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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
EMB CORPORATION
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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HAWAII 95-3811580
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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575 ANTON BOULEVARD
SUITE 200
COSTA MESA, CALIFORNIA 92626
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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ISSUER'S TELEPHONE NUMBER: (714) 437-0715
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SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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COMMON STOCK, NO PAR VALUE NASDAQ
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SECURITIES TO BE REGISTERED UNDER SECTION 12(G) OF THE ACT: NOT APPLICABLE
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL. EMB Corporation (the "Company"), a Hawaii corporation, was
incorporated in 1960, and was originally organized to acquire and manage
developed and undeveloped real estate. However, the Company had not conducted
any significant operations for a number of years until it agreed to acquire
substantially all of the assets and assumed certain liabilities of Sterling
Alliance Group, Ltd. ("SAG") in December 1995, including all of the issued and
outstanding capital stock of Electronic Mortgage Banc, Ltd. ("EMB") which is
presently a wholly owned subsidiary of the Company. The Company recently changed
its corporate name from "Pacific International, Inc." to EMB Corporation to
reflect the change in the purposes and nature of its business.
The Company, through EMB, is primarily engaged in business activities
in the mortgage loan industry. There are two primary segments of the mortgage
business in which the activities of the Company are concentrated. First, EMB
acquired an exclusive license from Virtual Lending Technology, Inc. ("VLT"), an
affiliate of the Company, for its MortgageShare proprietary software which is
part of the Company's software system designed for the origination and
processing of residential mortgage loans that it calls Mortgage Approval Xpress
("M.A.X."). M.A.X. is licensed by EMB to unaffiliated third parties for use in
their operations. Second, EMB is a residential mortgage lender on a retail
basis directly to consumers and through its licensees, and on a wholesale basis
to other mortgage lenders under the tradename "EMB Funding". Mortgages
originated by the Company may be held primarily for investment, or may be sold
to third parties, or may be securitized and issued as mortgage-backed
securities.
A substantial part of the assets of the Company is comprised of
undeveloped land located in California ($3,930,000 as of February 29, 1996) that
was acquired from SAG, which represents approximately 93.6% of its total assets.
Although the Company is not intended to be a real estate company, it will hold
real estate for sale from time to time, as a result of foreclosures or other
events. See Note A to Financial Statements.
In connection with the acquisition of assets from SAG, including the
acquisition of EMB and land, the Company issued 13,500,000 shares of its Common
Stock to SAG which presently represents approximately 81.2% of the issued and
outstanding Common Stock of the Company.
INTERACTIVE MORTGAGE SOFTWARE-M.A.X. The M.A.X. software of the
Company is an interactive video-based computer software system that is designed
to facilitate mortgage loan applications and their prompt approval directly with
mortgage lenders, to prepare and submit applications for title and property
insurance, credit review, title research and escrow ordering and review. The
system is linked to the ProShare(R) software system developed by Intel(TM)
Corporation that provides direct teleconferencing and interaction between the
prospective borrower/real estate agent and mortgage lenders. ProShare software
has been modified and adapted to operate with the exclusive M.A.X. software
applications of the Company. The interactive mortgage software utilized by the
Company includes MortgageShare which is an integral part of the overall EMB
system. MortgageShare software was exclusively licensed to EMB, a wholly owned
subsidiary of the Company, by Virtual Lending Technology, Inc. which is owned
and operated by Rory P. Hughes and Frank D. Tuttle who are also directors and
officers of the Company.
M.A.X. provides the opportunity to prospective borrowers to review and
evaluate a broad range of available mortgages of varying interest rates and
terms from various lenders, and to select those specifically suited to their
financial objective for further analysis. M.A.X. then enables the
borrower/agent to complete a loan application of the selected mortgage lender,
permits an immediate review of the borrower's credit history and qualifications,
and facilitates prompt approval of the loan application by EMB's staff
underwriters or through the automated underwriting systems employed by Fannie
Mae and Freddie Mac, the primary secondary-market purchasers of mortgages.
Thus, in approximately one hour, a borrower can receive loan approval, subject
only to verification of financial information and appraisal of the subject
property. M.A.X. also permits the contemporaneous ordering and review of
preliminary title reports and escrow instructions. A remote printer creates
hard copies of documents for signing by the borrower.
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The computer system of EMB is installed with Intel's Pentium(TM)
operating system utilizing Intel's ProShare video conferencing system which
permits the borrower to see and talk directly to the loan officer for a personal
pre-qualification interview from any remote location. The interview may
conclude with the complete loan application being submitted and approved.
The Company is continuing the development and refinement of its M.A.X.
software system and continuing evaluation of electronic information gathering
and communication equipment. The Company intends to continue to focus on its
technology and marketing relationship with Intel Corporation. This relationship
has accelerated the development of the Company's software and has enhanced its
marketing program through exhibitions, trade shows and seminars with real estate
brokers, credit unions, residential real estate developers, mortgage brokers,
and others. An objective of the Company is to become a leader in advanced
mortgage software and video communications to facilitate mortgage loans. To the
extent that the Company achieves its objective in this technological area, the
Company believes that it will complement and increase its mortgage lending
business.
LICENSES OF M.A.X. The Company licenses its M.A.X. mortgage software
system to real estate brokerage firms, credit unions, real estate developers,
mortgage brokers and others. EMB presently has approximately 22 licensees who
are served by eight Company loan officers. Each licensee has their own computer
systems with M.A.X. and ProShare software with video teleconferencing
capability.
The direct relationship with real estate brokers, credit unions, land
developers and other organizations enables the Company to establish point-of-
sale opportunities to originate and process mortgage loans. The business of the
licensee is improved because of the substantial savings of time and effort in
securing pre-qualification of their customers for mortgage financing and for
prompt loan approvals, and also provides an opportunity to enhance the quality
and timeliness of its services to its customers. Because the mortgage services
of EMB are available 24 hours a day, seven days a week, the licensees always
have on-line access to current interest rates and fees which can be downloaded
at any time to any computer utilized by a licensee. Similarly, the status of
loans, and processing or underwriting can be determined at any time. The
borrower or his agent at any remote site can also utilize M.A.X. to connect with
escrow, title or credit reporting agencies with the Intel video conferencing
system. This one-stop electronic and video connection between and among all of
the important parties to a residential real estate transaction is a highly
efficient and convenient system for the licensee and provides prompt quality
service for the borrower.
PRICING. The Company's M.A.X. software is priced based on a number of
factors, including the application configuration, the modules licensed and the
number of licensed users. The list price for licenses of the M.A.X. software is
presently $1,250 with a $500 fee for additional office sites. The Company also
charges an additional continuing license fee calculated on each loan originated
by the licensee equal to 50% to 70% of the loan origination fee and yield spread
pricing of each loan, depending upon the loan production volume of the
licensee's office. The Company may offer discounts to customers based on the
scope of the customer's commitment and other commercial considerations.
Additionally, the Company may in the future offer new or different
configurations at significantly lower or higher prices.
CUSTOMER SERVICE AND SUPPORT. The Company's customer service and
support organization provides customers with technical support, training,
consulting and implementation services. All of the Company's current customers
have software maintenance agreements with the Company that provide for one or
both of the following services:
Customer Education and Training. The Company offers training courses
designed to meet the needs of end users, integration experts and system
administrators. The Company also trains customer personnel who in turn may
train end users in larger deployments. Training classes are provided at the
customers' offices. Fees for education and training services are in addition to
and separate from the fees for software products and are typically charged
either per student and per class, or on a per diem basis.
Software Maintenance and Support. The Company offers telephone,
electronic mail and facsimile customer support through its central technical
support staff at the Company's headquarters. The Company also provides
customers with product documentation and release notes that describe features in
new products, known
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problems and workarounds, and application notes. Software product license fees
do not cover maintenance. Each customer is entitled to receive certain software
upgrades, maintenance releases and technical support for an annual fee. The
annual subscription service fee for the Company's products covers all updates
and maintenance on an ongoing basis for the term of the subscription.
SALES AND MARKETING. The Company markets and sells its software and
services primarily through a direct sales force based in Costa Mesa, California.
The Company's sales and marketing organization consisted of six employees as of
May 31, 1996. The Company also has regional marketing representatives based in
Texas and Connecticut. To support its sales force, the Company conducts a
number of marketing programs, which includes public relations, telemarketing,
seminars, trade shows and customer advisory board meetings.
The Company's strategy is to expand its marketing efforts to reach a
broad customer base in its targeted mortgage industry. The Company's field
sales force conducts multiple presentations and demonstrations of the Company's
software to users at the customer site as a part of the direct sales effort.
The Company believes that in order to increase sales opportunities and
profitability, it may expand into international sales. The Company intends to
continue to expand its direct and indirect sales and marketing activities, which
will require significant management attention and financial resources.
The Company may commit significant time and financial resources to
developing international sales and support channels. There will be a number of
risks inherent in the Company's international business activities, including
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs and risks of localizing products for foreign countries, longer accounts
receivable payment cycles, potentially adverse tax consequences, currency
fluctuations, repatriation of earnings and the burdens of complying with a wide
variety of foreign laws. In addition, revenues of the Company earned in various
countries where the Company does business may be subject to taxation by more
than one jurisdiction, thereby adversely affecting the Company's earnings.
There can be no assurance that such factors will not have an adverse effect on
the revenues from the Company's future international sales and, consequently,
the Company's business, financial condition or results of operations.
The Company licenses its M.A.X. software system to customers pursuant
to license agreements which are generally standard in form, although each
license is individually negotiated and may contain variations. The standard
form agreements allow the customer to use the Company's software solely on the
customer's computer equipment for the customer's internal purposes, and the
customer is generally prohibited from sublicensing or transferring the licensed
materials. The agreements generally provide that the Company's warranty of its
software is limited to correction or replacement of the affected software, and
in most cases the Company's warranty liability may not exceed the licensing fees
from the customer. The Company's form agreement also includes a confidentiality
clause protecting proprietary information relating to the Company's software
system.
The Company generally ships its products within a short period of time
after execution of a license. As a result, the Company typically does not have
a material backlog of unfilled license orders at any given time, and the Company
does not consider backlog to be a meaningful indicator of future performance.
STRATEGIC RELATIONSHIPS. The Company believes that, in order to
provide comprehensive component and supplier management solutions, it will be
necessary to develop, maintain and enhance close associations with vendors of
hardware, software, database, and professional services. The Company has
established marketing and strategic relationships with Intel Corporation. The
Company's relationship with Intel Corporation has enabled it to integrate its
software with standard hardware platforms. The Company meets regularly with
Intel Corporation to enhance integration between their complementary products
and the Company's software. The Company believes this relationship can enhance
the Company's ability to deliver mortgage software that support customers'
existing management architecture and that is tailored to the specific
requirements of the mortgage industry. Although the Company seeks to maintain a
close relationship with Intel Corporation, if the Company is unable to develop
and retain effective, long-term relationships with other third parties, the
Company's competitive position could be adversely affected.
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RESEARCH AND DEVELOPMENT. The Company has committed, and expects to
continue to commit in the future, substantial resources for its software product
development. Research and development efforts are directed at increasing
software functionality, improving its performance and expanding the capability
of the software to interoperate with third party software. The Company intends
to release new software and enhancements to existing software. Although the
Company expects that certain of its new software will be developed internally,
the Company may, based on timing and cost considerations, acquire technology and
products from third parties.
The Company supplements its software development efforts by reviewing
customer feedback on existing software and working with customers and potential
customers to anticipate future functionality requirements. To assist this
effort, the Company intends to organize a customer advisory board made up of
representatives from its key customers which will meet periodically to provide
feedback regarding the Company's current and future product plans.
The Company's future success will depend in part upon its ability to
enhance its current software and to develop and introduce new software on a
timely basis that keep pace with technological developments, emerging industry
standards and the increasingly sophisticated needs of its customers. There can
be no assurance that the Company will be successful in developing or marketing
software enhancements or new software that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products or that its new software or software enhancements
will adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop and introduce new software or enhancements, the Company's business,
financial condition or results of operations could be materially adversely
affected.
In addition, applications software products as complex as those
offered by the Company frequently contain undetected errors or failures when
first introduced or when new versions are released. The Company has in the past
discovered software errors in certain of its products and enhancements, both
before and after initial shipments, and has experienced delays or lost revenues
during the period required to correct these errors. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not occur in software or releases after commencement of commercial
shipments, resulting in loss of or delay in market acceptance, which could have
a material adverse effect upon the Company's business, financial condition or
results of operations.
COMPETITION. The market for the Company's software is competitive,
subject to rapid change and significantly affected by new product introductions
and other market activities of industry participants. The Company's software
products are targeted at the emerging market for open, mortgage software, and
the Company's competitors offer a variety of products and services to address
this market. Further, the Company currently faces indirect competition from
third-party professional service organizations and internal management
information systems and computer design departments of potential customers that
develop custom internal software.
In the future, because there are relatively low barriers to entry in
the software industry, the Company could experience additional competition from
other established or emerging companies as the mortgage software market
continues to develop and expand. To the extent that the Company expands into
Internet-based or other forms of delivery of mortgage services, the Company may
encounter additional competition from its existing competitors and other
established or emerging companies. Many of these potential competitors may have
well-established relationships with the Company's current and potential
customers, may have extensive knowledge of the mortgage industry, better name
recognition and significantly greater financial, technical, sales, marketing and
other resources and are capable of offering single vendor solutions which span
multiple industries. It is also possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. The
Company also expects that competition will increase as a result of software
industry consolidations. The Company's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
products.
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Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, financial condition or results of operations. There can
be no assurance that the Company will be able to compete successfully against
current or future competitors or that competitive pressure will not adversely
affect its business, financial condition or results of operations.
The Company believes that the principal competitive factors affecting
its market include features such as openness, scalability, ability to integrate
with third party products, functionality, adaptability, ease of use, product
reputation, quality, performance, price, customer service and support,
effectiveness of sales and marketing efforts and company reputation. Although
the Company believes that it currently competes favorably with respect to such
factors, there can be no assurance that the Company can maintain its competitive
position against current and potential competitors, especially those with
greater financial, marketing, service, support, technical and other resources
than the Company.
PROPRIETARY RIGHTS AND LICENSING. The Company's success is heavily
dependent upon proprietary technology. The Company will rely primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions with its employees, consultants and
business partners and in its license agreements to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
mortgage software or to obtain and use information that the Company regards as
proprietary. While the Company is not aware that any of its software infringes
upon the proprietary rights of third parties, there can be no assurance that
third parties will not claim infringement by the Company with resect to current
of future products.
In addition, the Company relies on certain software that it licenses
from Virtual Lending Technology, Inc. and other third parties, including
software is used in the Company's products to perform certain functions. There
can be no assurance that such firms will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to the Company on commercially reasonable terms. The
loss or inability to maintain any of these software or data licenses could
result in delays or cancellations in product shipments until equivalent software
can be identified and licensed or developed and integrated with the Company's
products. Any such delay or cancellation could materially adversely affect the
Company's business, financial condition or results of operations.
The Company's products are generally provided to customers in object
code (machine-readable) format only. From time to time, in limited
circumstances, the Company has licensed source code (human-readable) format
subject to customary protections such as use restrictions and confidentiality
agreements. In addition, certain customers may enter into source code escrow
arrangements with the Company, pursuant to which the Company's source code will
be released to the customer upon the occurrence of certain events, such as the
commencement of bankruptcy or insolvency proceedings by or against the Company,
or certain material breaches of the agreement. In the event of any release of
the source code from escrow, the customer's license is generally limited to use
of the source code to maintain, support and configure the Company's software
products.
Mortgage Lender
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GENERAL. EMB has been a retail mortgage broker for approximately two
and half years, and has recently commenced its business as a wholesale mortgage
banker. EMB originates its own loans and those of its licensees on a retail
basis and provides wholesale lending services to approved mortgage brokers. It
has entered into a correspondent lending relationship with ICI Funding
Corporation, a division of Imperial Credit Industries, Inc. ("ICI"), a national
mortgage lender. Initially, EMB will underwrite and fund through a wholesale
line of credit from Imperial Warehouse Lending Group Inc., and then resell such
loans to ICI. In the future, the Company intends to develop associations with
other mortgage lenders to participate in the secondary marketing of mortgages.
EMB expects to negotiate servicing fees for servicing its mortgage loans, or to
obtain service release fees upon the resale of mortgages. The Company may also
package and resell mortgage loans as asset-backed securities.
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LOAN STANDARDS. Mortgage loans made by EMB will be loans with fixed
or adjustable rates of interest secured by first mortgages, deeds of trust or
security deeds on residential properties with original principal balances which
did not exceed 95% of the value of the mortgaged properties, unless such loans
are FHA-insured or VA-guaranteed. Generally, each mortgage loan having a loan-
to-value ratio, as of the cut-off-date, in excess of 80%, or which is secured by
a second or vacation home, will be covered by a Mortgage Insurance Policy, FHA
Insurance Policy or VA Guaranty insuring against default all or a specified
portion of the principal amount thereof.
The mortgage loans will be "one to four-family" mortgage loans, which
means permanent loans (as opposed to construction or land development loans)
secured by mortgages on non-farm properties, including attached or detached
single-family or second/vacation homes, two to four-family primary residences
and condominiums or other attached dwelling units, including individual
condominiums, row houses, townhouses and other separate dwelling units even when
located in buildings containing five or more such units. Each mortgage loan
must be secured by an owner occupied primary residence or second/vacation home,
or by a nonowner occupied residence. The mortgaged property may not be a mobile
home.
No mortgage loan is expected to have an original principal balance
less than $30,000. While most loans may be less than $700,000, EMB may fund
loans of up to $2,000,000 through its own wholesale credit lines or by brokering
such loans to unaffiliated third-party mortgage lenders. Fixed rate mortgage
loans must be repayable in equal monthly installments which reduce the principal
balance of the loans to zero at the end of the term.
CREDIT, APPRAISAL AND UNDERWRITING STANDARDS. Each mortgage loan must
(i) be an FHA-insured or VA-guaranteed loan meeting the credit and underwriting
requirements of such agency, or (ii) meet the credit, appraisal and underwriting
standards established by the Company. For certain mortgage loans which may be
subject to a mortgage pool insurance policy, the Company may delegate to the
issuer of the mortgage pool insurance policy the responsibility of underwriting
such mortgage loans, in accordance with the Company's credit appraisal and
underwriting standards. In addition, the Company may delegate to one or more
lenders the responsibility of underwriting mortgage loans offered to the Company
by such lenders, in accordance with the Company's credit, appraisal and
underwriting standards. In connection with any such delegation of underwriting
responsibility to a lender, the Company will require that the lender (i) make
certain representations and warranties to the Company which shall be the basis
for certain of the Company's representations and warranties to the trustee; (ii)
agree to repurchase any mortgage loan which is discovered at any time not to be
in conformance with such representations and warranties, if such defect cannot
be cured within 60 days of discovery of such breach; and (iii) agree to provide
the Company within 10 days of request the credit file for any mortgage loan the
Company desires to audit for compliance with the terms of the Company's loan
purchase program. It is anticipated that the Company will select for audit
certain of the credit files after purchase of the related mortgage loans.
The Company's underwriting standards are intended to evaluate the
prospective mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed mortgaged property as collateral. In the loan
application process, prospective mortgagors will be required to provide
information regarding such factors as their assets, liabilities, income, credit
history, employment history and other related items. Each prospective mortgagor
will also provide an authorization to apply for a credit report which summarizes
the mortgagor's credit history. With respect to establishing the prospective
mortgagor's ability to make timely payments, the Company will require evidence
regarding the mortgagor's employment and income, and of the amount of deposits
made to financial institutions where the mortgagor maintains demand or savings
accounts. In some instances, mortgage loans may be sold to the Company under a
Limited Documentation Origination Program. For a mortgage loan to qualify for
the Limited Documentation Origination Program, the prospective mortgagor must
have a good credit history and be financially capable of making a larger cash
down payment in a purchase, or be willing to finance less of the appraised
value, in a refinancing, than would otherwise be required by the Company.
Currently, only mortgage loans with certain loan-to-value ratios will qualify
for the Limited Documentation Origination Program. If the mortgage loan
qualifies, the Company waives some of its documentation requirements and
eliminates verification of income and employment for the prospective mortgagor.
The Limited Documentation Original Program has been implemented relatively
recently and
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accordingly its impact, if any, on the rates of delinquencies and losses
experienced on the mortgage loans so originated cannot be determined at this
time.
The Company's underwriting standards generally follow guidelines
acceptable to FNMA and FHLMC. The Company's underwriting policies may be varied
in appropriate cases. In determining the adequacy of the property as
collateral, an independent appraisal is made of each property considered for
financing. The appraiser is required to inspect the property and verify that it
is in good condition and that construction, if new, has been completed. The
appraisal is based on the appraiser's judgment of values, giving appropriate
weight to both the market value of comparable homes and the cost of replacing
the property.
Certain states where the mortgaged properties may be located are
"anti-deficiency" states where, in general, lenders providing credit on one to
four-family properties must look solely to the property for repayment in the
event of foreclosure. The Company's underwriting standards in all states
(including anti-deficiency states) require that the underwriting officers be
satisfied that the value of the property being financed, as indicated by the
independent appraisal, currently supports and is anticipated to support in the
future the outstanding loan balance, and provides sufficient value to mitigate
the effects of adverse shifts in real estate values.
The Company may form mortgage pools in the future with loans having
remaining terms substantially less than the original terms.
LENDER WARRANTIES AND INDEMNIFICATION OF THE COMPANY. With respect to
the mortgage loans sold by it, each lender will make representations and
warranties to the Company which the Company deems sufficient to permit it to
make its representations and warranties in respect of such mortgage loans to the
trustee and the certificateholders under any pooling agreements. Additional
representations and warranties will be made by each lender which has been
delegated the responsibility to underwrite mortgage loans on behalf of the
Company. See "-Credit, Appraisal and Underwriting Standards" above. Each
lender will also make certain other representations and warranties regarding
mortgage loans sold by it.
Each lender will agree to indemnify the Company against any loss or
liability incurred by the Company on account of any breach of any representation
or warranty made by the lender, any failure to disclose any matter that makes
any such representation and warranty misleading, or any inaccuracy in
information furnished by the lender to the Company.
Upon the breach of any misrepresentation or warranty made by a lender,
the Company may require the lender to repurchase the related mortgage loan.
TITLE INSURANCE POLICIES. The servicing agreement regarding the
mortgage loans originated by the Company will usually require that, at the time
of the origination of the mortgage loans and continuously thereafter, a title
insurance policy be in effect on each of the mortgaged properties and that such
title insurance policy contain no coverage exceptions, except those permitted
pursuant to the guidelines heretofore established by FNMA.
Ownership of Real Estate
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Although approximately 93.6% of the assets of the Company is comprised
of undeveloped real estate located in the State of California, the Company does
not intend to be a real estate company. All real property owned by the Company
is held for resale and not for development purposes. The financial statements
of the Company presently reflect land held for resale as an asset at $3,930,000
as of February 29, 1996. See Note A to Financial Statements. The Company may
also hold real estate for sale from time to time as a result of its foreclosure
on mortgage loans that may become in default.
Trade Names and Service Marks
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The Company intends to register its service marks "EMB", "M.A.X.", and
"EMB Funding" on the principal register of the United States Patent and
Trademark Office. The Company also has taken steps to
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begin to register its service marks in such states as it deems necessary and
desirable. These names and marks are to be licensed to licensees under license
agreement provisions strictly regulating their use.
The Company will devote substantial time, effort and expense toward
developing name recognition and goodwill for its tradenames for its operations.
The Company intends to maintain the integrity of its trade names, service marks
and other proprietary names against unauthorized use and to protect the
licensees' use against claims of infringement and unfair competition where
circumstances warrant. Failure to defend and protect such trade name and other
proprietary names and marks could adversely affect the Company's sales of
licenses under such trade name and other proprietary names and marks. The
Company knows of no current materially infringing uses.
The Company will devote substantial efforts to the development of an
Operations Manual which provides operation, management and marketing guidelines
for EMB systems. The Operations Manual is the sole property of the Company but
will be available for use by a licensee of the Company so long as the licensee
operates pursuant to the terms of the license agreement.
Employees
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As of May 31, 1996, the Company employed 14 persons. Of the total,
eight were engaged in sales and marketing, two were in product development and
technical support and four were in finance and administration. None of the
Company's employees is represented by a labor union with respect to his or her
employment by the Company. The Company has experienced no organized work
stoppages and believes its relationship with its employees is good. The Company
believes that its future success will also depend to a significant extent upon
its ability to attract, train and retain highly skilled technical, management,
sales, marketing and consulting personnel. Competition for such personnel in
the computer software and mortgage industry in the United States is intense.
The Company has from time to time experienced difficulty in locating candidates
with appropriate qualifications. There can be no assurance that the Company
will be successful in attracting or retaining such personnel, and the failure to
attract or retain such personnel could have a material adverse effect on the
Company's business or results of operations.
Banking Arrangements
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The Company is presently negotiating with several national banks to
obtain a line of credit for the purpose of assuring the availability of
financing in the event the Company determines bank financing to be necessary or
desirable in the future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Development Stage
- - -----------------
The Company was incorporated under the laws of the State of Hawaii on
May 5, 1960. However, in recent years the Company has been a dormant shell
corporation with no material assets or operations. In December 1995, the Company
agreed to acquire assets in exchange for Common Stock and commenced operations.
As a result, the Company is presently in the development stage.
Fiscal 1995 versus 1994
- - -----------------------
There were no material changes in the assets, liabilities or
operations of the Company during fiscal 1995 in comparison to fiscal 1994. The
Company had been a dormant shell corporation for a substantial period and did
not conduct any material operations during fiscal 1994 or 1995.
During fiscal 1995, the Company incurred an operating loss of $10,168
versus a loss of $1,090 during fiscal 1994.
Five Months ended February 29, 1996 versus 1995
- - -----------------------------------------------
9
<PAGE>
The Company did not have any material operations during the five month
period ended February 29, 1995.
During the five month period ended February 29, 1996, the Company
acquired substantially all of the assets of Sterling Alliance Group, Ltd.
("SAG"), including all of the outstanding capital stock of Electronic Mortgage
Banc, Ltd. ("EMB"), certain undeveloped real property and other assets in
exchange for 13,500,000 shares of the Common Stock of the Company. Upon the
completion of this acquisition, the Company continued the operations regarding
such assets. The consolidated financial condition of the Company materially
changed thereafter with total assets increasing to $4,197,626 as February 29,
1996, comprised primarily of $3,930,000 of undeveloped land held for resale; and
the Company had total liabilities of $818,436 comprised primarily of notes
payable and accounts payable. As of February 29, 1996, the Company had total
stockholders' equity of $3,379,190, versus a deficit stockholders' equity of
$198,343 as of September 30, 1995.
During the five months ended February 29, 1996, the Company incurred a
consolidated loss of $352,467 on revenues of $92,932, compared to a loss during
the fiscal year ended September 30, 1995 of $212,805 on revenues of $97,400.
The losses are principally due to the limited amount of revenues during the
development stage of the Company, and the amount of general and administrative
expenses of the Company, the costs of its research and development for its
M.A.X. mortgage software system, and the Company's increasing marketing
activities.
Plan of Operations
- - ------------------
Because of the costs of development of its mortgage software system,
the expansion of its marketing activities, and the start-up costs of its
mortgage lending business, the Company expects that it will incur a loss during
its fiscal year ending September 30, 1996.
The Company believes that additional equity capital will be required
to accomplish its plan of operations during the next 12 months. As a result,
the Company intends to offer and sell its Common Stock and other securities in
exempt offerings under federal and state securities laws to further capitalize
the Company, and may also borrow from banks and other financial institutions to
the extent necessary to provide liquidity for its operations. In the event that
the Company sells its undeveloped real properties, it is expected that the
proceeds of the sales would decrease the amount of capitalization that the
Company may seek through securities offerings, and possible borrowings, although
there is no assurance that the properties held for sale will be successfully
sold in the near future.
The Company has reduced its research and development activities and
the associated costs consistent with its plan of operations because its M.A.X.
mortgage software system is currently in commercial operation. However, the
Company expects to continue the development of its software system to
incorporate technical changes and improvements. In addition, as the Company
expands its marketing activities and adds additional licensees and customers for
its M.A.X. software system, the Company will incur additional operating and
equipments costs. When the Company enters into a licensing agreement with a
licensee, the Company must acquire or make arrangements to lease one or more
computers regarding such licensee which has created liquidity problems for the
Company and has had the effect of inhibiting its marketing activities and has
limited its growth. The Company believes that the net proceeds of its
securities offerings during fiscal 1996 will be sufficient to meet its liquidity
requirements for at least 12 months.
The Company's plan of operations provides for a significant expansion
of its mortgage lending business. The scope of this expansion is dependent upon
the amount of additional capitalization to be realized by the Company in its
securities offerings and the amount of credit lines that become available to
finance such lending activities. To the extent that the mortgage lending
operations of the Company substantially increase, it will be necessary to make
significant changes in the number of additional employees of the Company.
The Company is not a real estate company, although a substantial
portion of its assets is comprised of undeveloped real estate held for resale.
In the event that the Company sells such properties for less than their
appraised value, it will reduce the future liquidity of the Company and result
in a financial loss for financial reporting purposes. The sale of such
properties may constitute a significant element of future
10
<PAGE>
income or loss that does not arise the Company's continuing operations in the
mortgage software and mortgage lending business.
Liquidity and Capital Resources
- - -------------------------------
The Company presently has limited capital resources to pursue its
business objectives, and will not have sufficient resources to expand its
proposed operations until this offering realizes the anticipated proceeds.
The Company may also seek bank commitments and/or a line of credit to
increase the amount of the Company's available capitalization.
The Company anticipates at least a six-month time frame after this
offering before its operations become profitable. Therefore, the Company
expects a loss for 1996.
Seasonality
- - -----------
The Company does not expect to experience material seasonal variations
in revenues or operating costs, except that residential mortgage activity
normally increases in the spring and summer seasons which is expected to cause
the operations of the Company to increase during this period.
ITEM 3. DESCRIPTION OF PROPERTY.
EXECUTIVE OFFICES. The Company currently subleases its executive
offices located at 575 Anton Boulevard, Suite 200, Costa Mesa, California 92626.
The lease covers approximately 6,500 square feet at a monthly rental of
approximately $7,500 per month. The sublease expires in March 1997. The
Company believes that its current facilities are adequate for its needs through
March 1997, and that, should it be needed, suitable additional or alternative
space will be available in the future on commercially reasonable terms. See
Note H to Financial Statements.
UNDEVELOPED LAND. The Company owns approximately 61 acres of
undeveloped real property located on Paris Valley Road in the San Ardo area of
Monterey County, California. This property was appraised by Stephen Rich, MAI,
of National Appraisal Service, 1278 Glenneyre Street, #142, Laguna Beach,
California 92651. Their appraisal report dated April 22, 1996, appraised the
estimated market value of the fee simple interest as of April 20, 1996, at
$3,860,000. The property is located close to Highway 101, a major California
highway. The area is rural in nature, used primarily for cattle and sheep
raising and agricultural purpose, including vineyards and wineries to the north
and to the south. The property is comprised of two parcels separated by Paris
Valley Road.
The zoning for the property is for agriculture/gazing in the lower
half, and for heavy mineral extraction on the upper half. The water and
electrical improvements provide primarily for farming use. Because of the
producing water wells on the property, commercial water production for
agricultural use is available to provide adjacent farms with excess water. The
property formerly produced crude oil; but such wells have been shut-in and the
power plant substation, natural gas pipeline system, pumps, tanks and used pipe
on the property are considered obsolete. Nearby comparable agricultural land
range from $1,375 to $2,300 per acre. However, because of the accessibility and
water development facilities on the Company's property, the appraisal estimated
a definitive value of $6,850 per acre for the subject property.
The Company's additional undeveloped properties were appraised by Tyna
M. Stopnik as of December 7, 1994, at a value of $170,000. These properties are
held subject to a Trust Deed Note dated March 15, 1995, in the principal amount
of $65,000.
While the Company has obtained independent appraisals regarding its
undeveloped properties, it should be noted that appraisals are merely estimates
of their value, and should not be relied upon as measures of actual or true
worth, or realizable value. Assumptions used by an appraiser as to potential
development, or
11
<PAGE>
other possible commercial or non-agricultural use of a property, will generally
assume the highest and best use possible for such property. Although such
assumptions may be deemed reasonable, if the assumptions used by the appraiser
prove to be incorrect, it will materially reduce the value that may be realized
upon the sale of such properties.
All real property owned by the Company is held for resale and not for
development purposes. The financial statements of the Company presently reflect
land held for resale as an asset at $3,930,000 as of February 29, 1996. See
Note A to Financial Statements. The Company may also hold real estate for sale
from time to time as a result of its foreclosure on mortgage loans that may
become in default.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The total number of shares of Common Stock of the Company beneficially
owned by each of the officers and directors, and all of such directors and
officers as a group, and their percentage ownership of the outstanding Common
Stock of the Company as of May 31, 1996, are as follows:
<TABLE>
<CAPTION>
SHARES PERCENT OF
MANAGEMENT BENEFICIALLY COMMON
SHAREHOLDERS(1) OWNED(1) STOCK
- - --------------------------------------- --------------- -----------
<S> <C> <C>
Bruce J. Brosky........................ 350,000(2) 2.1%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
Rory P. Hughes......................... 2,000,000(3) 12.0%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
William V. Perry....................... 1,161,130(4) 7.0%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
Ann L. Petersen........................ 25,000 .002%
Star Route 5080
Keaau, Hawaii 96749
James E. Shipley....................... 4,004,745(5) 24.12%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
Frank D. Tuttle........................ 0 0
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
B. Joe Wimer........................... 25,667(6) .002%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
Directors and officers as a group
(7 persons, including the above)(7).. 7,566,742 45.52%
========= =====
</TABLE>
(1) Except as otherwise noted, it is believed by the Company that all persons
have full voting and investment power with respect to the shares indicated.
Under the rules of the Securities and Exchange Commission, a person (or
group of persons) is deemed to be a "beneficial owner" of a security if he
or she, directly or indirectly, has or shares the power to vote or to
direct the voting of such security, or the power to dispose of or to direct
the disposition of such security. Accordingly, more than one person may
12
<PAGE>
be deemed to be a beneficial owner of the same security. A person is also
deemed to be a beneficial owner of any security which that person has the
right to acquire within 60 days, such as the warrants to purchase the
Common Stock of the Company.
(2) Represents 350,000 shares of the common stock of Sterling Alliance Group,
Ltd. which owns 13,500,000 shares of the Common Stock of the Company.
(3) Represents 2,000,000 shares of the common stock of Sterling Alliance Group,
Ltd. which owns 13,500,000 shares of the Common Stock of the Company.
(4) Includes 1,107,130 shares held by Win, Winn, Solver Group, Inc., a
corporation beneficially owned by Mr. Perry; and includes shares of
Sterling Alliance Group, Ltd. owned by a trust as to which beneficial
ownership is disclaimed.
(5) Includes 3,254,945 shares held by World Trends Financial, Ltd., a
corporation owned by Mr. Shipley; and includes 750,000 shares of Sterling
Alliance Group, Ltd. owned by members of his family and family trusts as to
which beneficial ownership is disclaimed.
(6) Represents 25,667 shares of the common stock of Sterling Alliance Group,
Ltd. which owns 13,500,000 shares of the Common Stock of the Company.
Because certain directors and officers of the Company are controlling
persons or affiliates of Sterling Alliance Group, Ltd. ("SAG")(specifically,
William V. Perry, James E. Shipley, Rory P. Hughes and B. Joe Wimer), such
persons may be deemed to be the beneficial owners of the 13,500,000 shares of
the Common Stock of the Company held in the name of SAG.
