilities,
business, operations, results of operations or prospects other than changes,
events or conditions in the usual and ordinary course of business that are not,
individually or in the aggregate, materially adverse to it; (ix) made any change
in the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted; (x) other
than in the ordinary course of business, made or suffered any amendment or
termination of any material contract, agreement, lease or license to which it is
a party; (xi) paid, or made any accrual or arrangement for payment of, any
severance or termination pay to, or entered into any employment or loan or loan
guarantee agreement with, any current or former officer, director or employee or
consultant; (xii) paid, or made any accrual or arrangement for payment of, any
increase in compensation, bonuses or special compensation of any kind to any
18
<PAGE>
employee other than pursuant to any agreement disclosed on Schedule 5.21 hereto
or other than in the usual and ordinary course of business, or paid, or made any
accrual or arrangement for payment of, any increase in compensation, bonuses or
special compensation of any kind to any officer or director of the Company or
any consultant to the Company; (xiii) made or agreed to make any charitable
contributions or incurred any nonbusiness expenses; (xiv) changed or suffered
change in any benefit plan or labor agreement affecting any employee otherwise
than to conform to legal requirements; or (xv) entered into any agreement or
otherwise obligated itself to do any of the foregoing.
5.21 Employees and Labor Matters. Schedule 5.21 hereto contains a
---------------------------
true and complete list of all contracts, agreements, plans, arrangements,
commitments and understandings (formal and informal) pertaining to terms of
employment, compensation, bonuses, profit sharing, stock purchases, stock
repurchases, stock options, commissions, incentives, loans or loan guarantees,
severance pay or benefits, use of Company property and related matters of the
Company with any current or former Company officer, director, employee or
consultant, and true and complete copies of all such contracts, agreements,
plans, arrangements and understandings have been delivered to Buyer before the
Closing. The Company is not obligated under or by any labor, collective
bargaining, union or similar agreements. Except for the employment agreements
listed on Schedule 5.21 hereto and subject to the doctrine of wrongful
termination, Buyer will have no responsibility for continuing any person in the
employ of the Company from and after the Closing. There is not occurring or
threatened any strike, slow down, picket, work stoppage or other concerted
action by any union or other group of employees or other persons against the
Company or its respective premises or products. No union or other labor
organization has attempted or is attempting to organize any of the employees of
the Company. The Company has complied in all material respects with all laws
relating to employment and labor, and, to the knowledge of Stockholder, no facts
or circumstances exist that could provide a basis for a claim of wrongful
termination by any current or former employee of the Company against the
Company.
5.22 Affiliations. Neither Stockholder nor any officer, director or
------------
key employee of the Company or any associate or affiliate of the Company or any
of such persons has, directly or indirectly, (i) an interest in any corporation,
partnership or other entity or person that (A) furnishes or sells, or proposes
to furnish or sell, services or products that are furnished or sold by the
Company or (B) purchases from or sells or furnishes, or proposes to purchase
from or sell or furnish, to the Company any goods or services or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which the Company or any assets of the Company are bound, other than as
described on Schedule 5.22 hereto.
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5.23 Environmental Compliance.
------------------------
(a) For purposes of this Agreement the following terms shall
have the meanings set forth below:
(i) "Premises" means any property or facility the Company owns,
--------
operates, or leases;
(ii) "Hazardous Substances" means, at any time, any substance,
--------------------
material, chemical or waste the presence of which requires investigation or
remediation under, or which is or becomes regulated by, any state or local
governmental authority or the United States, due to its properties of being
toxic, hazardous, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, or mutagenic, including, without limitation, any material,
waste, chemical or substance which is: (1) defined as a "hazardous,"
"extremely hazardous" or "restricted hazardous," waste, material or
substance under the laws of the governmental jurisdiction where the
Premises are located and/or to which the Premises are subject; (2)
petroleum or a petroleum product, including, without limitation, gasoline
and diesel fuel; (3) asbestos or asbestos containing material; (4)
polychlorinated biphenyls; (5) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. (S)1251 et. seq.
-- ---
(33 U.S.C. (S)1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. (S)1317); (6) defined as a Hazardous Waste, pursuant to
Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C.
(S)6901 et. seq. (42 U.S.C. (S)6903); or (7) defined as a "hazardous
-- ---
substance," pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. (S)9601 et. seq.
-- ---
("CERCLA") (42 U.S.C. (S)9601);
(iii) "Hazardous Materials Law" means any national, state, or
-----------------------
local statute, ordinance, order, rule or regulation of any type relating to
pollution or the protection of worker safety, public safety, human health,
natural resources, or the environment, including laws, statutes,
ordinances, rules or regulations relating to the emission, discharge,
release or threatened release, of pollutants, contaminants or Hazardous
Substances into ambient air, surface water, ground water, or land, or
remediation or removal thereof, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or Hazardous Substances, including
without limitation those statutes and regulations referred to in
subparagraph (ii) above, and the Occupational Health and Safety Act (29
U.S.C. (S)651 et. seq.); and
-- ---
20
<PAGE>
(iv) "Loss" means any and all of the following, whether the
----
result of any action of any governmental agency or a third party:
liabilities; penalties; forfeitures; suits; losses; damages; expenses;
debts; obligations; claims; fines or civil liability for violation of any
Hazardous Material Laws; costs (including the costs of investigation,
defense, settlement and attorneys' and other professional fees whether or
not litigation is instituted); or, costs and capital expenditures required
for compliance with Hazardous Materials Laws.
(b) Except as set forth in Schedule 5.23 hereto:
(i) The Company has obtained, and is in full compliance with, all
permits, licenses or other authorizations which are required under any
Hazardous Materials Laws for the operations of the Company;
(ii) To the best knowledge of Stockholder, there are no past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with, or prevent continued
compliance with, Hazardous Materials Laws, or which may give rise to any
Loss based on or related to Hazardous Materials Laws;
(iii) Neither the Company nor the Stockholder has entered into
any agreement with any governmental authority or agency, or with any
private entity, including, but not limited to, any prior owners of the
Premises, relating in any way to violation of Hazardous Materials Laws, or
to the presence, release, threat of release, disposal, placement on, under
or about any of the Premises of Hazardous Substances;
(iv) Neither the Company nor Stockholder has discovered or
caused, and to the best of their knowledge, no other person has discovered
or caused, any discharge, emission, disposal or release of Hazardous
Substances on the Premises, or on property formerly owned, operated or
leased by the Company;
(v) Neither the Company nor Stockholder has discovered, and to
their best knowledge, no other person has discovered, any occurrence or
condition on the Premises or on any real property in the vicinity of the
Premises, which could cause the Premises to be subject to any restrictions
on the ownership, occupancy, transferability, or use under any Hazardous
Materials Laws;
21
<PAGE>
(vi) The Company has not manufactured, stored or disposed of
Hazardous Substances at any location, including, without limitation, any
disposal which was in compliance with Hazardous Materials Laws;
(vii) No underground storage tanks or surface impoundments are
now or ever have been, located on the Premises; and
(viii) No lien in favor of any governmental authority for
(1) any liability under federal, territorial or state environmental laws or
regulations, or (2) damage arising from or costs incurred by such
governmental authority in response to a release of Hazardous Substances
into the environment, has ever been filed or attached to the Premises.
5.24 Disclosure. No representation or warranty of Stockholder or the
----------
Company in this Agreement and no information contained in any Schedule or other
writing delivered pursuant to this Agreement or at the Closing contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
CONCERNING MORTGAGE LOANS AND SERVICING RIGHTS
Stockholder and the Company hereby jointly and severally represent and
warrant to Buyer with respect to the servicing rights ("Servicing Rights") held
by the Company and the underlying mortgage loans ("Mortgage Loans"), as
applicable, that:
6.1 Mortgage Loans as Described. The information set forth in each
---------------------------
mortgage loan schedule ("Mortgage Loan Schedule") provided to Buyer setting
forth information with respect to each Mortgage Loan is complete, true and
correct in all material respects. None of the agreements, including all
exhibits and schedules thereto and all amendments and supplements thereof,
between the Company and any of Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC"), Government National Mortgage
Association ("GNMA"), or any third party or private investor (collectively
referred to herein as "Servicing Agreements") contain any uncustomary, unusual
or burdensome servicing obligations with respect to the Servicing Rights or
contain provisions which vary in any material respect from published Agency (as
defined below) or private investor (collectively referred to herein as "Agency")
standards (the "Guides"), and no waivers with respect to any published or
22
<PAGE>
unpublished Agency rules, regulations, directives and instructions, including,
without limitation, the applicable requirements of the Guides and the Servicing
Agreements have been obtained which adversely affect the credit quality of any
Mortgage Loan. Except as set forth at Schedule 6.1 hereto, all Mortgage Loans
are residential mortgages. For purposes hereof, "Agency" shall refer to FNMA,
FHLMC, GNMA or the private investor with whom the Company has entered into a
Servicing Agreement, as applicable.
6.2 Ownership. The Company is the sole owner and holder of the
---------
Servicing Rights set forth on Schedule 6.2 hereto, and the Servicing Rights have
not been assigned or pledged. The Company has good and marketable interest
therein, and has full right to transfer and sell the Servicing Rights free and
clear of any encumbrance, equity interest, lien, pledge, charge, claim or
security interest, and has full right and authority, subject to no interest of,
or agreement with, any other party, to sell and assign the Servicing Rights.
6.3 No Untrue Information and Servicing Agreements. No statement,
----------------------------------------------
report or other document which is within the control of the Company furnished or
to be furnished before the Closing Date by the Company, its accountants,
officers, employees, auditors, attorneys or agents pursuant to any Agency or
private investor requirement (collectively referred to herein as "Agency
Requirements") contains any untrue statement of a material fact or omits to
state a fact necessary to make the statements contained therein not misleading.
Each of the Servicing Agreements entered into by the Company represents an
executed original or is a certified true and correct copy of the original and in
either case represents true, correct and complete copies of the same. Each of
the Servicing Agreements is in full force and effect and has not been amended,
modified or altered except as the same shall have been provided to Buyer.
6.4 No Inquiries. Except as set forth on Schedule 6.4, the Company
------------
has not been the subject of an audit by an Agency or any provider of a PMI
Insurance Policy, which audit (i) was conducted within the last two years and
included material allegations of failure to comply with applicable loan
origination, servicing or claims procedures, or (ii) resulted in a request for
repurchase of any of the Mortgage Loans or indemnification in connection with
any of the Mortgage Loans.
6.5 Agency Requirements. The Company has performed in all material
-------------------
respects all obligations to be performed under the Agency Requirements, and no
event has occurred and is continuing which, but for the passage of time or the
giving of notice or both, would constitute an event of default under the Agency
Requirements. The Company has serviced the Mortgages and has kept and
maintained complete and accurate books and records in connection therewith, all
in accordance with Agency
23
<PAGE>
Requirements and the Company has remitted to each Agency, as applicable, all
distributions to which it is entitled under the relevant Agency Requirements.
The Company's operations relating to Servicing Rights have been conducted in
full compliance with all material Agency Requirements. Other than the loan
repurchase obligations, notifications and settlements referenced on Schedule 6.4
to this First Amended and Restated Stock Purchase Agreement at the time of its
execution, the Company will not have from such time of execution to the one year
anniversary of the Closing any Mortgage Loan repurchase obligations, requests,
notifications or settlements that relate to Mortgage Loans originated prior to
the Closing.
6.6 Compliance with Insurance Contracts. The Company has complied
-----------------------------------
with all obligations under all applicable insurance contracts, including any
private mortgage insurer with respect to, and which might materially and
adversely affect, the Mortgage Loans and any of the Servicing Rights. The
Company has not taken any action or failed to take any action which might cause
the cancellation of or otherwise materially or adversely affect any of the
insurance or guaranty contracts.