The Company entered into certain material transactions with SAG
subsequent to its fiscal year ended September 30, 1995, as described below. SAG
is a Colorado corporation that is beneficially owned 29.7% by James E. Shipley,
a director and the President of the Company, and owned 14.8% by Rory P. Hughes,
a director and Vice President of the Company, and by certain other directors and
officers of the Company to a lesser extent.
In December 1995, the Company agreed to acquire substantially all
of the assets of SAG, including all of the issued capital stock of its
subsidiary, Electronic Mortgage Banc, Ltd. ("EMB"), real property located in
Monterey County and in Riverside County, California, office equipment and
furniture, and its interests in MortgageShare software as licensed by Virtual
Lending Technology, Inc., and assumed certain liabilities of SAG. In exchange,
the Company issued 13,500,000 legended-restricted shares of its Common Stock to
SAG which presently represents approximately 81.2% of the total issued and
outstanding Common Stock of the Company. After this acquisition, the directors,
officers and certain consultants of SAG became directors and officers of the
Company. As a result of the ownership of common stock of SAG owned by certain
present directors and officers of the Company and their families, they are
deemed to be beneficial owners of the Common Stock of the Company.
Prior to this acquisition, Virtual Lending Technology, Inc., a Nevada
corporation, licensed certain software to EMB under the terms of a Software
Provider Agreement dated September 1, 1995, to be used in the mortgage lending
business. Rory P. Hughes and Frank D. Tuttle, presently officers and directors
of the Company, are also the owners and principal officers of Virtual Lending
Technology, Inc.
Principal Stockholders
- - ----------------------
The following table sets forth information with respect to the
beneficial ownership of the Company's Common Stock by each shareholder who
beneficially owns more than five percent (5%) of the Company's Common Stock, the
number of shares beneficially owned by each and the percent of outstanding
Common Stock so owned of record as of May 31, 1996. It is believed by the
Company that all persons listed have sole voting and investment power with
respect to their shares, except as otherwise indicated.
SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OUTSTANDING
OF BENEFICIAL OWNER TITLE OF CLASS OWNED COMMON STOCK
- - ---------------------------------- -------------- ------------ -------------
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
Sterling Alliance Group, Ltd.(1) Common Stock 13,500,000 81.2%
575 Anton Boulevard, Suite 200
Costa Mesa, CA 92626
Rory P. Hughes(2) Common Stock 2,000,000 12.0%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
James E. Shipley(4) Common Stock 4,004,945 24.1%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
William V. Perry(3) Common Stock 1,161,130 7.0%
575 Anton Boulevard, Suite 200
Costa Mesa, California 92626
Win, Win, Solver Group, Inc.(2) Common Stock 1,107,130 6.7%
1055 E. Flamingo Road, #1009
Las Vegas, Nevada 89109
</TABLE>
(1) Sterling Alliance Group, Ltd. ("SAG") is a Colorado corporation. Certain
directors and officers of the Company are stockholders, directors, officers
and controlling persons of SAG. See "Transactions with Management" and
"Security Ownership of Management", above.
(2) Represents shares of the Common Stock of Sterling Alliance Group, Ltd.
which owns 13,500,000 shares of the Common Stock of the Company.
(3) Includes 1,107,130 shares held by Win, Winn, Solver Group, Inc., a
corporation beneficially owned by Mr. Perry; and includes shares of
Sterling Alliance Group, Ltd. owned by a trust as to which beneficial
ownership is disclaimed.
(4) Includes 3,254,945 shares held by World Trends Financial, Ltd., a
corporation owned by Mr. Shipley; and includes 750,000 shares of Sterling
Alliance Group, Ltd. owned by members of his family and family trusts as to
which beneficial ownership is disclaimed.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Directors and Officers
- - ----------------------
The directors and officers of the Company as follows:
<TABLE>
<CAPTION>
Name(1)(2) Age Position
- - --------------------- --- ------------------------------
<S> <C> <C>
Bruce J. Brosky(3) 41 Director and Vice President-
Marketing and Public Relations
Rory P. Hughes(3) 37 Director and Vice President -
Research and Development
William V. Perry(3) 72 Director and Executive Vice
President
Ann L. Petersen 59 Director
James E. Shipley(4) 60 Director and President
Frank D. Tuttle(4) 38 Director and Vice President-
Operations
B. Joe Wimer(4) 40 Director, Secretary and
Treasurer
- - ----------------------------------------------------------
</TABLE>
(1) The Company presently has no executive committee, nominating committee or
audit committee of the Board of Directors.
(2) The officers of the Company hold office until their successors are elected
and qualified, or until their death, resignation or removal.
(3) Member of the Company's Stock Option Committee. See "1996 Stock Option,
SAR and Stock Bonus Plan", below.
(4) Member of the Company's Compensation Committee. See "Compensation
Committee", below.
14
<PAGE>
The background and principal occupations of each director and officer
of the Company are as follows:
Mr. Brosky has been a director and Vice President-Marketing and Public
Relations of the Company since April 29, 1996. From 1993 to the present, he has
been Director of Marketing of ERA Sterling Real Estate. From 1993 to the
present, Mr. Brosky has been the Director of Marketing and Public Relations of
Sterling Alliance Group, Ltd. From 1984 to 1992, Mr. Brosky was employed by GTE
of California as operator services supervisor, CAG analyst and systems analyst.
Mr. Brosky received a B.A. degree from the University of Dubuque in 1978, and
received a MBA degree from Lucas College in 1979.
Mr. Hughes has been Vice President-Research and Development of the
Company since May 21, 1996. He has been the President and a director of
Electronic Mortgage Banc, Ltd., a wholly owned subsidiary of the Company engaged
in real estate mortgage business, since September, 1995. From 1994 to the
present, he has been a director and President of Virtual Lending Technology,
Inc. From 1993 to 1994, he was the Marketing Director of Delphi Information
Sciences Corp. From 1993 to September 1995, Mr. Hughes was also employed by
Members Capital Corporation, a mortgage broker. From 1985 to 1993, he owned and
operated Financial Computing International, a software technology firm. Mr.
Hughes attended California State University-Fullerton majoring in corporate
finance and real estate finance.
Mr. Perry became a director and the Executive Vice President of the
Company on May 21, 1996. He is also the Chairman of the Board of Electronic
Mortgage Banc, Ltd., a wholly owned subsidiary of the Company. From 1994 to the
present, he has been a director and Vice President of Sterling Alliance Group,
Ltd. From October 1993 to the present, Mr. Perry has been associated with ERA
Sterling Real Estate. From 1990 to October 1993, he was a director and Vice
President of Ameri-West Funding, Inc., engaged in residential, multi-family and
commercial mortgages. From 1988 to 1990, Mr. Perry was the President of First
Marine Mortgage Company. From 1985 to 1987, he was the Chief Financial Officer
of Mobile Medical Group, Inc.; and was the Chief Financial Officer and a
director of Oceanic Opera, Inc. from 1984 to 1985. From 1970 to 1984, Mr. Perry
was engaged in the real estate brokerage business with several real estate
brokerage companies. From 1962 to 1970, he was an electronics engineer with
Lockheed Missle and Space Corporation. Mr. Perry graduated from Pacific States
University in 1948 with a degree in electrical engineering.
Mrs. Petersen became a director of the Company on November 25, 1992.
She is a resident of Hawaii and has been a housewife since being married in
1958. She attended Marquette University for two years. Mrs. Petersen is an
active volunteer in various charitable organizations, including the American
Cancer Association.
Mr. Shipley has been a director of the Company since January 15, 1996,
and became the President of the Company on April 29, 1996. From 1993 to the
present, he has been a director and the President of Sterling Alliance Group,
Ltd., an affiliate of the Company which recently sold substantially all of its
assets and operations to the Company in exchange for Common Stock. He was the
Managing Director of Electronic Mortgage Banc, Ltd., a wholly owned subsidiary
of the Company engaged in the real estate mortgage business, from October 1993
to April 1996. Mr. Shipley has served as the Managing Director of ERA Sterling
Real Estate, a real estate brokerage firm, from 1987 to the present. From 1968
to 1987, he was engaged in the real estate development business with several
companies. In 1988, Mr. Shipley became subject to two felony convictions for
forgery endorsement of a check and appropriation of property entrusted to him in
the Superior Court of the State of California. Mr. Shipley received a Bachelor
of Science degree from Eastern Illinois University in 1960.
Mr. Tuttle became the Vice President-Operations of the Company on
April 29, 1996. From December 1994 to February 1996, Mr. Tuttle was a Manager
of MIS operations regarding secondary mortgages of Pioneer Savings and Loan
Association. From July 1991 to December 1994, he held similar positions with
15
<PAGE>
Renet Financial Corporation. From July 1979 to 1991, Mr. Tuttle was a program
engineer with Hughes Aircraft Company. Mr. Tuttle graduated from Vanderbilt
University in 1979 with a degree in electrical engineering (BEEE), and graduated
from Pepperdine University with a MBA degree in 1983.
Mr. Wimer has been a director, Secretary and Treasurer of the Company
since April 29, 1996. From April 1993 to September 1995, he was the director of
business promotion of City Lights Escrow, Inc.; and from October 1992 to April
1993, was the owner and President of Better Service Escrow, Inc. From October
1990 to October 1992, Mr. Wimer was employed by Escrow Masters Inc. regarding
business promotion; and held a similar position with Melrose Escrow Inc. from
1988 to October 1990. In each of these positions, he was also responsible for
all banking and money management functions. From 1985 to 1988, he was the Chief
Financial Officer of Sierra Mortgage Corporation. Mr. Wimer attended California
State University-Fullerton and Clark College.
ITEM 6. EXECUTIVE COMPENSATION.
Compensation of Executive Officers
- - ----------------------------------
No executive officer or director of the Company received compensation
in excess of $100,000 during its fiscal year ended September 30, 1995. Mr.
James E. Shipley, the President of the Company, presently receives a salary of
$7,500 per month ($90,000 per annum).
Compensation Committee
- - ----------------------
The Compensation Committee of the Board of Directors is comprised of
Messrs. James E. Shipley, B. Joe Wimer, and Frank D. Tuttle. The Committee
makes decisions regarding the Company's employee stock plan and makes decisions
concerning salaries and incentive compensation for the executive officers,
employees and consultants of the Company.
The Board of Directors does not have an auditing committee or a
nominating committee as of the date hereof.
1996 Stock Option, SAR and Stock Bonus Plan
- - -------------------------------------------
The Company has reserved a total of 1,000,000 shares of Common Stock
for issuance under the Company's 1996 Stock Option, SAR and Stock Bonus Plan
(the "Plan"). At May 31, 1996, no options, SAR's or stock bonuses have been
granted or issued under the Plan. Options may be granted to employees
(including officers), consultants, advisors and directors, although only
employees and directors and officers who are also employees may receive
"incentive stock options" intended to qualify for certain tax treatment. The
exercise price of non-qualified stock options must equal at least 85% of the
fair market value of the Common Stock on the date of grant, and in the case of
incentive stock options must be no less than the fair market value. Options
granted under the Plan are immediately exercisable but generally vest over four
years and must be exercised within 10 years. The members of the Stock Option
Committee that administer the Plan are Bruce J. Brosky, Rory P. Hughes and
William V. Perry.
Benefit Plans
- - -------------
The Company does not have any pension plan, profit sharing plan or
similar plans for the benefit of its officers, directors or employees. However,
the Company reserves the right to establish any such plans in the future.
16
<PAGE>
Board Compensation
- - --------------------
Directors of the Company who do not serve as officers thereof are not
currently compensated by the Company for meeting attendance or otherwise, but
are entitled to reimbursement for their travel expenses. From time to time,
directors who are not employees of the Company will receive grants of options to
purchase the Company's Common Stock. The Company does not pay additional
amounts for committee participation or special assignments of the Board of
Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company acquired substantially all of the assets of Sterling Alliance
Group, Ltd. ("SAG"), including all of the outstanding capital stock of
Electronic Mortgage Banc, Ltd. ("EMB"), certain undeveloped real property and
other assets and assumed certain liabilities in exchange for 13,500,000 shares
of the Common Stock of the Company. There was no affiliation between the Company
and SAG prior to this acquisition. Upon the acquisition, the directors and
officers of SAG became directors and officers of the Company in addition to
other persons.
ITEM 8. DESCRIPTION OF SECURITIES.
General
- - -------
The Company is authorized to issue 30,000,000 shares of Common Stock,
no par value per share, and 5,000,000 shares of Preferred Stock. There are no
shares of Preferred Stock issued and outstanding. There are presently
16,634,600 shares of Common Stock issued and outstanding.
Common Stock
- - ------------
Holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors, out of funds legally available,
without any preference. Holders of Common Stock are entitled to one vote per
share. Cumulative voting is not allowed for purposes of the election of
directors. Thus, the holders of more than 50% of the shares voting for
directors can elect all directors. The holders of the Common Stock of the
Company have no preemptive rights to purchase new issues of the securities of
the Company.
At the present time, the Company does not intend to pay any dividends
on its Common Stock.
Upon liquidation or dissolution of the Company, holders of Common
Stock are entitled to receive pro rata, either in cash or in kind, all of the
assets of the Company after payment of debts. There are no redemption,
conversion or preemptive rights attached to the Common Stock.
Preferred Stock
- - ---------------
The Board of Directors has the authority, without action by the
stockholders, to designate and issue up to 5,000,000 shares of Preferred Stock
in one or more series and to designate the dividend rate, voting rights and
other rights, preferences and restrictions of each series any or all of which
may be greater than the rights of the Common Stock. The effect of the issuance
of any shares of Preferred Stock upon the rights of holders of the Common Stock
may not be determined until the Board of Directors specifies the rights of the
holders of such Preferred Stock. Such effects might include, among other
things, restricting dividends on the
17
<PAGE>
Common Stock, diluting the voting power of the Common Stock, impairment of the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. The Company
has no present plans to issue any shares of Preferred Stock. There are
presently no shares of Preferred Stock of the Company that are issued and
outstanding.
Warrants and Options
- - --------------------
There presently are no outstanding warrants to purchase the Common
Stock or other securities of the Company.
The Company has adopted a stock option plan which covers 1,000,000
shares of the Common Stock of the Company, but no options have been granted
under the plan as of the date hereof.
Hawaii Corporate Law and Certain Charter Provisions
- - ---------------------------------------------------
The Company is a Hawaii corporation and subject to Chapter 417E of the
Hawaii Business Corporation Act (the "Hawaii Law"), an anti-takeover law. In
general, Chapter 417E of the Hawaii Law prevents take-over offers to acquire
equity securities of a Hawaii corporation if the offeror would become a
beneficial owner of more than 10% of any class of outstanding equity securities,
and other similar provisions, subject to certain exceptions such as the written
approval of the board of directors. The existence of this provisions would be
expected to have an anti-takeover effect, including attempts that might result
in a premium over the market price for the shares of Common Stock held by
stockholders.
The Hawaii Law further provides that all stockholder action must be
effected at a duly called meeting of stockholders. The Company's Restated
Articles of Incorporation and By-Laws provide that only the Company's President,
a majority of the members of the Company's Board of Directors or at the written
request of the holders of at least 50% of the outstanding voting power may call
a special meeting of stockholders. These provisions of the Restated Articles of
Incorporation and By-Laws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. Such provisions also
may have the effect of preventing changes in the management of the Company.
Transfer Agent and Registrar
- - ----------------------------
The transfer agent and registrar for the Common Stock of the Company
is American Registrar & Transfer Co.
PART II
-------
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Market Price
- - ------------
18
<PAGE>
The Common Stock of the Company is traded in the over-the-counter
market (pink-sheets) (Electronic Bulletin Board) under the symbol PACF. There
are approximately 650 stockholders of record as of the date hereof.
For several years prior to January 1, 1996, the market price of the
Common Stock of the Company was either nominal or non-existent because the
Company had no substantial assets and had little or no operations. However,
after the Company entered into an acquisition agreement regarding the purchase
of certain assets of Sterling Alliance Group, Ltd. in December 1995, the Common
Stock of the Company began actively trading.
During the quarter ended March 31, 1996, the Common Stock of the
Company traded at a low bid price of $.25 per share and a high bid price of
$5.75 per share. On June 25, 1996, the closing high bid and low asked prices of
the Common Stock of the Company was $2.25 and $2.437, respectively. The above
quotations reflect inter-dealer prices without adjustment for retail markups,
markdowns, or commissions and may not reflect actual transactions.
Dividends
- - ---------
The Company has not paid any dividends on its Common Stock and does
not expect to do so in the foreseeable future. The Company intends to apply its
earnings, if any, in expanding its operations and related activities.
The payment of cash dividends in the future will be at the discretion
of the Board of Directors and will depend upon such factors as earnings levels,
capital requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors. In addition, the Company's ability to pay
dividends may become limited under future loan agreements of the Company which
may restrict or prohibit the payment of dividends.
ITEM 2. LEGAL PROCEEDINGS.
There are no known pending or threatened legal proceedings to which
the Company is, or is likely to be, a party or of which any of its assets are or
are likely to be subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
For fiscal 1995 and fiscal 1996, the principal independent accountant
of the Company is Harlan & Boettger, independent certified public accountants
located in San Diego, California.
For fiscal 1994 and prior fiscal years, the principal independent
accountant of the Company was George F. Rombach, C.P.A. of Newport Beach,
California. The Company changed its principal independent accountant without any
disagreement regarding accounting matters. The former accountant of the Company
did not resign or decline to stand for re-election, nor was such accountant
dismissed by the Company.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
19
<PAGE>
On March 5, the Company issued 13,500,000 shares of its Common Stock
to Sterling Alliance Group, Ltd. in exchange for assets in reliance upon Section
4(2) of the Securities Act of 1933, as amended.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the provisions of the Hawaii Business Corporation Law,
the Restated Articles of Incorporation and By-Laws of the Company provide for
the indemnification of the directors and officers of the Company to the fullest
extent permitted by the Hawaii General Corporation Law. These provisions
generally permit indemnification of directors and officers against certain
costs, liabilities and expenses of any threatened, pending or completed action,
suit or proceeding that any such person may incur by reason of serving in such
positions unless (i) finally adjudication establishes that the act or omission
of the director or officer was material to the cause of action adjudicated in
the action, suit or proceeding and involved intentional misconduct, fraud or a
knowing violation of the law, or (ii) the director or officer did not act in
good faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Company, and in the case of criminal
proceedings, the director or officer had no reasonable cause to believe such act
or omission was unlawful. Any determination that indemnification of a director
or an officer is, unless ordered by a court, must be made (i) by the Company's
stockholders, (ii) by the Company's Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to the act, suit or
proceeding, (iii) if a majority vote of quorum consisting of directors who were
not parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion, or (iv) if a quorum consisting of directors who
where not parties to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion. The Restated Articles of
Incorporation, By-Laws, and the Hawaii Business Corporation Law further provide
that such indemnification is not exclusive of any other rights to which such
directors, officers or persons controlling the Company pursuant to the foregoing
provisions.
As permitted by the provisions of the Hawaii Business Corporation Law,
the Restated Articles of Incorporation of the Company provides that the personal
liability of any director or officer of the Company to the Company or its
shareholders is limited to the fullest extent allowed by the statutory or
decisional law of the State of Hawaii, as amended or interpreted. These
provisions authorize the elimination or limiting of the personal liability of a
director and an officer to a corporation and its shareholders for damages for
breach of fiduciary duty as a director or an officer, other than the liability
of a director or officer for (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of the law, or (ii) the payment of
distributions to shareholders for a period three years after such distribution
(and with respect to a director that does not properly dissent to distribution),
which after giving effect to such distribution, (A) the corporation would not be
able to pay its debts as they become due in the usual course of business, or (B)
except as otherwise allowed by the Restated Articles of Incorporation, the
corporation's total assets would be less than the sum of its liabilities plus
the amount that would be needed, if the corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior or those shareholders
receiving the distribution. Hawaii law does not affect the potential liability
of directors and officers to third parties, such as creditors of the Company.
In addition, these provisions do not eliminate the liability of a director for
violations of federal securities laws, nor do they limit the rights of the
Company or the shareholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary relief. Such
remedies may not be effective in all cases.
20
<PAGE>
PART III
--------
INDEX TO EXHIBITS
3(i) Restated Articles of Incorporation
3(ii) By-laws
10 Material Contracts
10(a) Asset Acquisition Agreement dated December 16,
1995, with Sterling Alliance Group, Ltd.
10(b) Appraisal Report dated April 22, 1996, of real
property (61 acres) in County of Monterey,
California by National Appraisal Service
10(c) Appraisal report as of December 7, 1994, of 4.89
acres in Counter of Riverside, California, by Tyna
M. Stopnik
10(d) License Agreement with Virtual Lending
Technology, Inc.
10(e) Seller Agreement between ICI Funding
Corporation and EMB Mortgage Banc, Ltd.
10(f) 1996 Stock Option, SAR and Stock Bonus Plan
10(g) Sublease covering executive offices expiring March,
1997
10(h) Form of license agreement with customers
16 Letter on changes in certifying accountant
21 Subsidiary of the registrant
*27 Financial Data Schedule
- - ----------
* To Be Filed by Amendment
21
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
EMB CORPORATION
Date: June 26, 1996
By:
-------------------------- -------------------------------------
James E. Shipley William V. Perry
Director and President Director and Executive Vice President
-------------------------- -------------------------------------
B. Joe Wimer Bruce J. Brosky
Director, Secretary, Director and Vice President-Marketing
Treasurer, Chief Financial and Public Relations
Officer and Principal
Accounting Officer
-------------------------- -------------------------------------
Frank D. Tuttle Rory P. Hughes
Director and Vice Director and Vice President-
President-Operations Research and Development
22
<PAGE>
PACIFIC INTERNATIONAL, INC.
AUDITED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1995 AND
FEBRUARY 29, 1996
(Presently called "EMB Corporation")
23
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
INDEPENDENT AUDITORS' REPORT 2
FINANCIAL STATEMENTS:
BALANCE SHEETS AS OF SEPTEMBER 30, 1995 AND FEBRUARY 29, 1996 3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1995, AND
1994 AND THE FIVE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28,
1995 (UNAUDITED) AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS
FROM DECEMBER 16, 1995 (DATE OF RECOMMENCEMENT) THROUGH FEBRUARY
29, 1996 4
STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30,
1995, AND 1994 AND THE FIVE MONTHS ENDED FEBRUARY 29, 1996 5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND
1994, AND THE FIVE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(UNAUDITED) AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS FROM
DECEMBER 16, 1995
(DATE OF RECOMMENCEMENT) THROUGH FEBRUARY 29, 1996 6
NOTES TO FINANCIAL STATEMENTS 7 - 13
</TABLE>
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
PACIFIC INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheet of Pacific
International, Inc. (a Hawaii corporation) and its subsidiaries (Note A) as of
February 29, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the five months ended February 29,
1996. We have also audited the balance sheet of Pacific International, Inc. as
of September 30, 1995, and the related statements of operations, shareholders'
equity, and cash flows for the years ended September 30, 1995 and 1994. 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 audits 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 consolidated financial statements for 1996 referred to above
present fairly, in all material respects, the consolidated financial position of
Pacific International, Inc. and subsidiaries as of February 29, 1996, and the
results of their operations and their cash flows for the five months ended
February 29, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statements for 1995 and 1994 referred to
above present fairly, in all material respects, the financial position of
Pacific International Inc. as of September 30, 1995 and the results of its
operations and its cash flows for the years ended September 30, 1995 and 1994 in
conformity with generally accepted accounting principles.
/S/ HARLAN & BOETTGER
San Diego, California
April 30, 1996
25
<PAGE>
PACIFIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, February 29,
CURRENT ASSETS 1995 1996
------------- ------------
<S> <C> <C>
Cash $ 26,071 $ 17,723
Accounts receivable - 21,613
Inventories, net - 40,809
Note receivable 14,000 14,000
--------- -----------
TOTAL CURRENT ASSETS 40,071 94,145
PROPERTY AND EQUIPMENT, net (Note D) 25,692 149,411
RELATED PARTY RECEIVABLE 54,889 22,635
LAND HELD FOR SALE (Note A) - 3,930,000
OTHER ASSETS 1,177 1,435
--------- -----------
$ 121,829 $ 4,197,626
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,684 $ 128,118
Accrued expenses 2,249 4,866
Notes payable - current portion (Note E) 60,000 94,200
Capital lease obligations - current portion (Note H) 7,821 43,513
--------- -----------
TOTAL CURRENT LIABILITIES 74,754 270,697
RELATED PARTY PAYABLE (Note F) 235,171 249,527
NOTES PAYABLE, net of current portion (Note E) - 244,475
CAPITAL LEASE OBLIGATIONS, net of current portion (Note H) 10,247 53,737
--------- -----------
TOTAL LIABILITIES 320,172 818,436
COMMITMENTS (Note H)
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 20,000,000 shares
authorized; 11,634,600 and 16,634,600 shares issued
and outstanding, respectively 100,000 6,459,190
Retained deficit ($182,502 deficit accumulated during development
stage begun December 16, 1995) (298,343) (3,080,000)
--------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (198,343) 3,379,190
--------- -----------
$ 121,829 $ 4,197,626
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
PACIFIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Development
Five Months Ended Stage ended
--------------------------
Years ended September 30, February 29, February 28, February 29,
-----------------------------
1995 1994 1996 1995 1996
-------------- ------------- ------------ ------------ ------------
(Unaudited) (Note B)
<S> <C> <C> <C> <C> <C>
REVENUES $ 97,400 $ 74,107 $ 92,932 $ 54,337 $ 65,104
COST OF SALES - - 3,294 - 3,294
----------- ----------- ----------- ----------- -----------
Gross profit 97,400 74,107 89,638 54,337 61,810
OPERATING EXPENSES
General and administrative 314,568 147,875 410,688 134,530 231,884
Depreciation and amortization 2,662 1,419 13,300 1,109 5,320
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 317,230 149,294 423,988 135,639 237,204
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (219,830) (75,187) (334,350) (81,302) (175,394)
OTHER INCOME (EXPENSES)
Interest expense (2,164) - (17,770) - (7,108)
Other 9,989 (9,551) (347) (324) -
----------- ----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 7,825 (9,551) (18,117) (324) (7,108)
----------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (212,005) (84,738) (352,467) (81,626) (182,502)
Income taxes (benefit) (Note G) 800 800 - - -
----------- ----------- ----------- ----------- -----------
NET LOSS $ (212,805) $ (85,538) $ (352,467) $ 81,626 $ (182,502)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON SHARE $(.02) $(.86) $(.02) $(.82) $(.01)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 11,634,600 11,633,367 11,634,600 11,634,600 11,634,600
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
PACIFIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Total
------------------------- Retained Shareholders'
Shares Amounts Deficit Equity
------------ ----------- -------------- -----------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 100,000 $ 100,000 $ (85,538) $ 14,462
Net loss incurred prior to
development stage operations - - (212,805) (212,805)
---------- ---------- ----------- ----------
BALANCE, SEPTEMBER 30, 1995 100,000 100,000 (298,343) (198,343)
Net loss incurred prior to
development stage operations - - (169,965) (169,965)
---------- ---------- ----------- ----------
BALANCE, DECEMBER 16, 1996 100,000 100,000 (468,308) (368,308)
Issuance of common stock for
acquired company 13,500,000 4,030,000 - 4,030,000
Shares surrendered per acquisition
agreement (8,500,000) - - -
Reverse acquisition of Pacific
International Corp. 11,634,600 2,429,190 (2,429,190) -
Elimination of wholly-owned
subsidiary common stock (100,000) (100,000) - (100,000)
Net loss incurred during
development stage operations - - (182,502) (182,502)
---------- ---------- ----------- ----------
BALANCE, FEBRUARY 29, 1996 16,634,600 $6,459,190 $(3,080,000) $3,379,190
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
PACIFIC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Development
Five Months Ended Stage Ended
------------------
September 30, February 29, February 28, February 29,
------------------
1995 1994 1996 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(212,805) $(85,538) $(352,467) $(81,626) $(182,502)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 2,662 769 13,300 - 6,163
Deferred income tax provision -
Changes in operating assets and
liabilities:
Accounts receivable - - (21,613) - (21,613)
Inventories - - (40,809) - (40,809)
Prepaid expenses and other assets (1,177) - (259) - (259)
Accounts payable 349 4,335 123,434 6,841 117,022
Accrued expenses 1,449 800 2,617 - 2,226
--------- -------- --------- -------- ---------
NET CASH PROVIDED (USED IN) BY OPERATING
ACTIVITIES (209,522) (79,634) (275,797) (74,785) (119,772)
--------- -------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (6,720) (4,335) ( 53,118) (4,346) (45,518)
Proceeds from notes receivable (14,000) - - (14,000) -
Proceeds from related party receivable (29,092) (25,797) 32,255 (64,231) 32,255
--------- -------- --------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES (49,812) (30,132) (20,863) (82,577) (13,263)
--------- -------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 290,776 4,395 293,031 57,862 43,509
Payments under capital lease obligations - - (4,719) - (2,520)
Sale of common stock - 100,000 - 100,000 -
--------- -------- --------- -------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 290,776 104,395 288,312 157,862 40,989
--------- -------- --------- -------- ---------
NET INCREASE (DECREASE) IN CASH 31,442 (5,371) (8,348) 500 (92,046)
CASH, BEGINNING OF PERIOD (5,371) - 26,071 - 109,769
--------- -------- --------- -------- ---------
CASH, END OF PERIOD $ 26,071 $ (5,371) $ 17,723 $ 500 $ 17,723
========= ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
PACIFIC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
Pacific International Inc. (the "Company") was incorporated under the laws of
the state of Hawaii on May 5, 1960. Effective December 16, 1995, the Company
acquired the net assets of Sterling Alliance Group, Ltd ("SAG") which included
100% ownership in Electronic Mortgage Banc, Ltd. ("EMB") and land held for sale.
For financial statements purposes the transaction has been recorded as a reverse
merger and recapitalization of the Company due to the fact that SAG provides
substantially all of the historic and on-going operations (See Note C). The
historical and on-going financial statements represent the assets, liabilities
and operations which were acquired from SAG.
The Company principally provides mortgage brokerage services under EMB using
State of the Art electronic interactive display terminals which connect the
Company's representatives to its customers.
Basis of Consolidation - 1996
The consolidated financial statements for 1996 include the accounts of Pacific
International Inc., and its wholly owned subsidiary, Electronic Mortgage Banc,
Ltd. All significant intercompany transactions and amounts have been
eliminated in the consolidating process.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to prepare
and present financial statements which conform to generally accepted accounting
principles. 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 reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Property and Equipment
Property and equipment is stated at cost, and depreciated using the straight-
line method over the estimated useful lives of the assets, which range from five
to ten years. Assets under capital leases are depreciated by the straight-line
method over the shorter of the lease term or the useful lives of the assets.
Maintenance, repairs and minor renewals are charged to operations as incurred.
Major replacements or betterments are capitalized. When properties are retired
or otherwise disposed, the related cost and accumulated depreciation are
eliminated from the respective accounts and any gain or loss on disposition is
reflected as income or expense.
30
<PAGE>
PACIFIC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Revenue Recognition - Mortgage Brokerage
Revenue from mortgage brokerage transactions are recognized when the loan is
funded and escrow on the related real estate transaction is closed.
Revenue and Cost Recognition - Land Held for Sale
The Company expects that it will from time to time hold real estate for sale.
Revenue from such sales will be recognized upon closing of the sale.
Acquisition and other direct costs and interest and indirect costs related to
acquisition and development of lots are capitalized. The capitalized costs are
charged to earnings when the related revenue is recognized. Costs incurred in
connection with land and other selling and administrative costs are charged to
earnings when incurred.
Income Taxes
Income taxes, are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes." A deferred tax asset or liability is recorded
for all temporary differences between financial and tax reporting. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities.
B. DEVELOPMENT STAGE BUSINESS:
The Company is a development stage business primarily engaged in the development
of on-line electronic mortgage brokerage services using interactive visual
displays connecting the Company to its customers. The consolidated financial
statements for 1996 reflect activity primarily related to formation of the
business and commencement of operations in the mortgage brokerage industry since
December 16, 1995.
Development stage operations for the Company began upon the acquisition of the
net assets of SAG on December 16, 1995. Prior to this date, the Company was
inactive and had no material operations. The following information details the
deficit accumulated during the development stage and the related losses:
Retained deficit at February 29,1996 consists of the following:
Deficit accumulated during
the development stage $ (182,502)
Deficit accumulated prior to
the development stage (2,897,498)
-----------
$(3,080,000)
===========
31
<PAGE>
PACIFIC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
C. ACQUISITION:
Effective December 16, 1995, the Company acquired the assets of Sterling
Alliance Group, Ltd. for 13,500,000 shares of the Company's common stock.
The Company has treated the acquisition as a reverse acquisition by SAG and
recorded the transaction at historical cost because the companies were under
common control. Accordingly, the net assets so transferred were accounted for
in a manner similar to a pooling of interest.
D. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30, February 29, February 28,
1995 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Machinery and equipment $ 30,160 $ 87,862 $4,130
Furniture & fixtures - 78,280 216
-------- -------- ------
30,160 166,142 4,346
Less accumulated depreciation and
amortization 4,468 16,731 -
-------- -------- ------
Property and equipment, net $ 25,692 $149,411 $4,346
======== ======== ======
</TABLE>
32
<PAGE>
PACIFIC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
E. NOTES PAYABLE:
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
September 30, February 29,
1995 1996
------------- ------------
<S> <C> <C>
Note payable due to Frederic R. Weeth, maturing October,
1995, with no established payment schedule plus interest
at 10.5%. Note reissued on November 1, 1995, maturing
January 9, 1996 $30,000 $ 30,000
Note payable due to Thomas J. Donahue, maturing October,
1995, with no established payment schedule plus interest at
10.5%. Note reissued on November 1, 1995, maturing
January 9, 1996 30,000 30,000
Note payable due to Frederic R. Weeth, maturing January 9,
1996, with no established payment schedule plus interest at
10.5% - 10,600
Note payable to Thomas J. Donahue, maturing January 9,
1996, with no established payment schedule plus interest at
10.5% - 10,600
Various notes payable to unrelated parties with no established
terms, interest ranging from 8% to 11% - 257,475
------- --------
60,000 338,675
Less current portion 60,000 94,200
------- --------
$ - $244,475
======= ========
</TABLE>
F. RELATED PARTY PAYABLE:
The Company had a balance due to a related party at February 29, 1996, 1995 and
September 30, 1995 of $235,171, $57,862 and $249,527, respectively. The
balance arose from certain operating expenses that were paid on behalf of the
Company by a related corporation.
33
<PAGE>
PACIFIC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
G. INCOME TAXES:
The provision for income taxes for the years ended September 30, 1995 and 1994
and the five months ended February 29, 1996 consists solely of the $800 minimum
California franchise tax . Cumulative totals for the development stage
operations from December 16, 1995 through December 31, 1995 are shown for
comparative purposes.
Provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year ended
--------------------------
September 30 September 30
1995 1994
------------ ------------
<S> <C> <C>
Current income taxes $ 800 $ 800
Deferred income taxes - -
-------- --------
Provision for income taxes $ 800 $ 800
======== ========
</TABLE>
The Company's total deferred tax assets as of February 29, 1996 is as follows:
<TABLE>
<S> <C>
Deferred tax assets $ 73,000
Valuation allowance (73,000)
--------
Net deferred tax assets $ -
========
</TABLE>
H. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company subleases its facilities under an operating lease from an unrelated
third party which expires in March, 1997. Rental expense for the year ended
February 29, 1996 was $50,167.
Minimum annual rent payable and sublease income under the sublease for September
30, 1996 and 1997 is $31,200 and $44,382 and thereafter are as follows:
<TABLE>
<CAPTION>
Rent Payable
------------
<S> <C>
1996 $ 81,367
1997 44,382
--------
Total $125,749
========
</TABLE>
The noncancelable operating lease provides that the Company pays for property
taxes, insurance and certain other operating expenses applicable to the leased
premises.