6.7 No Outstanding Charges. The Delinquency Schedules prepared by
----------------------
the Company as of May 31, 1997 and delivered to Buyer are accurate in all
material respects as of the date of such Delinquency Schedules. All taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously became due and
owing have been paid, or, subject to the Company's standard escrow practices in
conformance with federal, state and local laws, an escrow of funds with respect
to taxes and insurance premiums has been established in an amount sufficient to
pay for every such item which remains unpaid and which has been assessed but is
not yet due and payable. The Company has not advanced funds (other than in
accordance with "scheduled to actual" or "scheduled to scheduled" payment
obligations under the applicable Agency Requirements or escrow advances), or
induced, solicited or knowingly received any advance of funds by a party other
than the mortgagor under the Mortgage ("Mortgagor"), directly or indirectly, for
the payment of any amount required under the Mortgage Loan (except for interest
accruing from the date of the promissory note on the Mortgage ("Mortgage Note")
or date of disbursement of the Mortgage Loan proceeds, whichever is greater, to
the day which precedes by one month and due date of the first installment of
principal and interest).
6.8 Mortgage Terms Unmodified. The terms of the Mortgage Note and
-------------------------
Mortgage have not been impaired, waived, altered or modified in any respect by
the Company except by a written instrument which, if necessary, has been
recorded to protect the interests of each of the Agencies. The substance of any
such waiver, alteration or modification has been approved by the affected Agency
to the extent required by the related
24
<PAGE>
Servicing Agreements and by the issuer of any related PMI Policy and the title
insurer, if any, to the extent required by the policy. No Mortgagor has been
released by the Company, in whole or in part, except in connection with an
assumption agreement approved by the related Agency to the extent required by
the related Servicing Agreements and by the issuer of any related PMI Policy and
the title insurer, to the extent required by the policy, and which assumption
agreement is part of the mortgage loan file held by the custodian and the terms
of which are reflected in the Mortgage Loan Schedule.
6.9 No Recourse. Except as set forth at Schedule 6.9, there are no
-----------
provisions applicable to any Mortgage Loan in any master commitment, pool
purchase contract, conversion or other Servicing Agreement, whether described as
a limited repurchase requirement, limited recourse, credit support obligation,
indemnification, or otherwise which would subject the Company to losses on the
liquidation of a Mortgage Loan or which would entitle an Agency to demand the
repurchase of a Mortgage Loan for any circumstances other than those which are
permitted under (i) the "Special Servicing Option" as set forth in Part II,
Chapter 2, Section 201 of the FNMA Selling Guide in the case of FNMA Pools and
(ii) the "Without Recourse" provisions set forth in Section 5306 (b) of the
FHLMC Guide in the case of FHLMC Pools.
6.10 Hazard Insurance. Pursuant to the terms of the Mortgage, to the
----------------
best knowledge of Stockholder, all buildings or other improvements upon the
property subject to the Mortgage ("Mortgaged Property") are insured by an
insurer acceptable to the related Agency in accordance with the related Agency
Requirements against loss by fire, earthquakes, hazards of extended coverage and
such other hazards as are customary in the area where the Mortgaged Property is
located. The Company has not engaged in, and has no knowledge of the
Mortgagor's having engaged in, any act or omission which would impair the
coverage of any such policy, the benefits of the endorsement provided for
therein, or the validity or binding effect of either.
6.11 Coinsurance Claims. To the best knowledge of Stockholder, there
------------------
are no uninsured casualty losses or casualty losses where coinsurance has been
(and Stockholder has no reason to believe, will be) claimed by an insurance
company or where the loss, exclusive of contents, is greater than the recovery,
less actual expenses incurred in such recovery from the insurance carrier. To
the best knowledge of Stockholder, no casualty insurance proceeds have been used
to make repairs to the property subject to the Mortgage (other than with the
consent of applicable Agencies in accordance with Agency Requirements). All
insurance proceeds received by the Company have been properly applied or a
proper accounting has been made.
25
<PAGE>
6.12 Compliance with Applicable Laws. Any and all requirements of
-------------------------------
any federal, state or local law including, without limitation, usury, truth-in-
lending, real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the servicing of the
Mortgage Loans by the Company have been complied with.
6.13 Pools. Each Mortgage included in a pool meets all eligibility
-----
requirements for inclusion in such pool, in accordance with all applicable
Agency Requirements of eligibility for loan pooling. Except as set forth at
Schedule 6.13(a), all of the pools have been finally and properly certified or
re-certified in accordance with applicable laws, regulations and Agency
Requirements. No Mortgage has been bought out of a pool without all required
prior written approvals of the applicable Agency. Except as set forth at
Schedule 6.13(b), the servicing files include all documents necessary in order
for the appropriate custodian to recertify the pools in accordance with Agency
Requirements.
6.14 Limitations on Mortgage Loan Characteristics. No more than five
--------------------------------------------
percent (5%) of the Company's portfolio of Mortgage Loans contain provisions for
graduated payments mortgages, shared appreciation or contingent interest
features, or (except in the case of permitted buy-down loans) interest rate buy-
down's wherein monthly payments are paid or partially paid with funds deposited
in a separate account established by the Company, the Mortgagor or anyone on
behalf of the Mortgagor, or paid by any source other than the Mortgagor, or any
other type of interest rate subsidy or special escrow arrangement. No more than
ten percent (10%) of the Company's portfolio of Mortgage Loans are temporary
Buy-down Loans.
6.15 Custodial and Escrow Accounts Current. All custodial accounts
-------------------------------------
and escrow accounts are maintained by the Company and have been maintained in
accordance with applicable law, the terms of the Mortgage Loans and the
Servicing Agreements related thereto. The escrow payments required by the
Mortgages which have been paid to the Company for the account of the Mortgagor
are on deposit in the appropriate escrow account. All funds received by the
Company in connection with the Mortgage Loans, including, without limitation,
foreclosure proceeds, fire insurance proceeds from fire losses, condemnation
proceeds and principal reductions, have been deposited promptly in the
appropriate Custodial Account or escrow account, and all such funds have been
applied to reduce the principal balance of the Mortgage Loans in question, or
for reimbursement of repairs to the Mortgaged Property or as otherwise required
by applicable law and the Servicing Agreements. As of the Closing Date, all
Custodial Accounts and escrow accounts maintained by the Company shall possess
all funds or other proceeds which have been paid to the Company for the account
of the Mortgagor for deposit therein.
26
<PAGE>
6.16 PMI Policy. To the extent required by each Agency, each
----------
Mortgage Loan is and will be insured by a mortgage insurer acceptable to the
appropriate Agency as to payment defaults by a PMI Policy. All provisions of
such PMI Policy have been and are being complied with in all material respects,
such policy is in full force and effect, and all premiums due thereunder have
been paid. Any Mortgage Loan subject to a PMI Policy obligates the Mortgagor
thereunder to maintain the PMI Policy and to pay all premiums and charges in
connection therewith.
6.17 Title Insurance. Each Mortgage Loan required by the investor to
---------------
be so covered is covered by either (i) an attorney's opinion of title and
abstract of title, the form and substance of which is acceptable to the related
Agency and to prudent mortgage lending institutions making mortgage loans in the
area where the Mortgaged Property is located; or (ii) an ALTA Lender's title
insurance policy or other generally acceptable form of policy or insurance
acceptable to the applicable Agency, and each such title insurance policy is
issued by a title insurer acceptable to the affected Agency and qualified to do
business in the jurisdiction where the Mortgaged Property is located, insuring
the Company, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the Mortgage Loan. Such lender's
title insurance policy is in full force and effect and will be in force and
effect upon the consummation of the transactions contemplated by this Agreement.
The Company has not done, by act or omission, anything which would impair the
coverage of such lender's title insurance policy.
6.18 No Defaults. The Company has not waived any default, breach,
-----------
violation or event of acceleration on any Mortgage Loans without the appropriate
consent of the applicable Agency.
6.19 Acceptable Investment. To the best knowledge of Stockholder,
---------------------
there are no circumstances or conditions with respect to the Mortgage Loans, the
underlying Mortgaged Property, the Mortgagor or the Mortgagor's credit standing
that can reasonably be expected to cause the related Agency to regard the
Mortgage Loan or the relating Servicing Rights as an unacceptable investment,
cause the Mortgage Loan to become delinquent, or adversely affect the volume or
marketability of the Mortgage Loan or the related Servicing Rights.
6.20 Collection Practices; Escrow Deposits. The collection practices
-------------------------------------
used with respect to the Mortgage Loans have been in accordance with the related
Agency Requirements, and have been in all material respects legal and proper.
With respect to escrow deposits and escrow payments, all such payments shall be
in the possession of the Company by the Closing Date and there exist no
deficiencies in connection therewith for which customary
27
<PAGE>
arrangements for repayment thereof have not been made. No escrow deposits or
escrow payments or other charges or payments due the Company have been
capitalized under the Mortgage or the Mortgage note.
6.21 Notice of Relief Requested Pursuant to the Soldiers and Sailors
---------------------------------------------------------------
Relief Act of 1940 or Similar Laws. The Company has received notices from
- ----------------------------------
Mortgagors and other parties with respect to Mortgage Loans (representing less
than one percent (1%) of the Company's portfolio of Mortgage Loans with respect
to requests) for relief pursuant to or invoking any of the provisions of the
Soldiers and Sailors Relief Act of 1940 or similar state or federal law
suspending payments of amounts due under the Mortgage Loan Documents or
suspending the commencement of foreclosure proceedings.
6.22 Tax Service Contracts. To the best knowledge of Stockholder,
---------------------
there is a tax service contract in place for each Mortgage Loan serviced for an
Agency and with respect to which the Company maintains an escrow account with
Imperial Bank.
6.23 Approved Seller/Servicer. At all relevant times, the Company
------------------------
has been and will be a FHA, VA, FNMA, GNMA and FHLMC approved mortgagee, lender
and seller/servicer as applicable to the extent required to be approved and
fully authorized to service the Mortgage Loans. To the best of Stockholder's
knowledge, there has been no occurrence of any event that could obligate Buyer
or the Company to repurchase any Mortgage Loans in accordance with Agency
Requirements or cause the cancellation of the Servicing Rights or any material
changes in procedures with respect to the Mortgage loans.
6.24 Adjustable Rate Mortgage Loan Errors. The Company has not made
------------------------------------
any errors relating to the adjustment of mortgage interest rates which may
result in any loss, expense, claim or legal damages, and no liabilities, whether
accrued, absolute, contingent or otherwise exist with respect to the Company's
general administration of adjustable rate mortgage loans.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Stockholder that:
7.1 Organization and Good Standing. Buyer has been duly organized
------------------------------
and is existing as a corporation in good standing under the laws of the State of
Nevada with full corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby.
28
<PAGE>
7.2 Corporate Acts and Proceedings. This Agreement has been duly
------------------------------
authorized by all necessary corporate action on behalf of Buyer, and has been
duly executed and delivered by authorized officers of Buyer and constitutes a
legal, valid and binding agreement of Buyer enforceable against Buyer in
accordance with its terms. All corporate action necessary on the part of Buyer
for the consummation of the matters described herein has been taken by Buyer, or
will be taken by Buyer on or before the Closing Date.
7.3 No Conflicts. The execution, delivery and performance of this
------------
Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby will not conflict with or result in the violation of the
provisions of the Certificate of Incorporation or Bylaws of Buyer.
7.4 Shares of VMN Common Stock. The shares of VMN Common Stock to
--------------------------
be issued to Stockholder hereunder have been reserved for issuance, and when
issued will be duly authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions, except as provided herein by Sections 12.4, 14.2 and 14.3.
7.5 Securities Laws. Based in part upon the representations and
---------------
warranties of Stockholder contained in Sections 4 and 5 hereof, no consent,
authorization, approval, permit or order of or filing with any governmental or
regulatory authority is required under current laws and regulations in
connection with the execution and delivery of this Agreement or the offer,
issuance or sale of the VMN Common Stock other than the qualification thereof,
if required, under applicable state securities laws, which qualification, if
required, will be effected as a condition of these sales. Under the
circumstances contemplated hereby, the offer, issuance and sale of the VMN
Common Stock will not under current laws and regulations require compliance with
the prospectus delivery or registration requirements of the Securities Act.
7.6 Capital Stock. The authorized capital stock of Buyer consists
-------------
of 25,000,000 shares of common stock and 10,000,000 shares of preferred stock.
As of the date of this Agreement, there are 5,991,156 shares of VMN Common Stock
and 2,400,000 shares of Series A Preferred Stock issued and outstanding. All of
the outstanding shares of capital stock of Buyer were duly authorized and
validly issued and are fully paid and nonassessable, except for 150,000 shares
of Series A Preferred Stock which are over-subscribed. There are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
convertible securities or other agreements or arrangements of any character or
nature whatsoever, except as otherwise disclosed in Schedule 7.6 hereto or as
contemplated by this Agreement, under which Buyer is or may be obligated to
issue
29
<PAGE>
capital stock or other securities of any kind representing an ownership interest
or contingent ownership interest in the Company.
7.7 Disclosure. No representation or warranty of Buyer in this
----------
Agreement and no information contained in any schedule or other writing
delivered pursuant to this Agreement or at the Closing contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
7.8 Investment Intent. The Shares being acquired by Buyer hereunder
-----------------
are being purchased for Buyer's own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act. Buyer understands that the Shares have not
been registered under the Securities Act or any applicable state laws by reason
of their issuance or contemplated issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act and such
laws, and that the reliance of the Company and Stockholder upon this exemption
is predicated in part upon this representation and warranty. Buyer further
understands that the Shares may not be transferred or resold without (a)
registration under the Securities Act and any applicable state securities laws,
or (b) an exemption from the requirements of the Securities Act and applicable
state securities laws.
ARTICLE VIII
COVENANTS OF STOCKHOLDER AND THE COMPANY
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and Stockholder jointly and severally agree
(except as expressly contemplated by this Agreement or to the extent that an
officer of Buyer shall otherwise request) that:
8.1 Access. The Company and Stockholder shall afford to Buyer and
------
to its accountants, counsel and other representatives reasonable access during
normal business hours during the period before and on the Closing Date to the
properties, books, records, officers, directors and employees of the Company
and, during such period, shall furnish promptly to Buyer, without request, a
copy of each report, notice and other document filed or received by, or on
behalf of, the Company during such period pursuant to the requirements of
applicable regulatory law and, upon request, all other information pertaining to
the business, properties, operations and personnel of the Company. Buyer and
Buyer's representatives shall be permitted to visit the Company during business
hours and upon reasonable notice to inspect the files, tax, insurance and all
30
<PAGE>
accounting records and histories of the Mortgage Loans and other communications
related to the Company's compliance with servicing requirements and regulations.
The Company agrees to make such information available and to allow Buyer's
representatives to converse with the Company's employees regarding the status of
servicing of the Mortgage Loans. Buyer will hold such information in strict
confidence until such time as such information otherwise becomes publicly
available through no action of Buyer, and, if this Agreement is terminated in
accordance with Section 13.1 hereof, Buyer will return to Stockholder and the
Company all documents, work papers and other materials obtained from Stockholder
or the Company, whether so obtained before or after the execution hereof, and
will use its best efforts to have information so obtained kept confidential.
Buyer and Buyer's representatives shall be permitted to visit the premises of
all custodian(s) during business hours and with reasonable notice and review
documentation related to the Mortgages. The Company agrees to make necessary
arrangements for Buyer to review said documents and converse with such
custodian's staff. The Company and Stockholder shall also afford comparable
access to the same persons and information to all financial institutions
(including, without limitation, banks, finance companies, underwriters and their
counsel and other sources of debt or equity financing) that are prospective
sources of financing to Buyer for the purchase of the Shares.
8.2 Obtaining Approvals. Stockholder hereby represents that he has
-------------------
approved the Agreement and the consummation of the transactions contemplated
hereby in his capacity as the sole Stockholder of the Company. Stockholder and
the Company agree that they shall use their best efforts to obtain (and to
cooperate with Buyer in obtaining) any consent, authorization or approval of, or
exemption by, any governmental body or agency or instrumentality thereof
required to be obtained or made by Stockholder or the Company or by any of their
affiliates (or by Buyer or by any of its affiliates) in connection with the
transactions contemplated by this Agreement, and shall obtain before the Closing
each consent to, and authorization or approval of any other person to, the
consummation of the transactions contemplated hereby that are required or that
have been disclosed in Schedules 5.5(c), 5.10, 5.16 and/or 5.18 hereto.
8.3 Permits. Stockholder shall cause the Company to maintain, and
-------
the Company shall maintain, its good standing and to continue to comply with all
Permits.
8.4 Insurance. Stockholder shall cause the Company to maintain, and
---------
the Company shall maintain, in force each insurance policy or bond and self
insurance arrangement described in Schedule 5.9(b) hereto or to obtain and
maintain insurance having the same risk of loss and coverage, dollar limitations
of coverage, deductible features and principal exclusions as those
31
<PAGE>
policies, bonds or arrangements that, through no action by the Company or by
Stockholder, is cancelled or otherwise becomes nonrenewable before the Closing.
8.5 Supplements to Schedules. Stockholder shall deliver to Buyer
------------------------
before the Closing a written statement disclosing any untrue statement of a
material fact in this Agreement or any Schedule hereto (or supplement thereto)
or document furnished pursuant hereto, or any omission to state any material
fact required to make the statements herein or therein contained complete and
not misleading, promptly upon the discovery of such untrue statement or
omission, accompanied by a written supplement to any Schedule to this Agreement
that may be affected thereby; provided, however, that the disclosure of such
untrue statement or omission shall not relieve Stockholder of its liability to
Buyer in respect of any loss, expense, claim or legal damages arising from any
original untrue or misleading statement.
8.6 New Transactions. Before the Closing Date, the Company will
----------------
not: (i) enter into any contract, commitment, or transaction not in the usual
and ordinary course of its business; (ii) enter into any contract, commitment,
or transaction in the usual and ordinary course of business involving an amount
exceeding Ten Thousand Dollars ($10,000) individually, or Twenty-Five Thousand
Dollars ($25,000) in the aggregate; (iii) make any capital expenditures in
excess of Two Thousand Dollars ($2,000) for any single item or Five Thousand
Dollars ($5,000) in the aggregate, or enter into any leases of capital equipment
or property under which the annual lease charge is in excess of Ten Thousand
Dollars ($10,000); (iv) sell or dispose of any capital assets; or (v) agree to
do any of the above listed acts.
8.7 Payment of Liabilities and Waiver of Claims. The Company will
-------------------------------------------
not do, or agree to do, any of the following acts: (i) pay any obligation or
liability, fixed or contingent, other than current liabilities; (ii) waive or
compromise any right or claim; or (iii) cancel, without final payment, any note,
loan, or other obligation owing to the Company.
8.8 Financial Statements Pending Closing; Cooperation With Offering.
---------------------------------------------------------------
The Company will furnish Buyer from time to time until the Closing Date with
copies of regular monthly financial statements of the Company with the
supporting schedules ("Subsequent Financial Statements"). Any Subsequent
Financial Statements will have been prepared in accordance with generally
accepted accounting principles consistently applied (provided, however, the
Subsequent Financial Statements may not necessarily reflect all footnotes and
schedules which may be appropriate for GAAP presentation), will fairly set forth
the results of operations of the Company for the periods indicated, and will
fairly present the financial condition of the Company as at the dates indicated.
The Subsequent Financial Statements
32
<PAGE>
shall be derived from the accounting records of the Company and represent only
actual, bona fide transactions. The Subsequent Financial Statements shall be
true and correct in all material respects. Stockholder and the Company
understand and agree that the Subsequent Financial Statements together with the
Audited Financial Statements and Interim Financial Statements and information
derived therefrom will be needed by Buyer for use in its registration statement
relating to the Offering, and they agree to make such financial statements and
information (together with related auditor reports and consents) available and
to cooperate fully with respect to the Offering, including, without limitation,
the due diligence which will be performed in connection with the Offering and
the preparation of the related registration statement. Buyer shall be
responsible for the fees and expenses of the auditors of the Company that are
incurred in connection with the registration statement.
8.9 Best Efforts. The Company and Stockholder shall use their best
------------
efforts to bring about the satisfaction of the conditions precedent to Closing
set forth in Section 11.2 of this Agreement.
8.10 Due Care in Servicing; Examination of Records. Until the
---------------------------------------------
Closing, Stockholder shall cause the Company to continue to, and the Company
shall continue to, service the Mortgage Loans in accordance with the
requirements of the Mortgage Loan documents, all applicable Agency rules,
regulations, and guidelines and all other applicable laws and regulations.
Stockholder shall cause the Company to keep, and the Company shall keep, a
complete, accurate and separate account of and properly apply all funds
collected by it from the Mortgagors on account of each Mortgage Loan, including,
but not limited to, all principal and interest payments, taxes, assessments and
other public charges and flood and hazard insurance premiums. Buyer's personnel
shall have the right at reasonable times and from time to time to examine all
files, documents, ledgers, computer printouts, papers, and records pertaining to
the Mortgage Loans.
8.11 Agency Consent. To the extent applicable, the Company shall
--------------
submit to the Agency the forms and information required by the Agency
regulations, rules or guidelines for the approval of the transfer of the Shares
and Servicing Rights on a timely basis, subject to Agency cooperation. The
Company shall obtain such consent from the Agency before the Closing at its sole
cost and expense.
8.12 Mortgage Insurance Consents. To the extent applicable, the
---------------------------
Company shall mail by certified mail (with a copy to Buyer) to all mortgage
insurers any form, notice, consent, request and information required by each
Mortgage Loan insurer for the transfer of the Shares and Servicing Rights on a
timely
33
<PAGE>
basis. The Company shall obtain such consents, to the extent required, at its
sole cost and expense.
ARTICLE IX
COVENANTS OF BUYER
During the period commencing on the date hereof and continuing through
the Closing Date, Buyer agrees (except as expressly contemplated by this
Agreement or to the extent that Stockholder shall otherwise request) that:
9.1 Compliance with Legal Requirements. Buyer shall comply promptly
----------------------------------
with all requirements that applicable law may impose upon it with respect to the
transactions contemplated by this Agreement, and shall cooperate promptly with,
and furnish information to, Stockholder and the Company in connection with any
such requirements imposed upon Stockholder or the Company, or upon any of their
affiliates, in connection therewith or herewith.
9.2 Obtaining Approvals. Buyer shall use its best efforts to obtain
-------------------
(and to cooperate with Stockholder and the Company in obtaining) any consent,
authorization or approval of, or exemption by, any governmental body or agency
or instrumentality thereof, or other person, required to be obtained or made by
Buyer or by any of its affiliates (or by Stockholder or the Company or by any of
their affiliates) in connection with the transactions contemplated by this
Agreement. Notwithstanding anything to the contrary in this Agreement, it shall
be the responsibility and obligation of the Company and Stockholder to ensure
that all Permits, licenses, consents and other governmental approvals
(including, but not limited to, any such Permits, licenses, consents or
approvals relating to the Servicing Rights) required to be obtained in
connection with this Agreement and the matters contemplated hereby sufficient
for the Company to operate its business in substantially the same fashion after
the Closing as currently conducted are obtained before the Closing; provided,
--------
however, that the Company and Stockholder shall not be responsible for the
- -------
failure to obtain any of the foregoing due solely to the identity or financial
status of Buyer.