34
<PAGE>
PACIFIC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
H. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Capital Leases
The Company acquired part of its equipment and furniture under capital leases.
The economic substance of the capital lease agreements is that the Company
finances the acquisition by making monthly payments over a sixty month period.
The assets are reflected as part of property and equipment. The following is an
analysis of the book value of the leased assets included in property and
equipment as of September 30, 1995.
1995
---------
Cost $18,068
Accumulated depreciation 1,506
-------
$16,562
=======
The future minimum lease payments under capitalized leases and the present value
of the net minimum lease payments as of September 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $8,016
1997 8,016
1998 5,344
1999 -
------
21,376
Less amount representing interest 3,308
------
18,068
Less current portion of capital lease 7,821
------
$10,247
=======
</TABLE>
35
<PAGE>
PACIFIC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
I. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information for the years ended September
30, 1995 and 1994 and the five months ended February 29, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1996
------- ----- -------
<S> <C> <C> <C>
Cash paid for interest and
income taxes:
Interest $ 2,164 $ - $17,770
Income taxes $ $ - $ -
-
Noncash investing and
financing activities:
Capital lease obligations
incurred $18,068 $ - $83,901
</TABLE>
36
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form 10-SB of our report dated April 30, 1996,
relating to the financial statements of EMB Corporation (formerly called Pacific
International, Inc.), which is contained in this Prospectus.
We also consent to the reference to us under the caption "Summary Financial
Data", and "Experts" in the Prospectus.
/s/ HARLAN & BOETTGER
San Diego, California
May 8, 1996
<PAGE>
EXHIBIT 3(i)
ARTICLES OF INCORPORATION
(RESTATED)
OF
EMB CORPORATION
KNOW ALL MEN BY THESE PRESENTS:
That whereas the incorporators of EMB Corporation (formerly called
Pacific International, Inc.)(hereinafter referred to the "Corporation")
heretofore associated themselves together in order to organize said Corporation
under and by virtue of the laws of the State of Hawaii, and in furtherance of
that purpose, the undersigned hereby certify and declare as follows:
ARTICLE I
The name of the Corporation is EMB Corporation.
ARTICLE II
The address of this Corporation's principal office is 575 Anton
Boulevard, Suite 200, Costa Mesa, California 92626, or at such other locations
as may be subsequently determined by the Board of Directors of the Corporation.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
this Corporation is to engage in any lawful act or activity for which
corporations may be organized under the Hawaii Business Corporation Act.
Specifically, the Corporation will provide mortgage services and computer
services, and will operate as a real estate company.
<PAGE>
The foregoing shall not be held to limit or restrict in any manner the
objects or purposes of this Corporation or the general powers conferred on this
Corporation by the laws of the State of Hawaii.
ARTICLE IV
The shareholders shall not have any preemptive right to acquire any
additional shares of the Corporation and/or rights in respect of its shares.
ARTICLE V
(a) The total number of shares of capital stock which the Corporation
is authorized to issue is 35,000,000 shares, of which 30,000,000 shares shall be
non-assessable shares of common stock, each share having no par value (the
"Common Stock"), and 5,000,000 shares shall be preferred stock (the "Preferred
Stock").
The Preferred Stock may be divided into and issued in series. The
Board of Directors of the Corporation is authorized to divide the authorized
shares of Preferred Stock into one or more series, each of which shall be so
designated as to distinguish the shares thereof from the shares of all other
series and classes. The Board of Directors of the Corporation is authorized,
within any limitations prescribed by law and the provisions hereof, to fix and
determine the designations, rights, qualifications, preferences, limitations and
terms of the shares of any series of Preferred Stock including but not limited
to the following:
(1) The rate of dividend, the time of payment of dividends, whether
dividends are cumulative, and the date from which any dividends shall
accrue;
(2) Whether shares may be redeemed, and, if so, the redemption price
and the terms and conditions of redemption;
2
<PAGE>
(3) The amount payable upon shares in the event of voluntary or
involuntary liquidation;
(4) Sinking fund or other provisions, if any, for the redemption or
purchase of shares;
(5) The terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion;
(6) Voting powers, if any, of the Board of Directors may authorize
shares of non-voting Preferred Stock, provided that if any of the Preferred
Stock or series thereof shall have voting rights, such Preferred Stock or
series shall vote only on a share for share basis with the Common Stock on
any matter, including but not limited to the election of directors, for
which such Preferred Stock or series has such rights; and
(7) Subject to the foregoing, such other terms, qualifications,
privileges, limitations, options, restrictions, and special or relative
rights and preferences, if any, of shares or such series as the Board of
Directors of the Corporation may, at the time so acting, lawfully fix and
determine under the laws of the State of Hawaii.
The Corporation shall not declare, pay or set apart for payment any
dividend or other distribution (unless payable solely in shares of Common Stock
or other class of stock junior to the Preferred Stock as to dividends or upon
liquidation), in respect of Common Stock, or other class of stock junior to the
Preferred Stock, nor shall it redeem, purchase or otherwise acquire for
consideration shares of any of the foregoing, unless dividends, if any, payable
to holders of Preferred Stock for the current period (and in the case of
cumulative dividends, if any, payable to holders of Preferred Stock for the
current
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<PAGE>
period (and in the case of cumulative dividends, if any, for all past periods)
have been paid, are being paid or have been set aside for payment, in accordance
with the terms of the Preferred Stock, as fixed by the Board of Directors.
In the event of the liquidation of the Corporation, holders of
Preferred Stock shall be entitled to receive, before any payment or distribution
on the Common Stock or any other class of stock junior to the Preferred Stock
upon liquidation, a distribution per share in the amount of the liquidation
preference, if any, fixed or determined in accordance with the terms of such
Preferred stock plus, if so provided in such terms, an amount per share equal to
accumulated and unpaid dividends in respect of such Preferred Stock (whether or
not earned or declared) to the date of such distribution. Neither the sale,
lease or exchange of all or substantially all of the property and assets of the
Corporation, nor any consolidation or merger of the Corporation, shall be deemed
to be a liquidation for the purposes of this Article.
(b) Each share of Common Stock shall entitle the registered holder
thereof to one vote on all matters brought before the shareholders of this
Corporation for a vote, unless otherwise provided by resolution of the Board of
Directors providing for issuance of such Common Stock.
(c) The Board of Directors of this Corporation shall have full
authority, to the extent permitted by law, to adjust the Common Stock of this
Corporation, to designate classes or series thereof and to determine whether all
or any part of such Common Stock shall have voting powers, full or limited, or
no voting powers, and to determine such designations, and such powers,
preferences, relative, participating or optional, or other
4
<PAGE>
special rights and the qualifications, limitations or restrictions thereof as
the Board shall from time to time determine in duly adopted resolutions
regarding Common Stock.
(d) At any time and from time to time when authorized by resolution of
the Board of Directors and without any action by its shareholders, this
Corporation may issue or sell any shares of its capital stock of any class or
series, whether out of the unissued shares thereof authorized by the Articles of
Incorporation of this Corporation as originally filed or by an amendment or
restatement thereof, or out of shares of its capital stock acquired by it after
the issue thereof, and whether or not the shares thereof so issued or sold shall
confer upon the holders thereof the right to exchange or convert such shares for
or into other shares of capital stock of this Corporation or any class or
classes or any series thereof. When similarly authorized, but without any
action by its shareholders, this Corporation may issue or grant rights, warrants
or options, in bearer or registered or such other form as the Board of Directors
may determine, for the purchase of shares of the capital stock of any class or
series of this Corporation within such period of time, or without limit as to
time, to such aggregate number of shares, and at such price per share, as the
Board of Directors may determine. Such rights, warrants or options may be
issued or granted separately or in connection with the issue of any bonds,
debentures, notes, obligations or other evidences of indebtedness or shares of
the capital stock of any class or series of this Corporation and for such
consideration and on such terms and conditions as the Board of Directors in its
sole discretion may determine. In each case, the consideration to be received
by this Corporation for any such shares so issued or sold shall be such as shall
be fixed from time to time by resolution of the Board of Directors.
5
<PAGE>
(e) Notwithstanding the foregoing, no shareholder of this Corporation
shall have a preemptive or preferential right of subscription to any shares of
stock of this Corporation, whether now or hereafter authorized, or to any
obligations convertible into stock of this Corporation, authorized, issued or
sold.
(f) In the event this Corporation has a license, registration or
franchise from a governmental agency to conduct it business, which license,
registration, franchise or membership is conditioned upon some or all of the
holders of this Corporation's capital stock possessing prescribed
qualifications, the issuance of such capital stock may be made subject to
redemption by this Corporation to the extent necessary to prevent the loss of
such license, registration, franchise or membership or to reinstate such
license, franchise or membership.
ARTICLE VI
The board of directors of the Corporation shall consist of such number
of individuals, not less than three, as shall be determined in accordance with
the bylaws from time to time.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized as follows:
(a) To adopt, amend or repeal the Bylaws of this Corporation;
(b) To authorize and cause to be executed or granted mortgages,
security interests and liens upon the real and personal property of this
Corporation;
(c) To set apart out of any of the funds of this Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created; and
6
<PAGE>
(d) By a majority of the whole Board of Directors, to designate one or
more committees, each committee to consist of one (1) or more of the directors
of this Corporation. The Board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of a committee. Any such committee, to the extent
provided in the resolution or in the Bylaws of this Corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of this Corporation, and may authorize the seal of this
Corporation to be affixed to all papers which may require it; provided, however,
the Bylaws may provide that in the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
ARTICLE VII
The officers of the Corporation are and shall hereafter be a
President, one or more Vice Presidents (as may be prescribed by the bylaws), a
Secretary and a Treasurer.
ARTICLE VIII
Meetings of shareholders may be held within or without the State of
Hawaii, as the Bylaws may provide. The books of this Corporation may be kept
(subject to any provision contained in the statutes) outside the State of Hawaii
at such place or places as may be designated from time to time by the Board of
Directors or in the ByLaws of this Corporation. Elections of directors need not
be by written ballot unless the Bylaws of the Corporation shall so provide.
7
<PAGE>
ARTICLE IX
This Corporation shall, to the fullest extent permitted by the Hawaii
Business Corporation Act, as the same exists or may be amended, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said Act, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in their official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
inure to the benefit of the heirs, executors and administrators of such person.
No amendment to or repeal of this Article IX shall apply to, or have any effect
on, the right of indemnification of any officer, director, employee or agent of
this Corporation with respect to any act or omission of such person occurring
prior to any such amendment or repeal.
This Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of this Corporation or
another corporation, partnership, joint venture, trust, limited liability
company, association or other enterprise against any expense, liability or loss,
whether or not this Corporation would have the power to indemnify such person
against such expense, liability or loss under the Hawaii Business Corporation
Act.
ARTICLE X
To the extent permitted by law, no contract or transaction between
this Corporation and one or more of its directors or officers, or between this
Corporation and
8
<PAGE>
any other corporation, partnership, trust, limited liability company,
association or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, or solely because the directors or officers
are present at or participate in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because the directors or officers or their votes are counted for such purpose.
ARTICLE XI
This Corporation reserves the right to amend, restate, alter, change
or repeal any provision contained in these Articles of Amendment, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
ARTICLE XII
The private property of the shareholders of this Corporation shall not
be subject to the payment of the debts, liabilities or obligations of or claims
against this Corporation.
ARTICLE XIII
To the fullest extent permitted by the Hawaii Business Corporation
Act, as the same exists or may hereafter be amended, a director of this
Corporation shall not be personally liable to this Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director.
No amendment to or repeal of this Section shall apply to, or have any effect on,
the liability or alleged liability of any director of this Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
9
<PAGE>
CERTIFICATION
-------------
James E. Shipley and B. Joe Wimer hereby certify that they are the
President and Secretary, respectively, of EMB Corporation, a Hawaii corporation;
that to their personal knowledge these Restated Articles of Incorporation
correctly set forth without change the corresponding provisions of said
Corporation's previous Restated Articles of Incorporation as heretofore amended,
and supersede the original Articles of Association, the previous Restated
Articles of Incorporation, and all amendments thereto; and, that they are
authorized and directed to execute and file these Restated Articles of
Incorporation by a resolution dated April 29, 1996 adopted by the board of
directors of said Corporation.
We certify that under the penalties of Section 415-136, Hawaii
Restated Statutes, that we have read the above statements and that the same are
true and correct. Executed on this 22nd day of May, 1996, by:
/s/ James E. Shipley /s/ B. Joe Wimer
- - --------------------------------------- -----------------------------
James E. Shipley, Chairman of the Board B. Joe Wimer, Secretary
and President
10
<PAGE>
Exhibit 3(ii)
BYLAWS
OF
EMB CORPORATION
<PAGE>
INDEX OF BYLAWS
OF
EMB CORPORATION
<TABLE>
<CAPTION>
ARTICLE I
<S> <C> <C>
OFFICES....................................................... 1
Section 1. Principal Office................................... 1
Section 2. Registered Office.................................. 1
Section 3. Other Offices...................................... 1
ARTICLE II
MEETINGS OF SHAREHOLDERS 1
Section 1. Annual Meeting..................................... 1
Section 2. Substitute Annual Meeting.......................... 1
Section 3. Special Meetings................................... 2
Section 4. Place of Meetings.................................. 2
Section 5. Notice of Meetings................................. 2
Section 6. Closing of Transfer Books or Fixing of Record Date. 3
Section 7. Voting Lists....................................... 3
Section 8. Quorum............................................. 4
Section 9. Proxies............................................ 4
Section 10. Voting of Shares................................... 4
Section 12. Informal Action by Shareholders.................... 5
ARTICLE III
BOARD OF DIRECTORS............................................ 5
Section 1. General Powers..................................... 5
Section 2. Number, Tenure and Qualifications.................. 5
Section 3. Vacancies.......................................... 6
Section 4. Removal............................................ 6
Section 5. Chairman of Board.................................. 6
Section 6. Indemnification.................................... 6
Section 7. Compensation....................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV
MEETINGS OF DIRECTORS......................................... 9
Section 1. Regular Meetings................................... 9
Section 2. Special Meetings................................... 9
Section 3. Notice............................................. 10
Section 4. Waiver by Attendance............................... 10
Section 5. Quorum............................................. 10
Section 6. Manner of Acting................................... 10
Section 7. Presumption of Assent.............................. 10
Section 8. Informal Action by Directors....................... 10
ARTICLE V
COMMITTEES.................................................... 11
Section 1. Creation........................................... 11
Section 2. Removal............................................ 11
Section 3. Minutes............................................ 12
Section 4. Responsibility of Directors........................ 12
ARTICLE VI
OFFICERS...................................................... 12
Section 1. Officers of the Corporation........................ 12
Section 2. Election and Term.................................. 12
Section 3. Compensation of Officers........................... 12
Section 4. Removal of Officers and Agents..................... 12
Section 5. Bonds.............................................. 12
Section 6. President.......................................... 13
Section 7. Vice Presidents.................................... 13
Section 8. Secretary.......................................... 13
Section 9. Assistant Secretaries.............................. 14
Section 10. Treasurer.......................................... 14
Section 11. Assistant Treasurer................................ 14
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS......................... 15
Section 1. Contracts.......................................... 15
Section 2. Loans.............................................. 15
Section 3. Checks and Drafts.................................. 15
Section 4. Deposits........................................... 15
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER.................... 15
Section 1. Certificates for Shares............................ 15
Section 2. Transfer of Shares................................. 16
Section 3. Lost Certificates.................................. 16
Section 4. Holder of Record................................... 16
Section 5. Treasury Shares.................................... 16
ARTICLE IX
GENERAL PROVISIONS............................................ 17
Section 1. Dividends.......................................... 17
Section 2. Seal............................................... 17
Section 3. Waiver of Notice................................... 17
Section 4. Fiscal Year........................................ 17
Section 5. Amendments......................................... 18
Section 6. Charter Provisions................................. 18
</TABLE>
iii
<PAGE>
BYLAWS
OF
EMB CORPORATION
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation shall
be located within or without the state of incorporation and as
may be determined by the Board of Directors.
Section 2. REGISTERED OFFICE. The registered office of the Corporation
required by law to be maintained in the state of incorporation
may be, but need not be, identical with the principal office of
the Corporation. The address of the registered office may be
changed from time to time by the Board of Directors.
Section 3. OTHER OFFICES. The Corporation may have offices at such other
places, either within or without the state of incorporation as
the Board of Directors may designate or as the business of the
Corporation may require from time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall be
held on a date designated by the Board of Directors, which shall
be within six (6) months next following the end of a twelve-month
fiscal year of the Corporation, for the purpose of electing
directors and for the transaction of such other business as may
come before the meeting. If the day fixed for the annual meeting
shall be a legal holiday, such meeting shall be held on the next
succeeding business day.
Section 2. SUBSTITUTE ANNUAL MEETING. If the annual meeting shall not be
held on the day designated for the annual meeting of
shareholders, or at any adjournment thereof, the directors shall
cause the meeting to be held as soon thereafter as convenient.
If there be a failure to hold the annual meeting of shareholders
for a period of thirty (30) days after the date designated
therefor, or if no date has been designated for a period of
thirteen (13) months after the organization of the Corporation or
after its last annual meeting, the district court may summarily
order a meeting to be held upon the application of any
1
<PAGE>
shareholder or director. The shares of stock represented at such
meeting either by person or by proxy, and entitled to vote
thereat, shall constitute a quorum for the purpose of such
meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President, and shall be called by the President or
Secretary at the request in writing of a majority of the Board of
Directors or, at the written request of the holders owning a
majority of all shares entitled to vote at the meeting. Such
request shall state the purpose or purposes of the proposed
meeting.
Section 4. PLACE OF MEETINGS. The Board of Directors may designate any
place, either within or without the state of incorporation, as
the place of meeting for any annual meeting or for any special
meeting called by the Board of Directors. A waiver of notice
signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the state of
incorporation as the place for the holding of such meeting. If
no designation is made or if a special meeting be otherwise
called, the place of meeting shall be the principal office of the
Corporation.
Section 5. NOTICE OF MEETINGS. Written or printed notice stating the time
and place of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than sixty (60) days
before the date of the meeting, either personally or by mail, by
or at the direction of the President, the Secretary, or the
officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder of the Corporation at
his address as it appears on the records of the Corporation, with
postage thereon prepaid. In addition to the foregoing, notice of
a substitute annual meeting shall state that the annual meeting
was not held on the day designated by these Bylaws and that such
substitute annual meeting is being held in lieu of and is
designated as such annual meeting.
When a meeting is adjourned for thirty (30) days or more, notice
of the adjourned meeting shall be given as in the case of an
original meeting. When a meeting is adjourned for less than
thirty (30) days in any one adjournment, no notice need be given
of the time and place of the adjourned meeting or of the business
to be transacted thereat other than by announcement at the
meeting at which the adjournment is taken.
Section 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to
vote at any
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<PAGE>
meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other
proper purpose, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period but not to
exceed, in any case, sixty (60) days. If the stock transfer
books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed at least ten (10) days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any
such determination of shareholders, such date in any case to be
not more than sixty (60) days prior to the date on which the
particular action requiring such determination of shareholders is
to be taken.
If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, the date on which notice
of the meeting is mailed or the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment
thereof except where the determination has been made through the
closing of the stock transfer books and the stated period of
closing has expired.
Section 7. VOTING LISTS. The Secretary shall make, at least ten (10) days
prior to the convening of any shareholders' meeting, a list of
all persons entitled to represent shares at such meeting,
arranging the names alphabetically, with the number of shares
entitled to be voted by each set opposite their respective names.
Such list shall be open to the examination of any shareholder
during ordinary business hours for a period of at least ten (10)
days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any shareholder who
is present.
Section 8. QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders.
3
<PAGE>
The shareholders at a meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by
a vote of the majority of the shares voting on the motion to
adjourn; and, at any adjourned meeting at which a quorum is
present, any business may be transacted which might have been
transacted at the original meeting.
Section 9. PROXIES. Shares may be voted either in person or by one or more
agents authorized by a written proxy executed by the shareholder
or by his duly authorized attorney-in-fact. The appointment of a
proxy shall be filed in writing with the Secretary at, or before,
the meeting.
A proxy is not valid after the expiration of five years from the
date of its execution, unless the person executing it specifies
thereon the length of time for which it is to continue in force,
or limits its use to a particular meeting. The termination of a
proxy's authority by act of the shareholder shall, subject to the
time limitation set forth herein, be ineffective until written
notice of the termination has been given to the Secretary. A
proxy's authority shall not be revoked by the death or incapacity
of the maker unless, before the vote is cast or the authority is
exercised, written notice of such death or incapacity is given to
the Corporation.
Section 10. VOTING OF SHARES. Each outstanding share entitled to vote shall
be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders.
At each election for directors, every shareholder entitled to
vote at such election shall have the right to vote, in person or
by proxy, the number of shares standing of record in his name for
each person nominated as a director to be elected and for whose
election he has a right to vote.
Treasury shares, or other shares not at the time outstanding,
shall not, directly or indirectly, be voted at any shareholders'
meeting or counted in calculating the actual voting power of
shareholders at any given time, but shares of Corporation stock
held by the Corporation in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding
shares and the actual voting power of the shareholders at any
given time.
Section 11. VOTES REQUIRED. The vote of a majority of the shares voted at a
meeting of shareholders, duly held at which a quorum is present,
shall
4
<PAGE>
be sufficient to take or authorize action upon any matter which
may properly come before the meeting except as otherwise provided
by law or by these Bylaws.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any action which may be taken
at a meeting of the shareholders may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall
be signed by all the holders of a majority of the shares who
would be entitled to vote at a meeting for such purpose, and
filed with the Secretary as part of the corporate records.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
constituting the Board of Directors shall be at least one and
such number as the directors may from time to time determine by
resolution or election.
The directors shall be elected at the annual or adjourned annual
meeting of the shareholders (except as herein otherwise provided
for the filling of vacancies) and each director shall hold office
until his death, resignation, retirement, removal,
disqualification, or his successor shall have been elected and
qualified.
Directors need not be residents of the state of incorporation nor
shareholders of the Corporation.
Section 3. VACANCIES. Any vacancy occurring in the Board of Directors
including any vacancy created by an increase in the authorized
number of directors elected by all of the shareholders having the
right to vote as a single class may be filled by the affirmative
vote of a majority of the remaining directors even though less
than a quorum or by the sole remaining director.
Any director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. At a special
meeting of shareholders, the shareholders may elect a director to
fill any vacancy not filled by the directors.
Section 4. REMOVAL. The entire Board of Directors, or any individual
director, may be removed at any time, with or without cause, by a
vote of the
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<PAGE>
shareholders holding a majority of the outstanding shares
entitled to vote at an annual or special meeting of shareholders.
However, unless the entire Board is removed, an individual
director shall not be removed when the number of shares voting
against the proposal for removal would be sufficient to elect a
director if such shares could be voted cumulatively at an annual
election.
Section 5. CHAIRMAN OF BOARD. There may be a Chairman of the Board of
Directors elected by the directors from their number at the
annual meeting of the Board of Directors. The Chairman shall
preside at all meetings of the Board of Directors and perform
such other duties as may be directed by the Board.
Section 6. INDEMNIFICATION.
(a) The Corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason
of the fact that he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) The Corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in
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connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to
the extent that the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsection (a) or (b) of this section, or in defense of any
claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under the provisions of subsection
(a) or (b) of this section (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in
subsection (a) or (b) of this section. Such determination shall
be made: (1) by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such
action, suit or proceedings; (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion; or (3) by the shareholders.
(e) Expenses incurred by an officer or director in defending
a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by the provisions of
this section. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by or granted pursuant to the other subsections of this section
shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of shareholders or
disinterested directors or
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otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
(g) The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability
under the provisions of this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation, including any
constituent of a constituent, absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation, as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this section
with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services, by such director,
officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interest of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided
by or granted pursuant to this section, unless otherwise provided
when authorized or ratified, shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
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Section 7. COMPENSATION. The Board of Directors may compensate directors
for their services as such and may provide for the payment of all
expenses incurred by directors in attending meetings of the
Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately
after, and at the same place, as the annual meeting of
shareholders. The Board of Directors may provide, by resolution,
the time and place, either within or without the state of
incorporation, for the holding of additional regular meetings
without other notice than such resolution.
Section 2. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the President or any directors. The person or
persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the state
of incorporation, as the place for holding any special meeting of
the Board of Directors called by them.
Section 3. NOTICE. Notice of special meetings of the Board of Directors
shall be given to each director not less than three (3) days
before the date of the meeting by any usual means of
communication.
Neither the business transacted at, nor the purposes of, any
regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 4. WAIVER BY ATTENDANCE. Attendance of a director at a meeting of
the Board of Directors shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. QUORUM. A majority of the number of directors fixed by these
Bylaws shall constitute a quorum for the transaction of business.
Section 6. MANNER OF ACTING. Except as otherwise provided in these Bylaws,
the act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of
Directors.
Section 7. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on
any corporate matter is taken shall be presumed to have assented
to the
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action taken unless his contrary vote or abstention is recorded
or his dissent is otherwise entered in the minutes of the meeting
or unless he shall file his written dissent of such action with
the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered
mail to the Secretary immediately after the adjournment of the
meeting. An abstention shall be deemed a negative vote. Such
right to dissent shall not apply to a director who voted in favor
of such action.
Section 8. INFORMAL ACTION BY DIRECTORS. Any action which might be taken at
a meeting of the Board of Directors may be taken without a
meeting if a record or memorandum thereof be made in writing and
signed by all of the members of the Board. Such writing or
memorandum shall be filed with the Secretary as part of the
corporate records.
ARTICLE V
COMMITTEES
Section 1. CREATION. The Board of Directors, by resolution adopted by a
majority of directors, may designate one or more committees, each
committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee shall have and may
exercise all the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to
all papers which may require it; but no such committee shall have
the power or authority in reference to amending the certificate
of incorporation (except that a committee, to the extent
authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors may
fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into,
or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or
classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of
the shares of any series), adopting an agreement of merger or
consolidation, recommending to the shareholders the sale, lease
or
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exchange of all or substantially all of the Corporation's
property and assets, recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation; and, unless by
resolution of the Board of Directors, no such committee shall
have the power or authority to declare a dividend, authorize the
issuance of stock, or to adopt a certificate of ownership and
merger.
Section 2. REMOVAL. Any member of a committee may be removed at any time
with or without cause by a majority of the number of directors
fixed by these Bylaws.
Section 3. MINUTES. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 4. RESPONSIBILITY OF DIRECTORS. The designation of a committee and
the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any
responsibility or liability imposed upon it or him by law.
ARTICLE VI
OFFICERS
Section 1. OFFICERS OF THE CORPORATION. The officers of the Corporation
shall consist of a President, a Secretary, a Treasurer and such
Vice Presidents, Assistant Secretaries, Assistant Treasurer, and
other officers as the Board of Directors may from time to time
elect. The same person may at the same time hold any of the
above named offices.
Section 2. ELECTION AND TERM. The officers of the Corporation shall be
elected by the Board of Directors and each officer shall hold
office until his death, resignation, retirement, removal,
disqualification or his successor shall have been elected and
qualified.
Section 3. COMPENSATION OF OFFICERS. The compensation of all officers of
the Corporation shall be fixed by the Board of Directors and no
officer shall serve the Corporation in any other capacity and
receive compensation therefor unless such additional compensation
be authorized by the Board of Directors.
Section 4. REMOVAL OF OFFICERS AND AGENTS. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board
of Directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person
so removed.
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Section 5. BONDS. The Board of Directors may, by resolution, require any
officer, agent, or employee of the Corporation to give bond to
the Corporation, with sufficient sureties, conditioned on the
faithful performance of the duties of his respective office or
position, and to comply with such other conditions as may from
time to time be required by the Board of Directors.
Section 6. PRESIDENT. The President shall be the principal executive
officer of the Corporation and, subject to the control of the
Board of Directors, shall, in general, supervise and control all
of the business and affairs of the Corporation. He shall, when
present, preside at all meetings of the shareholders. He shall
sign, with the Secretary, an Assistant Secretary, or any other
proper officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the Corporation,
any deeds, mortgages, bonds, contracts, or other instruments
which the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws
to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and, in
general, shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board
of Directors from time to time.
Section 7. VICE PRESIDENTS. In the absence of the President or in the event
of his death, inability or refusal to act, the Vice Presidents in
the order of their length of service as Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the
duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the
President. A Vice President may sign certificates for shares of
the Corporation. Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the President or
Board of Directors.
Section 8. SECRETARY. The Secretary shall: (a) keep the minutes of the
meetings of shareholders, of the Board of Directors and of all
Executive Committees in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed
to all documents the execution of which on behalf of the
Corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder which
shall be furnished to the Secretary by such shareholder; (e) sign
with the President, certificates for shares of the Corporation,
the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock
transfer books of the
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Corporation; and (g) in general, perform all duties as from time
to time may be assigned to him by the President or by the Board
of Directors.
The Secretary shall keep, or cause to be kept in the state of
incorporation at the Corporation's registered office and
principal place of business, a record of the Corporation's
shareholders, giving the names and addresses of all shareholders
and the number and class of the shares held by each.
Section 9. ASSISTANT SECRETARIES. In the absence of the Secretary or in the
event of the Secretary's death, inability or refusal to act, the
Assistant Secretaries in the order of their length of service as
Assistant Secretary, unless otherwise determined by the Board of
Directors, shall perform the duties of the Secretary, and when so
acting shall have all the powers of and be subject to all the
restrictions upon the Secretary. They shall perform such other
duties as may be assigned to them by the Secretary, by the
President, or by the Board of Directors.
Any Assistant Secretary may sign, with the President,
certificates for shares of the Corporation.
Section 10. TREASURER. The Treasurer shall: (a)have charge and custody of
and be responsible for all funds and securities of the
Corporation; receive and give receipts for moneys due and payable
to the Corporation from any source whatsoever, and deposit all
such moneys in the name of the Corporation in such depositories
as shall be selected in accordance with the provisions of Article
VII, Section 4 of these Bylaws; and (b) in general, perform all
of the duties as from time to time may be assigned to him by the
President or by the Board of Directors.
The Treasurer shall prepare, or cause to be prepared, a true
statement of the Corporation's assets and liabilities as of the
close of each fiscal year, all in reasonable detail, which
statement shall be made and filed at the Corporation's registered
office or principal place of business in the state of
incorporation within four months after the end of such fiscal
year and thereat kept available for a period of at least ten
years. Such statement shall include, when applicable, a
statement of the then current conversion rate of any outstanding
securities and a statement of the number of shares covered by any
outstanding options and the price at which the options are
exercisable.
Section 11. ASSISTANT TREASURER. In the absence of the Treasurer or in the
event of the Treasurer's death, inability or refusal to act, the
Assistant Treasurer, unless otherwise determined by the Board of
Directors, shall perform the duties of the Treasurer and when so
acting shall have all the powers of and be subject to all the
restrictions upon the
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Treasurer. He/she shall perform such other duties as may be
assigned to him/her by the Treasurer, by the President, or by the
Board of Directors.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to
specific instances.
Section 2. LOANS. No loan shall be contracted on behalf of the Corporation
and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors.
Such authority may be general or confined to specific instances.
Section 3. CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, issued in the name of the Corporation, shall be
signed by such officer or officers, agent or agents of the
Corporation and in such manner as shall from time to time be
determined.
Section 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the
Corporation in such depositories as the Board of Directors may
select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the
Board of Directors. The Corporation shall issue and deliver to
each shareholder certificates representing all fully paid shares
owned by him. Certificates shall be signed by the Chairman or
Vice Chairman of the Board of Directors, the President or Vice
President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom
the shares represented thereby are issued, with the number and
class of shares and the date of issue, shall be entered on the
stock transfer books of the Corporation.
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Section 2. TRANSFER OF SHARES. Transfer of shares of the Corporation shall
be made on the stock transfer books of the Corporation only if:
(a) the share certificate is endorsed by the appropriate
person or persons; and
(b) reasonable assurance is given that those endorsements
are genuine and effective; and
(c) the Corporation has no duty to inquire into adverse
claims in connection with the shares or has discharged any such
duty; and
(d) any applicable law relating to the collection of taxes
has been complied with;
(e) the transfer is in fact rightful or to a bona fide
purchaser; and
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation
alleged to have been lost or stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or such
owner's legal representative, to advertise the same in such
manner as the Corporation shall require and/or to give the
Corporation a bond in such sum as the Corporation may direct as
indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. HOLDER OF RECORD. Prior to due presentment for transfer of the
shares, the Corporation may treat the registered owner as the
person exclusively entitled to vote, to receive notifications and
otherwise to exercise all the rights and powers of an owner.
Section 5. TREASURY SHARES. Treasury shares of the Corporation shall
consist of such shares as have been issued and thereafter
acquired but not canceled by the Corporation. Treasury shares
shall not carry voting or dividend rights.
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ARTICLE IX
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time declare,
and the Corporation may pay, dividends on its outstanding shares
in cash, property, or its own shares pursuant to law and subject
to the provisions of its charter.
Section 2. SEAL. The corporate seal of the Corporation shall consist of two
concentric circles between which is the name of the Corporation
and in the center of which is inscribed SEAL; and such seal, as
impressed on the margin hereof, is hereby adopted as the
corporate seal of the Corporation.
Section 3. WAIVER OF NOTICE. Whenever any notice is required to be given to
any shareholder or director by law, by the charter or by these
Bylaws, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time
stated therein, shall be equivalent to the giving of such notice.
Section 4. FISCAL YEAR. Unless otherwise fixed by the Board of Directors,
the fiscal year of the Corporation shall be the year beginning on
the first day of October of each year and ending on the thirtieth
day of September of each year.
Section 5. AMENDMENTS. These Bylaws may be altered or repealed at any
regular or special meeting of the shareholders or of the Board of
Directors.
Section 6. CHARTER PROVISIONS. In case of conflict between a provision in
these Bylaws and a provision in the charter of the Corporation,
the charter provision shall govern.
Signed this 2nd day of May, 1996.
/s/ B. Joe Wimer
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Secretary
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EXHIBIT 10(a)
ASSET ACQUISITION AGREEMENT
This Asset Acquisition Agreement (hereinafter referred to as the "Agreement") is
made and entered into on this 16th day of December 1995 by and between PACIFIC
INTERNATIONAL, INC., a Hawaiian corporation, (hereinafter referred to as "PII"),
DAVID A. HITE (hereinafter referred to as "HITE"), and STERLING ALLIANCE GROUP,
LTD. (hereinafter referred to "SAG"), sometimes collectively referred to as the
"Parties."
Whereas, SAG owns certain real estate assets, Electronic Mortgage Banc. Ltd.,
and computer software technology; and
Whereas, SAG owns and operates certain real estate sales businesses known ERA
Sterling Real Estate; and
Whereas, PII wishes to purchase 100% of the assets of SAG, located at 575 Anton
Boulevard, Suite 200, Costa Mesa, California 92626; and
Whereas, the controlling shareholders of SAG desire to sell the assets of SAG in
exchange for 13,500,000 new shares of legend investment stock of Pacific
International Inc.; and
Therefore, in consideration of $10.00, the mutual covenants and conditions set
forth hereinbelow, and for other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE OF SAG ASSETS. In a private transaction to be evidenced by such
documentation as is required by applicable laws of the United States of
America and of the State of California, PII hereby agrees to purchase from
SAG 100% of their controlling interest in all of the assets of SAG. Such
assets of SAG the ("ASSETS") include, but not be limited to, the following:
A. Real property consisting of 61 acres located in Monterey County,
California
B. Real property consisting of 5 acres located Ranch California, California
C. Electronic Mortgage Banc., Ltd. and any and all property rights, title
and interest in and to the computer software used to operate and manage
the mortgage lending business.
<PAGE>
D. ERA Sterling Real Estate Sales offices located at 16365 Bolsa Chica
Road, Huntington Beach, CA 92649 and 9766 Chapman Avenue, Garden Grove,
CA 92641.
E. Any and all office equipment and furniture.
F. Any and all rights, title and interests in and to the Genesis Loan
Software, and Mortgage Approval Xpress Software as licensed by Virtual
Lending Technology.
2. PURCHASE PRICE AND PAYMENT TERMS. The terms of the purchase of SAG shall be
that HITE shall cancel his 8,500,000 existing shares of PII common stock,
and simultaneously, PII shall issue 13,500,000 new shares of legend
investment common stock in exchange for the ASSETS of SAG with the intention
of effecting a tax-free exchange, as SAG will then own more than 80% of the
total outstanding stock of PII.
3. CONSIDERATION TO HITE. As consideration to HITE for HITE canceling his
control block of 8,500,000 shares of stock of PII, which represents the
controlling interest out of 11,634,600 total issued and outstanding shares
of PII, SAG agrees to pay HITE $150,000. The consideration shall be in the
form of a Promissory Note for One Hundred Fifty Thousand Dollars
($150,000.00) from SAG to HITE, which shall be all due and payable on the
sooner of either (i) a financing, by way of the sale of shares of PII stock,
of not less than Seven-Hundred -Fifty Thousand dollars ($750,000), or (ii)
within 180 days from the signing of this agreement. The Promissory Note to
HITE shall bear interest at the rate of ten (10) percent per year and will
be convertible into shares of PII at the conversion rate of $0.50 per share
for a total of 300,000 shares of PII common stock.
A. While the Promissory Note to HITE remains unpaid, PII and SAG agree to
obtain HITE's prior written consent prior to voting the newly issued
13,500,000 shares of PII stock in favor of a reverse split of PII's
stock; or issue any new shares of PII's stock to themselves; or take any
other action to dilute or to diminish HITE's interest in SAG or PII.
B. SAG acknowledge and agree that they have received a complete information
package on PII including but not limited to the following:
i) audited financial statements for the three years ended September 30,
1992, 1993 1994.
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ii) a copy of the Form 15c2-11(a)(5) dated June 21, 1993.
iii) Federal income tax returns on Form 1120 for the years ended
September 30, 1992, 1993 and 1994.
iv) a copy of the original offering circular dated June 15, 1960 for
PII.
v) a copy of the Certificate of Good Standing from the State of
Hawaii for the year ended December 31, 1992.
C. SAG acknowledges and agrees that they are aware that, as of
September 30, 1994, PII's Balance Sheet shows loans outstanding to PII
from HITE in the amount of $12,992. Subsequent to September 30, 1994,
PII paid to HITE all of the cash in the bank and gave HITE the three
pieces of real property located in 29 Palms, California with a book
value of $22,797 as of September 30, 1994 as full and complete
settlement of the loans and any accrued interest thereon which HITE had
made to PII.
D. SAG understands and agrees that any and all funds paid to HITE under the
terms of this agreement are NON-REFUNDABLE for any reason.
4. CONDITIONS PRECEDENT PII agrees to appoint James E. Shipley to the Board of
--------------------
Directors of PII on the date of signing of this Agreement. SAG shall present
satisfactory documentation as to the ownership and title of the said assets
and real estate properties for approval and acceptance by PII. Said approval
and acceptance is at the sole discretion of HITE on behalf of PII. SAG is to
provide audited financial statements to HITE and PII within 90 days. SAG is
to provide audited financial statements to HITE and PII within 90 days. SAG
is to provide an acceptable valuation of the real estate assets satisfactory
to HITE and PII. Any item subject to the approval of PII shall be deemed
approved if not disapproved in writing within 15 days after receipt by PII
of the required item. If a disapproval has been noticed to SAG, SAG shall
have a period of 15 days from the date of Notice of Disapproval to cure the
unacceptable item. If the disapproved item is not cured to the satisfaction
of HITE and PII within such 15 day period, then this Agreement shall
terminate and become null and void and James E. Shipley agrees to resign
from the Board of Directors of PII.
5. FORCE MAJEURE It is further accepted and agreed that a signatory cannot be
-------------
considered in violation of this Agreement when the violation is involuntary
due to situations of circumstances beyond his control, e.g. Acts of God,
civil disturbances, theft and the like.
<PAGE>
6. FEES; FULL DISCLOSURE SAG agrees that no efforts shall be made to circumvent
---------------------
this Agreement or its terms for the purpose of gaining fees, commissions, or
considerations to their benefit while excluding such benefits to HITE and/or
PII.
7. REPRESENTATIONS AND WARRANTIES SAG represents and warrants that SAG has
------------------------------
good and clear title to all of the assets on its Balance Sheet dated
September 1, 1995, and that its Board of Directors and in excess of 66% of
its shareholders have approved this transaction, and that at the time of the
execution of this Agreement there are no claims against SAG which are not
disclosed in SAG's financial statements. SAG agrees to provide a written
description of any and all claims against its assets now pending for HITE's
review and approval within 15 days of signing this Agreement. Should HITE,
at his sole discretion, reject this transaction as a result of his review of
the pending claims against SAG, then this transaction as a result of his
review of the pending claims against SAG, then this Agreement becomes null
and void. PII represents and warrants that the total number of shares of the
Company's stock issued and outstanding at the time of the execution of this
Agreement is Eleven Million Five Hundred and Sixty Thousand (11,635,600)
shares. PII represents and warrants that it is capable of issuing the
13,500,000 shares of common stock to SAG at the time of closing and
executing the promissory notes to HITE. PII represents and warrants that all
debts, obligations and claims against it are fully disclosed in its audited
financial statements dated September 30, 1994 and that there are not any
other claims of any nature against PII.
8. LITIGATION AND ATTORNEY'S FEES Any controversy or claim arising out of or
------------------------------
relating to this Agreement, or the breach thereof, shall be settled in a
court of law in the State of California. The judgment and decision of the
attorney's fees and other reasonable costs, shall be binding on any and all
signatories hereto. If controversy arising out of this Agreement shall be
litigated in any court of law or equity, the party which has substantially
prevailed shall be entitled to its reasonable attorneys' fees, costs and
expenses.
9. MISCELLANEOUS PROVISIONS Warranties and representations made herein shall
------------------------
survive closing for a period of Three (3) years. This Agreement is made and
executed in the State of California, and this Agreement shall therefore be
governed by and interpreted in accordance with the laws of the State of
California. The venue for any litigation between the parties entering into
this Agreement shall be the State of California, and the parties hereto
represent and warrant that they have full power and authority to enter into
this Agreement and to give effect to each and every provision hereof. This
is the complete agreement between the parties hereto, and any prior
representations or statements shall be deemed to have been merged into this
Agreement.
<PAGE>
This Agreement shall not be changed, modified, or amended except by a
writing signed by both parties hereto. If any portion of this Agreement
shall be deemed to be void, unconscionable, or otherwise unenforceable for
any reason by a court of competent jurisdiction, then such portion shall be
deemed not to be a part of this Agreement, and the remaining portions of
this Agreement shall remain in full force and effect. If any portion of this
Agreement is deemed ambiguous by a court of competent jurisdiction, the
parties hereto agree that such ambiguity shall not be construed against
either party, as both parties have been duly advised by counsel with respect
to execution hereof. Section headings in this Agreement are for convenience
of reference only and are not to be used in interpreting this Agreement. The
use of any term indicating gender or number in this Agreement, and any such
inappropriate term shall be deemed to automatically change to reflect the
appropriate gender or number of any party hereto. The rights of the parties
under this Agreement shall inure to the benefit of and be binding upon any
successors in interest, heirs or assigns to any of the parties to this
Agreement. Time is of the essence with respect to all covenants and
conditions contained within this Agreement. In the event this Agreement is
not completed before January 15, 1996 then it shall terminate on January 15,
1996 and become null and void thereafter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
PACIFIC INTERNATIONAL, INC. STERLING ALLIANCE GROUP, LTD.
/s/ JH L. M. Jones /s/ James E. Shipley
- - --------------------------------- ---------------------------------------
By: JH L. M. JONES, President PII By: JAMES E. SHIPLEY, Managing Director
/s/ David A. Hite
- - ---------------------------------
By: DAVID A. HITE
- 5 -
<PAGE>
AGREEMENT
Pacific International, Inc., a Hawaii corporation ("PII"), and Sterling Alliance
Group, Ltd., a Colorado corporation ("SAG"), parties to that certain Agreement,
whereby PII will acquire all of the assets of SAG hereby agree to waive the
established closing date of January 15, 1996, as set forth in said agreement.
The parties agree that the subject transaction will close at the next mutually
agreeable date.
Dated: January 15, 1996.
STERLING ALLIANCE GROUP, LTD. PACIFIC INTERNATIONAL, INC.
a Colorado corporation a Hawaii corporation
by /s/ James E. Shipley by /s/ JH L. M. JONES
-------------------------- ------------------------
<PAGE>
EXHIBIT 10(b)
APPRAISAL REPORT
----------------
61 ACRES
--------
LOCATED ON PARIS VALLEY ROAD
SAN ARDO AREA, CALIFORNIA
MONTEREY COUNTY
FOR:
----
MR. WILLIAM V. PERRY
PACIFIC INTERNATIONAL, INC.
575 ANTON BLVD., SUITE 200
COSTA MESA, CA 92626
(714) 437-0738
SUBMITTED BY:
-------------
NATIONAL APPRAISAL SERVICE
1278 GLENNEYRE STREET #142
LAGUNA BEACH, CA 92651
(714) 493-9672
FILE #6042201
<PAGE>
TABLE OF CONTENTS
-----------------
Underlying Assumptions & Limiting Conditions................... 3
Purpose of the Appraisal....................................... 4
Property Rights................................................ 4
Location Map................................................... 5
Plat Map....................................................... 6
Neighborhood Description....................................... 7
Summary of Salient Facts & Conclusions......................... 8
Subject Photographs............................................ 9
Income Approach................................................ 11
Improvement Description and Analysis........................... 12
Market Data Approach........................................... 13
Reconciliation and Final Value Conclusion...................... 19
Exhibits to Appraisal Report................................... 20
Qualification of the Appraiser................................. 21
<PAGE>
National Appraisal Service
1278 Glenneyre Street #142
Laguna Beach, CA 92651
(714) 493-9672
April 22, 1996 FAX (714)493-5198
Mr. William V. Perry
PACIFIC INTERNATIONAL, INC.
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
Re: 61 Acres
Located on Paris Valley Road
San Ardo Area, California
County of Monterey
Dear Mr. Perry:
As requested, I have conducted the required investigations, gathered the
necessary data and made certain analyses that have enabled me to form an opinion
of the market value of the fee simple interest in the above captioned property.
The reported analyses, opinions, and conclusions are my personal, unbiased
professional analyses, opinions and conclusions. I have no present or
prospective interest in the property that is the subject of this opinion. I
have no personal interest in or bias with respect to the parties involved and my
compensation is not contingent on any action or event resulting from this
conclusion.
The purpose of the appraisal report is to estimate the market value of the
property subject to the limiting conditions herein. I have made an inspection of
the property and a market study based on recent sales. My analysis is in the
following pages and exhibits. In the final analysis based on the research and
conclusions drawn there from, the estimated market value of the fee simple
interest in the subject property as of April 20, 1996 is:
THREE MILLION EIGHT HUNDRED SIXTY THOUSAND DOLLARS
--------------------------------------------------
$3,860,000
----------
Sincerely yours,
/s/ Stephen Rich
Stephen Rich, MAI
License #AG010280
2
<PAGE>
UNDERLYING ASSUMPTIONS & LIMITING CONDITIONS
--------------------------------------------
No survey of the property has been made by the appraisers and no responsibility
is assumed in connection with such matters. No responsibility is assumed for
matters of a legal nature affecting title to the property nor is an opinion of
title rendered.
Information furnished by others is assumed to be true, correct, and reliable. A
reasonable effort has been made to verify such information; however no
responsibility for its accuracy is assumed by the appraisers. All mortgages,
liens, encumbrances, leases, and servitudes have been disregard unless so
specified within the report.
The property is appraised as though under responsible ownership and competent
management.
The appraiser will not be required to give testimony or appear in court because
of having made this appraisal, with reference to the property in question,
unless arrangements have been previously made thereof.
Any party not having a good knowledge of real estate and real estate
transactions is encouraged to obtain professional advice before assuming any
risk based upon the information contained herein.
All engineering and surveying reports provided this appraiser are assumed to be
correct. However, no warranty is given for it's accuracy.
It is assumed that there are no hidden or unapparent conditions of the property,
or structures which would render it more or less valuable.
The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal, unbiased
professional analyses, opinions, and conclusions.
I have no present or prospective interest in the property that is the subject of
this report, and I have no personal interest or bias with respect to the parties
involved. My compensation is not contingent on an action or event resulting
from the analyses, opinions, or conclusions in or the use of this report.
3
<PAGE>
UNDERLYING ASSUMPTIONS & LIMITING CONDITIONS
--------------------------------------------
(Continued)
No title report was provided, accordingly, there are no statements made herein
regarding the existence or non-existence or any easements. There was no
physical evidence of any apparent adverse easements, encroachments or other
adverse conditions, nor does the plat map reflect any such conditions.
A special flood hazard area report was not obtained, however, due to the
elevation of the entire property and its generally downward sloping terrain, the
probability that any notable section of the property is subject to flooding is
considered negligible.
No independent appraisal report was provided on the condition of the water
wells. It is assumed by the reports submitted for review and discussions with
the local water company that minimal obsolescence would be typical.
PURPOSE OF THIS APPRAISAL
-------------------------
The purpose of the appraisal is to assist the client in making decisions
regarding the disposition of the property.
PROPERTY RIGHTS APPRAISED
-------------------------
The subject property is appraised on the basis of an unencumbered fee simple
estate, which is defined as the largest estate in real property, the owner of
which has absolute use and the right to dispose of it as he pleases.
4
<PAGE>
NEIGHBORHOOD DESCRIPTION
------------------------
The neighborhood is considered to be the area south of King City and north of
San Miguel, for several miles along Highway 101 to the east and west sides.
The neighborhood is served by many paved roads with electricity. Highway 101 is
a major thoroughfare that runs through California as well as Monterey County
connecting San Luis Obisbo County to the south and San Benito County to the
north.
The area is rural in nature with the majority of land is used for cattle and
sheep raising and agricultural purposes. The production of grapes is a large
and thriving industry within the area which services the many Vineyards and
Wineries to the south and north.
Commercial support services like fast food and gas stations are limited to the
confines of the nearby towns and cities. The outlying cities have population
typically at 500 to 2000 permanent residents with construction of new homes at a
slow pace.
The subject is in a good location for it's intended use as a water producing
parcel where a need currently exists in the marketplace.
7
<PAGE>
SUMMARY OF SALIENT FACTS & CONCLUSIONS
--------------------------------------
Location: Paris Valley Road
San Ardo Area, California
Monterey County
Property Type and Two parcels containing 61 acres separated by Paris
Description: Valley Road. The site is mostly level with soft
rolling hills and dirt roads. Improvements consist
of oil storage tanks, a power transformer station,
drilling pumps, water wells, misc. gas pipes & a
replenishing aquifer.
Site/Land Area: 61 Acres +/- or 2,657,160 Sq Ft
Zoning: Agricultural/Grazing on the lower half and Heavy
Mineral Extraction on the upper half. Although
dual zoning isn't common it does exist.
Assessor's Parcel Number: 422-091-062 - 1.00 Acre
422-091-009 - 60.00 Acres +/-
Legal Description: See Exhibit A Attached
Comments: The subject is typical of many sites within the
surrounding area. The extensive water and
electrical improvements provide the site for
immediate farming use. Due to the site having
extensive producing wells, water could be supplied
to adjacent farming parcels where a need for
excess water exists.
Property Rights Appraised: Fee Simple
Current Owner of Record: Sterling Alliance Group, Ltd.
Highest and Best Use: Water Producing Agricultural Land
FINAL ESTIMATE OF VALUE: $3,860,000
Date of Valuation: April 20, 1996
8
<PAGE>
INCOME APPROACH ANALYSIS
------------------------
The Income Capitalization Approach is based on the concept of the present worth
of future benefits. The investor gives a sum of present day dollars for the
right to receive dollars in the future. The present worth of the anticipated
future income is the amount that the prudent investor would pay, at the
valuation date, for the right to receive this income over the time period the
income can be expected to last, discounted at a typical market rate. As the
future is less certain than the present, investors will typically pay less for
the anticipated payment than they would for the same sum at the present.
In order to arrive at an indicator of value by the Income Approach, information
was gathered and analyzed from local Real Estate Brokers, mineral development
specialists, The Agricultural Services Agency and The Department of Public
Works, Division of Water Resources. A Well Records report in the exhibit
section was provided by the Department of Public Works stating the consistent
levels of water in the wells over the past 48 years. A Salinas Department of
Water & Power report analyzing the cost to produce water is also attached in the
exhibit section. The property is currently zoned and can provide, in addition
to the 61 acres under appraisal, outlying parcels with extensive water services,
a high commodity in the farming industry which utilizes hydrogrowth techniques.
This ample water reserve provided by the natural aquifer is replenished annually
from the run-off of the surrounding mountains. There are currently three wells
ready for water production. Each well can produce 900,000 gallons of water per
24 hour production period. Therefore, the following analysis was made.
CONCLUSION OF ECONOMIC INCOME
- - -----------------------------
<TABLE>
<S> <C>
2,700,000 gallons water produced per 24 hours
Income per gallon ($.0005 x 2,700,000 gallons) = $1,350
$1,350 Income per day x 30 days = $ 40,500
$40,500 Income x 12 months x 12
----------
Gross Potential Annual Income $468,000
- - -----------------------------
PUMPING COSTS
Expenses, Reserves, Implementation of Water
Production (29% of GPI - Averaged over 10 years) (135,720)
---------
332,280
NOI divided by 10.0% $3,322,800
==========
</TABLE>
11
<PAGE>
IMPROVEMENT DESCRIPTION AND ANALYSIS
------------------------------------
The following improvements currently exist on the subject property. These
amenities were put in place approximately 1975 and abandoned in 1979. There was
no appraisal submitted or obtained on this equipment to indicate their current
usefulness. Due to a lack of ongoing maintenance and typical obsolescence, only
scrap value can be given to the amenities at this time.
IMPROVEMENTS
Power plant substation
Natural gas hardware including lines and distribution center.
Two oil pumps
Tank farm
Used pipe
CURRENT ESTIMATED VALUE OF AMENITIES $125,000
12
<PAGE>
MARKET DATA APPROACH
--------------------
MARKET COMPARABLE #1
--------------------
Address: Indian Valley Road
North of San Miguel, CA
Monterey County
Assessor's Parcel No.: 422-151-004 & 051
Sale Price $170,000
Sale Date: 2/1/96
Lot Size: 103.80 Acres or 4,521,428 S.F.
Price per Acre: $1,638
Zoning: Agricultural
Buyer: Hope, Charles, Austin & Paul
PROPERTY DESCRIPTION:
- - --------------------
This property is located approximately 20 miles southeast of the subject near
the San Miguel area. The property is mostly level with a few sloping areas.
The site has no improvements of water, power or electricity. Overall, this site
is similar in configuration however, inferior in terms of water, power or
electrical improvements.
13
<PAGE>
MARKET COMPARABLE #2
--------------------
Address: Indian Valley Road
North of San Miguel, CA
Monterey County
Assessor's Parcel No.: 422-081-078
Sale Price $427,273
Sale Date: 12/29/95
Lot Size: 240 Acres or 10,454,400 S.F.
Price per Acre: $1,780
Zoning: Agricultural
Buyer: Dedini, Eldon
PROPERTY DESCRIPTION:
- - --------------------
This property is located approximately 5 miles southeast of the subject near the
San Ardo area. The property is mostly level with a few sloping areas. The site
has no improvements of water, power or electricity. Overall, this site is
similar in configuration however, inferior in terms of water, power or
electrical improvements.
14
<PAGE>
MARKET COMPARABLE #3
--------------------
Address: SW Dudley & Paris Valley Rd.
San Ardo Area, CA
Monterey County
Assessor's Parcel No.: 422-181-040
Sale Price $92,000
Sale Date: 1/26/95
Lot Size: 40.00 Acres or 1,742,400 S.F.
Price per Acre: $2,300
Zoning: Agricultural
Buyer: Leader, Lona
PROPERTY DESCRIPTION:
- - --------------------
This property is located approximately 7 miles southeast of the subject near San
Ardo. The property is mostly level with a few sloping areas. The site has no
improvements of water, power or electricity. Overall, this site is similar in
configuration however, inferior in terms of water, power or electrical
improvements.
15
<PAGE>
MARKET COMPARABLE #4
--------------------
Address: Near Freeman Flat Road
South of King City, CA
Monterey County
Assessor's Parcel No.: 422-181-097
Sale Price $133,500
Sale Date: 11/4/93
Lot Size: 80.00 Acres or 3,484,800 S.F.
Price per Acre: $1,669
Zoning: Agricultural
Buyer: Blouin, Duann & Carolyn
PROPERTY DESCRIPTION:
- - --------------------
This property is located approximately 15 miles northeast of the subject near
the King City area. The property is mostly level with a few sloping areas. The
site has no improvements of water, power or electricity. Overall, this site is
similar in configuration however, inferior in terms of water, power or
electrical improvements.
16
<PAGE>
MARKET COMPARABLE #5
--------------------
Address: San Lucas & Oasis Road
Northwest of San Lucas, CA
Monterey County
Assessor's Parcel No.: 422-101-013
Sale Price $55,000
Sale Date: 3/24/94
Lot Size: 40.00 Acres or 1,742,400 S.F.
Price per Acre: $1,375
Zoning: Agricultural
Buyer: Vezzolo, Giacomo & Lila
PROPERTY DESCRIPTION:
- - --------------------
This property is located approximately 13 miles northwest of the subject west of
San Lucas. The property is mostly level with a few sloping areas. The site has
no improvements of water, power or electricity. Also, the site is landlocked
thus access would need to be provided by easement of adjacent property.
Overall, this site is inferior in appeal/configuration as well as water, power
or electrical improvements.
17
<PAGE>
ESTIMATED VALUE BY THE SALES COMPARISON APPROACH
------------------------------------------------
The subject is a 61 acre vacant parcel with water producing rights and wells. No
recent sales were located with water rights or wells, a rare commodity in the
subject area. Many of the parcels in the area purchase water from the local
Water Department. Of the sales used, the relating components will not
necessarily be comparable on a face to face comparison. However, these sales are
believed to bracket a high and low range of market. These were considered the
best and most recent sales given the limited available and are considered good
indicators of value for the subject property. Adjustments were made for
location, utility/use/lot configuration, zoning and improvements.
MARKET DATA COMPARABLES
-----------------------
<TABLE>
<CAPTION>
Sale No. of Sale Price
No. Acres Price Per Acre
- - ----------------------------------------------
<S> <C> <C> <C>
Subject 61.00 - -
Sale #1 103.80 $150,000 $1,638
Sale #2 240.00 $427,273 $1,780
Sale #3 40.00 $ 92,000 $2,300
Sale #4 80.00 $133,500 $1,669
Sale #5 40.00 $ 55,000 $1,375
</TABLE>
MARKET APPROACH RECONCILIATION
------------------------------
The unadjusted price per unit for the comparables listed ranges from $1,375 to
$2,300 per acre. All sales do not have water facilities. Although no sales with
water were found or provided, the brokers and water specialists agree that water
facilities add $5,000 in value to each acre. When you average Sales l to 4
which are most similar to the subject you get an average of $1,846 per acre.
Sales 1 through 4 are similar in use and appeal although without water. Sale 5
is inferior in use and accessibility thus an upward adjustment was warranted.
Each parcel was given a $5,000 upward adjustment per acre for no water
facilities. Therefore, a definitive value of $6,850 per acre for the subject
property will be utilized.
THEREFORE:
- - ---------
61 ACRES X $6,850 PER ACRE = $417,850
ROUNDED TO: $415, 000
----------- ---------
18
<PAGE>
RECONCILIATION AND FINAL VALUE CONCLUSION
-----------------------------------------
The values utilized in this report yield the following:
<TABLE>
<CAPTION>
<S> <C>
INCOME APPROACH: $3,322,800
MARKET APPROACH: 415,000
SALVAGE VALUE: 125,000
----------
$3,862,800
ROUNDED TO: $3,860,000
----------- ----------
</TABLE>
In conclusion, my opinion of the Fair Market Value of the subject property as of
April 20, 1996 is:
THREE MILLION EIGHT HUNDRED SIXTY THOUSAND DOLLARS
--------------------------------------------------
$3,860,000
----------
19
<PAGE>
EXHIBITS
--------
20
<PAGE>
Exhibit A
LEGAL DESCRIPTION:
- - -----------------
A PARCEL OF LAND IN SECTIONS 2 AND 3 T. 22 S., R.9 E. MDM DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF SAID SECTION 2 FROM WHICH THE SOUTHEAST
CORNER OF THE SOUTHWEST 1/4 OF THE SOUTHWEST 1/4 OF SAID SECTION 2 BEARS EAST.
THENCE (1) N. 11 DEG. 57' 21" W., A DISTANCE OF 2554.24 FEET TO THE TRUE
POINT OF BEGINNING.
THENCE (2) N. 44 DEG. 45' 40" E., A DISTANCE OF 88.30 FEET TO THE WESTERLY
RIGHT-OF-WAY OF PARIS VALLEY ROAD;
THENCE (3) N. 57 DEG. 27' 20" E., A DISTANCE OF 40.10 FEET TO THE EASTERLY
RIGHT-OF-WAY OF LAST NAMED ROAD;
THENCE ALONG FENCE LINES THE FOLLOWING COURSES:
(4) N. 50 DEG. 43' 46" E., A DISTANCE OF 153.70 FEET;
THENCE (5) N. 30 DEG. 05' 20" W., A DISTANCE OF 107.39 FEET;
THENCE (6) S. 56 DEG. 59' 44" W., A DISTANCE OF 21.09 FEET;
THENCE (7) N. 34 DEG. 28' 03" W., A DISTANCE OF 126.73 FEET;
THENCE (8) N. 57 DEG. 12' 12" E., A DISTANCE OF 118.45 FEET;
THENCE (9) S. 32 DEG. 12' 00" E., A DISTANCE OF 65.49 FEET;
THENCE (10) S. 22 DEG. 52' 22" E., A DISTANCE OF 56.50 FEET;
THENCE (11) S. 4 DEG. 19' 14" W., A DISTANCE OF 43.40 FEET;
THENCE (12) S. 15 DEG. 47' 41" E., A DISTANCE OF 77.85 FEET;
THENCE (13) N. 50 DEG. 36' 37" E., A DISTANCE OF 296.53 FEET ALONG A FENCE
LINE AND EXTENSION THEREOF TO INTERSECT ANOTHER FENCE LINE;
THENCE (14) CONTINUING ALONG FENCE LINES
N. 01 DEG. 26' 12" W., A DISTANCE OF 54.25 FEET;
THENCE (15) S. 81 DEG. 44' 49" E., A DISTANCE OF 181.34 FEET;
THENCE (16) N. 52 DEG. 56' 37" E., A DISTANCE OF 154.93 FEET;
THENCE (17) S. 57 DEG. 25' 39" E., A DISTANCE OF 203.48 FEET;
THENCE (18) S. 16 DEG. 41' 52" E., A DISTANCE OF 253.09 FEET;
<PAGE>
LEGAL DESCRIPTION -- PAGE 2:
- - ----------------------------
THENCE (19) S. 82 DEG. 18' 41" E., A DISTANCE OF 260.19 FEET;
THENCE ALONG A NON-TANGENT CURVED FENCE LINE CONCAVE TO THE SOUTHWEST THE
FOLLOWING COURSE:
(20) S. 79 DEG. 07' 53" E., A DISTANCE OF 58.98 FEET;
THENCE (21) S. 76 DEG. 21' 33" E., A DISTANCE OF 63.57 FEET;
THENCE (22) S. 75 DEG. 43' 35" E., A DISTANCE OF 60.67 FEET;
THENCE (23) S. 73 DEG. 07' 41" E., A DISTANCE OF 63.22 FEET;
THENCE (24) S. 70 DEG. 26' 21" E., A DISTANCE OF 62.05 FEET;
THENCE (25) S. 66 DEG. 46' 32" E., A DISTANCE OF 66.09 FEET;
THENCE (26) S. 61 DEG. 04' 41" E., A DISTANCE OF 60.54 FEET;
THENCE (27) S. 58 DEG. 50' 00" E., A DISTANCE OF 63.50 FEET;
THENCE (28) S. 55 DEG. 13' 09" E., A DISTANCE OF 60.51 FEET;
THENCE (29) S. 51 DEG. 54' 37" E., A DISTANCE OF 63.75 FEET;
THENCE (30) S. 48 DEG. 09' 54" E., A DISTANCE OF 61.68 FEET;
THENCE (31) S. 44 DEG. 50' 37" E., A DISTANCE OF 62.95 FEET;
THENCE (32) S. 41 DEG. 00' 44" E., A DISTANCE OF 63.27 FEET;
THENCE (33) S. 36 DEG. 52' 31" E., A DISTANCE OF 62.92 FEET;
THENCE (34) S. 34 DEG. 49' 37" E., A DISTANCE OF 61.72 FEET;
THENCE (35) S. 32 DEG. 53' 57" E., A DISTANCE OF 64.49 FEET;
THENCE (36) ALONG A NON-TANGENT SAID FENCE
S. 29 DEG. 39' 45" E., A DISTANCE OF 422.09 FEET;
THENCE (37) DEPARTING FROM SAID FENCE S. 24 DEG. 12' 20" W., A DISTANCE OF
1148.75 FEET TO THE NORTHERLY RIGHT-OF-WAY OF PARIS VALLEY
ROAD;
THENCE ALONE SAID NORTHERLY AND EASTERLY RIGHT-OF-WAY THE FOLLOWING
COURSES:
(38) N. 51 DEG. 33' 08" W., A DISTANCE OF 1024.32 FEET;
THENCE (39) N. 42 DEG. 38' 09" W., A DISTANCE OF 508.24 FEET;
THENCE (40) N. 38 DEG. 26' 55" W., A DISTANCE OF 489.30 FEET;
<PAGE>
LEGAL DESCRIPTION -- PAGE 3
- - ---------------------------
THENCE (41) N. 28 DEG. 32' 03" W., A DISTANCE OF 58.33 FEET;
THENCE (42) DEPARTING FROM SAID RIGHT-OF-WAY S. 61 DEG.27' 57" W., A
DISTANCE OF 40.00 FEET TO THE WESTERLY RIGHT-OF-WAY OF SAID
ROAD;
THENCE ALONG FENCE LINES THE FOLLOWING COURSES:
(43) S. 61 DEG. 21' 00" W., A DISTANCE OF 101.65 FEET;
THENCE (44) N. 29 DEG. 20' 20" W., A DISTANCE OF 245.97 FEET;
THENCE (45) N. 08 DEG. 59' 51" E., A DISTANCE OF 105.38 FEET;
THENCE (46) DEPARTING FROM SAID FENCE LINE N. 43 DEG. 40' 59" W., A
DISTANCE OF 167.08 FEET TO THE POINT OF BEGINNING;
EXCEPT THEREFROM, ALL THAT PORTION OF PARIS VALLEY ROAD WITHIN THE ABOVE
DESCRIBED PARCEL.
<PAGE>
Titan Agra & Minerals, Inc.
February 28, 1995
Jim Shipley
Managing Director
Sterling Alliance Group, Ltd.
16365 Bolsa Chica Rd.
Huntington Beach, CA 92649
Reference: 61 Acres Paris Valley, Monterey County, California
Dear Mr. Shipley,
To manage the assets of the subject property in accordance with our pending
management contract we will form a water district immediately upon it's
execution to capture the cash flow from the two existing wells.
The two existing water wells produce over 1,800,000 gallons per 24 hour
production period. This equates to $1,000.00 per 24 hour period, $30,000.00 per
month and $360,000.00 annually.
This would mean that Sterling Alliance Group, Ltd would realize an ongoing
income of $180,000.00 annually from the water sales alone, as per our pending
management contract.
Sincerely,
/s/ Jeffrey Jackson
Jeffrey Jackson
President
CC: Jay Franklin
<PAGE>
Valley Pacific Environmental
WATER REVIEW
PARIS VALLEY PROPERTY
The two high production high quality water wells indicated in the Husky
Geological Report were utilized by the oil company during it's operation because
these wells complied with the rigid standards required. However, later one of
the shallow oil wells (#17) was converted to a water well because of it's high
quality and high production level out of five wells that could have been
converted.
Respectfully,
/s/ Jeffrey Jackson
Jeffrey Jackson
<PAGE>
APPRAISER QUALIFICATIONS
------------------------
21
<PAGE>
QUALIFICATIONS OF STEPHEN RICH, MAI
(Currently Certified)
EDUCATION
- - ---------
Cornell University, Ithaca, New York B.A., Finance
Northwestern University, Chicago, Illinois Post Graduate Courses
APPRAISAL EDUCATION
- - -------------------
The following courses for the Appraisal Institute were successfully completed:
I, II, III, IV, VI, VII, VIII, IX.
PROFESSIONAL MEMBERSHIPS
- - ------------------------
The Appraisal Institute, MAI
Newport Beach - Costa Mesa Board of Realtors
California Mortgage Bankers Association
National Association of Industrial and Office Parks,
APPRAISAL EXPERIENCE
- - --------------------
Actively engaged in the real estate appraisal profession since 1970.
President, Appraisers West, Newport Beach, California
- - ---------
Appraisal assignments, primarily in Southern California, including feasibility
studies, shopping centers, office buildings, hotels, industrial buildings,
restaurants, apartment buildings, fitness centers, etc.
Regional Manager, Joseph J, Blake and Associates, Inc., Chicago, Illinois
- - ----------------
Appraisal assignments, primarily in the midwest states, included investment
analyses, feasibility studies, shopping centers, industrial buildings, apartment
buildings, condominium conversions, office buildings, hotels, service stations,
bowling alleys, etc.
Chief Appraiser, C.R. Pelton & Associates, St. Paul, Minnesota Appraisal
- - ---------------
assignments, primarily in Minnesota, included highest and best use analyses,
recreational land, acreage, scenic easements, amusement parks, marinas, etc.
Staff Appraiser, U.S. Department of Housing & Urban Development (FHA), Chicago.
- - ---------------
Appraisal assignments, primarily in the Chicago area, included residential
subdivisions, apartment buildings, condominiums, nursing homes, mobile home
courts, rehabilitation projects, review of fee appraisals made for open space
and urban renewal takings.
CLIENTS
- - -------
Banks, savings & loans, law firms, major corporations, accounting firms,
governmental agencies, developers, insurance companies, utilities, major oil
companies, pension funds, syndicators.
<PAGE>
[FORM OF CERTIFICATE]
STATE OF CALIFORNIA
GOVERNOR PETE WILSON
OFFICE OF REAL ESTATE APPRAISERS
REAL ESTATE APPRAISER CERTIFICATE
OREA APPRAISER IDENTIFICATION NUMBER AG010280
[SEAL]
STEPHEN RICH, has successfully met the minimum requirements for certification as
a general real estate appraiser in the State of California as a general real
estate appraiser in the State of California and is therefore entitled to use the
title "Certified General Real Estate Appraiser".
This license is valid until November 26, 1996 and has been issued in accordance
with the provisions of the Real Estate Appraisers' Licensing and Certification
Law.
OFFICE OF REAL ESTATE APPRAISERS
BY: /s/ ROBERT J. WEST
------------------------------------
DATE: August 3, 1992
<PAGE>
[FORM OF CERTIFICATE]
AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS
OF THE
NATIONAL ASSOCIATION OF REALTORS
CERTIFICATE OF ELECTION
This is to Certify that
Stephen Rich
has qualified before the Governing Council as to his professional experience,
standing, and ability, and has therefore been elected a
----------------------------M E M B E R-------------------------------------
OF THE AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS
[SEAL] In Witness Whereof, the Governing Council of the
American Institute of Real Estate Appraisers has
authorized this certificate to be signed in its
behalf by the President and Executive Vice
President, and the Corporate Seal to be hereunto
affixed on this 6th day of January, 1982.