9.3 Best Efforts. Buyer shall use its best efforts to bring about
------------
the satisfaction of the conditions precedent to Closing set forth in Section
11.1 of this Agreement.
34
<PAGE>
ARTICLE X
CONDUCT OF THE COMPANY'S
BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and Stockholder jointly and severally agree
(except as expressly contemplated by this Agreement or to the extent that an
officer of Buyer shall otherwise request) that:
10.1 Organization; Qualification. The Company shall not amend,
---------------------------
restate or otherwise modify its Articles of Incorporation or Bylaws and shall
maintain all qualifications to transact business as a foreign corporation and
remain in good standing in each of the jurisdictions set forth on Schedule 5.1
hereto.
10.2 Ordinary Course. The Company shall conduct its business in, and
---------------
only in, the usual, regular and ordinary course in substantially the same manner
as theretofore conducted and, to the extent consistent with such business, use
all reasonable efforts to preserve intact its current business organization, to
keep available the services of its current officers and employees, to maintain
all Permits and to preserve its relationships with customers, suppliers and
others having business dealings with it to the end that its goodwill and going
business shall be unimpaired at the Closing Date. The Company shall maintain
insurance coverage at least equal to that in effect on the date hereof on all of
its properties and on all properties for which it is responsible and carry the
same coverage of public liability, personal injury and property damage that is
now in effect; the Company shall maintain its assets and properties in good
condition and repair. The Company shall refrain from acquiring the stock or
obligations of any corporation or any proprietary interest in or obligations of
any business enterprise. The Company shall refrain from making any capital
expenditures, other than those that it is obligated to make under an agreement
disclosed in Schedule 5.19 hereto.
10.3 Dividends; Capital Stock. Except in connection with the
------------------------
Divested Businesses and only to such extent, the Company shall not (i) declare
any dividends on, or make other distributions in respect of, any shares of
Capital Stock; (ii) issue, authorize or propose the issuance of, or purchase or
propose the purchase of, any shares of Capital Stock or securities convertible
into or exchangeable for, or rights, warrants or options to acquire, any such
shares or other convertible or exchangeable securities; (iii) change the
outstanding shares of Capital Stock into a different number of shares of the
same or different class by reason of any reclassification, recapitalization,
forward stock split, reverse stock split, combination, exchange of shares or
readjustment, or
35
<PAGE>
declare a stock dividend thereon; or (iv) obligate itself to do any of the
foregoing.
10.4 Accounting. The Company shall not make any change in the
----------
accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted by it. The
Company shall maintain its consolidated books, records and accounts in
accordance with GAAP applied on a basis consistent with that of the Audited
Financial Statements.
10.5 Indebtedness. The Company shall not incur any Indebtedness
------------
other than current liabilities incurred in the usual and ordinary course of
business. The Company shall refrain from paying any obligation or liability,
absolute or contingent, except current liabilities shown on the Balance Sheet or
current liabilities incurred since the Balance Sheet Date in the usual and
ordinary course of business.
10.6 Compliance with Legal Requirements. The Company shall comply
----------------------------------
promptly with all requirements that applicable law may impose upon it with
respect to the conduct of its business and operations and with respect to the
transactions contemplated by this Agreement, and shall cooperate promptly with,
and furnish information to, Buyer in connection with any such requirements
imposed upon Buyer or the Company, or upon any of their affiliates, in
connection therewith or herewith.
10.7 Competing Offers; Merge or Liquidate. Neither Stockholder nor
------------------------------------
the Company shall, nor shall they authorize or permit any officer, director or
employee of, or any investment banker, attorney, accountant or other
representative of the Company or Stockholder or any affiliate of any of them, to
solicit or encourage (including by way of furnishing nonpublic information) any
inquiries or the making of any proposal that may reasonably be expected to lead
to any proposal of partial or total acquisition of the Company or its assets
(collectively "Inquiry or Proposal"). The Company shall not commence any
proceeding to merge, consolidate or liquidate or dissolve or obligate itself to
do so. In the event Stockholder, the Company or any officer, director or
employee of the Company, or investment banker, attorney, accountant or other
representative of the Company or Stockholder or any affiliate of any of them,
receives an Inquiry or Proposal, Stockholder and/or the Company shall promptly
notify Buyer by telephone and telecopy of such fact and shall transmit to Buyer
a copy of any such written Inquiry or Proposal.
10.8 Disposition of Assets. The Company shall not cede, transfer,
---------------------
license, lease or otherwise dispose of, or suffer or cause the encumbrance by
any Lien (other than a "Permitted Lien") upon, any of its properties or assets,
tangible or
36
<PAGE>
intangible, or any interest therein, except in the usual and ordinary course of
business.
10.9 Executive Compensation. The Company shall not pay, or make any
----------------------
accrual or arrangement for payment of, any increase in compensation, bonuses or
special compensation of any kind, or any severance or termination pay to, or
enter into any employment or loan or loan guarantee agreement with, any current
or former officer, director, employee or consultant of the Company, except as
may be required under employment or termination agreements in effect before the
date hereof.
10.10 Employee Benefit Arrangements. The Company shall not adopt or
-----------------------------
amend in any material respect any employee pension, profit-sharing, retirement,
bonus, deferred compensation, insurance, incentive compensation, severance,
thrift, vacation or other plan, agreement, trust fund or arrangement for the
benefit of its employees (whether or not legally binding) other than amendments
of existing benefit plans effected after consultation with Buyer that are
necessary to conform to legal requirements or to consummate the transactions
contemplated by this Agreement.
10.11 Claims; Discharge; Litigation. The Company shall not cancel,
-----------------------------
compromise, release or discharge any claim of the Company upon or against any
person or waive any right of the Company of material value, and shall not
discharge any Lien (other than "Permitted Liens") upon any asset of the Company
or compromise any debt or other obligation of the Company to any person other
than Liens, debts or obligations with respect to current liabilities of the
Company. The Company shall not institute, settle or agree to settle any action
or proceeding before any court or governmental body, other than in the usual and
ordinary course of business.
10.12 Modification or Breach of Agreements; New Agreements. The
----------------------------------------------------
Company shall not terminate or modify, or commit or cause or suffer to be
committed any act that will result in breach or violation of any term of or
(with or without notice or passage of time, or both) constitute a default under
or otherwise give any person a basis for nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement, instrument, arrangement or understanding, written or oral, disclosed
in this Agreement or the Schedules hereto. The Company shall refrain from
making or becoming a party to any contract or commitment other than in the usual
and ordinary course of business. The Company shall meet all of its contractual
obligations in accordance with their respective terms.
10.13 Inconsistent Action. Stockholder shall not take, and shall not
-------------------
permit the Company to take, and the Company shall not take, or cause or suffer
to be taken, any action that
37
<PAGE>
would cause any of the representations or warranties of Stockholder or the
Company in this Agreement to be untrue, incorrect, incomplete or misleading.
ARTICLE XI
CONDITIONS PRECEDENT TO CLOSING
11.1 Conditions of Buyer. Notwithstanding any other provision of
-------------------
this Agreement, and except as set forth below, the obligations of Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the following conditions, each of which is waivable by Buyer:
(a) No Injunctions. No preliminary or permanent injunction or other
--------------
order by any United States federal or state court or by any governmental body or
agency or instrumentality thereof that prevents the consummation of the
transactions contemplated by this Agreement shall have been issued and remain in
effect;
(b) No Governmental Action. There shall not be instituted or pending
----------------------
or threatened any action or proceeding by any governmental body or agency or
instrumentality thereof, domestic or foreign, (i) challenging the acquisition by
Buyer of the Shares or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated by this Agreement or seeking
material damages in connection therewith or (ii) seeking to restrain or prohibit
Buyer's direct or indirect ownership or operation of all or a material portion
of the business or assets of Buyer or the Company or to compel Buyer or the
Company to dispose of or hold separate all or a material portion of their
respective businesses or assets as a result of the transactions contemplated by
this Agreement, which, in either case, in the reasonable judgment of Buyer,
would possibly result in the relief sought being obtained;
(c) Legal Prohibition. There shall not be any action taken, or any
-----------------
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable by Buyer to the Company or the consummation of the transactions
contemplated by this Agreement by any United States federal or state
governmental body or agency or instrumentality thereof or court that (i) would
prohibit Buyer's direct or indirect ownership or operation of all or a material
portion of the business or assets of Buyer or the Company, or would compel Buyer
to dispose of or hold separate all or a material portion of the business or
assets of, or adversely affect, Buyer or the Company as a result of the
consummation of the transactions contemplated by this Agreement, (ii) would
render Buyer or Stockholder unable to consummate the transactions
38
<PAGE>
contemplated by this Agreement, or (iii) would make such consummation illegal;
(d) Representations and Warranties. The representations and
------------------------------
warranties of Stockholder and the Company and the agreements of the Company and
Stockholder set forth herein shall be true and correct in all material respects
on and as of the Closing Date with the same effect as if made on the Closing
Date (provided that those representations and warranties which address matters
only as of a particular date shall be true and correct as of such date) and the
Company and Stockholder shall have complied, in all material respects, with all
covenants and agreements and satisfied, in all material respects, all conditions
on their parts to be performed or satisfied on or before the Closing Date;
(e) Certificate of Stockholder. Buyer shall have received a
--------------------------
certificate of Stockholder to the effect that the representations and warranties
of the Company and the Stockholder are true and correct as of the Closing Date
as though made on and as of the Closing Date (provided that those
representations and warranties which address matters only as of a particular
date shall be true and correct as of such date) and that the Company and the
Stockholders have performed, complied with and satisfied all covenants,
agreements and conditions required by this Agreement to be performed, complied
with and satisfied by them on or prior to the Closing Date;
(f) Certificate of Chief Executive Officer. Buyer shall have received
--------------------------------------
a certificate of the Chief Executive Officer of the Company to the effect that
the representations and warranties of the Company are true and correct as of the
Closing Date as though made on and as of the Closing Date (provided that those
representations and warranties which address matters only as of a particular
date shall be true and correct as of such date) and that the Company has
performed, complied with and satisfied all covenants, agreements and conditions
required by this Agreement to be performed, complied with and satisfied by it on
or prior to the Closing Date;
(g) Other Deliveries. The Company shall have delivered, or caused to
----------------
be delivered, to Buyer (i) a certificate of good standing from the Secretary of
State of California and of comparable authority in other jurisdictions in which
the Company is qualified to do business stating that it is a validly existing
corporation in good standing, (ii) duly adopted resolutions of the Board of
Directors and shareholders of the Company approving the execution, delivery and
performance of this Agreement and the instruments contemplated hereby, certified
by the Secretary of the Company, and (iii) a true and complete copy of the
articles of incorporation, as amended, of the Company certified by the Secretary
of State of California, and a true and complete copy of
39
<PAGE>
the Bylaws, as amended, of the Company certified by the Secretary of the
Company;
(h) Employment and Noncompetition Agreements. Stockholder shall have
----------------------------------------
executed and delivered to Buyer a Noncompetition Agreement in a form reasonably
acceptable to Buyer and its legal counsel (the "Sutter Noncompetition
Agreement"). Morck shall have executed and delivered to Buyer an Employment
Agreement in a form reasonably acceptable to Buyer and its legal counsel (the
"Morck Employment Agreement");
(i) Delivery of Updated Delinquency Schedule. The Company shall
----------------------------------------
promptly deliver to Buyer, following preparation thereof, an updated Delinquency
Schedule reflecting all outstanding delinquencies as of the most recent month
end preceding the Closing Date by more than 15 days and such updated Delinquency
Schedule shall not indicate a materially greater volume of delinquencies.