/s/ John D. Dorchester, Jr. /s/ Larry G. Hayes
PRESIDENT EXECUTIVE VICE PRESIDENT
THIS CERTIFICATE IS THE PROPERTY OF THE AMERICAN INSTITUTE OF REAL ESTATE
APPRAISERS AND MUST BE RETURNED TO THE SECRETARY UPON TERMINATION OF MEMBERSHIP
Certificate No.
<PAGE>
EXHIBIT 10(c)
<TABLE>
<CAPTION>
Appraisal Service
LAND APPRAISAL REPORT File No. TYNA1
------------
<S> <C>
- - -----------------------------------------------------------------------------------------------------------------------------------
I Borrower SANDERS Census Tract 0432.31 Map Reference 116 F3
D --------------------------------------------------- ----------------- -----------------------
E Property Address *AVENIDA BRISA
N --------------------------------------------------------------------------------------------------------------
T City TEMECULA County RIVERSIDE State CA Zip Code 92590
I -------------------- ------------------- -------- -----------------------------------------------------
F Legal Description POR LOT 23 MB 115/024 TR 11743-1
I --------------------------------------------------------------------------------------------------------------
C Sale Price $ N/A Date of Sale N/A Loan Term N/A yrs. Property Rights Appraised [X] Fee [_] Leasehold [_] De Minimis PUD
A ------ ------ ------
T Actual Real Estate Taxes $ PROP 13 (yr) Loan charges to be paid by seller $ N/A Other sales concessions N/A
I ---------- -------- ------------------
O Lender/Client EMB MORTGAGE Address 16561 BOLSA CHICA, HUNTINGTON BEACH, CA
N -------------------------------------- -------------------------------------------------------------------
Occupant VACANT Appraiser TYNA M. STOPNIK Instructions to Appraiser DETERMINE FAIR MARKET VALUE
--------------- --------------------- -----------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Location [_] Urban [_] Suburban [X] Rural
Built-up [_] Over 76% [_] 26% to 76% [X] Under 26%
Growth Rate [_] Fully Dev. [_] Rapid [_] Steady [X] Slow
Property Values [_] Increasing [X] Stable [_] Declining
Demand/Supply [_] Shortage [X] In Balance [_] Oversupply
Marketing Time [_] Under 3 Mos. [_] 4-6 Mos. [_] Over 6 mos.
Present Land Use 20 % 1 Family % 2-4 Family % Apts. % Condo % Commercial
---- ---- ---- ---- ----
N % Industrial 80 % Vacant %
---- ---- ---- ------------------------------------
E Change in Present Land Use [_] Not Likely [_] Likely (*) [X] Taking Place(*)
(*) From VACANT To RESIDENTIAL
I ---------------------- -----------------------------
Predominant Occupancy [X] Owner [_] Tenant 5 % Vacant
G --------
Single Family Price Range $ 75,000 to $ 500,000 Predominant Value $ 250,000
H ------------ --------- -----------
Single Family Age NEW yrs. to 35 yrs Predominant Age 10 yrs
B -------- ------ -----------
Good Avg. Fair Poor
O Employment Stability [_] [X] [_] [_]
Convenience to Employment [_] [X] [_] [_]
R Convenience to Shopping [_] [X] [_] [_]
Convenience to Schools [_] [X] [_] [_]
H Adequacy of Public Transportation [_] [X] [_] [_]
Recreational Facilities [_] [X] [_] [_]
O Adequacy of Utilities [_] [X] [_] [_]
Property Compatability [_] [X] [_] [_]
O Protection from Detrimental Conditions [_] [X] [_] [_]
Police and Fire Protection [_] [X] [_] [_]
D General Appearance of Properties [_] [X] [_] [_]
Appeal to Market [_] [X] [_] [_]
Comments including those factors, favorable or unfavorable, affecting marketability (e.g. public parks, schools, view, noise):
SUBJECT PROPERTY IS LOCATED IN A LARGELY UNDEVELOPED AREA OF TEMECULA. NEIGHBORHOOD CONSISTS OF LARGE PARCELS OF 1 TO 5 ACRES.
-------------------------------------------------------------------------------------------------------------------------------
USE IS PRIMARILY EQUESTRIAN AND AGRICULTURE. TYPICAL BUYER FOR THE AREA WOULD NOT CONSIDER THE DISTANCE TO ALL SUPPORT SERVICES
-------------------------------------------------------------------------------------------------------------------------------
AS HAVING A NEGATIVE IMPACT ON MARKETABILITY OR DESIREABILITY.
-------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Dimensions IRREGULAR = 4.89 Acres [_] Corner Lot
----------------------------------------------- -----------
Zoning classification RA - RESIDENTIAL AGRI Present Improvements [X] do [_] do not conform to zoning regulations
------------------------------------
Highest and best use [X] Present use [_] Other (specify)
---------------------------------------------------------------
Public Other (Describe) OFF SITE IMPROVEMENTS Topography GENTLY ROLLING
S Electricity [X] Street Address [_] Public [X] Private ------------------------------
----------- Size LARGE
I Gas [_] NONE Surface UNPAVED ------------------------------
----------- --------------------- Shape IRREGULAR
T Water [X] Maintenance [_] Public [X] Private ------------------------------
----------- View GOOD PANORAMIC HILLS
E San. Sewer [_] NONE [_] Storm Stewer [_] Curb/Gutter ------------------------------
----------- Drainage APPEARS ADEQUATE
[X] Underground Elec. & Tel. [_] Sidewalk [_] Street Lights ------------------------------
Is the Property located in a HUD Identified Special Flood Hazard Area? [X] No [_] Yes
Comments (favorable or unfavorable including any apparent adverse easements, encroachments or other adverse conditions):
SUBJECT PROPERTY SITE IS ACCESSED BY AN UNPAVED PRIVATE ROAD WHICH IS TYPICAL FOR THE AREA. ROAD HAS BEEN PROFESSIONALLY GRADED
-------------------------------------------------------------------------------------------------------------------------------
AND APPEARS TO BE IN GOOD CONDITION. *S/P ACTUAL ADDRESS NOT AVAIABLE. S/P WAS LOCATED BY PLAT MAP. NO ADVERSE EASEMENTS OR
-------------------------------------------------------------------------------------------------------------------------------
ENCROACHMENTS NOTED. TITLE REPORT NOT SUBMITTED NOR REVIEWED.
- - -----------------------------------------------------------------------------------------------------------------------------------
The undersigned has recited three recent sales of properties most similar and proximate to subject and has considered these in
the market analysis. The description includes a dollar adjustment reflecting market reaction to those items of significant
variation between the subject and comparable properties. If a significant item in the comparable property is superior to or more
M favorable than the subject property, a minus (-) adjustment is made thus reducing the indicated value of subject; if a
significant item in the comparable is inferior to or less favorable than the subject property, a plus (+) adjustment is made
A thus increasing the indicated value of the subject.
-------------------------------------------------------------------------------------------------------------------------------
R ITEM SUBJECT PROPERTY COMPARABLE NO. 1 COMPARABLE NO. 2 COMPARABLE NO. 3
-------------------------------------------------------------------------------------------------------------------------------
K Address AVENIDA BRISA AVENIDA ASCENSION ENTERPRISE CT. VIA DEL OSO
TEMECULA TEMECULA TEMECULA TEMECULA
E -------------------------------------------------------------------------------------------------------------------------------
Proximity to
T Subject 1 MILE WEST 2 MILES WEST 1.5 MILES EAST
-------------------------------------------------------------------------------------------------------------------------------
Sales Price $ REFI $69,000 $71,301 $82,000
-------------------------------------------------------------------------------------------------------------------------------
A Price $ N/A $ .66 $ .72 $ .75
-------------------------------------------------------------------------------------------------------------------------------
N Data Source INSPECTION T/C/AGENT/DOC #111504 T/C/AGENT/DOC #1591 T/C/AGENT/DOC #166676
-------------------------------------------------------------------------------------------------------------------------------
A + (-)$ + (-) + (-)
Date of Sale and DESCRIPTION DESCRIPTION Adjustment DESCRIPTION Adjustment DESCRIPTION Adjustment
L ----------------------------------------------------------------------------------------------------------
Time Adjustment N/A 03/17/94 01/03/94 05/01/93
Y -------------------------------------------------------------------------------------------------------------------------------
Location GOOD SIMILAR SIMILAR SIMILAR
S -------------------------------------------------------------------------------------------------------------------------------
Site/View 4.89 ACRES 2.40 ACRES 2.28 ACRES 2.50 ACRES
I -------------------------------------------------------------------------------------------------------------------------------
VIEW GD PANORAMIC SIMILAR SIMILAR SIMILAR
S -------------------------------------------------------------------------------------------------------------------------------
PUB. UTIL. ELEC/WATER INFERIOR +.25PSF INFERIOR +.25PSF SIMILAR
-------------------------------------------------------------------------------------------------------------------------------
ACCESS RD. UNPAVED SUPERIOR -.10PSF SUPERIOR -.10PSF SIMILAR
-------------------------------------------------------------------------------------------------------------------------------
PARCEL NBR 941-150-031 962-050-011 942-080-028 941-310-015
-------------------------------------------------------------------------------------------------------------------------------
Sales or Financing NONE CASH CASH ASSUMPTION
----------------------------------------------------------------------------------------------------------
Concessions NONE NONE NONE NONE
-------------------------------------------------------------------------------------------------------------------------------
Net Adj. (Total) [X] Plus [_] Minus $.15PSF [+] Plus [_] Minus $.15 PSF [_] Plus [_] Minus $0
-------------------------------------------------------------------------------------------------------------------------------
Indicated Value Net% = 0.0 Net% = 0.0 Net% = 0.0
of Subject Grs% = 0.0 $.81PSF Grs% = 0.0 $.87PSF Grs% = 0.0 $.75PSF
- - -----------------------------------------------------------------------------------------------------------------------------------
R Comments on Market Date: DUE TO LMIITED SALES, ALL COMPS ARE SMALLER THAN THE SUBJECT SITE BUT ARE LOCATED IN THE SUBJECT AREA
-------------------------------------------------------------------------------------------------------------------------------
E AND HAVE SIMILAR EXTERNAL INFLUENCES. ALL COMPS WERE CHOSEN FOR RECENCY AND PROXIMITY. ADJUSTMENTS REFLECT DIFFERENCES IN ON-
-------------------------------------------------------------------------------------------------------------------------------
C SITE UTILITIES AND EASE OF ACCESS.
-------------------------------------------------------------------------------------------------------------------------------
O Comments and Conditions of Appraisal: NO CONDITIONS
------------------------------------------------------------------------------------------
N -------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
C * $.80 PSF X 213,000 SF (4.89 AC) = 170,000 (R)
-------------------------------------------------------------------------------------------------------------------------------
I Final Reconciliation: THE ADJUSTED PRICE PER SQUARE FOOT RANGES FROM $.75 PSA TO $.87 PSF. PSF FOR THE SUBJECT IS ESTIMATED AT
-------------------------------------------------------------------------------------------------------------------------------
L $.80*. ALTHOUGH COMP #3 IS DATED, IT IS CONSIDERED TO BE VALID SALES DATA DUE TO THE FLAT MARKET AND THE EXTENDED MARKETING
-------------------------------------------------------------------------------------------------------------------------------
I TIME FOR UNDEVELOPED PARCELS.
-------------------------------------------------------------------------------------------------------------------------------
A I ESTIMATE THE MARKET VALUE, AS DEFINED, OF SUBJECT PROPERTY AS OF DECEMBER 7 1994 to be $ 170,000
------------------------------- -- -----------------
T
Appraiser(s) Review Appraiser (if applicable)
I ------------------------------------------------ -----------------------------------
TYNA M. STOPNIK CA AROI6238 [_] Did [_] Did Not Physically Inspect Property
O----------------------------------------------------------------------------------------------------------------------------------
N
6/87-1 MCS, RICHARDSON, TX 75081 (214) 699-7783 MCS FORM LA2
</TABLE>
<PAGE>
***FIRST AMERICAN TITLE***
******************************3625 FOURTEENTH ST.*******************************
* RIVERSIDE, CA 92502 *
* *
* Parcel Number : 941-150-031 *
* Owner 1st : SANDERS, JAMES & JACQUELINE *
* 2nd : *
* Site Address : *
* : *
* Mail Address : 1303 ELECTRIC AVE *
* : SEAL BEACH CA 90740 *
* Phone Number : *
* Legal Desc. : 4.89 ACRES NET IN POR LOT 23 MB 115/024 TR 11743-1 *
* Acreage : 4.89 Acres *
* Census Tract : 0432.031 Map Page-Grid: 116-F3 *
* *
* ------------------------ *
* Property Characteristics *
* ------------------------ *
* Use Description : Vacant Misc Zoning : *
* Bedrooms : Bathrooms : Square Feet : *
* Yr. Built : Lot Size : 4.89 A Constr. Type: *
* Fireplace : Pool/Spa : Structure : *
* Num Units : Lot Dimens: Shape : *
* Num Story : Num Rooms : Roof : *
* Gas : NO Water : DEVELOPE Access : *
* View : 1st Floor : Garage Type : *
* Heat : 2nd Floor : Garage/CarPt: *
* Cool : Addition : Gar/Car SqFt: *
* Sewer : NO Patio : # Garage Spc: *
* Electric : DEVELOPED Basement : Appliances : *
* *
* ---------------- *
* Sale Information *
* ---------------- *
* *
* Last Sale Date: Prev Owner : *
* Amount : Prev Sale Date : *
* Document Num : Amount : *
* Cost/SQ Foot : Document Num : *
* Last Transfer W/O Transfer Tax : 12/01/88 Doc Num : 360418 *
* *
* -------------------------- *
* Assessment/Tax Information *
* -------------------------- *
* Assessed Total: $87,220 Tax Amount : $1,483.40 *
* Land : $87,220 Tax Rate Area : 94147 *
* Percent : 0% Exemption : *
* *
* Any Questions? Please Call (909) 787-1730 *
********************************************************************************
The information contained herein is an accommodation only. A search of the
county records is necessary to complete the examination of any documents
affecting said property. No assurances can be given, express or implied, that
the information is complete and accurate without the benefit of a policy of
Title Insurance.
Copyright (c) 1994 Dataquick Information Network
* EXCLUDES GEOGRAPHIC MAPS
<PAGE>
Appraisal Service
DEFINITION OF MARKET VALUE: The most probable price which a property should
bring in a competitive and open market under all conditions requisite to a fair
sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby: (1) buyer and seller are typically
motivated; (2) both parties are well informed or well advised, and each acting
in what he considers his own best interest; (3) a reasonable time is allowed for
exposure in the open market; (4) payment is made in terms of cash in U.S.
dollars or in terms of financial arrangements comparable thereto; and (5) the
price represents the normal consideration for the property sold unaffected by
special or creative financing or sales concessions* granted by anyone associated
with the sale.
* Adjustments to the comparables must be made for special or creative
financing or sales concessions. No adjustments are necessary for those
costs which are normally paid by sellers as a result of tradition or law in
a market area; these costs are readily identifiable since the seller pays
these costs in virtually all sales transactions. Special or creative
financing adjustments can be made to the comparable property by comparisons
to financing terms offered by a third party institutional lender that is
not already involved in the property or transaction. Any adjustment should
not be calculated on a mechanical dollar for dollar cost of the financing
or concession, but the dollar amount of any adjustment should approximate
the market's reaction to the financing or concessions based on the
appraiser's judgment.
STATEMENT OF LIMITING CONDITIONS AND APPRAISER'S CERTIFICATION
CONTINGENT AND LIMITING CONDITIONS: The appraiser's certification that
appears in the appraisal report is subject to the following conditions:
1. The appraiser will not be responsible for matters of a legal nature that
affect either the property being appraised or the title to it. The appraiser
assumes that the title is good and marketable and, therefore, will not render
any opinions about the title. The property is appraised on the basis of it being
under responsible ownership.
2. The appraiser has provided a sketch in the appraisal report to show
approximate dimensions of the improvements, and the sketch is included only to
assist the reader of the report in visualizing the property and understanding
the appraiser's determination of its size.
3. The appraiser has examined the available flood maps that are provided by
the Federal Emergency Management Agency (or other data sources) and has noted in
the appraisal report whether the subject site is located in an identified
Special Flood Hazard Area. Because the appraiser is not a surveyor, he or she
makes no guarantees express or implied, regarding the examination.
4. The appraiser will not give testimony or appear in court because ha or she
made an appraisal of the property in question, unless specific arrangements to
do so have been made beforehand.
5. The appraiser has estimated the value of the land in the cost approach at
its highest and best use and the improvements at their contributory value.
These separate valuations of the land and improvements must not be used in
conjunction with any other appraisal and are invalid if they are so used.
6. The appraiser has noted in the appraisal report any adverse conditions
(such as, needed repairs, depreciation, the presence of hazardous wastes, toxic
substances, etc.) observed during the inspection of the subject property or that
he or she became aware of during the normal research involved in performing the
appraisal. Unless otherwise stated in the appraisal report, the appraiser has
no knowledge of any hidden or unapparent conditions of the property or adverse
environmental conditions (including the presence of hazardous wastes, toxic
substances, etc.) that would make the property more or less valuable, and has
assumed that there are no such conditions and makes no guarantees or warranties,
express or implied. regarding the condition of the property. The appraiser will
not be responsible for any such conditions that do exist or for any engineering
or testing that might be required to discover whether such conditions exist.
Because the appraiser is not an expert in the field of environmental hazards,
the appraisal report must not be considered as an environmental assessment of
the property.
7. The appraiser obtained the information, estimates, and opinions that were
expressed in the appraisal report from sources that he or she considers to be
reliable and believes them to be true and correct. The appraiser does not assume
responsibility for the accuracy of such items that ware furnished by other
parties.
8. The appraiser will not disclose the contents of the appraisal report except
as provided for in the Uniform Standards of Professional Appraisal Practice.
9. The appraiser has based his or her appraisal report and valuation
conclusion for an appraisal that is subject to satisfactory completion, repairs,
or alterations on the assumption that completion of the improvements will be
performed in a workmanlike manner.
10. The appraiser must provide his or her prior written consent before the
lender/client specified in the appraisal report can distribute the appraisal
report (including conclusions about the property value, the appraiser's identity
and professional designations, and references to any professional appraisal
organizations or the firm with which the appraiser is associated) to anyone
other than the borrower; the mortgagee or its successors and assigns; the
mortgage insurer; consultants; professional appraisal organizations; any state
or federally approved financial institution; or any department, agency, or
instrumentality of the United States or any state or the District of Columbia;
except that the lender/client may distribute the property description action of
the report only to data collection or reporting service(s) without having to
obtain the appraiser's prior written consent. The appraiser's written consent
and approval must also be obtained before the appraisal can be conveyed by
anyone to the public through advertising. public relations, news, sales, or
other media.
<PAGE>
Appraisal Service
APPRAISER'S CERTIFICATION: The Appraiser certifies and agrees that:
1. I have researched the subject market area and have selected a minimum of
three recent sales of properties most similar and proximate to the subject
property for consideration in the sales comparison analysis and have made a
dollar adjustment when appropriate to reflect the market reaction to those items
of significant variation. If a significant item in a comparable property is
superior to, or more favorable than, the subject property, I have made a
negative adjustment to reduce the adjusted sales price of the comparable, and if
a significant item in a comparable property is inferior to, or less favorable
than the subject property, I have made a positive adjustment to increase the
adjusted sales price of the comparable.
2. I have taken into consideration the factors that have an impact on value in
my development of the estimate of market value in the appraisal report. I have
not knowingly withheld any significant information from the appraisal report,
and I believe, to the best of my knowledge, that all statements and information
in the appraisal report are true and correct.
3. I stated in the appraisal report only my own personal, unbiased, and
professional analysis, opinions, and conclusions which are subject only to the
contingent and limiting conditions specified in this form.
4. I have no present or prospective interest in the property that is the
subject to this report, and I have no present or prospective personal interest
or bias with respect to the participants in the transaction. I did not base,
either partially or completely, my analysis and/or the estimate of market value
in the appraisal report on the race, color, religion, sex, handicap, familial
status, or national origin of either the prospective owners of occupants of the
subject property or of the present owners or occupants of the properties in the
vicinity of the subject property.
5. I have no present or contemplated future interest in the subject property,
and neither my current or future employment nor my compensation for performing
this appraisal is contingent on the appraised value of the property.
6. I was not required to report a predetermined value or direction in value
that favors the cause of the client or any related party, the amount of the
value estimate, the attainment of a specific result, or the occurrences of a
subsequent event in order to receive my compensation and/or employment for
performing the appraisal. I did not base the appraisal report on a requested
minimum valuation, a specific valuation, or the need to approve a specific
mortgage loan.
7. I performed this appraisal in conformity with the Uniform Standards of
Professional Appraisal Practice that were adopted and promulgated by the
Appraisal Standards Board of The Appraisal Foundation and that were in place as
of the effective date of this appraisal, with the exception of the departure
provision of those Standards, which does not apply. I acknowledge that an
estimate of a reasonable time for exposure in the open market is a condition in
the definition of market value and the estimate I developed is consistent with
the marketing time noted in the neighborhood section of this report, unless I
have otherwise stated in the reconciliation section.
8. I have personally inspected the interior and exterior areas of the subject
property and the exterior of all properties listed as comparables in the
appraisal report. I further certify that I have noted any apparent or known
adverse conditions in the subject improvements, on the subject site, or on any
site within the immediate vicinity of the subject property of which I am aware
and have made adjustments for these adverse conditions in my analysis of the
property value to the extent that I had market evidence to support them. I have
also commented about the effect of the adverse conditions on the marketability
of the subject property.
9. I personally prepared all conclusions and opinions about the real estate
that were set forth in the appraisal report. If I relied on significant
professional assistant from any individual or individuals in the performance of
the appraisal or the preparation of the appraisal report, I have named such
individual(s) and disclosed the specific tasks performed by them in the
reconciliation section of this appraisal report. I certify that any individual
so named is qualified to perform the tasks. I have not authorized anyone to
make a change to any item in the report; therefore, if an unauthorized change is
made to the appraisal report, I will take no responsibility for it.
SUPERVISORY APPRAISER'S CERTIFICATION: If a supervisory appraiser signed the
appraiser report, he or she certifies and agrees that: I directly supervise the
appraiser who prepared the appraisal report, have reviewed the appraisal report,
agree with the statements and conclusions of the appraiser, agree to be bound by
the Appraiser's Certifications numbered 4 through 7 above, and am taking full
responsibility for the appraisal and the appraisal report.
ADDRESS OF PROPERTY APPRAISED: AVENIDA BRISA, TEMECULA, APN 941-150-031
--------------------------------------------------
APPRAISER: SUPERVISORY APPRAISER (only if required):
Signature: Signature:
------------------------- ---------------------------------
Name: TYNA M. STOPNIK Name:
------------------------------ --------------------------------------
Date Signed: 12/07/94 Date Signed:
----------------------- -------------------------------
State Certification No. ARO16238 State Certification No.:
------------ -------------------
or State License No.: or State License No.:
-------------- ----------------------
State: CA State:
----------------------------- -------------------------------------
Expiration Date of Expiration Date of
Certification or License: 8/16/96 Certification or License:
---------- ------------------
[ ] Did [ ] Did Not Inspect the Property
* EXCLUDES VARIOUS PHOTOGRAPHS
<PAGE>
EXHIBIT 10(d)
SOFTWARE PROVIDER AGREEMENT
BETWEEN: Electronic Mortgage Banc, Ltd.
16365 Bolsa Chica Road
Huntington Beach. CA 92649
(Hereinafter called "Reseller").
AND: Virtual Lending Technology Inc.
2127 President Place
Costa Mesa, California 92627
(Hereinafter called "Company")
RECITALS
Company represents that it is the sole owner of all rights, title, and interest
in and to the proprietary software products generally known as MortgageShare
("Licensed Programs"). Reseller desires to obtain the right to License the
Licensed Programs for its own use and to Sublicense the Licensed Programs to
third-parties.
Therefore, in consideration of the mutual terms and conditions set forth herein,
the parties hereby agree as follows:
1. EFFECTIVE DATE
This Agreement shall commence as of 9-1-95.
______
2. ATTACHMENTS
The following Attachments are incorporated by reference hereinto and
form a part of this Agreement:
Attachment A -- Software Product Description
Attachment B -- Fees Schedule
Attachment C -- Territory
Attachment D -- Sublicense Form
If the parties mutually agree to amend or change an Attachment, or if this
Agreement requires or permits Company to change an Attachment, such revised
Attachments shall become a part hereof superseding all previous versions of
that Attachment. Company may revise its End-User License Agreement
(Attachment D) at any time without prior notice. The revised End-User
License Agreement will apply to all Sublicenses granted after the date of
the revision.
3. DEFINITIONS
<PAGE>
The definitions of terms set forth in this Section 3 shall apply when such
terms are used in this Agreement, its Attachments, and all amendments
thereto.
3.1 LICENSED PROGRAMS. The definition of "Licensed Programs" is the
executable version only of one (1) or more copies of a series of
machine readable instructions. The instructions comprise the software
product(s) designated herein and enable the computer to perform
certain functions set forth herein. The Licensed Programs are more
fully described in Attachment A.
3.2 LICENSED DOCUMENTATION. The definition of "Licensed Documentation"
consists of or assits the materials that Company determines (in its
sole discretion) are necessary to enable Reseller or Sublicensee to
use the Licensed Programs in accordance with this Agreement and which
are provided to Reseller.
3.3 ERROR. The definition of "Error" is a material failure of the Licensed
Programs to perform or conform to the Licensed Documentation.
3.4 ERROR CORRECTION. The definition of "Error Correction" is a revision
to the Licensed Programs that corrects an Error or Errors.
3.5 MODIFICATION. The definition of "Modification" is revision to the
Licensed Programs which adds minor new functions, minor improved
performances, or which adjust to minor changes in the external
operating environment. The verb form is to modify".
3.6 ENHANCEMENT. The definition of "Enhancement" is a revision or
addition, other than an Error Correction or Modification, to the
Licensed Programs that adds significant new functions; substantially
improved performance; or which adjusts to major changes, new releases,
or new versions of the external operating environment. The verb form
is to "enhance".
3.7 ALTERATION. The definition of "Alteration" is any change to the
Licensed Programs, including an Error Correction, Modification,
Enhancement, translation, derivation, compilation, conversion,
revision, addition, deletion, or other differentiation however and by
whomever made. The verb form is to "alter".
3.8 SUBLICENSE/SUBLICENSEE. The definition of "Sublicense" is the End-User
License Agreement (Attachment ID) entered into between Reseller and a
third-party. The Sublicense grants the permits such third-party to
use the Licensed Programs and Licensed Documentation. The definition
of "Sublicensee" is a third-party which has entered into a Sublicense
with Reseller.
3.9 LICENSE/SUBLICENSE FEE. The definition of "License/Sublicense Fee" is
the fee paid by the Reseller to Company as payment for the License for
use of the Licensed Programs by Reseller or a Sublicensee, net of all
applicable sales or use taxes. Such agreed upon Fees are specified in
more detail in Attachment B.
3.10 TERRITORY. The definition of "Territory" is described in
Attachment C.
4. GRANT OF LICENSE
2
<PAGE>
4.1 SCOPE. Subject to compliance by Reseller with the terms hereof and
unless terminated as provided herein, Company grants to Reseller a
nonexclusive, license in the Territory to:
4.1.1 grant non-exclusive Sublicenses to Sublicensees to use the
Licensed Programs and the Licensed Documentation at
Sublicensee's address as indicated on the respective End-User
License Agreement for that Sublicensee, subject to all of the
terms and conditions of said End-User License Agreement; and to
convey such Licensed Programs to Sublicensees via electronic
media and such Licensed Documentation via electronic media or
printed material.
4.1.2 install the Licensed Programs, after obtaining an installation
diskette containing a Sublicensee-specific serial number from
Company, and reproduce the Licensed Documentation solely for
the purpose of providing appropriate copies of the foregoing to
any Sublicensee granted a Sublicense pursuant to paragraph
4.1.1.
4.1.3 install the Licensed Programs as Company deems appropriate, on
Reseller's computers for (i) prospect demonstrations to support
Reseller's marketing activities (ii) to process loan
applications for Reseller's and Sublicensee's customers or
(iii) for such other use as may be appropriate under the
circumstances.
4.1.4 use Licensed Documentation solely in support of the authorized
installation, operation, and use of the Licensed Programs for
the purposes permitted herein.
4.1.5 subject to Company's approval, use Company's trademarks and
servicemarks related to the Licensed Programs within the limits
and pursuant to the purposes of this Agreement. Such trademarks
and servicemarks will be clearly displayed end identified by
Reseller as the property of Company. Company's trademarks and
servicemarks shall not be used in any advertising, literature,
documentation or other materials without Company's prior
written approval. Reseller must provide Company with a sample
of the intended use for Company's approval, which approval may
not be unreasonably withheld.
4.1.6 use a private label to identify Licensed Programs so long as
Company's name is displayed as the owner of title to the
software. The display of Company's name must be in type point
size that is at least 40% of the type point size used for the
private label (e g. if private label is in 20 points, Company
name shall be no smaller than 8 point). In connection with the
use of a private label version of the Licensed Programs,
Reseller shall nave the right to have Company create
Enhancements or Alterations which shall remain proprietary to
Reseller and shall not be used by Company in any other version
of the Licensed Products without the written consent of
Reseller.
4.2 LIMITATIONS. No right to use, print, copy, disclose, distribute,
display or otherwise convey the Licensed Programs or Licensed
Documentation, in whole or in part, is granted hereby except to the
extent (if any) expressly provided in this Agreement.
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No right to use, copy, disclose, modify, or distribute the source code
version of the Licensed Programs is granted by this Agreement.
Further, Reseller may not alter the terms of the Sublicense Form
without written instruction or approval from Company.
5. COMPANY PROVIDED SUPPORT
5.1 MATERIALS. Company shall deliver to Reseller one (1) set of the
Licensed Programs and Licensed Documentation.
5.2 INSTALLATION DISKETTES. Company shall provide one (1) diskette per
installation. This diskette will contain a means for installing a
unique serial number assigned to that specific installation. Such
diskettes will be provided in a timely fashion following request by
Reseller to Company to do so.
5.3 OTHER SUPPORT. The Company may offer additional or other support
services to Reseller or Sublicensees. Such support will be priced at
Company's then current prices. However, Company has no obligation to
provide such support.
6. RESELLER RESPONSIBILITIES
6.1 BUSINESS EFFORT. Reseller shall use its reasonable efforts to market,
sublicense and install the Licensed Programs.
6.2 FINANCIAL. Reseller shall bear all costs for those business activities
(e.g. marketing and technical support) associated with fulfilling its
obligations under this Agreement.
6.3 PAYMENT OF LICENSE FEES. Reseller shall provide to Company all
relevant information or details, including a copy of each Sublicense
granted to third parties, at least ten (10) days subsequent to the
granting of such Sublicense. License Fees to be paid by Reseller to
Company for such usage-based sublicenses for loan processing and
closing will be paid within ten (10) days of the first of the month
following the month in which the service occurred pursuant to
Attachment B.
6.4 BUSINESS CONDUCT. Reseller shall conduct its business activities in a
positive and professional manner.
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7. TITLE
Company shall retain title and full ownership rights to the Licensed
Programs, the Licensed Documentation and any and all Alterations made by
Company thereto, including any patents, inventions, copyrights, trade
secrets or other proprietary rights embodied in or relating to any of the
foregoing. With respect to those Alternations made by Company at the
request of Reseller, Company shall not include such Alterations in any
other version of the Licensed Programs without the express written consent
of reseller or and in such case Reseller hereby does grant, convey and
assign to Company a non-exclusive right therein.
8. WARRANTY
8.1 COVERAGE. Company warrants that, for a period of ninety (90) days from
the date of shipment of Licensed Programs to Reseller, all Licensed
Programs will conform materially to the specifications set forth in
the Licensed Documentation, if properly used in accordance with the
operating instructions contained in such Licensed Documentation.
Company does not warrant that the Licensed Programs will meet
Reseller's or Sublicensee's requirements, or will operate in the
combinations of hardware and/or software which may be selected for use
by Resell or Sublicensee, or that the operation of the Licensed
Programs will be uninterrupted or Error free, or that all Errors will
be corrected. If Reseller or Sublicensee notifies Company in writing
of a material Error or a failure to meet specifications in a copy of
the Licensed Programs within said ninety (90) day period, Company
will, in its sole discretion, provide Reseller with an Error
Correction or refund the License/Sublicense fee paid by Reseller for
the copy of the Licensed Program. The foregoing constitute Reseller's
and Sublicensee's sole and exclusive remedies for breach of warranty.
This product warranty will not apply if (a) the Licensed Programs have
not been used in accordance with applicable Licensed Documentation;
(b) the latest, unmodified version of the Licensed Programs as
described in the Licensed Documentation made available to Reseller by
Company has not been used; (c) Reseller's or Sublicensee's equipment
has malfunctioned; or (d) Alterations have been made to the Licensed
Programs by anyone other than Company.
8.2 INDEMNITY. Company will defend at its expense any action brought
against Resell or based on a claim that The Licensed Programs,
Licensed Documentation, or materials furnished hereunder and used
within the scope of this Agreement infringe a United States patent or
copyright, and, up to and subject to the limits set forth below,
Company will pay any costs, damages and attorney fees finally awarded
against Reseller; provided Reseller notifies Company promptly in
writing of the claim, permits Company fully to control the defense of
such claim, does not agree to any settlement of such claim without
Company's consent, and agrees to any such settlement reasonably
proposed by Company. Should the materials become, or in Company's
opinion be likely to become, the subject of a claim of infringement,
Company may (at Company's election) procure for Reseller the right to
continue to use the Licensed Programs, replace, or otherwise alter the
Licensed Programs to make them noninfringing. If none of these
alternatives are commercially practicable for Company, then Company
may discontinue this Agreement. Company shall have no liability for
use of other than a current unaltered release of Licensed Programs
from Company. This indemnity shall not apply if (a) the Licensed
Programs have not been used in accordance with this Agreement and the
applicable Licensed Documentation; (b) the latest, unaltered version
of the Licensed Programs made
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available to Reseller by Company have not been used; (c) Alterations
have been made to the Licensed Programs by anyone other than Company;
(d) the Licensed Programs have been used or combined with non-Company
programs; or (e) the Licensed Programs have been used after Reseller
has received notice, or has reason to believe, that the Licensed
Programs infringe any other proprietary right of a third party; unless
prompt written notice thereof is given Company, and Company consents
thereto in writing. Even where Company is not obligated to provide
indemnity under this paragraph, Company shall have the right, at its
sole option and expense, to participate in or assume control of the
defense and/or settlement of any claim of infringement of patent,
copyright, trade secret, and/or similar proprietary rights of the
United States or countries foreign thereto relating to the Licensed
Programs or Licensed Documentation. and Reseller shall inform Company
without delay of any such claim so that Company may have the
opportunity to exercise its discretion hereunder.
8.3 THIRD-PARTY GOODS. Any third-party goods and/or services furnished by
Company under the terms of this Agreement shall be warranted for
material and workmanship solely under the terms of the unexpired
warranty, if any, which was granted to Company by its supplier(s).