(j) Resignations. To the extent applicable, each of the members of
------------
the Board of Directors of the Company so requested by Buyer and each of the
Company's officers and other employees so requested by Buyer shall have
submitted their resignations, in form and content satisfactory to Buyer, and
effective as of the Closing Date;
(k) Consents Obtained. The Company and Stockholder shall have
-----------------
received, and furnished copies thereof to Buyer, all necessary consents to their
performance of this Agreement, together with certificates of confirmation
satisfactory to Buyer's counsel from the respective lessors of any of the
Company's leases that such leases are in full force and effect; that so far as
it knows, no default exists thereunder and no event has occurred which would be
a default upon the passage of a period of time or upon the giving of notice; and
that any options contained in such leases in favor of the Company which have not
by the express terms of such leases lapsed or expired are still fully effective
and exercisable in accordance with the terms of the respective leases;
(l) No Adverse Changes. Between the date of this Agreement and the
------------------
Closing Date, except for the distribution of the Divested Businesses, there
shall not have occurred any damage, destruction or loss of any of the assets of
the Company or its subsidiaries, whether or not covered by insurance, which has
had or may reasonably be expected to have a material and adverse effect on the
business of the Company or its subsidiaries or any prospects of the Company or
its subsidiaries nor shall there have occurred any other event or condition
which has had or which reasonably may be expected to have a material and adverse
effect on the results of operations, condition (financial or otherwise),
properties, business, or prospects of the Company or its subsidiaries;
40
<PAGE>
(m) Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments, schedules, exhibits and other documents delivered to
Buyer under this Agreement shall be reasonably satisfactory to Buyer and its
counsel; and
(n) Permits, Licenses and Approvals. Stockholder and the Company
-------------------------------
shall have completed all matters required to be completed to ensure that all
Permits, licenses, consents and other governmental approvals (including, but not
limited to, any such Permits, licenses, consents or approvals relating to the
Servicing Rights) required to be obtained in connection with this Agreement and
the matters contemplated hereby sufficient for the Company to operate its
business in substantially the same fashion after the Closing as currently
conducted have been obtained.
11.2 Conditions of Stockholder. Notwithstanding any other provision
-------------------------
of this Agreement, and except as set forth below, the obligations of Stockholder
to consummate the transactions contemplated by this Agreement shall be subject
to the following conditions, each of which is waivable by Stockholder:
(a) No Injunctions. No preliminary or permanent injunction or other
--------------
order by any United States federal or state court or by any governmental agency
or instrumentality that prevents the consummation of the transactions
contemplated by this Agreement shall have been issued and remain in effect;
(b) No Governmental Action. There shall not be instituted or pending
----------------------
or threatened any action or proceeding by any governmental body or agency or
instrumentality thereof, domestic or foreign, (i) challenging the acquisition by
Buyer of the Shares or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated by this Agreement or seeking
material damages in connection therewith or (ii) seeking to restrain or prohibit
Buyer's direct or indirect ownership or operation of all or a material portion
of the businesses or assets of Buyer or the Company or to compel Buyer or the
Company to dispose of or hold separate all or a material portion of their
respective businesses or assets as a result of the consummation of the
transactions contemplated by this Agreement, which, in either case, in the
reasonable judgment of Stockholder, would probably result in the relief sought
being obtained;
(c) Legal Prohibition. There shall not be any action taken, or any
-----------------
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable by Stockholder to the consummation of the transactions contemplated
by this Agreement by any United States federal or state governmental body or
agency or instrumentality thereof or court that (i) would prohibit Buyer's
direct or indirect ownership or operation of all or a material portion of the
business or assets of Buyer or the
41
<PAGE>
Company, or would compel Buyer to dispose of or hold separate all or a material
portion of the business or assets of, or otherwise adversely affect, Buyer or
the Company as a result of the consummation of the transactions contemplated by
this Agreement, (ii) would render Buyer or Stockholder unable to consummate the
transactions contemplated by this Agreement, or (iii) would make such
consummation illegal;
(d) Representations and Warranties. The representations and
------------------------------
warranties of Buyer in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on the
Closing Date (provided that those representations and warranties which address
matters only as of a particular date shall be true and correct as of such date)
and Buyer shall have complied, in all material respects, with all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied, in all material respects, on or before the Closing Date; and
(e) Certificate of Chief Executive Officer. Stockholder shall have
--------------------------------------
received a certificate of the Chief Executive Officer of Buyer to the effect
that the representations and warranties of Buyer are true and correct as of the
Closing Date as though made on and as of the Closing Date (provided that those
representations and warranties which address matters only as of a particular
date shall be true and correct as of such date) and that Buyer has performed,
complied with and satisfied all covenants, agreements and conditions required by
this Agreement to be performed, complied with and satisfied by Buyer on or prior
to the Closing Date.
ARTICLE XII
OTHER AGREEMENTS
12.1 Registration and Disposition of VMN Common Stock. Buyer agrees
------------------------------------------------
that the shares of VMN Common Stock to be issued to Stockholder pursuant to
Section 1.2(a) herein shall be registered under the Securities Act of 1933, as
amended, pursuant to the same registration statement filed by Buyer to effect
the Offering or pursuant to a similar registration statement declared effective
at or about the same time as the aforementioned registration statement.
12.2 Pledge and Security Agreement. On the Closing Date, Stockholder
-----------------------------
shall execute and deliver to Buyer a pledge and security agreement (the "Pledge
and Security Agreement"), which shall provide for a pledge of and security
interest in $1.5 million of the Cash Payment as security for the indemnification
obligations of Stockholder set forth in Section 14.2. Such pledged cash shall
also be subject to the provisions of Section 14.3 hereof. The Pledge and
Security Agreement shall be in a
42
<PAGE>
customary form that is reasonably acceptable to Stockholder and Buyer.
12.3 Lock-up Agreement. Stockholder agrees that the shares of VMN
-----------------
Common Stock issued to Stockholder hereunder together with any and all interests
therein in any form whatsoever shall be subject to a 180-day lock-up period
(from the date of the closing of Buyer's Offering). In addition, Stockholder
agrees to execute a customary form of lock-up agreement with the underwriters of
the Offering to further evidence this lock-up agreement. Stockholder agrees to
execute such lock-up agreement upon the request of Buyer or such underwriters,
and further agrees that he will not transfer or distribute (by way of dividend
or otherwise) any shares of such VMN Common Stock or interests therein unless
and until Buyer and the underwriters have agreed to such transfer or
distribution and, in cases where the transfer or distribution is effected other
than through the public market, the transferee of such shares or interests
therein has entered into a similar lock-up agreement. Stockholder understands
and agrees that stop transfer instructions will be given to Buyer's transfer
agent to enforce the terms of the foregoing lock-up agreement. At the
expiration of the 180-day lock-up period, Stockholder shall cooperate with Buyer
and the underwriters of the Offering to provide for orderly disposition of his
shares, but shall not be prevented by Buyer from engaging in any legally
effected sale.
12.4 Press Releases; Public Announcements. No press release or other
------------------------------------
public announcement or disclosure with respect to the transactions contemplated
by this Agreement shall be made except upon the mutual agreement of the parties,
unless Buyer shall be required by law, in the reasonable judgment of its legal
counsel, to make such an announcement or disclosure.
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVER
13.1 Termination. This Agreement may be terminated at any time
-----------
before the Closing Date:
(a) by mutual agreement of the parties hereto; or
(b) by any party hereto if the Closing has not occurred on or
before December 31, 1997; or
(c) by Buyer if (i) at any time there has been a material
misrepresentation, breach of warranty or breach of covenant by Stockholder or
the Company under this Agreement or (ii) any of the conditions precedent to
Closing set forth in Section 11.1 of this Agreement have not been met on, or are
43
<PAGE>
reasonably incapable of being met by, the Closing Date, and, in each case, Buyer
is not then in default of its obligations hereunder; or
(d) by Stockholder if (i) at any time there has been a material
misrepresentation, breach of warranty or breach of covenant by Buyer under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 11.2 of this Agreement have not been met on, or are reasonably incapable
of being met by, the Closing Date, and, in each case, Stockholder is not then in
default of its obligations hereunder; or
(e) by Buyer if at any time on or prior to the 30th day immediately
following the Disclosure Schedules Delivery Date, Buyer determines, based on its
due diligence review of the Company, that it is inadvisable for Buyer to proceed
with the Acquisition.
13.2 Effect. In the event of termination of this Agreement as
------
provided in Section 13.1(a), 13.1(b) or 13.1(e) hereof, this Agreement shall
forthwith become void and there shall be no liability hereunder on the part of
any party hereto, or any officer, director, employee, agent or representative of
any party hereto or any person who controls a party hereto within the meaning of
the Securities Act, except for willful breach, and except that the agreements
with respect to confidentiality contained in Section 8.1 hereof, the agreements
with respect to expenses contained in Section 14.5 hereof and the provisions
regarding certain other payments contained in Section 1.3 hereof shall survive
any termination of this Agreement. In the event of termination of this
Agreement as provided in Section 13.1(c) or 13.1(d) hereof, such termination
shall be without prejudice to any rights that the terminating party or parties
may have against the breaching party or parties or any other person under the
terms of this Agreement or otherwise, except in cases where Buyer is obligated
to pay the Break-up Fee, in which event, the receipt of the Break-up Fee shall
be the Company's and Stockholder's sole remedy under any legal theory whatsoever
against Buyer and its officers, directors, employees, advisors, agents and other
representatives in connection with this Agreement or otherwise.
13.3 Amendment. This Agreement may be amended at any time by a
---------
written instrument executed by Buyer, Stockholder and the Company.
13.4 Waiver. Compliance with or performance under any term,
------
provision or condition of this Agreement may be waived in writing by Buyer, on
the one hand, or by Stockholder and the Company, on the other hand, as the case
may be.
44
<PAGE>
ARTICLE XIV
GENERAL PROVISIONS; INDEMNIFICATION; ESCROW
14.1 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of the parties hereto contained in this Agreement or in any
writing delivered pursuant to the provisions of this Agreement or at the Closing
shall survive the consummation of the transactions contemplated hereby and any
examination by or on behalf of any party hereto and shall expire on the first
anniversary of the Closing Date, except (i) as to any matter as to which a claim
has been submitted in writing to the other party before such date and identified
as a claim for indemnification pursuant to Section 14.2, or (ii) as to any
matter which is based successfully upon fraud with respect to which the cause of
action shall expire only upon expiration of the applicable statute of
limitations, or (iii) those representations and warranties made by Stockholder
and the Company with respect to (a) the title and authority to transfer shares;
(b) the matters set forth in Section 6.4 of this Agreement; and (c) tax related
matters, all of which shall remain in full force and effect beyond the Closing
and shall expire only upon expiration of the applicable statute of limitations,
if any. No claim or action for breach of any representation or warranty shall
be asserted or maintained by any party hereto after the expiration of such
representation or warranty pursuant to the preceding sentence except for claims
made in writing before such expiration or actions (whether instituted before or
after such expiration) based on any claim made in writing before such
expiration, and, except with respect to claims or actions for breaches of
representations and warranties made in Section 6.4 of this Agreement, for which
indemnification by the Stockholder under this Agreement shall be unlimited, no
amount shall be payable by the Stockholder in respect of any claim or action for
breach of any representation or warranty to the extent (i) such amount would
exceed the aggregate dollar limitation in Section 14.2(c) or (ii) such amount
relates solely and directly to any loan originated by the Company on behalf of
Buyer.