9. WARRANTY AND DAMAGE LIMITS
EXCEPT AS PROVIDED IN SECTION 8 ABOVE, COMPANY MAKES NO WARRANTIES,
EXPRESS OR IMPLIED, AND DISCLAIMS ALL OTHER WARRANTIES INCLUDING BUT
NOT LIMITED TO ANY IMPLIED WARRANTIES OF TITLE OR AGAINST
INFRINGEMENTS, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
FURTHER, NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, COMPANY
SHALL NOT BE LIABLE TO RESELLER OR OTHERS UNDER ANY CIRCUMSTANCES FOR
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES (INCLUDING WITHOUT
LIMITATION LOST PROFITS), EVEN IF COMPANY HAS BEEN APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES OCCURRING. IN NO EVENT SHALL COMPANY'S
LIABILITY (WHETHER BASED ON AN ACTION OR CLAIM IN CONTRACT, TORT, OR
OTHERWISE) TO RESELLER OR TO ANY OTHER PARTY ARISING OUT OF OR RELATED
TO THIS AGREEMENT, THE LICENSED PROGRAMS, OR THE LICENSED
DOCUMENTATION EXCEED THE LICENSE FEE AMOUNTS ACTUALLY PAID BY RESELLER
HEREUNDER.
10. LIMITATION OF LIABILITY
Company shall not be liable for, and Reseller agrees and shall
indemnify Company against and hold Company harmless from any claims,
loss, liability, damage (whether direct, indirect, incidental,
consequential, or other) or expense (including reasonable attorneys'
fees) of any nature whatsoever resulting from any claim, demand, or
litigation brought against Company arising from and breach of contract
by Reseller or services performed and/or products supplied by Reseller
including systems, programs, equipment and documents.
11. ALTERATION OF THE LICENSED PROGRAMS
From time to time Company may make Alterations to the Licensed
Programs and Licensed Documentation. At Company's discretion such
Alterations may be made available to
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Reseller and Sublicensees. However, unless otherwise agreed, Company
has no obligation to make Alterations.
12. PROPRIETARY INFORMATION
It is agreed between the parties hereto that the Licensed Programs and
Licensed Documentation are confidential proprietary information
belonging to Company, whether or not any portion thereof is registered
for copyright by Company. This Section shall survive any termination
of this Agreement or any determination that this Agreement or any part
hereof is void or voidable.
13. SPECIFIED OPERATING ENVIRONMENT
Reseller acknowledges that in order to operate the Licensed Programs
certain third-party software, described more fully in Attachment A,
may be required. Reseller agrees that prior to use of the Licensed
Programs in any manner, Reseller and Sublicensees will obtain
necessary licenses from the appropriate vendors of such third-party
software.
14. TAXES
All taxes end charges of any kind imposed by any federal, state, or
local government with respect to the products, services or other items
covered by this Agreement, or the sale or use thereof or measured by
the gross receipts applicable to this Agreement, shall be collected
and paid by Reseller. Any such taxes attributable to Company's gross
receipts shall be paid by Company.
15. RIGHT TO AUDIT
Upon Company's request, during ordinary business hours, Company and
its agents shall be provided reasonable access to the books and
records of Reseller for purposes of audit to verify compliance with
this Agreement. Such audit shall include revenue from Sublicensees,
monetary payments due Company, and Reseller's actions pertaining to
other obligations under this Agreement. Such records shall include all
information concerning copies of Licensed Programs and Licensed
Documentation made and placed in use for any purpose whatsoever.
Persons conducting the audit shall be provided an opportunity to
interview any employees or agents of Reseller who have engaged in
business activities pursuant to this Agreement, and to inspect office.
and warehouse premises as necessary to accomplish such purpose.
16. TERM AND TERMINATION
16.1 INITIAL TERM. The initial term of this Agreement shall be for a
period of five (5) years from the Effective Date. After this initial
term, the Agreement will be automatically renewed successive terms of
five (5) year(s) each, unless either party gives the other party
written notice of cancellation within ninety (90) days prior to the
renewal date.
16.2 FAILURE TO COMPLY. In the event Reseller (a) fails to pay any part of
the consideration herein agreed upon; (b) ceases to do business;
becomes insolvent; declares bankruptcy, whether voluntary or
involuntary; makes an assignment for the benefit of creditors or
otherwise encumbers the Licensed
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Programs or Licensed Programs Materials; (c) uses the Licensed
Programs or Licensed Documentation in a manner outside of the scope
of this Agreement or in violation of the obligations of
confidentiality set forth above; or (e) tails to comply with any
other of the terms and conditions of this Agreement, Company, upon
thirty (30) days written notice, may terminate this Agreement;
provided that Company may terminate this Agreement immediately,
without notice to Reseller, upon the occurrence of any of the events
described in clauses (b), (c), (d), and (e) of this paragraph 16.2.
17. EFFECTS OF TERMINATION
17.1 RETURN OF MATERIALS. Upon termination of this Agreement, Reseller
agrees to return to Company within thirty (30) days all copies of the
Licensed Programs and Licensed Documentation in its possession or
control, or to provide a Certificate of Destruction certifying that
all such items have been destroyed, Reseller hereby agrees to assume
all responsibility and attendant cost in returning the Licensed
Programs and Licensed Documentation.
17.2 RIGHTS OF THIRD-PARTIES. The parties hereby agree that the rights of
third-parties, including but not limited to Sublicensees at the date
this Agreement is terminated, shall not be prejudiced by such
termination.
17.3 PAYMENTS DUE. The parties expressly agree that reseller's obligation
to make payments to Company regarding Sublicenses which have been
granted pursuant to this Agreement shall survive termination for
whatever cause of this Agreement. Such obligation shall continue for
so long as the Sublicenses are in force.
18. GENERAL
18.1 AUTHORITY. Each party represents and warrants that it is a legal
business entity duly organized and validly existing in good standing
under the laws of the jurisdiction of its formation. Each party
represents that it has full power and authority to enter into and
perform this Agreement. Each party also represents and warrants that
the person signing this Agreement on its behalf has been properly
authorized and empowered to do so.
18.2 NOTICES. All notices pursuant to this Agreement shall be given in
writing by hand delivery, facsimile or prepaid certified mail with
return receipt requested to the addresses set forth on the first
page.
18.3 REMEDIES. No remedy conferred on either party by any of the specific
provisions of the Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be
additional to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statue or otherwise. The election
of one or more remedies by Company shall not constitute a waiver of
the right to pursue other available remedies.
18.4 FORCE MAJEURE. Company shall not be held responsible for any delay or
failure in performance of any part of this Agreement to the extent
such delay or failure is caused by fire, flood, explosion, war,
strike, embargo, governmental
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action or failure to act, the act of any civil or military
authority, act of God, inability to secure material or
transportation facilities, acts or omissions of carriers, power
outages, computer failures, or by any other causes beyond its
control whether or not similar to the foregoing.
18.5 RELATIONSHIP. The relationship of the parties under this Agreement
is one of independent contractors and no agency, partnership, joint
venture or similar relationship is created hereby. Except as
specifically authorized, neither party shall have any authority to
assume or create obligations on the other's behalf. Neither party
shall take any action which has the effect of creating the
appearance of its having such authority.
18.6 DISPUTES. Any claim, controversy, or dispute concerning any matter
arising out of or relating to this Agreement, its performance or
alleged breach which is not disposed of by agreement shall be
resolved by resorting to any or all legal or equitable remedies.
Pending final adjudication, Reseller shall proceed diligently with
performance as directed by Company. In the event of such legal
determination the prevailing party shall be awarded its costs
(including reasonable attorneys' fees) and all reasonable costs of
collection.
18.7 WAIVER. The waiver, modification, or failure to insist on any of the
provisions of this Agreement shall not void, waive, nor modify any
of the other provisions nor be construed as a waiver or
relinquishment of Company's right to performance in the future of
any such provision.
18.8 SEVERABILITY. If any provision or part of this Agreement shall be
declared illegal, void, or unenforceable, the remaining provisions
shall continue in full force and effect to the extent permitted by
law.
18.9 ASSIGNMENT. Company's rights, obligations, and duties under this
Agreement are assignable or delegable. Neither Reseller's rights,
obligations, nor duties under this Agreement are assignable or
delegable without the prior written consent of Company. Nothing
contained in this Agreement, expressed or implied, is intended to
confer upon any person or entity other than the parties hereto and
their successors in interest and permitted assigns, any rights or
remedies under or by reason of this Agreement unless so stated to
the contrary.
18.10 SUCCESSORS. This Agreement shall inure to the benefit of and be
binding on the heirs, legal representatives, successors, and
permitted assigns of the parties.
18.11 HEADINGS. Headings used herein are for reference purposes only and
neither limit nor amplify the terms and conditions herein.
18.12 GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of California as such laws are applied to
contracts made and to be performed entirely in California, and
all actions hereunder must be brought in a federal or state court
of competent jurisdiction in Orange County, California and in no
other jurisdiction.
18.13 SURVIVAL OF CERTAIN PROVISIONS. The restrictions and obligations on
Reseller contained elsewhere in this Agreement shall survive any
termination of this Agreement.
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18.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
18.15 ENTIRETY OF AGREEMENT. This agreement constitutes the entire
understanding and agreement between the parties with respect to
the subject matter hereof and supersedes any and all prior or
contemporaneous oral or written communications with respect
hereto, all of which are merged herein. Except as specifically
provided for herein, this Agreement may not be altered, amended,
or modified except by an instrument in writing signed by a duly
authorized representative of each party.
WHEREFORE, by their signatures below, the parties hereto acknowledge that they
have reviewed carefully what has been expressed in this document, which they
understand is a legally binding document and that the understanding and
agreements expressed in this document are binding upon them.
Accepted by:
COMPANY RESELLER
/s/ Rory P. Hughes /s/ William V. Perry
- - --------------------------------- ---------------------------------
Authorized Signature Authorized Signature
Rory P. Hughes William V. Perry
- - --------------------------------- ---------------------------------
Name Name
CEO Chairman/CEO
- - --------------------------------- ---------------------------------
Title Title
9-1-95 9-1-95
- - --------------------------------- ---------------------------------
Date Date
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SOFTWARE PROVIDER AGREEMENT
ATTACHMENT A
SOFTWARE PRODUCT DESCRIPTION
Attachment A-1 MortgageShare Product Brief
Page 1 of 1
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SOFTWARE PROVIDER AGREEMENT
ATTACHMENT B
FEES SCHEDULE
A. Document Processing Services
If Reseller processes loans and/or creates closing documents as service to
its customers, for each processed loan Reseller will pay to Company $145.00
for each funded/closed loan.
B. Software Licenses
Reseller may sublicense the Licensed Programs for certain Sublicensees on a
usage basis. For each usage-based Sublicensee, Reseller will pay to Company
$145.00 per for each processed loan which is funded/closed on the licensed
system.
C. Software Maintenance/Telephone Support
At the request of either Sublicensee or Reseller, Company may provide
software maintenance/telephone support (User Support) to usage-based
Sublicensees. Such User Support may be under separate agreement at a
monthly rate or on a usage basis,at a rate to be determined.
D. Irrespective of the foregoing, Company agrees that:
(i) Reseller's fees shall be no greater than fees charged to any other
licensee of the Licensed Products.
(ii) Reseller shall have the right to re-negotiate the fees charged for the
use of the license at any time.
Page 1 of 1
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SOFTWARE PROVIDER AGREEMENT
ATTACHMENT C
TERRITORY
The territory shall comprise the United States of America, the U.K., Australia,
and/or any Nation where the licensed use of said programs is viable.
The cost to modify the licensed programs to operate other than in the United
States will be paid by the Reseller.
Page 1 of 1
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EXHIBIT 10(f)
EMB CORPORATION
1996 STOCK OPTION, SAR AND STOCK BONUS PLAN
ARTICLE 1
GENERAL PROVISIONS
1.1 PURPOSE. The purpose of the EMB CORPORATION 1996 STOCK OPTION, SAR AND
STOCK BONUS PLAN (the "Plan") shall be to attract, retain and motivate key
management employees and independent consultants (the "Participants") of EMB
Corporation (the "Company") and its subsidiaries, if any, by way of granting (i)
non-qualified stock options ("Stock Options"), (ii) non-qualified stock options
with stock appreciation rights attached ("Stock Option SARs"), (iii) incentive
stock options ("ISO Options"), and (iv) ISO Options with stock appreciation
rights attached ("ISO Option SARs"). For the purpose of this Plan, Stock Option
SARs and ISO Option SARs are sometimes collectively herein called "SARs;" and
Stock Options and ISO Options are sometimes collectively herein called
"Options." The ISO Options to be granted under the Plan are intended to be
qualified pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"); and the Stock Options to be granted are intended to be
"non-qualified stock options" as described in Sections 83 and 421 of the Code.
Furthermore, under the Plan, the terms "parent" and "subsidiary" shall have the
same meaning as set forth in Subsections (e) and (f) of Section 425 of the Code
unless the context herein clearly indicates to the contrary.
1.2 GENERAL. The terms and provisions of this Article I shall be applicable to
Stock Options, SARs and ISO Options unless the context herein clearly indicates
to the contrary.
1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Stock
Option Committee (the "Committee") appointed by the Board of Directors (the
"Board") of the Company and consisting of not less than three members from the
Board. The members of the Committee shall serve at the pleasure of the Board.
The Committee shall have the power where consistent with the general purpose and
intent of the Plan to (i) modify the requirements of the Plan to conform with
the law or to meet special circumstances not anticipated or covered in the Plan,
(ii) suspend or discontinue the Plan, (iii) establish policies and (iv) adopt
rules and regulations and prescribe forms for carrying out the purposes and
provisions of the Plan including the form of any "stock option agreements"
("Stock Option Agreements"). Unless otherwise provided in the Plan, the
Committee shall have the authority to interpret and construe the Plan, and
determine all questions arising under the Plan and any agreement made pursuant
to the Plan. Any interpretation, decision or determination made by the
Committee shall be final, binding and conclusive. A majority of the Committee
shall constitute a quorum, and an act of the majority of the members present at
any meeting at which a quorum is present shall be the act of the Committee.
1.4 SHARES SUBJECT TO THE PLAN. Shares of stock ("Stock") covered by Stock
Options, SARs and ISO Options shall consist of 1,000,000 shares of the Common
Stock, no par value, of
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the Company. Either authorized and unissued shares or treasury shares may be
delivered pursuant to the Plan. If any Option for shares of Stock, granted to a
Participant lapses, or is otherwise terminated, the Committee may grant Stock
Options, SARs or ISO Options for such shares of Stock to other Participants.
However, neither Stock Options, SARs nor ISO Options shall be granted again for
shares of Stock which have been subject to SARs which are surrendered in
exchange for cash or shares of Stock issued pursuant to the exercise of SARs as
provided in Article II hereof.
1.5 PARTICIPATION IN THE PLAN. The Committee shall determine from time to time
those Participants who are to be granted Stock Options, SARs and ISO Options and
the number of shares of Stock covered thereby. Directors who are not employees
of the Company or of a subsidiary shall not be eligible to participate in the in
ISO Options or ISO in Option SARs. During any period that the Committee is
comprised of less than three Directors each of whom is a Disinterested Director,
the maximum number of shares of Stock for which employee-Directors may be
granted options in any calendar year shall not exceed 33 percent of the
aggregate number of shares of Stock with respect to which Options may be granted
under the Plan.
1.6 DETERMINATION OF FAIR MARKET VALUE. As used in the Plan, "fair market
value" shall mean on any particular day (i) if the Stock is listed or admitted
for trading on any national securities exchange or the National Market System of
the National Association of Securities Dealers, Inc. Automated Quotation System,
the last sale price, or if no sale occurred, the mean between the closing high
bid and low asked quotations, for such day of the Stock on the principal
securities exchange on which shares of Stock are listed, (ii) if Stock is not
traded on any national securities exchange but is quoted on the National
Association of Securities Dealers, Inc., Automated Quotation System, or any
similar system of automated dissemination of quotations or securities prices in
common use, the mean between the closing high bid and low asked quotations for
such day of the Stock on such system, (iii) if neither clause (i) nor (ii) is
applicable, the mean between the high bid and low asked quotations for the Stock
as reported by the National Quotation Bureau, Incorporated if at least two
securities dealers have inserted both bid and asked quotations for shares of the
Stock on at least five (5) of the ten (10) preceding days, (iv) in lieu of the
above, if actual transactions in the shares of Stock are reported on a
consolidated transaction reporting system, the last sale price of the shares of
Stock on such system or, (v) if none of the conditions set forth above is met,
the fair market value of shares of Stock as determined by the Board. Provided,
for purposes of determining "fair market value" of the Common Stock of the
Company, such value shall be determined without regard to any restriction other
than a restriction which will never lapse.
1.7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number of shares
of Stock under Stock Options and ISO Options granted under the Plan, the Option
Price and the ISO Price and the total number of shares of Stock which may be
purchased by a Participant on exercise of a Stock Option and an ISO Option shall
be approximately adjusted by the Committee to reflect any recapitalization,
stock split, merger, consolidation, reorganization, combination, liquidation,
stock dividend or similar transaction involving the Company except that a
dissolution or liquidation of the Company or a merger or
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consolidation in which the Company is not the surviving or the resulting
corporation, shall cause the Plan and any Stock Option, SAR or ISO Option
granted thereunder, to terminate upon the effective date of such dissolution,
liquidation, merger or consolidation. Provided, that for the purposes of this
Section 1.7, if any merger, consolidation or combination occurs in which the
Company is not the surviving corporation and is the result of a mere change in
the identity, form or place of organization of the Company accomplished in
accordance with Section 368(a)(1)(F) of the Code, then, such event will not
cause a termination. Appropriate adjustment may also be made by the Committee
in the terms of a SAR to reflect any of the foregoing changes.
1.8 AMENDMENT AND TERMINATION OF THE PLAN. The Plan shall terminate at
midnight, April 30, 1999, but prior thereto may be altered, changed, modified,
amended or terminated by written amendment approved by the Board. Provided,
that no action of the Board may, without the approval of the shareholders,
increase the aggregate number of shares of Stock which may be purchased under
Stock Options, SARs or ISO Options granted under the Plan; withdraw the
administration of the Plan from the Committee; amend or alter the Option Price
or ISO Price, as applicable; change the manner of computing the spread upon the
exercise of a SAR or amend the Plan in any manner which would impair the
applicability of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, to the Plan. Except as provided in this Article I, no amendment,
modification or termination of the Plan shall in any manner adversely affect any
Stock Option, SAR or ISO Option theretofore granted under the Plan without the
consent of the affected Participant.
1.9 EFFECTIVE DATE. The Plan shall be effective May 21, 1994, subject to
approval by the holders of a majority of the Common Stock of the Company
present, or represented, and entitled to vote at a meeting called for such
purpose, and upon the issuance of a favorable opinion of counsel with respect to
certain tax consequences of the Plan as it affects Stock Options, ISO Options
and SARs.
1.10 SECURITIES LAW REQUIREMENTS. The Company shall have no liability to issue
any Stock hereunder unless the issuance of such shares would comply with any
applicable federal or state securities laws or any other applicable law or
regulations thereunder.
1.11 SEPARATE CERTIFICATES. Separate certificates representing the Common
Stock of the Company to be delivered to a Participant upon the exercise of any
Stock Option, SAR, or ISO Option will be issued to such Participant.
1.12 PAYMENT FOR STOCK; RECEIPT OF STOCK OR CASH IN LIEU OF PAYMENT.
(a) PAYMENT FOR STOCK. Payment for shares of Stock purchased under this
Plan shall be made in full and in cash or check made payable to the Company.
Provided, payment for shares of Stock purchased under this Plan may also be made
in Common Stock of the Company or a combination of cash and Common Stock of the
Company in the event that the purchase of shares is pursuant to the exercise of
rights under an SAR attached to the Option and which is exercisable on the date
of exercise of the Option. In the event that Common Stock of the Company is
utilized in consideration for the purchase of Stock upon
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the exercise of a Stock Option or an ISO Option, then, such Common Stock shall
be valued at the "fair market value" as defined in Section 1.6 of the Plan.
(b) RECEIPT OF STOCK OR CASH IN LIEU OF PAYMENT. Furthermore, a
Participant may exercise an Option without payment of the Option Price or ISO
Price in the event that the exercise is pursuant to rights under an SAR attached
to the Option and which is exercisable on the date of exercise of the Option.
In the event an Option with an SAR attached is exercised without payment of the
Option Price or ISO Price, the Participant shall be entitled to receive either
(i) a cash payment from the Company equal to the excess of the total fair market
value of the shares of Stock on such date as determined with respect to which
the Option is being exercised over the total cash Option Price or ISO Price of
such shares of Stock as set forth in the Option or (ii) that number of whole
shares of Stock as is determined by dividing (A) an amount equal to the fair
market value per share of Stock on the date of exercise into (B) an amount equal
to the excess of the total fair market value of the shares of Stock on such date
with respect to which the Option is being exercised over the total cash Option
Price or ISO Price of such shares of Stock as set forth in the Option, and
fractional shares will be rounded to the next lowest number and the Participant
will receive cash in lieu thereof.
1.13 INCURRENCE OF DISABILITY AND RETIREMENT. A Participant shall be deemed to
have terminated employment or consulting and incurred a disability
("Disability") if such Participant suffers a physical or mental condition which,
in the judgment of the Committee, totally and permanently prevents a Participant
from engaging in any substantial gainful employment or consulting with the
Company or a subsidiary. A Participant shall be deemed to have terminated
employment as an employee or a consultant due to retirement ("Retirement") if
such Participant ceases to be an employee or a consultant of the Company or its
subsidiary, without cause, after attaining the age of 55.
1.14 STOCK OPTIONS AND ISO OPTIONS GRANTED SEPARATELY. Since the Committee is
authorized to grant Stock Options, SARs and ISO Options to Participants, the
grant thereof and Stock Option Agreements relating thereto will be made
separately and totally independent of each other. Except as it relates to the
total number of shares of Stock which may be issued under the Plan, the grant or
exercise of a Stock Option or SARs shall in no manner affect the grant and
exercise of any ISO Options. Similarly, the grant and exercise of any ISO
Option shall in no manner affect the grant and exercise of any Stock Option or
SARs.
1.15 GRANTS OF OPTIONS AND STOCK OPTION AGREEMENT. Each Stock Option, ISO
Option and/or SAR granted under this Plan shall be evidenced by the minutes of a
meeting of the Committee or by the written consent of the Committee and by a
written Stock Option Agreement effective on the date of grant and executed by
the Company and the Participant. Each Option granted hereunder shall contain
such terms, restrictions and conditions as the Committee may determine, which
terms, restrictions and conditions may or may not be the same in each case.
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1.16 USE OF PROCEEDS. The proceeds received by the Company from the sale of
Stock pursuant to the exercise of Options granted under the Plan shall be added
to the Company's general funds and used for general corporate purposes.
1.17 NON-TRANSFERABILITY OF OPTIONS. Except as otherwise herein provided, any
Option or SAR granted shall not be transferable otherwise than by will or the
laws of descent and distribution, and the Option may be exercised, during the
lifetime of the Participant, only by him. More particularly (but without
limiting the generality of the foregoing), the Option and/or SAR may not be
assigned, transferred (except as provided above), pledged or hypothecated in any
way, shall not be assignable by operation of law and shall not be subject to
execution, attachment, or similar process. Any attempted assignment, transfer,
pledge, hypothecation, or other disposition of the Option and/or SAR contrary to
the provisions hereof shall be null and void and without effect.
1.18 ADDITIONAL DOCUMENTS ON DEATH OF PARTICIPANT. No transfer of an Option
and/or SAR by the Participant by will or the laws of descent and distribution
shall be effective to bind the Company unless the Company shall have been
furnished with written notice and an unauthenticated copy of the will and/or
such other evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the successor to the Option
and/or SAR of the terms and conditions of such Option and/or SAR.
1.19 CHANGES IN EMPLOYMENT. So long as the Participant shall continue to be an
employee or consultant of the Company or any one of its subsidiaries, any Option
granted to him shall not be affected by any change of duties or position.
Nothing in the Plan or in any Stock Option Agreement which relates to the Plan
shall confer upon any Participant any right to continue in the employ as an
employee or consultant of the Company or of any of its subsidiaries, or
interfere in any way with the right of the Company or any of its subsidiaries to
terminate his employment or consulting arrangement at any time.
1.20 SHAREHOLDER RIGHTS. No Participant shall have a right as a shareholder
with respect to any shares of Stock subject to an Option prior to the purchase
of such shares of Stock by exercise of the Option.
1.21 RIGHT TO EXERCISE UPON COMPANY CEASING TO EXIST. Where dissolution or
liquidation of the Company or any merger consolidation or combination in which
the Company is not the surviving corporation occurs, the Participant shall have
the right immediately prior to such dissolution, liquidation, merger,
consolidation or combination, as the case may be, to exercise, in whole or in
part, his then remaining Options whether or not then exercisable, but limited to
that number of shares that can be acquired without causing the Participant to
have an "excess parachute payment" as determined under Section 280G of the Code
determined by taking into account all of Participant's "parachute payments"
determined under Section 280G of the Code. Provided, the foregoing
notwithstanding, after the Participant has been afforded the opportunity to
exercise his then remaining Options as provided in this Section 1.21, and to the
extent such Options are not timely exercised as provided in this Section 1.21,
then, the terms and provisions of this Plan and any Stock Option Agreement will
thereafter continue in effect, and the Participant will be entitled to
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exercise any such remaining and unexercised Options in accordance with the terms
and provisions of this Plan and such Stock Option Agreement as such Options
thereafter become exercisable. Provided further, that for the purposes of this
Section 1.21, if any merger, consolidation or combination occurs in which the
Company is not the surviving corporation and is the result of a mere change in
the identity, form, or place of organization of the Company accomplished in
accordance with Section 368(a)(1)(F) of the Code, then, such event shall not
cause an acceleration of the exercisability of any such Options granted
hereunder.
1.22 ASSUMPTION OF OUTSTANDING OPTIONS AND SARS. To the extent permitted by
the then applicable provisions of the Code, any successor to the Company
succeeding to, or assigned the business of, the Company as the result of or in
connection with a corporate merger, consolidation, combination, reorganization
or liquidation transaction shall assume Options and SARs outstanding under the
Plan or issue new Options and/or SARs in place of outstanding Options and/or
SARs under the Plan.
ARTICLE II
TERMS OF STOCK OPTIONS AND EXERCISE
2.1 GENERAL TERMS.
(a) GRANT AND TERMS FOR STOCK OPTIONS. Stock Options shall be granted by
the Committee on the following terms and conditions: No Stock Option shall be
exercisable within six months from the date of grant (except as specifically
provided in Subsection 2.l(c) hereof, with regard to the death or Disability of
a Participant), nor more than 10 years after the date of grant. Subject to such
limitation, the Committee shall have the discretion to fix the period (the
"Option Period") during which any Stock Option may be exercised. Stock Options
granted shall not be transferable except by will or by the laws of descent and
distribution, Stock Options shall be exercisable only by the Participant while
actively employed as an employee or a consultant by the Company or a subsidiary,
except that (i) any such Stock Option granted and which is otherwise
exercisable, may be exercised by the personal representative of a deceased
Participant within 12 months after the death of such Participant (but not beyond
the Option Period of such Stock Option), (ii) if a Participant terminates his
employment as an employee or a consultant with the Company or a subsidiary on
account of Retirement, such Participant may exercise any Stock Option which is
otherwise exercisable at any time within three months of such date of
termination and (iii) if a Participant terminates his employment as an employee
or a consultant with the Company or a subsidiary on account of incurring a
Disability, such Participant may exercise any Stock Option which is otherwise
exercisable at any time within 12 months of such date of termination. If a
Participant should die during the applicable three-month or 12-month period
following the date of such Participant's Retirement or termination on account of
Disability, the rights of the personal representative of such deceased
Participant as such relate to any Stock Options granted to such deceased
Participant shall be governed in accordance with Subsection 2.1(a)(i) of this
Article II.
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(b) OPTION PRICE. The option price ("Option Price") for shares of Stock
subject to a Stock Option shall be determined by the Committee, but in no event
shall the Option Price of an ISO be less than 100% of the "fair market value" of
the Stock on the date of grant and in no event shall the Option Price of Stock
Options be less than 85% of the "fair market value" of the Stock on the date of
grant.
(c) ACCELERATION OF OTHERWISE UNEXERCISABLE STOCK OPTION ON RETIREMENT,
DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment as an
employee or a consultant due to Retirement, (ii) a Participant who terminates
employment as an employee or a consultant due to a Disability, (iii) the
personal representative of a deceased Participant, or (iv) any other Participant
who terminates employment as an employee or a consultant upon the occurrence of
special circumstances (as determined by the Committee) to exercise and purchase
(within three months of such date of termination of employment or consulting
arrangement, or 12 months in the case of a deceased or disabled Participant; all
or any part of the shares subject to Stock Option on the date of the
Participant's Retirement, Disability, death, or as the Committee otherwise so
determines, notwithstanding that all installments, if any, with respect to such
Stock Option, had not accrued on such date. Provided, such discretionary
authority of the Committee shall not be exercised with respect to any Stock
Option (or portion thereof) if the applicable six-month waiting period for
exercise had not expired except in the event of the death or disability of the
Participant when the personal representative of the deceased Participant or the
disabled Participant may, with the consent of the Committee, exercise such Stock
Option notwithstanding the fact that the applicable six-month waiting period had
not yet expired.
(d) NUMBER OF STOCK OPTIONS GRANTED. Participants may be granted more than
one Stock Option. In making any such determination, the Committee shall obtain
the advice and recommendation of the officers of the Company or a subsidiary
which have supervisory authority over such Participants. The granting of a
Stock Option under the Plan shall not affect any outstanding Stock Option
previously granted to a Participant under the Plan.
(e) NOTICE OF EXERCISE STOCK OPTION. Upon exercise of a stock option, a
Participant shall give written notice to the Secretary of the Company, or other
officer designated by the Committee, at the Company's main office in Dallas,
Texas. No Stock shall be issued to any Participant until the Company receives
full payment for the Stock purchased, if applicable, and any required state and
federal withholding taxes.
ARTICLE III
SARs
3.1 GENERAL TERMS.
(a) GRANT AND TERMS OF SARs. The Committee, when comprised of three or
more Directors all of whom are Disinterested Directors, may grant SARs to
Participants in connection with Stock Options or ISO Options granted under the
Plan. SARs shall not be
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exercisable (i) at such time that the Committee is comprised of less than three
Disinterested Directors or is not comprised solely of Disinterested Directors,
(ii) earlier than six months from the date of grant except as specifically
provided in Subsection 3.l(b) hereof in the case of the death or Disability of a
Participant, and (iii) shall terminate at such time as the Committee determines
and shall be exercised only upon surrender of the related Stock Option or ISO
Option and only to the extent that the related Stock Option or ISO Option (or
the portion thereof as to which the SAR is exercisable) is exercised. SARs may
be exercised only by the Participant while actively employed as an employee or a
consultant by the Company or a subsidiary except that (i) any SARs previously
granted to a Participant which are otherwise exercisable may be exercised, with
the approval of the Committee, by the personal representative of a deceased
Participant, even if such death should occur within six months of the date of
grant (but not beyond the expiration date of such SAR), and (ii) if a
Participant terminates his employment as an employee or a consultant with the
Company or a subsidiary, as the case may be, on account of Retirement or
incurring a Disability, such Participant may exercise any SARs which are
otherwise exercisable, with the approval of the Committee, anytime within three
months of the date of the termination by Retirement or within 12 months of
termination by Disability. If a Participant should die during the applicable
three-month period following the date of such Participant's Retirement or during
the applicable 12 month period following the date of termination on account of
Disability, the rights of the personal representative of such deceased
Participant as such relate to any SARs granted to such deceased Participant
shall be governed in accordance with (i) of the second sentence of this
Subsection 3.l(a) of this Article III. The applicable SAR shall (i) terminate
upon the termination of the underlying Stock Option or ISO Option, as the case
may be, (ii) only be transferable at the same time and under the same conditions
as the underlying Stock Option or ISO Option is transferable, (iii) only be
exercised when the underlying Stock Option or ISO Option is exercised, and (iv)
may be exercised only if there is a positive spread between the Option Price or
ISO Price, as applicable and the "fair market value" of the Stock for which the
SAR is exercised.
(b) ACCELERATION OF OTHERWISE UNEXERCISABLE SARS ON RETIREMENT, DEATH,
DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment as an
employee or a consultant with the Company or a subsidiary due to Retirement,
(ii) a Participant who terminates employment as an employee or a consultant with
the Company or a subsidiary due to a Disability, (iii) the personal
representative of such deceased Participant, or (iv) any other Participant who
terminates employment as an employee or a consultant with the Company or a
subsidiary upon the occurrence of special circumstances (as determined by the
Committee) to exercise (within three months of such date of termination of such
employment or 12 months in the case of a disabled or deceased Participant) all
or any part of any such SARs previously granted to such Participant as of the
date of such Participant's Retirement, Disability, death, or as the Committee
otherwise so determines, notwithstanding that all installments, if any with
respect to such SARs, had not accrued on such date. Provided, such
discretionary authority of the Committee may not be exercised with respect to
any SAR (or portion thereof if the applicable six-month waiting period for
exercise had not expired as of such date, except (i) in the event of the
Disability of the Participant or (ii) the death of the Participant, when such
disabled Participant or the personal representative of such deceased
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Participant may, with the consent of the Committee, exercise such SARs
notwithstanding the fact that the applicable six-month waiting period had not
yet expired.
(c) FORM OF PAYMENT OF SARs. The Participant may request the method and
combination of payment upon the exercise of a SAR; however, the Committee has
the final authority to determine whether the value of the SAR shall be paid in
cash or shares of Stock or both. Upon exercise of a SAR, the holder is entitled
to receive the excess amount of the "fair market value" of the Stock (as of the
date of exercise) for which the SAR is exercised over the Option Price or ISO
Price, as applicable, under the related Stock Option or ISO Option, as the case
may be. All applicable federal and state withholding taxes will be paid by the
Participant to the Company upon the exercise of a SAR since the excess amount
described above will be required to be included within taxable income in
accordance with Sections 61 and 83 of the Code.
(d) DISINTERESTED DIRECTORS. As used in this Article III, "Disinterested
Directors" shall have the same meaning as the term "disinterested person" set
forth in Rule 16b-3(d) under the Securities Exchange Act of 1934, as amended,
and shall mean a Director who is not at the time he exercises discretion in
administering the Plan eligible, and has not at any time within one year prior
thereto been eligible for selection as a person to whom stock may be allocated
or to whom stock options or stock appreciation rights may be granted pursuant to
the Plan or any other plan of the Company or its affiliates entitling the
participants therein to acquire stock, stock options or stock appreciation
rights of the Company or any of its affiliates; provided, however, that in the
event that the definition of "disinterested person" contained in Rule 16b-3 is
amended, the term "Disinterested Person" as it is defined herein shall
automatically be deemed amended so as to the have the same meaning as the
amended term "disinterested person" under Rule 16b-3.
ARTICLE IV
GRANTING OF ISO OPTIONS
4.1 GENERAL. With respect to ISO Options granted on or after the effective
date of the Plan the following provisions in this Article IV shall apply to the
exclusion of any inconsistent provision in any other Article in this Plan since
the ISO Options to be granted under the Plan are intended to qualify as
"incentive stock options" as defined in Section 422 of the Code.
4.2 GRANT AND TERMS OF ISO OPTIONS. ISO Options may be granted only to
employees of the Company and any of its subsidiaries. No ISO Options shall be
granted to any person who is not eligible to receive "incentive stock options"
as provided in Section 422 of the Code. No ISO Options shall be granted to any
management employee if, immediately before the grant of an ISO Option, such
employee owns more than 10% of the total combined voting power of all classes of
stock of the Company or its subsidiaries (as determined in accordance with the
stock attribution rules contained in Section 425(d) of the Code). Provided, the
preceding sentence shall not apply if, at the time the ISO Option is granted,
the ISO Price is at least 110% of the "fair market value" of the Stock subject
to the
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ISO Option, and such ISO Option by its terms is not exercisable after the
expiration of five years from the date such ISO Option is granted.