14.2 Indemnification.
---------------
(a) Indemnification of Buyer. Stockholder and, in the event the
------------------------
Acquisition is not consummated and only to the extent applicable, the Company,
jointly and severally covenant and agree to indemnify and save and hold Buyer,
its officers, directors, employees, agents and representatives, each person who
controls Buyer within the meaning of the Securities Act, and the Company (in the
event the Acquisition is consummated and only to the extent applicable) harmless
from and against any loss, expense, liability, claim or legal damages
(including, without limitation, reasonable fees and disbursements of counsel and
other costs and expenses incident to any actual or threatened claim, suit,
action or proceeding) arising out of or resulting
45
<PAGE>
from: (i) any inaccuracy in or breach of any representation, warranty, covenant
or agreement made by Stockholder or the Company in this Agreement or in any
writing delivered pursuant to this Agreement or at the Closing; (ii) the failure
of Stockholder or the Company to perform or observe fully any covenant,
agreement or provision to be performed or observed by it pursuant to this
Agreement; (iii) any actual or threatened claim, suit, action or proceeding
arising out of or resulting from the conduct by the Company of its business or
operations on or before the Closing Date, including, but not limited to, those
arising out of or relating to (A) the employment relationship existing before
Closing between the Company and its affiliates and any and all current or former
employees of either, or (B) the compliance with all Agency and other standards
and regulations and contractual commitments applicable to mortgage loans
originated before Closing by the Company; (iv) any failure to have obtained all
Permits, consents, waivers, approvals, licenses and authorizations required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; (v) the Company
maintaining after the Closing its existing escrow practices through the date it
completes its first post-closing annual escrow analysis; (vi) the Company
maintaining its existing practices relating to adjusting mortgage interest rates
through the anniversary date of the Closing; and (vii) the loan repurchase
obligations, notifications and settlements referenced on Schedule 6.4 to this
First Amended and Restated Stock Purchase Agreement at the time of its execution
and any and all expenses, costs and other liabilities incident thereto, which
indemnification obligation shall survive the Closing indefinitely. Stockholder
agrees to reimburse Buyer, the Company, or other indemnified party, as the case
may be, promptly upon demand for any unreimbursed payment made or loss suffered
by Buyer, the Company, or other indemnified party, as the case may be, at any
time after the Closing Date in respect of any damage, loss, cost, expense,
deficiency, liability, judgment, claim, action or demand to which the foregoing
indemnity relates, provided, however, any such unreimbursed payment or loss
suffered that does not exceed $5,000 shall not be reimbursed until the aggregate
amount of such unreimbursed payments or loses exceeds $5,000.
(b) Indemnification of Stockholder. Buyer covenants and agrees to
------------------------------
indemnify and save and hold Stockholder harmless from and against any loss,
expense, liability, claim or legal damages (including, without limitation,
reasonable fees and disbursements of counsel and other costs and expenses
incident to any actual or threatened claim, suit, action or proceeding) arising
out of or resulting from any inaccuracy in or breach of any representation,
warranty, covenant or agreement made by Buyer in this Agreement or in any
writing delivered pursuant to this Agreement or at the Closing or the failure by
Buyer to perform or observe any covenant, agreement or condition to be performed
or observed by it pursuant to this Agreement. Buyer agrees to
46
<PAGE>
reimburse Stockholder promptly upon demand for any payment made or loss suffered
by Stockholder at any time after the Closing Date in respect of any damage,
loss, cost, expense, deficiency, liability, judgment, claim, action or demand to
which the foregoing indemnity relates.
(c) Term; Aggregate Dollar Limitation; Indemnification Procedure. The
------------------------------------------------------------
indemnification provided for in this Section 14.2 shall be effective for a
period of one year following the Closing Date, subject to the exceptions
contained in clauses (i) through (iii) of Section 14.1 of this Agreement, clause
(vii) of Section 14.2(a) of this Agreement and the proviso to the next sentence.
The aggregate dollar amount of all payments the Stockholder shall be obligated
to make pursuant to this Section 14.2 and Section 14.1 shall not exceed
$1,000,000; provided, however, notwithstanding anything to the contrary
-------- -------
contained in this Agreement, the Stockholder's indemnification obligations with
respect to (i) breaches of representations and warranties contained in Section
6.4 of this Agreement and (ii) the loan repurchase obligations, notifications
and settlements referenced on Schedule 6.4 to this First Amended and Restated
Stock Purchase Agreement at the time of its execution, shall survive the Closing
indefinitely and shall be unlimited as to dollar amount. Whenever a claim shall
arise for indemnification under this Section 14.2, the party entitled to
indemnification (the "Indemnified Party") shall promptly notify the party from
whom indemnification is sought (the "Indemnifying Party") of such claim and,
when known, the facts constituting the basis for such claim. In the event of
any such claim for indemnification resulting from or in connection with a claim
or legal proceeding by a third party, the Indemnifying Party shall have the
right, at its option and at its own expense, to be represented by counsel of its
choice who must be reasonably satisfactory to the Indemnified Party, and to
defend against, negotiate, settle or otherwise deal with any claim or proceeding
which relates to any loss, liability, damage or deficiency resulting from a
third party claim indemnified against hereunder; provided, however, that no
-------- -------
settlement shall be made without the prior written consent of the Indemnified
Party, which consent shall not be unreasonably withheld; and provided further,
----------------
however, that the Indemnified Party may, at its own expense, participate in any
- -------
such proceeding with the counsel of its choice. As long as the Indemnifying
Party is in good faith defending such claim or proceeding, the Indemnified Party
shall not compromise or settle such claim without the prior written consent of
the Indemnifying Party. If the Indemnifying Party does not assume the defense
of any such claim or litigation in accordance with the terms hereof, the
Indemnified Party may defend against such claim or litigation in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation (after giving notice of the same to the Indemnifying Party) on such
terms as the Indemnified Party may deem appropriate, and the Indemnifying
47
<PAGE>
Party will promptly indemnify the Indemnified Party in accordance with the
provisions of this Section 14.2.
(d) Waiver of Subrogation and Other Rights. Buyer shall not be
--------------------------------------
required to proceed against any particular Indemnifying Party for
indemnification or otherwise in respect of any losses before enforcing its
rights hereunder against any other Indemnifying Party, and Stockholder expressly
waives all rights he may have, now or in the future, under any statute, or at
common law, or at law or in equity, or otherwise, to compel Buyer to proceed
against any one of them in respect of any losses before proceeding against, or
as a condition to proceeding against, any other of them.
(e) Non-Waiver. Failure of an Indemnified Party to give reasonably
----------
prompt notice of any claim or claims shall not release, waive or otherwise
affect an Indemnifying Party's obligations with respect thereto except to the
extent that the Indemnifying Party can demonstrate actual loss and prejudice as
a result of such failure.
14.3 Indemnification Escrow. Of the Cash Payment, $1.5 million of
----------------------
the cash shall be pledged to Buyer (pursuant to Section 12.2 hereof), and shall
be maintained in an escrow account as security for the indemnification
obligations of Stockholder set forth in Section 14.2. The escrow agreement
shall provide for maintenance of the escrow until the date (the "Disbursement
Date") which is the later of (i) the first anniversary of the Closing Date, (ii)
the final resolution and payment of all loan repurchase obligations,
notifications and settlements referenced on Schedule 6.4 to this Agreement or
(iii) the date at which all matters as to which Buyer has submitted a written
claim for indemnification pursuant to Section 14.2 have been finally resolved
and paid; provided, however, upon the final resolution and payment of all loan
-------- -------
repurchase obligations, notifications and settlements referenced on Schedule 6.4
to this Agreement, the escrow agent shall disburse to the Stockholder all funds
in the escrow in excess of the maximum amount of Stockholder's remaining
liability under Section 14.2 of this Agreement provided that there has not been
a breach of the representations and warranties contained in Section 6.4 of this
Agreement as of such time. All funds remaining in the escrow account at the
Disbursement Date shall be disbursed to Stockholder.
14.4 Complete Agreement. This Agreement together with the other
------------------
instruments and documents it contemplates (a) constitutes the entire agreement
and supersedes all other prior and contemporaneous agreements and undertakings,
both written and oral, between the parties hereto with regard to the subject
matter hereof or the Acquisition of the Company or Shares of the Company's
Common Stock; (b) is not intended to confer upon any other person any rights or
remedies hereunder or with respect to
48
<PAGE>
the subject matter hereof except as specifically provided in this Agreement; (c)
except as provided in Section 14.9 hereof, shall not be assigned by operation of
law or otherwise; and (d) may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all such counterparts shall
together constitute a single agreement. Fax signature pages shall constitute
original signature pages for all purposes of this Agreement.
14.5 Expenses. Except as contemplated by Section 14.2 of this
--------
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party or parties
incurring the same. Stockholder acknowledges and agrees that this Agreement
relates principally to the sale by Stockholder of the Shares to Buyer and that
the Company is only nominally a party to this Agreement. All costs and expenses
incurred by the Company in connection with this Agreement shall be paid by the
Company before the Closing and any such expenses not so paid shall be the sole
responsibility of Stockholder.
14.6 Fees. Except for the fees and expenses of Joe Cosio-Barron
----
(which shall be paid by Buyer), Buyer represents and warrants to Stockholder
that it has taken no action and has entered into no agreement, understanding or
other arrangement that would obligate Stockholder or the Company to pay any
broker's or finders fee or any other commission or similar fee to any agent,
broker, investment banker or other firm or person in connection with any of the
transactions contemplated by this Agreement. Stockholder represents and
warrants to Buyer that neither he nor the Company has taken any action or
entered into any agreement, understanding or other arrangement that would
obligate Stockholder, the Company or Buyer to pay any broker's or finder's fee
or any other commission or similar fee to any agent, broker, investment banker
or other firm or person in connection with any of the transactions contemplated
hereby.
14.7 Further Action. Subject to the terms and conditions provided in
--------------
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Closing Date any further action is necessary to carry
out the purposes of this Agreement, Stockholder or Buyer, as the case may be,
shall take, or cause to be taken, all such necessary action.
14.8 Notices. Except as otherwise provided in this Agreement, all
-------
notices and other communications and legal process under or in connection with
this Agreement shall be in writing and shall be personally delivered,
transmitted by facsimile, by an overnight delivery service, or transmitted by
postage prepaid
49
<PAGE>
or registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
To Buyer: Virtual Mortgage Network, Inc.
Suite 175
4590 MacArthur Boulevard
Newport Beach, California 92660
Attn: John D. Murray
Fax: (714) 252-0797
Copy to: David A. Krinsky, Esq.
O'Melveny & Myers LLP
Suite 1700
610 Newport Center Drive
Newport Beach, California 92660
Fax: (714) 669-6994
To Stockholder: Mr. Arthur H. Sutter
461 Second Street, Unit 320
San Francisco, California 94107
Fax: (415) 433-3883*
*c/o Phillip R. Pollock, Esq.
Copy to: Phillip R. Pollock, Esq.
Tobin & Tobin
One Montgomery Street, 15th Floor
San Francisco, California 94104
Fax: (415) 433-3883
To the Company: Sutter Mortgage Corporation
2140 N. Broadway
Walnut Creek, California 94596
Fax: (510) 974-5320
Notices shall be deemed to have been given: (i) on the fifth business day after
posting, if mailed first class; (ii) on the date of receipt if delivered
personally; or (iii) on the next business day if transmitted by facsimile or by
a generally reliable over-night delivery service.
14.9 Limited Assignment. With the written consent of Stockholder
------------------
(which consent will not be unreasonably withheld), Buyer may assign its rights
and obligations under this Agreement at any time before the Closing to any
entity controlled by, controlling or under common control with Buyer within the
meaning of the Securities Act.