(a) ISO OPTION PRICE. The option price for shares of Stock subject to an
ISO Option ("ISO Price") shall be determined by the Committee, but in no event
shall such ISO Price be less than the fair market value of the Stock on the date
of grant.
(b) ANNUAL ISO OPTION LIMITATION. The aggregate "fair market value"
(determined as of the time the ISO Option is granted) of the Stock with respect
to which ISO Options are exercisable for the first time by any Participant
during in any calendar year (under all "incentive stock option" plans qualified
under Section 422 of the Code sponsored by the Company and its subsidiary
corporations) shall not exceed $100,000.
(c) TERMS OF ISO OPTIONS. ISO Options shall be granted on the following
terms and conditions: No ISO Option shall be exercisable within six months from
the date of grant (except as specifically provided in Subsection 4.2(d) hereof
with regard to the Disability or death of a Participant), nor more than 10 years
after the date of grant. The Committee shall have the discretion to fix the
period (the "ISO Period") during which any ISO Option may be exercised. ISO
Options granted shall not be transferable except by will or by the laws of
descent and distribution. ISO Options shall be exercisable only by the
Participant while actively employed by the Company or a subsidiary, except that
(i) any such ISO Option granted and which is otherwise exercisable, may be
exercised by the personal representative of a deceased Participant within 12
months after the death of such Participant (but not beyond the expiration date
of such ISO Option), (ii) if a Participant terminates his employment as an
employee with the Company or a subsidiary on account of Retirement, such
Participant may exercise any ISO Option which is otherwise exercisable at any
time within three months of such date of termination and (iii) if a Participant
terminates his employment with the Company or a subsidiary on account of
incurring a Disability, such Participant may exercise any ISO Option which is
otherwise exercisable at any time within 12 months of such date of termination.
If a Participant should die during the applicable three-month or 12 month period
following the date of such Participant's Retirement or Disability, then in such
event, the rights of the personal representative of such deceased Participant as
such relate to any ISO Options granted to such deceased Participant shall be
governed in accordance with Subsection 4.1(c) of this Article IV.
(d) ACCELERATION OF OTHERWISE UNEXERCISABLE ISO OPTION ON RETIREMENT,
DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment as an
employee with the Company or a subsidiary due to Retirement, (ii) a Participant
who terminates employment as an employee with the Company or a subsidiary due to
a Disability, (iii) the personal representative of a deceased Participant, or
(iv) any other Participant who terminates employment as an employee with the
Company or a subsidiary upon the occurrence of special circumstances (as
determined by the Committee) to exercise and purchase (within three months of
such date of termination of employment as an employee or 12 months in the case
of a disabled or deceased Participant) all or any part of the shares of Stock
subject to ISO Option on the date of the Participant's Retirement, Disability,
death, or as the Committee otherwise so
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determines, notwithstanding that all installments, if any, had not accrued on
such date. Provided, such discretionary authority of the Committee may not be
exercised with respect to any ISO Option (or portion thereof if the applicable
six-month waiting period for exercise had not expired as of such date except in
the event of the Disability of the Participant or death of the Participant, when
the disabled Participant or the personal representative of such deceased
Participant, may, with the consent of the Committee, exercise such ISO Option
notwithstanding the fact that the applicable six-month waiting period had not
yet expired.
(e) NUMBER OF ISO OPTIONS GRANTED. Subject to the applicable limitations
contained in the Plan with respect to ISO Options, Participants may be granted
more than one ISO Option. In making any such determination, the Committee shall
obtain the advice and recommendation of the officers of the Company or a
subsidiary which have supervisory authority over such Participants. The
granting of an ISO Option under the Plan shall not affect any outstanding ISO
Option previously granted to a Participant under the Plan.
(f) NOTICE TO EXERCISE ISO OPTION. Upon exercise of an ISO Option, a
Participant shall give written notice to the Secretary of the Company, or other
officer designated by the Committee, at the Company's main office in Dallas,
Texas.
ARTICLE V
OPTIONS NOT QUALIFYING AS
INCENTIVE STOCK OPTIONS
5.1 NON-QUALIFYING OPTIONS. With respect to all or any portion of any option
granted under the Plan not qualifying as an "incentive stock option" under
Section 422 of the Code, such option shall be considered as a Stock Option
granted under this Plan for all purposes.
EMB CORPORATION
By:
----------------------------------------
James E. Shipley, President
Date Plan adopted and approved by the
Board of Directors: April 29, 1996
Date Plan adopted and approved by the
Stockholders: May 21, 1996
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EXHIBIT 10(g)
SUBLEASE
This Sublease is entered into by and between Blue Cross of California a
--------------------------
Non-Profit California Corporation, Sublessor, and Sterling Alliance Group, Ltd.,
- - --------------------------------- ------------------------------
Sublessee, as a Sublease under the Master Lease dated February 20, 1990,
----------- --
entered into by Curci-England Co., a Joint Venture as Master Lessor, and
----------------------------------
Sublessor under this Sublease as Lessee, a copy of the Master Lease has been
given to Sublessee for review and Sublessee hereby acknowledges same.
1. PREMISES
Sublessor leases to Sublessee and Sublessee hires from Sublessor the
following described Premises together with the appurtenances, if any, situated
at 575 Anton Blvd. in the City of Costa Mesa State of CA: Approximately 6,433
-------------- ---------- -- -----
square feet of rentable floor space located on the 2nd floor, Suite 200, as
-------- --- ---
outlined on attached Exhibit B.
2. SUBLEASE
(a) This Sublease is subject to all of the terms and conditions of the
Master Lease in Exhibit A and Sublessee shall perform the obligations of
Sublessor as lessee in said Master Lease, to the extent said terms and
conditions are applicable to the Premises Subleased pursuant to this Sublease.
Sublessee shall not commit or permit to be committed on the premises any act or
omission which shall violate any term or condition of the Master Lease. In the
event of the termination of Sublessor's interest as Lessee under the Master
Lease for any reason, then this Sublease shall terminate coincidentally
therewith without any liability of Sublessor to Sublessee.
Sublessor does not assume the obligations of the Master Lessor under the
provisions of the Master Lease, but shall exercise due diligence in attempting
to cause the Master Lessor to perform its obligations Under the Master Lease for
the benefit of Sublessee, provided, however, that Sublessee shall have no right
to withhold any rental or other payment due hereunder.
At any time and on prior notice to Sublessee, Sublessor may elect, by
written notice, to require Sublessee to perform its obligations under this
Sublease directly to Master Lessor, and Sublessee shall do so on Sublessor's
election, in which event Sublessee shall send to Sublessor from time to time
copies of all notices and other communications it shall send to and receive from
Master Lessor, and which would effect Sublessee's occupancy hereunder.
(b) All of the terms and conditions contained in the Exhibit A Master Lease
are incorporated herein, except for Section(s) Except as modified herein and
-----------------------------
pertinent hereto, Exibits All, and Riders All, as terms and conditions of this
- - ---------------- --- ---
Sublease (with each reference therein to Lessor and Lessee to be deemed to refer
to Sublessor and Sublessee) and, along with all of the Sections set out in this
Sublease, shall constitute the complete terms and conditions of the Sublease.
3. TERM
(a) The term of this Sublease shall be for a period of 1 years 6 months 0
- - -
days, commencing on the 1st day of Oct. 1995 and ending on the 31st day of March
--- --- -- ---- -----
1997.
--
(b) In the event Sublessor is unable to deliver possession of the Premises
at the commencement of the term, Sublessor shall not be liable for any damage
caused thereby, nor shall this Sublease be void or voidable but Sublessee shall
not be liable for rent until such time as Sublessor offers to deliver possession
of the Premises to Sublessee, provided that if the delay in the delivery of
possession exceed ninety (90) days, then Sublessee, at its option, to be
exercised in writing within ten (10) days after the end of said ninety (90) day
period may terminate this Sublease. In no event shall the term hereof be
extended by such delay in delivery of possession. If Sublessee, with Sublessor's
consent, takes possession prior to the commencement of the term, Sublessee shall
do so subject to all of the covenants and conditions hereof and shall pay rent
for the period ending with the commencement of the term at the same rental as
that prescribed for the first month of the term, prorated at the rate of 1/30th
thereof per day. In the event there is any delay caused by Sublessee, its
contractors or agents and which exceeds ninety (90) days, then Sublessee shall
not have the right to cancel this lease. Sublessor, at its option, may either
terminate this Sublease or require the full terms to go into effect as of the
commencement date of this Sublease.
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4. RENT
Sublessee shall pay to Sublessor, on the first day of each month, Monthly
Rent for the Premises as follows:
See Addendum to Sublease
------------------------
------------------------
and all other sums due under this Sublease and the Master Lease for the Premises
without deduction, offset, prior notice or demand, in lawful money of the United
States. Said rent shall be forwarded to the attention of John Siemon, Vice
President, Facilities Services and Property Management at the following address:
21555 Oxnard Street, Woodland Hills, California 91367. If the commencement date
is not the first day of the month, or if the Sublease termination is not the
last day of the month, a prorated monthly installment shall be paid at the then
current rate for the fractional month during which the Sublease commences and/or
terminates. Sublessee hereby acknowledges that Sublessor may not send monthly
statements and invoices as a condition to Sublessee paying any Rent or other
payment due under this Sublease or the Master Lease.
5. SECURITY DEPOSIT
Concurrently with Sublessee's execution of this Sublease, Sublessee shall
deposit with Sublessor the sum of See addendum to be held by Sublessor as
------------
commingled funds and as a Security Deposit for the full and faithful performance
of all of the terms, covenants and conditions of the Sublease. If Sublessee
defaults with respect to any material provision hereof, Sublessor may at its
election and without prejudice to any other remedy, apply or retain all or any
part of the aforesaid Security Deposit for the payment of any other amount which
Sublessor may spend or become obligated to spend by reason of Sublessee's
default. Sublessee shall, within ten (10) days of demand, therefore restore said
Security Deposit to the original sum deposited. If Sublessee fully and
faithfully performs every provision of this Sublease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Sublessee (or, at
Sublessor's option, to the last assignee of Sublessee's interest hereunder) at
the expiration of the term of the Sublease and after Sublessee has vacated the
Premises.
6. USE
Sublessee shall use the Premises for the following purpose and for no other
purpose without the prior written consent of Sublessor: General office use
------------------
associated with a mortgage loan company. Sublessee's business shall be
- - ----------------------------------------
established and conducted throughout the term hereof in a first-class manner.
Sublessee shall not use the Premises for, or carry on, or permit to be carried
on, any offensive, noisy or dangerous trade, business, manufacture or occupation
nor permit any auction sale to be held or conducted on or about the Premises.
Sublessee shall not do or suffer anything to be done upon the Premises which
will cause structural injury to the Premises or the building of which the
Premises form a part. The Premises shall not be overloaded and no machinery,
apparatus or other appliance shall be used or operated in or upon the Premises
which will in any manner injure, vibrate or shake the Premises or the building
of which it is part. No use shall be made of the Premises which will in any way
impair the efficient operation of the sprinkler system (if any) within the
building containing the Premises. No musical instrument of any sort, or any
noise making device will be operated or allowed upon the Premises for the
purpose of attracting trade or otherwise. Sublessee shall not use or permit the
use of the Premises or any part thereof for any purpose which will increase the
existing rate of insurance upon the building in which the Premises are located,
or cause a cancellation of any insurance policy covering the building or any
part thereof. If any act on the part of Sublessee or use of the Premises by
Sublessee shall cause, directly or indirectly, any increase of Sublessor's
insurance expense, said additional expense shall be paid by Sublessee to
Sublessor upon demand. No such payment by Sublessee shall limit Sublessor in the
exercise of any other rights or remedies, or constitute a waiver of Sublessor's
right to require Sublessee to discontinue such act or use.
2
<PAGE>
7. COVENANT OF QUIET ENJOYMENT
Sublessor represents that the Master Lease is in full force and effect and
that there are no defaults on Sublessor's part under it as of the commencement
date of the term of this Sublease.
8. NOTICE OF NONRESPONSIBILITY
Sublessor or its representatives shall have the right to go upon and
inspect the premises at all reasonable times. Sublessor shall have the right to
post and keep posted thereon notices of nonresponsibility or such other notices
which Sublessor may deem to be proper for the protection of Sublessor's interest
in the premises. Sublessee shall, before the commencement of any work which
might result in any such lien, give to Sublessor written notice of its intention
to do so and sufficient time to enable the posting of such notice.
9. NOTICES
All notices or demands of any kind required or desired to be given to
Sublessor or Sublessee hereunder shall be in writing and shall be determined
delivered forty-eight (48) hours after depositing the notice or demand in the
United States mail, certified or registered, postage prepaid, addressed to the
Sublessor or Sublessee respectively at the address set forth after their
signatures at the end of this Sublease. All rent and other payments due under
this Sublease or the Master Lease shall be made by Sublessee to Sublessor at the
same address.
10. ATTORNEYS FEE; COSTS OF SUIT
(a) If Sublessee or Sublessor shall bring any action for any relief against
the other, declaratory or otherwise, arising out of this Lease, including any
suit by Sublessor for the recovery of Rent or possession of the Premises, the
losing party shall pay the successful party a reasonable sum for attorney's fees
and any costs awarded by a court or arbitrator which shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is prosecuted to judgment.
(b) Should Sublessor, without fault on Sublessor's part, be made a party to
any litigation instituted by Sublessee or by any third party against Sublessee,
or by or against any person holding under or using the Premises by license of
Sublessee, or for the foreclosure of any lien for labor or material furnished to
or for Sublessee or any such other person or otherwise arising out of or
resulting from any act or transaction of Sublessee or of any such other person,
Sublessee covenants to save and hold Sublessor harmless from any judgment
rendered against Sublessor or the Premises or any part thereof, and all costs
and expenses, including all related costs and attorney's fees, incurred by
Sublessor for or in connection with such litigation.
11. INUREMENT
This Sublease shall be binding on and shall inure to the benefit of the
parties hereto, their respective heirs, legal representatives, successors and
assigns.
12. SIGNAGE
Sublessor shall submit to Master Lessor for approval all signage design and
the proposed method of installing the signage. Sublessee shall be responsible
for removing all signage if this Sublease is terminated for any reason.
Sublessor makes no guarantees as to the availability of signage anywhere in, on,
or about the demised premises.
13. MASTER LEASE PROVISIONS
(a) Sublessee shall reimburse Sublessor for the cost, if any, of Master
Lessor's review of Sublessee's drawings and plans relating to any alterations of
the Premises and review of this Sublease document.
(b) At Sublessor's option, Sublessee shall remove, at its sole cost and
expense, any and all non-standard improvements or fixtures at the expiration or
sooner termination of this Sublease. Any damage occasioned by such removal shall
be repaired by and at Sublessee's sole expense.
3
<PAGE>
(c) Notwithstanding the terms of Paragraph 17 of the Master Lease to the
----
contrary, Sublessee agrees to maintain liability insurance coverage in limits
not less than $ N/A. Sublessee shall name Sublessor and Master Lessor as
---
additional insureds and shall provide Sublessor with certificates of coverage
commencing upon execution of this Sublease and continuing during the term
hereof.
14. REAL ESTATE BROKERS
Each party represents that it has not had dealings with any real estate
broker, agent, finder or other person with respect to this Sublease in any
manner except:
See addendum
-------------
and whose address(s) is (are) shown below.
- - --------------------------
Each party shall hold harmless the other party from all damages resulting
from claims that may be asserted against the other party by any broker, agent,
finder, or other person, with whom the other party has or purportedly has dealt
except:
CB Commercial Real Estate Group, Inc.
- - --------------------------------------------
- - --------------------------------------------
Sublessor shall pay any commissions or fees that are payable to the above named
- - ---------
broker(s), agent or finder with respect to this Sublease in accordance with the
provisions of a separate commission contract.
- - --------------------------------------------
- - --------------------------------------------
- - --------------------------------------------
- - --------------------------------------------
15. TENANT IMPROVEMENTS
Sublessor agrees to make a one time allowance for building standard
improvements to the demised premises in an amount not to exceed $ None . Said
-----
allowance shall be Sublessors sole contribution toward all improvements, space
plans, and or other costs incurred in connection with said work. Sublessee shall
contract with any and all contractors or subcontractors in connection with said
work and shall submit to Sublessor for payment, paid approved invoices for
reimbursement up to the maximum amount allowable by the terms of this section.
Sublessee shall be liable for inspection and approval of all work prior to
submission of invoices for payment by Sublessor. Provided Sublessee has complied
with the appropriate approval process as set forth above, Sublessor agrees to
disburse progress payments to Sublessee's contractor as follows:
None. Premises leased in $___________
-------------------------
"as is" condition. $___________
------------------
30 days from receipt of Certificate of Occupancy $___________
Total $___________
In no event will Sublessor be responsible for completion or quality of the work.
Sublessor's sole responsibility shall be disbursement of funds in accordance
with this provision. Within three (3) working days of execution by Sublessee,
Sublessee agrees to submit to Sublessor an executed copy of its contract and any
changes thereto for the tenant improvement work to be performed by Sublessee's
contractor. All work shall be performed by licensed contractors, in a good and
workmanlike manner and in accordance with all building and safety codes
governing such work. The contractor or contractors shall carry complete
insurance coverage satisfactory to Sublessor, and shall name Sublessor as
additionally insured.
4
<PAGE>
16. BINDING CONTRACT
Sublessee understands that this Sublease shall not be binding upon
Sublessor until said document is executed by an authorized officer(s) of
Sublessor and approved by Master Lessor.
DATE: DATE: 9/19/95
------------------------------ ------------------
Sublessor: Blue Cross of California, Sublessee: Sterling Alliance
a Non-Profit California Group, Ltd.
Corporation
------------------------- ------------------
By: John F. Siemon BY: Rory Hughes
--------------------------------- --------------------------
ITS: Vice President ITS: President
-------------- ---------
ADDRESS: 21555 Oxnard Street ADDRESS: 16365 Bolsa Chica Rd.
Woodland Hills, California Huntington Beach, CA
91367
- - ------------------------------------ ----------------------------
TELEPHONE: (818) 703-2207 TELEPHONE: (714) 377-1366
-------------- ---------------
5
<PAGE>
ADDENDUM TO SUBLEASE
BY AND BETWEEN BLUE CROSS OF CALIFORNIA,
A NON-PROFIT CALIFORNIA CORPORATION, AS SUBLESSOR
AND STERLING ALLIANCE GROUP, LTD., AS SUBLESSEE
Rent: Sublessee shall pay to Sublessor, on the first day of each
- - ---- month, monthly rent for the Premises as follows:
1. $7,397.95 as base rent, plus
2. One-half of any additional operating expenses outlined
in the Master Lease. Current amount is $112.68 per month
(one-half of $225.35). This amount is subject to
increases per the Master Lease.
Security Deposit: Per the terms and conditions outlined in Item #5 of the
- - ---------------- Sublease document, Sublessee shall deposit with Sublessor
concurrently with execution of this document, $14,795.90.
$7,397.95 of this amount shall be applied towards rent for
month thirteen (13) of this agreement provided that Sublessee
is not in default of any of the terms and conditions of this
sublease agreement. The balance ($7,397.95) shall remain as a
security deposit per this sublease agreement.
Parking: Sublessee shall have the right to use the parking area in
- - ------- accordance with terms and conditions of the Master Lease.
Early Occupancy: Sublessee shall be permitted occupancy of the premises prior
- - --------------- to October 1, 1995 provided a fully executed sublease and
Master Lessor's consent are completed as well as appropriate
evidence of insurance coverage per the Master Lease.
Dual Agency: CB Commercial Real Estate Group, Inc. represents both
- - ----------- Sublessor and Sublessee and Sublessor and Sublessee hereby
confirm that they were timely advised of the dual
representation and that they consent to the same, and that
they do not expect said Broker to disclose to either party
the confidential information of the other party.
Sublessor: Sublessee:
Blue Cross of California, Sterling Alliance Group, Ltd.
a Non-Profit California
Corporation
By: By:
------------------------- ---------------------------
Date: Date:
----------------------- -------------------------
<PAGE>
CONSENT TO SUB LEASE
--------------------
This Consent to Sublease is made and effective this 19 day of Sept. of
-- ----
1995, by and between Curci-England Co., L.P., a California limited partnership,
hereinafter ("Landlord") hand Blue Cross of California a Non-Profit California
------------------------ -----------------------
Corporation, hereinafter ("Tenant") and Sterling Alliance Group, Ltd.
- - ----------- -----------------------------
hereinafter ("Subtenant"), and is made with reference to the following facts:
RECITALS
--------
A. Curci-England Co., L.P., is the Landlord under a certain Lease dated
2/20/90, covering the Premises known as Suite 200, located at 575 Anton
- - ------- --- ---
Boulevard, Costa Mesa, California 92626, and Blue Cross of California, is the
------------------------
Tenant under such Lease. Such Lease is hereinafter referred to as the "Master
Lease"; and
B. Tenant has requested that Landlord consent to the subletting of a
portion of said Premises to the Subtenant upon the terms contained in a sublease
dated 9/19/95 a copy of which is attached hereto and made part hereof; and
--------
C. Landlord is willing to consent to such subletting upon the express
terms and conditions hereinafter set forth.
NOW THEREFORE, THE PARTIES AGREE:
1. Each of the recitals set forth above is incorporated herein by
reference.
2. Curci-England Co., L.P., hereby consents to the subletting by Tenant
to Subtenant of a portion of the Premises covered by the attached Sublease upon
the following terms and conditions contained herein.
3. The consent of Landlord to such subletting shall not operate as a
waiver of any term, condition or provision of the Master Lease, nor shall same
in any manner be construed to modify any term, condition or provision of such
Master Lease, and such consent shall not be deemed to be a consent to any
subsequent assignment or subletting of said Premises or a consent to such
subletting other than upon the terms contained in the attached Sublease.
4. The aforesaid consent of Landlord shall not serve to in any manner
release or discharge Tenant from any obligations, liabilities or duties under
the terms of the aforesaid Master Lease.
5. It is expressly understood that the Sublease shall at all times remain
subject to and subordinate to the Master Lease, and Subtenant, by executing this
Consent to Sublease, agrees that Subtenant shall be fully and completely bound
by each and every term of the Master Lease insofar as Subtenant's occupancy and
utilization of the sublet Premises is concerned. Any breach of the Master Lease
by either Tenant or Subtenant shall likewise constitute a breach of the attached
Sublease and shall entitle Landlord to avail itself of any remedy set forth in
the Master Lease in the event of such breach, as well as any other remedy
available at law to Landlord.
6. Subtenant, by the execution of this Consent to Sublease, acknowledges
that Subtenant has examined and is familiar with all of the terms, provisions
and conditions of the Master Lease referred to herein.
7. As additional consideration for the execution of the consent herein
contained by Landlord to the subletting herein set forth, Tenant hereby
irrevocably grants, transfers and assigns to Landlord all rents due Tenant under
the terms of said Sublease, together with the right, power and authority to
collect such rents at the option of Landlord upon written notice to Tenant and
Subtenant. Landlord, however, agrees that it will permit Tenant to collect such
rents of such Sublease so long as Tenant or Subtenant is in no manner in default
under the terms of the aforesaid Master Lease. If Tenant sublets a portion of
the Property for a rental rate which is greater than that paid to the Landlord,
such excess shall be paid to the Landlord as provided in Article 28, Section 7
of the Master Lease.
<PAGE>
8. The Tenant and Subtenant agree that to the extent of any terms,
conditions or provisions of the Sublease are contrary to the terms, conditions
or provisions of the Master Lease, said Sublease terms, conditions or provisions
are deemed revoked as to Landlord and that Tenant and Subtenant will filly
perform all terms, conditions or expense in connection with this Sublease.
IN WITNESS WHEREOF, the parties hereto have duly executed this Consent to
Sublease the day and year first above written.
Tenant: SUBTENANT:
Blue Cross of California, Sterling Alliance Group, Ltd.
a Non-Profit California
Corporation
By: By:
-------------------------- -------------------------
John F. Siemon Rory Hughes
Its: Vice President Its: President
-------------------------- -------------------------
Dated: __________________________ Dated: _________________________
LANDLORD:
CURCI-ENGLAND CO. L.P.,
a California limited partnership
By: COPLEY INVESTORS LIMITED PARTNERSHIP,
a Delaware limited partnership,
its general partner
By: COPLEY MANAGEMENT PARTNERSHIP,
a Massachusetts general partnership,
its general partner
By: -----------------------------
Thomas W. Mazza
Its: Investment Officer
-----------------------------
<PAGE>
EXHIBIT 10(h)
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made by and between ELECTRONIC
MORTGAGE BANC., LTD., a California corporation ("Licensor"), and
_____________________________________ "Licensee").
A. Licensor owns proprietary know-how and trade secrets relating to the
establishment, marketing, promotion and operation of a real estate loan
brokerage business (the "EMB Loan Office").
B. Licensor has expended time, effort and money to acquire and develop
procedures, training programs, loan processing and submission procedures,
marketing identity and a computerized loan origination software package in
connection with the operation of an EMB Loan Office (the "EMB System").
D. Licensor has rights to the computerized loan origination software
package developed by Virtual Lending Technologies (the "VLT License Rights").
E. Licensor has rights to the name, distinctive logo, and identifying
commercial symbol and design "EMB Mortgage" and to the name "Electronic Mortgage
Master" as a descriptive name of the software package. In addition, Licensor
anticipates developing additional trademarks, trade names, service marks, and
other commercial symbols (collectively, the "Marks").
F. In its business operations, Licensor maintains high standards of
quality for its products and services such that valuable goodwill is attached to
the Marks.
G. Licensee desires to obtain the right to own and operate an EMB Loan
Office using the Marks, the VLT License Rights and the EMB System upon the terms
and conditions set forth herein.
1. LICENSE AND TERM.
----------------
1.1 Grant of License. Licensor hereby grants to Licensee the right to use the
Marks and the EMB System, and to acquire certain sub-license rights to the VLT
License Rights for use of the Electronic Mortgage Master system, in the
operation of an EMB Loan Office which offers real estate loan services to
borrowers who are seeking mortgages on residential, commercial and income
properties (the "Licensed Business") on the terms and conditions set forth in
this Agreement. The Licensed Business shall be operated only at the following
location (the "Authorized Location"):
Licensee shall not use the EMB name or Marks or utilize the Electronic Mortgage
Master system in any other business or to offer any products or services which
are not included within the Licensed Business, without the prior written consent
of Licensor.
Every EMB Loan Office license is granted for a specific Authorized Location and
is not transferable to any other location without the prior written consent of
Licensor. In order for the Licensee to operate an EMB Loan Office in an
additional location a separate license agreement must be signed and an
additional license fee must be paid.
<PAGE>
1.2 Term.
1.2.1 Initial Term. This Agreement shall be effective and binding for an
initial term of five (5) years commencing on the date of its execution by
Licensor, unless sooner terminated as provided herein.
1.2.2 Renewal Term. If Licensee is not in default under this Agreement,
and subject to the term or renewal of Licensee's lease at the Authorized
Location, Licensee shall have the right to renew the license for an additional
five (5) year period on the same terms and conditions on which Licensor is then
customarily granting new licenses; or, if Licensor is not granting new licenses,
then on the same terms and conditions on which Licensor is then customarily
granting renewal licenses. Licensee must pay a renewal fee equal to ten percent
(10%) of the then current initial license fee upon renewal of the license. The
Licensee shall give Licensor written notice of Licensee's desire to renew the
term of the license not more than one hundred eighty (180) calendar days nor
less than ninety (90) calendar days prior to the expiration of the preceding
term.
1.2.3 Refusal to Renew. Notwithstanding the foregoing provisions,
Licensor shall not be obligated to renew this License Agreement if:
(a) Experience has shown that Licensee has repeatedly failed to make
payments and reports within ten (10) business days of the date they are actually
due or has repeatedly and unreasonably been in default of this Agreement; or
(b) Licensee has consistently demonstrated an unwillingness to take
remedial actions recommended by Licensor to improve Licensee's business
operations.
2. OBLIGATIONS OF LICENSOR
-----------------------
2.1 Office Layout and Equipment. Licensor will consult with Licensee regarding
the space requirements and the general layout and organization of an EMB Loan
Office. Licensee acquire from Licensor all required software and equipment, as
described in Schedule 1.
2.2 Confidential Operating Information. Licensor shall, from time to time,
loan to Licensee certain confidential operating materials to use during the term
of this Agreement. Licensor may, from time to time, revise the contents of
these materials to convey to License advancements and new developments in
sales, marketing and operational techniques and upgrades to the Electronic
Mortgage Master system as they may be relevant to the operation of the Licensed
Business.
Licensor will provide all materials, initially and in revision form, at no cost
to Licensee.
2.3 Training. Licensor will conduct comprehensive training programs in the
management and operation of the Licensed Business. The training program will be
offered at Licensor's business offices or other locations that Licensor may
select for the benefit of Licensee. The Licensee, or the designated loan officer
manager, is required to attend and successfully complete the training program to
the satisfaction of Licensor prior to the opening of the Licensed Business.
Licensee may have two (2) individuals attend the initial training program
without charge. The Licensee may, at its own cost, have additional individuals
attend the training program at the standard fee then
2
<PAGE>
charged by the Licensor. The Licensee shall be responsible for all travel, food,
lodging and other expenses incurred by Licensee and its employees in connection
with the attendance at the training program.
If the Licensee, or the loan office manager, fails to complete the training
program to the satisfaction of Licensor, then Licensor shall have the right to
terminate this License Agreement and all rights granted to Licensee granted
hereunder. Upon termination, under such circumstances, Licensor will retain
fifty percent (50%) of the initial license fee as compensation for services
rendered to the time of termination and shall promptly refund the balance of the
initial license fee to the Licensee.
2.4 Advisory Services. Licensor shall provide, as and to the extent required in
Licensor's judgment, a continuing advisory service which may include
consultation on promotional, marketing and advertising techniques and customer
relations.
2.5 Regional Meetings. Licensor may conduct regional meetings on a periodic
basis to discuss changes and developments in the EMB system, the Electronic
Mortgage Master system and other topics that are relevant to the operation of
the Licensed Business. Licensee, or its loan office manager, must attend all
scheduled regional meetings. There will be no registration fee or other charge
for the regional meetings, but Licensees will be responsible for all travel,
food, lodging and other expenses incurred in connection with attendance.
2.6 Regular National Meetings. Licensor will conduct annual, and/or semi-annual
national meetings for all EMB licensees. Licensees and their loan office
managers should attend all annual meetings. All expenses, including any
registration fees, travel, food, lodging and other expenses incurred in
connection with attendance, will be the responsibility of the Licensee.
2.7 Supplies. All supplies utilized by Licensee in the operation of the
Licensed Business will be acquired at Licensee's expense. Licensor may designate
an official vendor for printing supplies, including business cards, letterhead
and other printed materials utilizing the various EMB logos, names and corporate
style. With the exception of the official vendor of printing supplies, the
Licensee may use any vendor for supplies. Licensor may make some supply items
available for purchase by Licensee, which may include a markup or profit to
Licensor.
2.8 Inspection. In order to preserve the validity and integrity of the Marks,
logo, type style, color and design, to insure compliance with the VLT License
Rights, and to assure the Licensee is properly employing the EMB system in the
operation of the Licensed Business, Licensor and its agents shall, at all
reasonable times, have the rights of entry and inspection of Licensee's
premises, and shall have the right to observe the manner in which Licensee is
rendering its services and to confer with Licensee's employees, members and
business associates.
3. OBLIGATIONS OF LICENSEE.
-----------------------
3.1 Office Layout. Licensee shall equip, staff, and organize its EMB Loan
Office in accordance with the specifications that are standard in the EMB
license system.
3.2 Owner Participation. Licensee is not required to participate personally in
the day to day operation of the Licensed Business. If Licensee will not
participate personally in the operation of the Licensed Business, then Licensee
must designate a loan office manager who shall devote sufficient efforts to the
day to day operations to
3
<PAGE>
assure efficient operation of the Licensed Business. Licensee, or the loan
officer manager, must satisfactorily complete the training program conducted by
Licensor prior to the opening of the Licensed Business.
3.3 Employees. Licensee will hire and train all employees that are necessary
for the operation of the Licensed Business. Licensee, or the loan office
manager, must satisfactorily complete the training program conducted by Licensee
prior to the opening of the Licensed Business.
3.4 Opening of Business. Licensee shall commence business operations within
sixty (60) days after execution of this Agreement; provided, however, that if
Licensee is delayed in commencing business operations for causes beyond the
control of Licensee, then the time for performance by Licensee will be extended
for a period equivalent to the time of the delay.
3.5 Use of Name. Licensee shall conduct the Licensed Business only under the
EMB Marks, i.e., "EMB Mortgage", but shall never use the name "Electronic
Mortgage Banc" or any derivation thereof, and in strict compliance with the
confidential operating manual as provided to Licensee. If Licensee is a
partnership or corporation, Licensee shall not use "Electronic Mortgage Banc" or
any of the Marks as part of Licensee's partnership or corporate name. Licensor
reserves the right to approve or disapprove any fictitious business name,
partnership, joint venture or corporate name utilized by Licensee in the
operation of the Licensed Business or in the partnership or corporation name of
the Licensee itself
3.5.1 Proprietary Rights. Licensee acknowledges the exclusive right,
title and interest of Licensor in and to the Marks and will not, at any time,
take any action contesting or in any way impairing the right, title and interest
of Licensor. Licensee shall not, in any manner, represent that Licensee has any
ownership rights in the Marks, and acknowledges that its use thereof shall not
create in its favor any right, title or interest in or to the Marks, but that
all uses shall inure to the benefit of Licensor. Licensor shall affix trademark
notices and indications of registration when necessary or proper in accordance
with applicable laws, and shall add notices of any new trademarks or service
marks owned by Licensor as they issue from time to time during the term of this
Agreement.
Licensee agrees to execute and comply with all terms and conditions of a
Software Usage License Agreement, a copy of which is attached hereto as Exhibit
"A".
3.5.2 Display of Name. At all times during the term of this
Agreement, Licensee will use the Marks in all advertising, promotion, and
communications involving the Licensed Business, including, but not limited to,
yellow page listings, signs, banners, business cards, stationary (letterhead),
promotional and advertising materials, forms, contracts, and all other materials
which identity the Licensed Business. All use of the EMB name, and Marks by the
Licensee, shall clearly state that "SOME EMB LOAN OFFICES ARE INDEPENDENTLY
OWNED AND OPERATED".
3.5.3 Name Infringement. Licensee shall promptly notify Licensor of
any claim, demand or suit based upon, or arising with, any unauthorized use of
the EMB name or Marks or any colorable variation thereof. Licensor, at its sole
discretion, may elect to defend or prosecute, or to participate in the
defense or prosecution of, any action relating to the Marks. In the event that
Licensor undertakes the defense or prosecution of any litigation relating to the
Marks, Licensee shall execute any and all documents and do all acts which may be
necessary or of aid, at the determination of Licensor's legal counsel, to carry
out the litigation.
4
<PAGE>
3.6 Confidential Operating Information. In order to protect the reputation and
goodwill associated with the Marks, and to maintain the uniform standards of
quality and operations thereunder, Licensee shall conduct its Licensed Business
in strict compliance with any confidential operating information provided by
Licensor to Licensee. Licensee shall, within five (5) business days, utilize any
such information provided by Licensor and shall return to Licensor within said
time period all superseded material.
3.7 Loan Packages. Except as approved in Section 3.8, Licensee must submit all
completed loan applications to Licensor for loan processing. The parties
acknowledge that Licensor will derive income from such required loan application
submittals.
3.8 Approved Processing Center. If Licensor and Licensee mutually agree,
Licensee may operate its own loan processing center; provided that, Licensee
must execute a separate EMB Loan Processing Center Agreement.
Licensee acknowledges that certain wholesale lenders may not accept loan
packages that are submitted by Licensee's loan processing center.