14.10 Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with, the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of California
applicable to
50
<PAGE>
agreements made or to be performed wholly in California. The sole forum for
resolving disputes arising under or relating to this Agreement shall be the
Municipal and Superior Courts for the County of Orange, California, or the
Federal District Court for the Central District of California and all related
appellate courts, and the parties hereby consent to the jurisdiction of such
courts and agree that venue shall be in Orange County, California.
14.11 Partial Invalidity. Any provision of this Agreement which is
------------------
found to be invalid or unenforceable by any court in any jurisdiction shall, as
to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability, but the invalidity or unenforceability of such provision shall
not affect the validity or enforceability of the remaining provisions of this
Agreement.
51
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth.
"BUYER"
VIRTUAL MORTGAGE NETWORK, INC.
By: /s/ John D. Murray
------------------------------------------
Name: John D. Murray
----------------------------------------
Title: President
---------------------------------------
"STOCKHOLDER"
ARTHUR H. SUTTER
/s/ Arthur H. Sutter
_____________________________________________
Arthur H. Sutter
"COMPANY"
SUTTER MORTGAGE CORPORATION
By: /s/ Arthur H. Sutter
------------------------------------------
Name: Arthur H. Sutter
----------------------------------------
Title: Chairman
---------------------------------------
52
<PAGE>
SCHEDULE 7.6 - CAPITAL STOCK
<TABLE>
<CAPTION>
COMMON STOCK
- ------------
<S> <C>
Kramer Spellman, L.P. Funds 1,884,521
Camelot Holdings - M. Barron 1,250,000
Dianne David 1,016,666
Tradenet Financial Banking Services 633,334
Robert Merrick 314,465
American Growth Fund I 250,000
Interealty Corporation 200,000
Employees - Restricted Stock Grant 100,000
Randy Fowler 100,000
Remy Trafelet 94,226
Orin Kramer 62,817
Larry Wells 50,000
Ronald Ruben 25,127
James Briant 10,000
---------
TOTAL COMMON STOCK 5,991,156
PREFERRED SERIES A (CONVERTIBLE)
- --------------------------------
Intel 500,000
American Growth Capital Corporation 350,000
Private Placement (Approx. 90 Investors) 1,550,000
---------
TOTAL PREFERRED SERIES A 2,400,000
WARRANTS
- --------
American Growth Fund I & Affiliates 363,583
Sandra Sawyer 25,000
Larry Wells 50,000/*/
South Coast Communications Group 100,000
Frank Klepetko 25,000
Michael Baum 100,000
---------
TOTAL WARRANTS 663,583
* At $2.00 per Warrant - All others at $1.00
OPTIONS
- -------
Dianne David 50,000
Michael Barron 50,000
Sandra Sawyer 25,000
Robert Gottesman 370,000
Lee Shorey 100,000
Mary Johnson 25,000
T. Michael Anderson 25,000
David Armstrong 25,000
Jayne Fielding 25,000
John Murray 300,000
Interealty Corporation 100,000
---------
TOTAL OPTIONS 1,095,000
</TABLE>
53
<PAGE>
WARRANTS FOR BRIDGE FINANCING
- -----------------------------
Warrants equal total consideration divided by $4.00
$4,705,000 = 1,176,250 Warrants
----------
$4.00
Dilution to Preferred Shares
- ----------------------------
Preferred shareholders are diluted by the issuance of 1,176,250 shares
underlying the warrants to the Bridge holders at $.001 per share and, therefore,
are entitled to an adjustment in the conversion rate of the preferred stock
pursuant to the guidelines contained in the Company's Articles of Incorporation.
Obligation to Purchase and Right of First Offer
- -----------------------------------------------
Intel Corporation has "Put Right" in the event the Company discontinues
using Intel ProShare product. Put Right expires at the closing of an Initial
Public Offering. Intel Corporation also has a Right of First Offer with respect
to any new securities issued.
Other Rights
- ------------
Interealty Corp. has the option to purchase 100,000 shares of Common Stock
if a "private placement" is consummated within 180 days following December 20,
1996, at a price equal to the "private placement" price plus two percent (2%).
The option is exercisable by Interealty Corp. with 30 days after such
consummation.
54
<PAGE>
EXHIBIT 10.28
TERM SHEET RELATING TO AMENDMENT OF
FIRST AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
RE ACQUISITION OF SUTTER MORTGAGE CORPORATION
<TABLE>
<S> <C>
1. Cash Consideration. Cash consideration (subject to adjustments)
will be paid as follows:
- $1.5 million at closing of acquisition
(parties will use their best efforts to
have closing occur on October 6, 1997 and
in no event later than November 6, 1997)
- $1.0 million at closing of the initial
public offering (the "IPO") of Virtual
Mortgage Network, Inc. ("VMN")
- $1.5 million (less claims made) to be
paid under the existing contract terms
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2. Stock Consideration. Stock consideration (subject to
adjustments) will be issued on the closing
of the IPO under the existing contract
terms.
3. Adjustment to Initial Payment. Of the initial $1.5 million payment,
$500,000 will be repaid to VMN by Art Sutter
to extinguish the short-term loan referenced
in item 5 below.
4. Adjustment to Final Payment. With respect to the final $1.5 million
payment (less claims made), a reduction will
be made to the extent funds of the Sutter
Mortgage Company ("Company") or its
subsidiaries have been used (from June 1,
1997 through closing) to reduce or eliminate
liabilities for which Art Sutter would have
had an indemnification obligation after the
closing (including, without limitation,
liabilities to Capstead) if such liabilities
had not been so reduced or eliminated.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
5. Short-term Loan. As soon as possible, VMN will lend
$500,000 to Art Sutter pursuant to a secured
note. Art Sutter will contribute $500,000 to
the capital of the Company upon receipt of
the loan proceeds. Interest on the note is
8% per annum and is payable at maturity.
Note is due and payable on the earlier of
(i) the closing of the acquisition, (ii) the
termination of the First Amended and
Restated Stock Purchase Agreement, as
amended or (iii) a demand by VMN made after
November 6, 1997. Note is to be secured by a
pledge of 10% of the Company's stock held by
Art Sutter. If the note becomes due as a
result of clause (i) above, then the note is
to be repaid to VMN by Art Sutter out of the
proceeds of the initial payment made by VMN
to Art Sutter at the closing of the
acquisition. If the note becomes due as a
result of clause (ii) or (iii) above, then
Art Sutter may elect to
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
extinguish the note by either transferring
shares of Company Common Stock owned by him
equal to 10% of the total number of
outstanding shares or causing the Company to
issue to VMN new shares of Company Common
Stock equal to 10% of the total number of
outstanding shares after giving effect to
such issuance.
6. Definitive Agreements. VMN, the Company and Art Sutter agree to
enter into a pledge agreement and a
promissory note to memorialize the
provisions of item 5 above and such other
agreements as the parties hereto shall deem
necessary or desirable.
</TABLE>
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Term Sheet as
of September 30, 1997.
Accepted and Agreed:
____________________________________
Arthur H. Sutter
Sutter Mortgage Corporation
By:________________________________
Name:______________________________
Title:_____________________________
Virtual Mortgage Network, Inc.
By:________________________________
Name:______________________________
Title:_____________________________
5
<PAGE>
EXHIBIT 10.29
AGREEMENT
---------
This Agreement (this "Agreement") is entered into this 21st day of
October, 1996, by and between Intel Corporation ("Intel") and Virtual Mortgage
Network, Inc. ("VMN").
Recitals
--------
A. Intel and VMN are parties to that certain Rights Agreement, dated May
19, 1995 (the "Rights Agreement").
B. Concurrently with the execution of this Agreement, Intel shall become
a party to the Virtual Mortgage Network, Inc. Master Registration Rights
Agreement (the "Master Agreement").
C. By entering into this Agreement, the parties hereto desire to provide
certain rights to Intel in addition to those rights contained in the Master
Agreement.
Agreement
---------
In consideration of the foregoing and the mutual promises and
covenants contained herein, the parties hereto hereby agree as follows:
1. Termination of Rights Agreement.
-------------------------------
Intel and VMN hereby agree that the Rights Agreement is hereby
terminated in its entirety and that all rights and obligations of the parties
under the Rights Agreement have been waived or satisfied as of the date hereof.
2. Reports.
-------
For fiscal years ending after the date of this Agreement, VMN agrees
to deliver to Intel:
a. as soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, a balance sheet of VMN as of
the end of such fiscal year and a statement of operations and a statement
of sources and application of funds of VMN for such year, prepared in
accordance with generally accepted accounting principles consistently
applied and setting forth in each case in comparative form the figures for
the two previous fiscal years, all in reasonable detail and audited by
independent public accountants selected by VMN; and
b. within forty-five (45) days after the end of each of the first
three (3) quarters of each fiscal year, an unaudited consolidated profit or
loss statement for such
<PAGE>
fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter.
c. After the consummation of the initial underwritten public offering
of VMN's Common Stock, the requirements of this Section 2 shall be
satisfied by VMN sending to Intel copies of all Quarterly Reports on Form
10-Q and Annual Reports on Form 10-K (in each case without exhibits) which
VMN files with the Securities and Exchange Commission at the time that VMN
makes such filings.
3. Annual Plan.
-----------
Within ten (10) days of adoption by the Board of Directors, but not
later than the beginning of each fiscal year of VMN, VMN shall submit to Intel
an annual plan for such year which shall include quarterly capital and operating
expense budgets, cash flow statements, manpower projections, projected balance
sheets, profit and loss projections and sales projections for each month and for
the end of such year itemized in such detail as the Board may reasonably
determine. Approval of such budgets, statements and projections shall be
required by at least a majority of the Board of Directors of VMN. If the annual
plan is modified by the Board of Directors to reflect changes as a result of
operating results and other events that occur during the year covered by the
annual plan, copies of such modification shall be promptly submitted to Intel.
4. Board Visitation Rights.
-----------------------
Intel shall have the right, at Intel's expense, to designate a
representative to attend all meetings of VMN's Board of Directors in a non-
voting observer capacity, and, in this respect, VMN shall give Intel copies of
all notices, minutes, consents and other materials that it provides to its
directors: provided, however, that Intel shall agree to hold in confidence and
-------- -------
trust all information so provided. Meetings to be held by telephone conference
and actions to be taken by consent shall not be prohibited provided notice is
given to Intel.
5. Right of First Offer.
--------------------
Subject to the terms and conditions specified in this Section 5, VMN
hereby grants to Intel, a right of first offer with respect to future sales by
VMN of its New Securities (as defined in subsection 5(d)(i)). For purposes of
this Section 5, the term "Intel" includes any partners, shareholders or
affiliates of Intel. Intel shall be entitled to apportion the right of first
offer hereby granted among itself and its partners, shareholders and affiliates
in such proportions as it deems appropriate.