3.9 Independent Advertising. Licensee acknowledges the value of advertising and
promotion to the furtherance of the goodwill and public image of its EMB Loan
Office and will maintain an aggressive independent advertising and public
relations program on its own behalf. Licensor will consult with and provide
advisory services to Licensee in order to maximize the advertising and public
relations efforts of Licensee.
Licensee will not use any advertising, sales or promotional materials of any
kind other than those with the prior written approval of Licensor, which
approval shall not be unreasonably withheld by Licensor. Approval shall be
obtained by Licensee submitting a copy of the proposed advertising to Licensor
for review and approval. If Licensor does not give Licensee written notice of
disapproval within fifteen (15) business days after receipt of the proposed ad
copy, then the ad copy shall be deemed to be approved.
3.10 Accounting Records and Reports. Licensee shall maintain full and complete
records of the Licensed Business in accordance with the guidelines provided by
Licensor. Licensee shall submit to Licensor such information and accounting
data as Licensor may request, including without limitation, income statements
showing operations for each calendar month and calendar year to date.
3.11 Maintenance and Repair. Licensee shall maintain the condition and
appearance of the Licensed Business in a manner consistent with the image of EMB
Loan Offices as attractive, clean, convenient and efficiently operated
businesses offering efficient and courteous service. Licensee will perform all
maintenance that is reasonably required from time to time to maintain the
condition, appearance and efficient operation of its EMB Loan Office including,
without limitation, replacement of worn-out or obsolete fixtures, equipment,
signs, supplies and inventory, repair of the interior and exterior of the
premises, and periodic cleaning and decorating. If, at any time, in the
Licensor's reasonable judgment the general state of repair, appearance or
cleanliness of the EMB Loan Office does not meet the Licensor's standards, the
Licensor will give the Licensee written notice specifying the action to be taken
by the Licensee to correct the deficiency, and the Licensee will initiate the
required action immediately upon receipt of the notice.
3.12 Confidentiality. Licensee acknowledges that, during the term of this
Agreement, Licensee will have access to, become acquainted with and have
disclosed to it by Licensor certain confidential information, programs,
5
<PAGE>
devices, methods, techniques and processes that are not generally known to the
public pertaining to the promotion, marketing, operation and management of a
real estate loan office, including, but not limited to, the information
contained in the confidential operating materials offered to Licensee and the
Electronic Mortgage Master software (collectively, the "Proprietary
Information"). Licensee covenants and agrees to take any and all steps necessary
to preserve and protect the Proprietary information from publication,
communication or other unauthorized disclosure. Licensee further covenants and
agrees that Licensee shall not disclose any of the Proprietary Information, use
it in any way, or assist any other person or entity to use it either during the
term of this Agreement or at any time thereafter. The confidential operating
materials given to Licensee shall, at all times, remain the sole property of
Licensor and shall promptly be returned to Licensor upon the expiration, non-
renewal, or other termination of this Agreement.
The parties acknowledge that upon violation of any of the covenants contained in
this Section 3.12, it will be difficult to determine the resulting damages to
Licensor and, in addition to any other remedies it may have, Licensor shall be
entitled to make application in a court of competent jurisdiction for temporary
and permanent injunctive relief without the necessity of proving actual damages.
3.13 Competition. During the term of this Agreement, Licensee shall not, either
directly or indirectly, on behalf of itself or on behalf of or in conjunction
with any other person, partnership or corporation, own, maintain, engage in,
participate or have any interest in the operation of any competing mortgage loan
business except other authorized EMB Loan Offices.
Each of the covenants of Licensee contained in this Section 3.13 is a separate
and independent covenant covering the subject matter of the covenant in each of
the separate counties and states in the United States in which Licensor
transacts business. To the extent that any covenant may be determined to be
judicially unenforceable in any one or more county or state, that covenant shall
not be affected with respect to any other county or state, each covenant being
severable and independent.
The parties acknowledge that upon violation of any of the covenants in this
Section 3.13 it will be difficult to determine the resulting damages to
Licensor and, in addition to any other remedies it may have, Licensor shall be
entitled to make application in a court of competent jurisdiction for temporary
and permanent injunctive relief without the necessity of proving actual damages.
3.14 Insurance. Licensee shall take out and maintain a policy or policies of
comprehensive liability insurance, including broad form contractual liability,
with a combined single limit for bodily injury, death, or property damage of not
less than $1,000,000 and such other policies with limits and types of coverage
as Licensor may reasonably require. All insurance policies shall be issued by
insurance companies of recognized responsibility, shall designate Licensor as an
additional named co-insured party, and shall be satisfactory to Licensor in
form, substance and coverage. Every insurance policy shall contain a provision
that the policy cannot be canceled without ten (10) days prior written notice to
Licensor.
Licensee shall maintain Workers Compensation insurance on all of its employees
as required by law.
Licensee shall deliver to Licensor a certificate of the issuing insurance
company evidencing each policy which is required under this Agreement. If
Licensee fails to obtain any insurance which is required under this Agreement,
Licensor may, but is not obligated to, obtain the required insurance at the sole
cost and expense of Licensee. All
6
<PAGE>
costs incurred by Licensor shall be reimbursed upon demand, together with
interest at four percent (4%) above the prime interest rate charged by Bank of
America NT&SA, unless otherwise limited by applicable law, from the date the
expense is incurred until date payment is received by Licensor.
3.15 Signs. Licensor shall maintain and display signs reflecting the current
image of an EMB Loan Office.
3.16 Taxes. Licensee shall promptly pay when due all taxes and assessments
against the premises or the equipment used in the Licensed Business, and all
liens or encumbrances of every kind or character created or placed upon or
against any of its property, and all accounts and other indebtedness of every
kind incurred by Licensee in the conduct of the Licensed Business.
3.17 Compliance with Law. Licensee shall comply with all federal, state, and
local laws and regulations pertaining to the operation of the Licensed Business
and shall timely obtain any and all permits, certificates or licenses necessary
for the full and proper conduct of its Licensed Business. Licensee shall pay
promptly, as due, all state, city and county licensing and permit fees and
charges in connection with the operation of the Licensed Business.
3.18 Business Expenses. Licensee shall maintain and pay its own costs of doing
business, including rent, telephone, utilities, insurance and other fixed and
variable expense.
3.19 Success of Business. Licensee acknowledges that the success of the business
venture contemplated by this Agreement depends primarily upon the ability of
Licensee as an independent businessman. Licensee acknowledges that neither
Licensor nor any other person has guaranteed or warranted that Licensee will
succeed in the operation of the Licensed Business or has provided any sales or
income projections of any kind to Licensee.
Licensee further acknowledges that there have been no representations, promises,
guarantees or warranties of any kind made by Licensor or any of its agents or
employees to induce Licensee to execute this Agreement.
3.20 Indemnity. Licensee shall indemnify and hold Licensor free and harmless
from and against any and all cost (including reasonable attorneys' fees),
liability, expense, claim, demand, action, or cause of action, which may be
incurred by or threatened against Licensor, and arising out of (a) the operation
of the Licensed Business, or (b) any transaction entered into between Licensee
and any third party, or (c) Licensee's improper use of the Marks or unauthorized
use of the Electronic Mortgage Master system as provided for in the VLT License
Rights and incorporated in the Software Usage License Agreement.
4. FEES.
-----
4.1 Initial Fee. Licensee shall pay to Licensor, solely for the cost of
acquisition of licensing rights to the Electronic Mortgage Master system and not
as a fee for the right to do business, the sum of One Thousand Two Hundred Fifty
Dollars ($1,250). This fee shall represent the cost of one (l) copy of the
Electronic Mortgage Master system. Each additional copy utilized by the Licensee
at its EMB Loan Office, or on portable computers shall be acquired by Licensee
at a cost of Fifty Dollars ($50) per copy.
7
<PAGE>
To adequately compensate Licensor for the cost of record keeping, if Licensee
maintains additional free standing offices with separate loan services, Licensee
shall pay to Licensor an additional initial license fee of Five Hundred Dollars
($500) per office.
The initial license fee is not refundable, in whole or in part, except as
provided in Section 2.3 of this Agreement.
4.2 Continuing Fee. Licensee shall pay to Licensor each month, as and for a
continuing license fee, an amount as determined in accordance with the formula
set forth in Exhibit "B" hereto which by this reference is incorporated as
though set forth in full herein.
If any commission check or other compensation for services rendered by Licensee
in the operation of the Licensed Business is paid directly to Licensor, the
Licensor may deduct the continuing license fee from the payment received and
remit to Licensee the net balance of the payment within five (5) days after
receipt.
The continuing license fee, if not otherwise received by Licensor, is due and
payable in full on the tenth (10th) day of each month for transactions concluded
during the prior month. Payments of the continuing license fee are not
refundable.
4.3 Transfer Fee. Upon any transfer or assignment of this license, Licensee
shall pay to Licensor a transfer fee in an amount equal to ten percent (10%) of
the then current initial license fee if this license is transferred to an
existing EMB licensee, or thirty percent (30%) of the then current initial
license fee if the license is transferred to a new EMB licensee.
4.4 Renewal Fee. Licensee must pay a renewal fee to continue the licensing
rights of the Electronic Mortgage Master system, the EMB system, the Marks and
the sub-license rights under the VLT License Rights in an amount equal to ten
percent (10%) of the then current initial license fee upon renewal of the
license.
4.5 Late Payment. Licensee acknowledges that the actual damages which would
result from any breach by Licensee of its obligation to make timely payment to
Licensor are uncertain and would be extremely difficult to ascertain. Therefore,
Licensee agrees that if any payment to Licensor is not received within ten (10)
calendar days after its due date, then Licensee shall pay to Licensor as
liquidated and agreed damages an amount equal to five percent (5%) of the past
due payment. Licensor further agrees that any payment that is not received
within ten (10) calendar days after its due date shall bear interest at four
percent (4%) above the prime interest rate established by Bank of America NT&SA,
unless otherwise limited by applicable law, from the date payment was due to the
date payment is received by Licensor.
5. TRANSFERABILITY.
---------------
5.1 Transfer Restriction. Licensee shall not sell, assign, transfer, or convey
any interest in this Agreement or in the Licensed Business without the prior
written consent of Licensor, which consent will not be unreasonably withheld.
Any purported assignment not having the prior written consent of Licensor shall
be null and void and shall constitute a material default under this Agreement.
If the Licensee is a corporation (the "Corporation"), then any issuance,
redemption, or transfer of the equity or voting securities of the Corporation in
one transaction or in a series of transactions which, in the aggregate, results
8
<PAGE>
in either (i) more than a twenty-five (25%) change in the beneficial ownership
of Corporation or (ii) a change in the voting control of the Corporation shall
be deemed to be a transfer which requires the consent of Licensor. The bylaws of
the Corporation and all share certificates evidencing ownership of this
Corporation shall contain the following provision:
"The transfer of stock in this Corporation is
subject to the restrictive provisions of a
License Agreement with Electronic Mortgage
Banc, Ltd. Reference is made to the
License Agreement for all particulars."
If the Licensee is a general or limited partnership (the "Partnership"), then
the admission of a new partner, or the redemption, purchase, liquidation, or
transfer of a Partnership interest, or any disposition of the assets of the
Partnership, in one transaction or in a series of transactions which, in the
aggregate, results in either (i) more than a twenty-five percent (25%) change in
the voting control of the Partnership or (ii) a change in the actual voting
control of the Partnership shall be deemed to be a transfer which requires the
consent of the Licensor. The Partnership Agreement shall contain the following
provision:
"The transfer of a legal or beneficial interest
in the partnership is subject to the restrictive
provisions of a License Agreement with Electronic
Mortgage Banc, Ltd. Reference is made to the
License Agreement for all particulars."
The following requirements must be met to the full satisfaction of Licensor as a
condition to any transfer:
(a) The proposed transferee or its principals must meet the Licensor's
reasonable requirements for experience, net worth, and character, as applied by
Licensor on a non-discriminatory basis in selecting new licensees, and must have
or obtain before transfer all licenses required by law for the operation of the
Licensed Business.
(b) The proposed transferee, or its designee, must have attended and
satisfactorily completed Licensor's initial training program.
(c) The proposed transferee (and each partner or shareholder) must have
duly executed an agreement to be bound by, and to assume and perform all the
duties of the Licensee under the License Agreement.
(d) All maintenance, repairs, and renovation required to bring the
Licensee's premises into compliance with Licensor's standards must have been
completed.
(e) The transferor and each of its partners, shareholders, officers and
directors shall have executed a general release of any and all claims against
Licensor, its shareholders, officers, directors, employees and agents.
9
<PAGE>
(f) If the transfer results in more than a fifty percent (50%) change in
the beneficial ownership of the Licensee, then the transferee must execute the
then current form of License Agreement, except that the initial term shall be
the same as the remaining term of the original License Agreement.
(g) The transfer fee specified in Section 4.3 must have been paid in full.
No sale, assignment, transfer, conveyance, encumbrance or gift of any interest
in this License Agreement, or in the license granted hereby, shall relieve
Licensee, or the shareholders or partners participating in the transfer, of the
confidentiality or non-competition provisions of this License Agreement.
5.2 Death or Disability. Upon the death or permanent disability of the
Licensee, if the Licensee is an individual, or upon the death or disability of
the majority shareholder or partner of Licensee if the Licensee is a corporation
or a partnership, the spouse, adult children, or estate shall have the right to
participate in the ownership of the Licensed Business under the terms of this
Agreement for a period of six (6) months from the date of death or disability.
During that time, the spouse, adult children, or estate must either:
(a) Satisfy all of the qualifications for a transferee or purchaser of an
EMB License, except that no transfer fee or initial licensing fee shall be
charged; or
(b) Sell, transfer, or assign the license to a person who satisfies all of
the qualifications for a transferee or purchaser of an EMB Licensee.
5.3 Right of First Refusal. If at any time during the term of this Agreement,
Licensee receives a bona fide offer to purchase the license, which offer
Licensee is willing to accept, Licensee shall give Licensor written notice of
the terms of the offer and the name of the offerer. Licensor may elect to
purchase the license on the same terms as contained in the offer within ten (10)
business days after Licensor's receipt of the offer. If Licensor fails to give
written notice of election within the ten (10) business days, Licensee may sell
to the offerer on the terms offered, subject to the provisions relating to
transferability as set forth in this Article 5. In the event Licensor elects to
purchase, the purchase must be completed within one hundred twenty (120)
calendar days from the date of Licensor's notice of election to purchase.
6. TERMINATION AND DEFAULTS.
------------------------
6.1 Termination by Licensor. Licensor may terminate this License Agreement if
the Licensee fails to cure any default under the License Agreement within ten
(10) business days after Licensor has served a notice of default on Licensee (or
within such longer time which Licensor may determine is reasonably necessary to
cure the default under the circumstances).
Licensor may terminate the License Agreement immediately, without opportunity to
cure, if:
(a) The Licensee or the Licensed Business is declared bankrupt or
judicially determined to be insolvent; or
(b) All or a substantial part of the assets of the Licensee or the Licensed
Business are assigned to or for the benefit of any creditor; or
10
<PAGE>
(c) The Licensee admits its inability to pay its debts as they come due; or
(d) The Licensee abandons the license by failing to operate the Licensed
Business for fifteen (15) consecutive calendar days during which the Licensee is
required to operate a business under the terms of the License, or any shorter
period after which it is not unreasonable under the circumstances and facts for
Licensor to conclude that the Licensee does not intend to continue to operate
the License, unless such failure to operate is due to fire, flood, earthquake or
other similar caused beyond the Licensee's control; or
(e) Licensor and Licensee mutually agree in writing to terminate the
License; or
(f) The Licensee makes any material misrepresentation to Licensor relating
to the acquisition of the Licensed Business; or
(g) The Licensee repeatedly engages in conduct which reflects materially
and unfavorably upon the operation and reputation of the Licensed Business or
the EMB license system; or
(h) The Licensee fails, for a period of thirty (30) calendar days after
notification of noncompliance, to comply with any federal, state or local law or
regulation applicable to the operation of the Licensed Business; or
(i) The Licensee, after curing any default after notice and opportunity to
cure, engages in the same noncompliance whether or not corrected after the
notice; or
(j) The Licensee repeatedly fails to comply with one or more requirements
of the license, whether or not corrected after notice; or
(k) The Licensed Business is seized, taken over or foreclosed by a
government official in the exercise of his duties, or seized, taken over or
foreclosed by a creditor, lienholder or lessor, provided that a final judgment
against the Licensee remains unsatisfied for thirty (30) calendar days (unless a
supersedeas or other appeal bond has been filed); or
(l) A levy of execution has been made upon the license granted by this
License Agreement or upon any property used in the Licensed Business, and it is
not discharged within five (5) business days; or
(m) The Licensee is convicted of, or pleads nolo contendre to, a felony or
any other criminal misconduct which is relevant to the operation of the Licensed
Business; or
(n) The Licensee fails to pay any License Fees or other amounts due to
Licensor or any affiliate within fifteen (15) business days after receiving
written notice that the fees are overdue; or
(o) The Licensee's real estate broker license, or any other license
required by the appropriate government jurisdiction to own and/or operate the
Licensed Business, is restricted, suspended or revoked.
(p) The Licensee fails to comply with and terms and conditions of the
Software Usage License Agreement to which Licensor and Licensee are parties.
11
<PAGE>
6.2 Rights and Duties of Parties Upon Expiration or Termination. Upon
termination or expiration of the license for any reason, all rights of the
Licensee under the License Agreement shall immediately terminate, but Licensee
shall have the following duties which survive termination of the License
Agreement:
(a) Licensee shall promptly pay Licensor all sums owing under the terms of
this Agreement, including all damages, costs, expenses, and reasonable
attorneys' fees, incurred by Licensor by reason of default on the part of
Licensee, whether or not the expenses occur before or after the termination or
expiration of the License.
(b) Licensee shall immediately cease use of the Marks, advertising, forms,
manuals, slogans, signs or in any other manner whatsoever. Licensee shall not
represent or advertise that Licensee was formerly an EMB licensee, or that
License did business under the Marks.
(c) Licensee shall immediately cease use of the Electronic Mortgage Master
software and immediately return to Licensor all copies of the Electronic
Mortgage Master software or, with the prior written consent of Licensor, provide
Licensor with a certificate of destruction of all copies.
(d) Licensee shall ensure at its own expense that all mention of the Marks
in connection with Licensee is removed at the earliest possible date from all
telephone and other directories, directory assistance records, building
directories, signboards, membership rosters and every other place and
publication;
(e) Licensee shall take all action to cancel any assumed name or equivalent
registration which contains any of the Marks, and shall furnish Licensor with
satisfactory evidence of cancellation.
(f) Licensee shall cease and desist from all use of the Marks, and shall
deliver to Licensor, or its duly authorized representative, all materials and
papers upon which the Marks appear. Licensee will not, at any time, adopt or sue
any work or make which is similar to of confusing with the Marks.
(g) Licensee shall assign to Licensor all of Licensee's right, title and
interest in and to the Licensed Business, and shall execute all documents and
instruments and give all instructions necessary to effect the transfer thereof
to Licensor. Licensee hereby grants to Licensor a limited, irrevocable power of
attorney to execute all required documents in the name and behalf of Licensee
for use only pursuant to this Article 6.
(h) Licensee shall turn over to Licensor all confidential operating
materials provided to it by Licensor and all documents and records that are
reasonably necessary or important to the continuation of the Licensed Business,
including all client and customer lists, lender lists, and pertinent legal
documents.
6.3 Arbitration. Any controversy or claim arising out of or relating to this
Agreement other than a claim for injunctive relief, shall be settled by binding
arbitration in accordance with the rules for commercial arbitration of the
American Arbitration Association, and judgment upon the award may be entered in
any court having jurisdiction thereof. The arbitration shall be conducted
through the American Arbitration office closest geographically to Licensor's
corporate offices and shall be conducted by a single arbitrator selected in
accordance with the rules and regulations applicable to commercial matters. All
provisions of the California Code of Civil Procedure relating to discovery in
civil lawsuits shall be applicable in the arbitration proceedings. If there are
any disputes in matters of public policy, restraint of trade, securities laws
violation or any other matter which cannot be the subject of arbitration, those
matters shall be separated from all other disputes, which other disputes shall
first
12
<PAGE>
be settled by arbitration. After arbitration, any disputes which cannot be tried
by arbitration, shall be brought before a court of competent jurisdiction.
Should the parties be unable to separate matters which shall be tried by
arbitration from those which cannot be tried by arbitration, the allegations and
positions of the parties shall be brought before the arbitrator and his decision
regarding the appropriateness for arbitration of the matters in controversy
shall be determinative and binding on the parties. Unless otherwise determined
by the arbitrator, the fees and expenses of arbitration, not including
attorneys' fees, shall be shared equally by the parties.
7. MISCELLANEOUS.
-------------
7.1 Governing Law. This Agreement is made in the State of California and all
rights hereunder shall be governed by and interpreted under the laws of the
State of California.
7.2 Waiver. Waiver of any default or breach of this Agreement shall not be
interpreted as a waiver of any subsequent breach or default.
7.3 Notices and Communications. All notices or communications shall be directed
to Licensor by United States mail, postage prepaid, return receipt requested, at
the following address:
Electronic Mortgage Banc, Ltd.
575 Anton Boulevard, Suite 200
Costa Mesa, CA 92626
Notices and communications shall be directed to Licensee by United States mail,
postage prepaid, and addressed to the address of the Licensed Business as set
forth in this Agreement. If Licensee is other than an individual, Licensee
shall designate in writing to Licensor the name and address of its agent to
receive notice. Notice to the agent shall be conclusively presumed to be full
and adequate notice to Licensee.
7.4 Attorneys' Fees. If any legal action is necessary to enforce the terms and
conditions of this Agreement, the prevailing party shall be entitled to recover
reasonable compensation for preparation, investigation and court costs and
reasonable attorneys' fees, as fixed by a court of competent jurisdiction.
7.5 Amendment. This Agreement may be amended, modified or discharged, in whole
or in part, only by a document in writing subscribed by all of the parties
subscribing to this license.
7.6 Remedies Cumulative. The parties shall be entitled to any and all remedies
at law or in equity, in addition to any remedies set forth in this Agreement.
7.7 Other EMB Loan Offices. The parties hereby acknowledge and agree that
Licensor contemplates granting other licenses similar to the license granted
herein. In addition, Licensor may, in some instances, open branch offices which
are owned and operated by Licensor or its affiliates. The parties hereby
acknowledge that there are no restrictions contemplated being placed upon the
closeness in vicinity between one EMB Loan Office and another EMB Loan Office.
7.8 Successors and Assigns. This license shall inure to the benefit of, and be
binding upon, the parties hereto and their heirs, successors, representatives,
assigns and transferees to the extent this Agreement may be assigned.
13
<PAGE>
7.9 Relationship of the Parties. Licensee is, in its relationship with
Licensor, an independent contractor. This License shall not make any of the
parties hereto partners or joint venturers one with the other, or make them
agents, servants or employees of the other. Licensee shall advise its suppliers
of its independent ownership of the Licensed Business.
7.10 Entire Agreement. This Agreement, together with its Exhibits, contains the
entire agreement of the parties relating to the license granted hereby, and the
use by Licensee of the Marks and the Electronic Mortgage Master system pursuant
to the VLT License Rights.
7.11 Severability. If any term or provision of this Agreement is held invalid or
unenforceable by a court of competent jurisdiction, then the remainder of this
Agreement shall continue in full force and effect.
7.12 Other Parties. If Licensee is other than an individual, then all persons
who have any beneficial interest in Licensee or this License by way of
partnership, joint venture, association, incorporation, or otherwise, shall be
parties to this license and shall execute this License Agreement and shall
jointly and severally be bound by all terms and provisions hereof
7.13 Additional Representations. Licensee makes the following additional
warranties and representations:
(a) Licensee is a (check one)
________ partnership
________ corporation
________ sole proprietorship
(b) If Licensee is a corporation or partnership, there is set forth
below the name and address of each shareholder or partner in Licensee:
NO. OF
NAME ADDRESS SHARES PERCENTAGE
- - ---- ------- ------ ----------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
14
<PAGE>
- - ---------------------------------------------------------------------------
(c) The address where Licensee's records are maintained is:
notice is:
- - ---------------------------------------------------------------------------
(d) The name and address of Licensee's designated agent to receive
notice is:
- - ---------------------------------------------------------------------------
Licensor shall not substitute a new designated agent without prior written
notice to Licensor.
(e) The name and address of Licensee's manager is:
- - ----------------------------------------------------------------------------
7.14 Counterparts. This license may be executed in counterparts, all of which
together shall constitute this license.
IN WITNESS WHEREOF, the undersigned have executed this License Agreement on the
day of , 19 .
- - ---------- ----------------- ---
LICENSEE: LICENSOR:
BY: BY:
-------------------- --------------------
BY:
--------------------
OTHER PARTIES:
- - -----------------------
- - -----------------------
- - -----------------------
THIS AGREEMENT IS NOT EFFECTIVE UNTIL SIGNED BY AN AUTHORIZED CORPORATE OFFICER
OF LICENSOR. NO FIELD REPRESENTATIVE OR AGENT IS AUTHORIZED TO EXECUTE THIS
AGREEMENT ON BEHALF OF LICENSOR. THE LICENSEE IS ADVISED NOT TO INCUR ANY
EXPENSE OR OBLIGATION WITH RESPECT TO THE FULLY PROPOSED LICENSED BUSINESS UNTIL
LICENSEE HAS RECEIVED A FULLY EXECUTED COPY OF THIS AGREEMENT FROM LICENSOR.
15
<PAGE>
SCHEDULE 1
----------
EQUIPMENT LIST
Pentium Computer
SVGA Color Monitor
Intel Proshare Personal Conferencing Video System
NTI & Power Supply
Speakers
Laser Printer
<PAGE>
EXHIBIT 'A'
-----------
SOFTWARE USAGE LICENSE AGREEMENT
THIS SOFTWARE USAGE LICENSE AGREEMENT (the "Software Agreement") is made by and
between ELECTRONIC MORTGAGE BANC, LTD., a California corporation ("Licensor")
and
---------------------------------------------------------------------------
("Licensee").
A. Licensor and Licensee have, contemporaneously herewith, entered into
that certain License Agreement whereby Licensor has granted certain rights to
Licensee to operate a real estate loan brokerage business (the "EMB Loan
Office").
B. Licensor has rights (the "VLT License Rights") to the computerized
loan origination software package (the "Licensed Programs") developed by Virtual
Lending Technologies ("VLT").
C. Pursuant to the License Agreement, and in accordance with the VLT
License Rights, Licensor grants to Licensee certain sub-license rights to the
Licensed Programs.
D. This Software Agreement defines the obligations of Licensor and
Licensee in connection with the Sub-license and is to be interpreted in
conjunction with the License Agreement.
1. EFFECTIVE DATE AND TERM.
-----------------------
This Software Agreement shall be effective and binding for an initial term of
five (5) years commencing on the date of its execution by Licensor, unless
sooner terminated as provided herein. This Software Agreement may be renewed in
conjunction with and on the same terms and conditions as the License Agreement.
2. GRANT OF LICENSE.
----------------
Subject to compliance by Licensee with the terms hereof, Licensor grants to
Licensee, unless terminated as provided for herein, a nonexclusive,
nontransferable (except in accordance with the terms of the License Agreement),
and limited license to install and use one copy of the executable code version
of the Licensed Programs on a single primary computer (unless the parties agree
to usage on multiple computer terminals pursuant to the terms of the License
Agreement) to support its primary internal business function. No right to use,
print, copy disclose, distribute, display, sublicense, or otherwise convey the
Licensed Programs or associated documentation or provide a service bureau
function or similar service, in whole or in part, is granted hereby except as
expressly provided in this Agreement (and in the accompanying License
Agreement).
3. TITLE.
-----
Licensor retains title and full ownership rights to the Licensed Programs and
any and all alterations thereto by whomever made.
4. WARRANTY.
--------
4.1 Coverage. Licensor warrants that, for a period of ninety (90) from the
date of shipment of Licensed Programs, all Licensed Programs will conform
materially to the design specifications of the Licensed Programs, if properly
used in accordance with the operating instructions provided to Licensee.
Licensor does not warrant that the Licensed Programs will meet the Licensee's
requirements or will operate in the combinations which may be selected for use
by Licensee, or that the operation of the Licensed Programs will be
uninterrupted or error free or that all program errors will be corrected. If
Licensee discovers a material error in the Licensed Programs and provided a
solution is commercially practicable, Licensor, in the
<PAGE>
sole discretion of Licensor and VLT, will provide Licensee with an error
correction. This product warrant will not apply if (a) the Licensed Programs
have not been used in accordance with the intended use of the Licensed Programs;
(b) the latest, unmodified version of the Licensed Programs made available to
Licensee by Licensor has not been used; (c) Licensee's equipment has
malfunctioned; or (d) unauthorized alterations have been made to the Licensed
Programs.
4.2 Warranty Limits. The Licensed Programs furnished by Licensor under terms of
this Software Agreement shall be warranted for material and workmanship solely
under the terms of the unexpired warranty, if any, which was granted to Licensor
by VLT and any other supplier(s). Except as provided above, Licensor makes no
warranties, express or implied, including but not limited to any implied
warranties of title or against infringements, of merchantability or fitness for
a particular purpose. Further, notwithstanding anything herein to the contrary,
Licensor shall not be liable to Licensee under any circumstances for
consequential, incidental or indirect damages (including, without limitation,
lost profits), even if Licensor has been apprised of the likelihood of such
damages occurring. In no event shall Licensor's liability (whether based on an
action or claim in contract, tort or otherwise) to Licensee arising out of or
related to the license hereunder exceed the "initial license fees" payable
pursuant to the License Agreement, less the reasonable value of use, calculated
based on a useful life of thirty-six (36) months.
5. PROPRIETARY INFORMATION.
-----------------------
It is agreed by the parties that the Licensed Programs and any and all
associated documentation are confidential proprietary information belonging to
Licensor, whether or not any portion thereof is, or may be, validly copyrighted
or patented by Licensor or is owned or copyrights or patented by VLT or others.
Licensee and its agents, employees and representatives shall insure that the
Licensed Programs and associated documentation are kept confidential, and shall
not attempt to disassemble or reverse engineer the object code version of the
Licensed Programs to derive the source code version. Licensee shall not disclose
or distribute by any means, in whole or in part, any of the Licensed Programs or
associated documentation provided by Licensor under this Software Agreement. The
Section shall survive any termination of this Software Agreement or any
determination that this Software Agreement or any part hereof is void or
voidable.
6. LIMITATION OF LIABILITY.
-----------------------
Licensor shall not be liable for, and Licensee agrees and shall indemnify
Licensor against and hold Licensor harmless from any claims, loss, liability,
damage (whether direct, indirect, incidental, consequential, or other) or
expense (including reasonable attorneys' fees) of any nature whatsoever
resulting from any claim, demand, or litigation brought against Licensor arising
from services performed and/or products supplied including systems, programs,
equipment and documents.
7. TAXES.
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All taxes and charges of any kind imposed by any federal, state, or local
government with respect to the products, services or other items covered by this
Software Agreement, or the sale or use thereof or measured by the gross receipts
applicable to this Agreement, shall be paid by Licensee. Any such taxes paid by
Licensor shall be reimbursed by Licensee upon invoice from Licensor. If Licensee
claims an exemption, proof satisfactory to Licensor shall be provided.
8. TERMINATION.
-----------
The conditions for termination as set forth in the License Agreement are by this
reference hereby incorporated as set forth in full herein and shall be terms and
conditions under which Licensor may elect to terminate this Software Agreement.
Additionally, the Licensor may elect to terminate this Software Agreement, if
Licensee (a) attempts to reverse engineer, sell, sublicense, provide a service
bureau function or similar service, distribute, transfer or disclose all or any
part of the Licensed Programs or associated
2
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documentation or (b) used the Licensed Programs or associated documentation in a
manner outside the scope of this license or in violation of the obligations of
confidentiality as set forth above. Termination of this Software Agreement
pursuant to this Section will terminated this Software Agreement immediately,
without prior notice to Licensee. Within seven (7) days of termination of this
Software Agreement, Licensee will return Licensed Programs and associated
documentation to Licensor or Licensor's agents or, at Licensor's option,
Licensee will provide a certification of destruction of said materials.
9. MISCELLANEOUS.
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9.1 Assignment. Licensor's rights, obligations, and duties under this Software
Agreement are assignable or delegable. Licensee's rights, obligations, and
duties under this Software Agreement are assignable only as provided for in the
License Agreement and also provided that Licensee retains no copies of the
Licensed Programs or the associated documentation. Nothing contained in this
Software Agreement, expressed or implied, is intended to confer upon any person
or entity other than the parties hereto and their successors in interest and
permitted assigns, any rights or remedies under or by reason of this Software
Agreement unless so stated to the contrary.
9.2 Successors. This Agreement shall inure to the benefit of and be binding on
the heirs, legal representatives, successors, and permitted assigns of the
parties.
9.3 Governing Law. This Software Agreement shall be governed by and construed
according to the laws of the State of California.
9.4 Survival of Certain Provisions. The restrictions and obligations on
Licensee contained elsewhere in this Software Agreement shall survive any
termination of this Software Agreement.
9.5 Entirety of Agreement. This Software Agreement together with the License
Agreement constitute the entire understanding and agreement between the parties
with respect to the subject matter hereof and supercedes any and all prior oral
or written communications with respect hereto. Except as specifically provided
for herein, this Software Agreement may not be altered, amended, or modified
except by an instrument in writing signed by a duly authorized representative of
each party.
IN WITNESS WHEREOF, the undersigned have executed this Software Agreement on the
day of , 19 .
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LICENSEE: LICENSOR:
BY: BY:
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EXHIBIT "B"
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Licensee shall pay to Licensor each month, as and for a continuing license fee,
an amount equal to the commission split percentage as stated in the commission
schedule outlined below. The commission split percentage is calculated from the
Licensee's gross receipts from real estate loan services related to the
operation of the EMB loan office.
For the purposes of this Agreement, the term "gross receipts" shall mean the
amount of all money and the value of all property received by the Licensee for
goods sold and services rendered in connection with the Licensed Business,
including all loan fees, origination fees, wholesale lender rebates, and
commission income generated from the EMB System. This fee shall be in addition
to any fees earned Licensor for loan processing, funding, documentation,
computer services or administration which may be charged to the Borrower and
paid for by the Borrower or by Licensee.
Commission Schedule:
Loan production volume is based upon the numbers of loan fundings per calendar
month.
One to Five (1-5) funded loans per month: 30% Licensee / 70% Licensor.
Six to Ten (6-10) funded loans per month: 40% Licensee / 60% Licensor.
Eleven or more funded loans per month: 50% Licensee / 50% Licensor.
Initials: /
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EXHIBIT 16
GEORGE F. ROMBACH
CERTIFIED PUBLIC ACCOUNTANT
2009 Centella Place
Newport Beach, California 92660
Telecopier (714) 645-1517
(714) 645-6613
June 25, 1996
To whom it may concern:
The undersigned, George F. Rombach, a certified public accountant duly
licensed to practice in the State of California, was the independent
certified public accountant for Pacific International, Inc., presently
called EMB Corporation (the "Company"), for its fiscal year ended
September 30, 1994, and the seven years then ended.
The Company has changed its independent public accountant for its fiscal
year ended September 30, 1995. Please be advised that such change did not
occur as a consequence of any disagreement regarding accounting matters or
principles. I did not resign or decline to stand for re-election as the
independent public accountant for the Company, nor was I dismissed by the
Company, for any such reason.
Very truly yours,
George F. Rombach, PhD, CPA.
<PAGE>
EXHIBIT 21
Electronic Mortgage Banc, Ltd. ("EMB") is the only subsidiary of the
Registrant.
EMB is a California corporation that is owned 100% by the Registrant. EMB
utilizes the tradename "EMB Funding" in its mortgage lending business.