2
<PAGE>
a. In the event VMN proposes to issue New Securities, it shall give
Intel written notice (the "Notice") of its intention stating (i) a
description of the New Securities it proposes to issue, (ii) the number of
shares of New Securities it proposes to offer, (iii) the price per share at
which, and other terms on which, it proposes to offer such New Securities
and (iv) the number of shares that Intel has the right to purchase under
this Section 5, based on Intel's Percentage (as defined in Subsection
5(d)(ii)).
b. Within thirty (30) days after the Notice is given (in accordance
with Section 15), Intel may elect to purchase, at the price specified in
the Notice, up to the number of shares of the New Securities proposed to be
issued equal to Intel's Percentage. An election to purchase shall be made
in writing and must be given to VMN within such thirty (30) day period (in
accordance with Section 15).
c. VMN shall have ninety (90) days after the last date on which
Intel's right of first offer lapsed to enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at
all, within forty-five (45) days from the execution thereof) to sell the
New Securities which Intel did not elect to purchase under this Section 5,
at or above the price and upon terms not materially more favorable to the
purchasers of such securities than the terms specified in the initial
Notice given in connection with such sale. In the event VMN has not
entered into an agreement to sell the New Securities within such ninety
(90) day period (or sold and issued New Securities in accordance with the
foregoing within forty-five (45) days from the date of such agreement), VMN
shall not thereafter issue or sell any New Securities without first
offering such New Securities to Intel in the manner provided in this
Section 5.
d. (i) "New Securities" shall mean any shares of, or securities
convertible into or exercisable for any shares of, any class of VMN's
capital stock; provided that "New Securities" does not include: (A)
the shares of Series A Preferred Stock of the Company or the Common
Stock issuable upon conversion thereof; (B) securities issued pursuant
to the acquisition of another business entity by VMN by merger,
purchase of substantially all of the assets of such entity, or other
reorganization whereby VMN owns not less than a majority of the voting
power of such entity; (C) up to 500,000 shares of VMN Common Stock and
the shares of Common Stock issuable upon exercise of such options,
issued pursuant to any arrangement approved by the Board of Directors
to employees, officers and directors of, or consultants, advisors or
other persons performing services for, VMN; (D) shares of VMN's
3
<PAGE>
Common Stock or Preferred Stock of any series issued in connection
with any stock split, stock dividend or recapitalization of VMN; (E)
Common Stock issued upon exercise of warrants, options or convertible
securities if the issuance of such warrants, options or convertible
securities was a result of the exercise of the right of first offer
granted under this Section 5 or was subject to the right of first
offer granted under this Section 5; and (F) securities sold to the
public in an offering pursuant to a registration statement filed with
the Securities and Exchange Commission ("SEC") under the Securities
Act of 1933, as amended (the "Act").
(ii) The applicable "Percentage" for Intel shall be the number of
shares of New Securities calculated by dividing (A) the total number
of shares of Common Stock owned by Intel (assuming conversion of all
outstanding shares of Preferred Stock) by (B) the total number of
shares of Common Stock outstanding at the time the Notice is given
(assuming conversion of all outstanding shares of Preferred Stock).
e. The right of first offer granted under this section may be
assigned by Intel to a transferee or assignee of its shares of VMN's stock.
In the event that VMN shall assign its right of first offer pursuant to
this Section 5 in connection with the transfer of less than all of its
shares of VMN's stock, Intel shall also retain its right of first offer to
the extent then applicable under this Section 5.
6. Put Right Upon Failure to Use ProShare(TM).
--------------------------------------
a. In the event that VMN uses a video conferencing solution other
than Intel's ProShare(TM) with its product, Intel shall have the right, by
delivering written notice (the "Redemption Notice") to VMN to cause VMN to
purchase all shares of VMN stock owned by Intel at such time (the "Intel
Shares"). The per share purchase price for the Intel Shares shall be the
higher of: (i) the price Intel initially paid for the Intel Shares plus the
amount of any declared but unpaid dividends thereon through the date of the
Redemption Notice, plus 10% per annum, compounded annually, of the price
Intel initially paid for the Intel Shares calculated from the date Intel
purchased the Intel Shares through the date of the Redemption Notice; or
(ii) the then current Fair Market Value (as defined in Section 6(b) below)
of the Intel Shares as of the date of the Redemption Notice. The full
purchase price for the Intel Shares shall be paid to Intel in cash by wire
transfer or certified check. The put right granted pursuant to this
Section 6 shall not be assignable to any transferee of the Intel Shares.
4
<PAGE>
b. If VMN has Common Stock publicly traded at the time of such
determination, "Fair Market Value" of the Intel Shares (on a fully
converted basis) shall be equal to the average closing price of such Common
Stock on the primary exchange on which such Common Stock is then traded (or
the average of the closing bid and asked prices for such Common Stock, if
then primarily traded on Nasdaq) over the 20 trading days prior to the date
of the Redemption Notice. If there is no active public market, the Fair
Market Value shall be the Fair Market Value thereof, as determined in good
faith by the Board of Directors of VMN.
7. Employee and Other Stock Arrangements.
-------------------------------------
Each acquisition of any shares of capital stock of VMN or any option
or right to acquire any shares of capital stock of VMN by an employee,
consultant, officer or director of VMN will be conditioned upon the execution
and delivery by VMN and such employee, consultant, officer or director of an
agreement substantially in the form approved by the Board of Directors of VMN,
providing, among other things, that such shares, when granted to an employee,
consultant, officer or director, shall be subject to vesting at a rate that is
not more rapid than the following schedule: 1/4th of the shares granted may
vest after one year, and the balance of such shares may vest at a rate of 1/36th
monthly thereafter.
8. Public Announcements.
--------------------
VMN shall not use Intel's name or refer to Intel directly or
indirectly in connection with Intel's relationship with VMN in any
advertisement, news release or professional or trade publication, or in any
other manner, unless otherwise required by law or with Intel's prior written
consent, which consent will generally not be granted. The parties agree that
there will be no press release or other public statement issued by either party
relating to this Agreement or the transactions contemplated hereby unless
required by law. If VMN determines that it is required by law to file this
Agreement with the SEC, it shall at a reasonable time before making any such
filing, consult with Intel regarding such filing and seek confidential treatment
for such portions of the Agreement as may be requested by Intel.
9. Term of the Agreement.
---------------------
a. The rights granted to Intel pursuant to Sections 3, 4, 5, 6 and 7
of this Agreement shall terminate upon the earlier of (a) the date that
Intel ceases to be a stockholder of VMN or (b) the date of the closing of
the first underwritten public offering of VMN's securities to the general
public that is effected with the Securities and
5
<PAGE>
Exchange Commission under the Securities Act of 1933, as amended.
b. All other rights granted pursuant to this Agreement shall
terminate on the date that Intel ceases to be a stockholder of VMN.
10. Governing Law.
-------------
This Agreement shall be governed by the laws of the State of Delaware
without regard to provisions regarding choice of laws.
11. Assignment.
----------
Except as otherwise provided herein, no part of this Agreement may be
assigned by either party without the prior written consent of the other party
hereto.
12. Entire Agreement.
----------------
This Agreement constitutes the entire understanding and agreement of
the parties with regard to the subjects hereof; provided, however, that nothing
------------------
in this Agreement shall be deemed to terminate or supersede the provisions of
any confidentiality and nondisclosure agreements executed by the parties hereto
prior to the date hereof, which agreements shall continue in full force and
effect until terminated in accordance with their respective terms.
13. Amendments.
----------
This Agreement may be amended only with the written consent of both
parties hereto.
14. Counterparts.
------------
This Agreement may be executed in counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
15. Notice.
------
All notices and other communications required or permitted hereunder
shall be in writing and shall be hand delivered, sent by facsimile to the number
indicated below, sent by reputable overnight courier or mailed by registered or
certified first class mail, postage prepaid, addressed as follows:
If to Intel: 2200 Mission College Blvd.
Santa Clara, CA 95052
Fax No. (408) 765-7636
6
<PAGE>
If to VMN: 4590 MacArthur Blvd., Suite 175
Newport Beach, CA 92660
Fax No. (714) 252-0797
or to such other addresses and phone numbers as VMN or Intel shall have
furnished to the other party in writing. Notices hand delivered shall be
effective upon delivery. Notices sent by facsimile shall be effective upon
transmission. Notices sent by overnight courier shall be effective one day
following deposit with such courier, and notices sent by first class mail shall
be effective three days following deposit in the United States mail.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
VIRTUAL MORTGAGE NETWORK, INC,.
By:/s/ JOHN D. MURRAY
----------------------------
John D. Murray
Chief Executive Officer
INTEL CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
7
<PAGE>
EXHIBIT 10.33
NOTE EXTENSION AGREEMENT
This Note Extension Agreement (this Agreement"), effective as of July
6, 1997, is entered into by and between Virtual Mortgage Network, Inc., a Nevada
corporation (the "Company") and ______________________________, a
______________________________ (the "Holder").
A. On ____________ ____, 199__, the Company executed a Promissory
Note (the "Note") in the amount of $_______________ in favor of Holder with a
maturity date of March 6, 1997 (the "Maturity Date") and issued a warrant to the
Holder to purchase ______________ shares of the Company's Common Stock, $.001
par value, at an exercise price of $.001 per share.
B. Pursuant to a Letter Agreement dated April 1, 1997, Holder agreed
to extend the Maturity Date to July 6, 1997.
C. The parties now desire to further extend the Maturity Date
pursuant to the terms of this Agreement.
In consideration of the mutual promises contained herein and intending
to be legally bound, the parties agree as follows:
1. Extension of Maturity Date. The Company and Holder hereby agree that the
--------------------------
Maturity Date of the Note shall be January 6, 1998.
2. Issuance of Warrants. The Company hereby agrees to execute in favor of
--------------------
Holder a Common Stock Purchase Warrant (the "Warrant"), a form of which is
attached hereto as Exhibit A, concurrent with the execution and delivery of this
---------
Agreement. The Warrant shall grant the Holder the right to purchase __________
shares of the Company's Common Stock, $.001 par value, at an exercise price of
$.001 per share and shall be dated of even date herewith.
3. Amendments. This Agreement may be amended only by agreement in writing by
----------
the parties.
4. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without regard to conflicts
of law doctrines.
5. Counterparts. This Agreement may be executed in counterparts, and each
------------
counterpart, when executed, shall have the efficacy of a signed original.
Photostatic copies of such signed counterparts may be used in lieu of the
originals for any purpose.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the day and year first above written.
"COMPANY"
VIRTUAL MORTGAGE NETWORK, INC.
a Nevada corporation
______________________________________________
Name:_________________________________________
Title:________________________________________
"HOLDER"
______________________________________________
Name:_________________________________________
Title:________________________________________
2
<PAGE>
EXHIBIT A
FORM OF COMMON STOCK PURCHASE WARRANT
3
<PAGE>
EXHIBIT 11.1
VIRTUAL MORTGAGE NETWORK INC.
STATEMENT OF COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended Six Months Ended Six Months Ended
December 31, 1996 June 30, 1996 June 30, 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Average common shares outstanding............ 1,120,331 928,485 1,339,652
Common and common equivalent shares
(including the effect of the automatic
conversion of warrants) issued during
the twelve month period prior to the
initial public offering at prices below
the assumed public offering price (using
the treasury stock method and assumed
initial public offering price) in accordance
with Staff Accounting Bulletin No. 83....... 307,828 307,828 309,214
----------- ----------- -----------
Shares used in pro forma per share
calculations................................ 1,428,159 1,236,313 1,648,866
=========== =========== ===========
NET LOSS..................................... $(6,980,748) $(2,235,908) $(5,042,375)
Pro forma net loss per share................. $ (4.89) $ (1.81) $ (3.06)
=========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Orange County, California
October 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND AS OF
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 JUN-30-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 39 239
<SECURITIES> 0 0
<RECEIVABLES> 0 89
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 309 670
<PP&E> 612 719
<DEPRECIATION> 156 282
<TOTAL-ASSETS> 780 1,127
<CURRENT-LIABILITIES> 5,324 6,499
<BONDS> 0 0
2,017 2,017
0 0
<COMMON> 3 6
<OTHER-SE> (6,563) (7,336)
<TOTAL-LIABILITY-AND-EQUITY> 780 1,127
<SALES> 123 392
<TOTAL-REVENUES> 123 392
<CGS> 0 0
<TOTAL-COSTS> 6,453 4,556
<OTHER-EXPENSES> (44) 14
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 696 865
<INCOME-PRETAX> (6,981) (5,042)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,981) (5,042)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,981) (5,042)
<EPS-PRIMARY> (4.22) (2.21)
<EPS-DILUTED> (4.22) (2.21)
</TABLE>
